<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2000
1933 ACT REGISTRATION NO. 333-42507
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5
TO
REGISTRATION STATEMENT
ON
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM
VARIABLE LIFE ACCOUNT M
(EXACT NAME OF REGISTRANT)
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
(NAME OF DEPOSITOR)
120 Madison Street, Suite 1700, Syracuse, NY 13202
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
Depositor's Telephone Number, including Area Code
(888) 223-1860
<TABLE>
<S> <C>
Robert O. Sheppard, Esquire COPY TO:
Lincoln Life & Annuity Company of New York Jeremy Sachs, Esquire
120 Madison Street, Suite 1700 The Lincoln National Life Insurance
Syracuse NY 13202 Company
(NAME AND ADDRESS OF AGENT FOR SERVICE) 350 Church Street
Hartford, CT 06103
</TABLE>
Approximate date of proposed public offering: Continuous.
INDEFINITE NUMBER OF UNITS OF INTEREST IN VARIABLE LIFE INSURANCE CONTRACTS
(TITLE OF SECURITIES BEING REGISTERED)
An indefinite amount of the securities being offered by the Registration
Statement has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. The Form 24f-2 for Registrant, for the fiscal year ending
December 31, 1999 was filed March 24, 2000.
It is proposed that this filing will become effective:
/ / immediately on filing pursuant to Rule 485(b)
/X/ on May 1, 2000, pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)
<PAGE>
CROSS REFERENCE SHEET
(RECONCILIATION AND TIE)
REQUIRED BY INSTRUCTION 4 TO FORM S-6
<TABLE>
<CAPTION>
ITEM OF FORM N-8B-2 LOCATION IN PROSPECTUS
- ------------------- ----------------------
<S> <C>
1 Cover Page; Highlights
2 Cover Page
3 *
4 Distribution of Policies
5 LLANY, the Separate Account and the General
Account
6(a) LLANY, the Separate Account and the General
Account
6(b) *
9 Legal Proceedings
10(a)-(c) Right-to-Examine Period; Surrenders; Accumulation
Value; Reports to Owners
10(d) Right to Exchange the Policy; Policy Loans;
Surrender of the Policy; Allocation of Net
Premium Payments
10(e) Lapse and Reinstatement
10(f) Voting Rights
10(g)-(h) Substitution of Securities
10(i) Premium Payments; Transfers; Death Benefit;
Policy Values; Settlement Options
11 The Funds
12 The Funds
13 Charges; Fees
14 The Policy
15 Premium Payments; Transfers
16 LLANY, the Separate Account and the General
Account
17 Surrender of the Policy
18 LLANY, the Separate Account and the General
Account
19 Reports to Policy Owners
20 *
21 Policy Loans
22 *
23 LLANY, the Separate Account and the General
Account
24 Incontestability; Suicide; Misstatement of Age or
Gender
25 LLANY, the Separate Account and the General
Account
26 Fund Participation Agreements
27 LLANY, the Separate Account and the General
Account
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM OF FORM N-8B-2 LOCATION IN PROSPECTUS
- ------------------- ----------------------
<S> <C>
28 Directors and Officers of LLANY
29 LLANY, the Separate Account and the General
Account
30 *
31 *
32 *
33 *
34 *
35 *
37 *
38 Distribution of Policies
39 Distribution of Policies
40 *
41(a) Distribution of Policies
42 *
43 *
44 The Funds; Premium Payments
45 *
46 Surrender of the Policy
47 LLANY, the Separate Account and the General
Account; Surrender of the Policy, Transfers
48 *
49 *
50 LLANY, the Separate Account and the General
Account
51 Cover Page; Highlights; Premium Payments; Right
to Exchange the Policy
52 Substitution of Securities
53 Tax Matters
54 *
55 *
</TABLE>
* Not Applicable
<PAGE>
PROSPECTUS 1
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE
ACCOUNT M
<TABLE>
<S> <C>
HOME OFFICE LOCATION: ADMINISTRATIVE OFFICE:
120 MADISON STREET PERSONAL SERVICE CENTER - MVLI
SUITE 1700 350 CHURCH STREET
SYRACUSE, NY 13202 HARTFORD, CT 06103-1106
(888) 223-1860 (800) 444-2363
</TABLE>
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A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable life insurance
contract (the "Policy"), offered by Lincoln Life & Annuity Company of New York
("LLANY", "we", "our" or "us").
The Policy features 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.
<TABLE>
<S> <C>
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 Templeton International Securities Fund --
Small Cap Value Series Class 1
Trend Series (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
</TABLE>
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights............................ 3
Initial Choices to be Made.......... 3
Level or Varying Death Benefit...... 3
Amount of Premium Payment........... 4
Selection of Funding Vehicles....... 4
Charges and Fees.................... 5
Changes in Specified Amount......... 5
LLANY, the Separate Account and
The General Account.................. 6
Buying Variable Life Insurance........ 7
Replacements........................ 8
The Funds............................. 8
Substitution of Securities.......... 12
Voting Rights....................... 12
Fund Participation Agreements....... 13
Death Benefit......................... 13
Death Benefit Options............. 13
Changes in Death Benefit Option... 13
Guaranteed Death Benefit
Provision........................ 14
Payment of Death Benefit.......... 14
Changes in Specified Amount....... 14
Premium Payments; Transfers........... 15
Premium Payments.................. 15
Allocation of Net Premium
Payments......................... 16
Transfers......................... 17
Optional Sub-Account Allocation
Programs......................... 17
Dollar Cost Averaging........... 17
Automatic Rebalancing........... 18
Charges; Fees......................... 18
Premium Load...................... 18
Monthly Deductions................ 18
Transaction Fee for Excess
Transfers........................ 19
Mortality and Expense Risk Charge
and Fund Expenses................ 20
Surrender Charge.................. 22
Reduction of Charges--
Purchases on a Case Basis........ 22
Policy Values......................... 23
Accumulation Value................ 23
Variable Accumulation Unit
Value............................ 23
Surrender Value................... 24
Surrenders............................ 24
Partial Surrenders................ 24
Full Surrenders................... 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
</TABLE>
<TABLE>
Policy Loans.......................... 26
Settlement Options.................... 27
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
2
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features. Your
Policy is a flexible premium variable life insurance policy
under which flexible premium payments are permitted and the
Death Benefit and Policy values may vary with the investment
performance of the funding option(s) selected. Its value may
change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
Review your personal financial objectives and discuss them
with a qualified financial counselor before you buy a
variable life insurance policy. This Policy may, or may not,
be appropriate for your individual financial goals. 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.
3
<PAGE>
If you choose the varying Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount plus the "Net Accumulation Value"
when the Insured died. The Net Accumulation Value is the
total of the balances in the Fixed Account, and the
Separate Account minus any outstanding Loan Account
amounts; or
2) the Corridor Death Benefit. See page 13.
This policy contains a Guaranteed Initial Death Benefit
Premium. This means that the Death Benefit will not be lower
than the Initial Specified Amount regardless of the gains or
losses of the Funds you select as long as you pay that
Premium. Therefore, the Initial Death Benefit under your
Policy would be guaranteed for five years even though your
Net Accumulation Value is insufficient to pay your current
Monthly Deductions.
If you have borrowed against your Policy or surrendered a
portion of your Policy, your Initial Death Benefit will be
reduced by the Loan Account balance and any surrendered
amount.
AMOUNT OF PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 15.
You may use the value of the Policy to pay the premiums due
and continue the Policy in force if sufficient values are
available for premium payments. Be careful; if the
investment options you choose do not do as well as you
expect, there may not be enough value to continue the Policy
in force without more premium payments. Charges against
Policy values for the cost of insurance (see page 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.
4
<PAGE>
You may also use LLANY's Fixed Account to fund your Policy.
Net Premium payments put into the Fixed Account:
- become part of LLANY's General Account;
- do not share the investment experience of the Separate
Account; and
- have a guaranteed minimum interest rate of 4% per year.
Interest beyond 4% is credited at LLANY's discretion. For
additional information on the Fixed Account, see page 7.
CHARGES AND FEES
We deduct a premium charge of 5% from each Premium Payment.
We make Monthly deductions for administrative expenses
(currently, $15 per month for the first Policy Year and $5
per month afterwards, guaranteed not to exceed $7.50 after
the first Policy Year) along with the Cost of Insurance and
any riders that are placed on your Policy. We make daily
charges against the Separate Account for mortality and
expense risk. This charge is currently at an annual rate of
.80% for Policy Years 1-12, 0.55% for Policy Year 13 and
beyond. The charge is guaranteed not to exceed .90% per year
through Policy Year 12 and .65% in Policy Years 13 and
beyond.
Each Fund has its own management fee charge, also deducted
daily. Each Fund's expense levels will affect its investment
results. The table on 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.
5
<PAGE>
LLANY, THE SEPARATE ACCOUNT AND
THE GENERAL ACCOUNT
Lincoln Life & Annuity Company of New York is a life
insurance company chartered under New York law on June 6,
1996. Wholly-owned by Lincoln National Corporation ("LNC"),
a publicly held Indiana insurance holding company
incorporated in 1968, it is licensed to sell life insurance
policies and annuity contracts in New York and its principal
office is at 120 Madison Street, Suite 1700, Syracuse, NY
13202. LLANY, LNC and their affiliates comprise the "Lincoln
Financial Group" which provides a variety of wealth
accumulation and protection products and services.
Lincoln Life & Annuity Flexible Premium Variable Life
Account M ("Account M") is a "separate account" of the
company established pursuant to a resolution of the Board of
Directors of LLANY. Under New York law, the assets of
Account M attributable to the Policies, through our
property, are not chargeable with liabilities of any other
business of LLANY and are available first to satisfy our
obligations under the Policies. Account M income, gains, and
losses are credited to or charged against Account M without
regard to our other income, gains, or losses. Its values and
investment performance are not guaranteed. It is registered
with the Securities and Exchange Commission (the
"Commission") as a "unit investment trust" under the 1940
Act and meets the 1940 Act's definition of "separate
account". Such registration does not involve supervision by
the Commission of Account M's or LLANY's management,
investment practices, or policies. We have other registered
separate accounts which fund other variable life insurance
policies and variable annuity contracts.
Account M is divided into Sub-Accounts, each of which is
invested solely in the shares of one of the mutual funds
available as funding vehicles under the Policies. On each
Valuation Day (any day on which the New York Stock Exchange
is open), Net Premium Payments allocated to Account M will
be invested in Fund shares at net asset value, and monies to
pay for deductions, charges, transfers and surrenders from
Account M are raised by selling Fund shares at net asset
value.
The Funds and their investment objectives, which they may or
may not achieve, are 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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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 and distributed by Delaware
Distributors, L.P., 1818 Market Street, Philadelphia, PA
19103;
Emerging Markets Series;
Small Cap Value Series;
Trend Series.
Deutsche Asset Management VIT Funds Trust (formerly BT
Insurance Funds Trust), managed by Bankers Trust
Company, Bankers Trust Plaza, New York, NY 10006, and
distributed by
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, 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 Products Series Fund,
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;
Templeton Growth Securities Fund -- Class 1.
Templeton International Securities Funds -- Class 1;
Lincoln National Money Market Fund, Inc., managed by
Lincoln Investment Management, Inc. and distributed by
Lincoln Financial Advisors Corp. 350 Church Street,
Hartford, CT 06103.
Money Market Fund
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.
9
<PAGE>
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 foreign and U.S. government and
corporate debt securities, including lower rated high yield
debt securities (commonly known as "junk bonds").
AIM V.I. GROWTH FUND: 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: An
international fund which seeks to achieve long-term capital
appreciation by investing primarily in equity securities of
issuers 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 small-cap common stocks 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, an index emphasizing large-
capitalization stocks, before the deduction of Fund
expenses.
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<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 short-term 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.
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<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.
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<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.
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<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.
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<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.
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<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.
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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)................. 1.19 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)............. 0.14 N/A 0.16 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 .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 0.14 0.74 N/A 0.74
Templeton Growth Securities
Fund Class 1(6a,b)........ 0.80 N/A 0.05 0.85 N/A 0.85
Templeton International
Securities Fund Class
1(6d)..................... 0.65 N/A 0.20 0.85 N/A 0.85
</TABLE>
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(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) A merger and reorganization was approved that combined the fund with a
similar fund of Templeton Variable Products Series Fund on 5/1/00. The
table shows restated total expenses for the fund based on the combined
assets of the two funds as of 12/31/99, even though the merger did not
become effective until 5/1/00.
(c) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with the Templeton Global Asset Allocation Fund. The
shareholders of that fund approved new management fees, which apply to
the combined fund effective 5/1/00. The table shows restated total
expenses for the fund based on the new fund fees and the combined assets
of the two funds as of 12/31/99, even though the merger and the new fees
did not become effective until 5/1/00.
(d) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with the Templeton International Equity Fund. The
shareholders of that fund approved new management fees, which apply to
the combined fund effective 5/1/00. The table shows restated total
expenses for the fund based on the new fund fees and the combined assets
of the two funds as of 12/31/99, even though the merger and the new fees
did not become effective until 5/1/00.
21
<PAGE>
SURRENDER CHARGE
Upon surrender of a Policy, a surrender charge may apply, as
described below. This charge is in part a deferred sales
charge and in part a recovery of certain first year
administrative costs. (See "Appendix 3 -- Illustration of
Surrender Charges".)
The initial Surrender Charge, as specified in the Policy, is
based on the Initial Specified Amount and the amount of
Premium Payments during the first two Policy Years. Once
determined, the Surrender Charge will remain the same dollar
amount during the third through fifth Policy Years.
Thereafter, it declines monthly at a rate of 20% per year so
that after the end of the tenth Policy Year (assuming no
increases in the Specified Amount) the Surrender Charge will
be zero. Thus, the Surrender Charge at the end of the sixth
Policy Year would be 80% of the Surrender Charge at the end
of the fifth Policy Year, at the end of the seventh Policy
Year would be 60% of the Surrender Charge at the end of the
fifth Policy Year, and so forth. However, in no event will
the Surrender Charge exceed the maximum allowed by state or
federal law.
If the Specified Amount is increased, a new Surrender Charge
will be applicable, in addition to any existing Surrender
Charge. The Surrender Charge applicable to the increase
would be equal to the Surrender Charge on a new policy whose
Specified Amount was equal to the amount of the increase. As
of the date of this Prospectus, the minimum allowable
increase in Specified Amount is $1,000. LLANY may change
this at any time.
If the Specified Amount is decreased while the Surrender
Charge applies, the Surrender Charge will remain the same.
No Surrender Charge is imposed on a partial surrender, but
an administrative fee of $25 is imposed, allocated pro-rata
among the Sub-Accounts (and, where applicable, the Fixed
Account) from which the partial surrender proceeds are taken
unless the Owner instructs LLANY otherwise. The portion
applicable to administrative expense is $6.00 per $1,000 of
Initial Specified Amount.
Based on its actuarial determination, LLANY does not
anticipate that the Surrender Charge, together with the
portion of the premium load attributable to sales expenses,
will cover all sales and administrative expenses which LLANY
will incur in connection with the Policy. Any such
shortfall, including but not limited to payment of sales and
distribution expenses, would be available for recovery from
our General Account, which supports insurance and annuity
obligations.
REDUCTION OF CHARGES -- PURCHASES ON A CASE BASIS
This Policy is available for purchases by corporations and
other groups or sponsoring organizations on a Case basis.
LLANY reserves the right to reduce premium loads or any
other charges on certain cases, where it is expected that
the amount or nature of such cases will result in savings of
sales, underwriting, administrative or other costs.
Eligibility for these reductions and the amount of
reductions will be determined by a number of factors,
including but not limited to, the number of lives to be
insured, the total premiums expected to be paid, total
assets under management for the policy owner, the nature of
the relationship among the insured individuals, the purpose
for which the Policies are being purchased, the expected
persistency of the individual policies and any other
circumstances which LLANY believes to be relevant to the
expected reduction of its expenses. Some of these reductions
may be guaranteed and
22
<PAGE>
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
23
<PAGE>
(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.
24
<PAGE>
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.
25
<PAGE>
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.")
26
<PAGE>
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.
27
<PAGE>
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
28
<PAGE>
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.
29
<PAGE>
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 the 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. No guarantees regarding tax treatment. We
make no guarantee regarding the tax
30
<PAGE>
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 the 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
general, this policy will constitute a MEC unless (1) it was
received in exchange for another life insurance contract
which was not a MEC, and (2) no premium payments (other than
the exchanged contract) are paid into the policy during the
first seven contract years. 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
(described below), 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, 1998.
Considering guaranteed charges for mortality and expense
risks and the assumed Fund expenses, gross annual rates of
0%, 6% and 12% correspond to net investment experience at
constant annual rates of -1.70%, 4.30% and 10.30%.
The illustrations also reflect the fact that LLANY makes
monthly charges for providing insurance protection. Current
values reflect current Cost of Insurance charges and
guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for
Policies which are issued as standard. Policies issued on a
substandard basis would result in lower Accumulation Values
and Death Benefits than those illustrated.
The illustrations also reflect the fact that LLANY deducts a
premium load from each Premium Payment. Current and
guaranteed values reflect a deduction of 5.0% of each
Premium Payment.
The Surrender Values shown in the illustrations reflect the
fact that LLANY will deduct a Surrender Charge from the
Policy's Accumulation Value for any Policy surrendered in
full during the first ten years.
In addition, the illustrations reflect the fact that LLANY
deducts a monthly administrative charge at the beginning of
each Policy Month. This monthly administrative expense
charge is $15 per month in the first year. Current values
reflect a current monthly administrative expense charge of
$5 in renewal years, and guaranteed values reflect the $10
maximum monthly administrative charge under the Policy in
renewal years.
Upon request, LLANY will furnish a comparable illustration
based on the proposed insured's age, gender classification,
smoking classification, risk classification and premium
payment requested.
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
<PAGE>
PROSPECTUS 2
<PAGE>
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
LINCOLN LIFE & ANNUITY FLEXIBLE PREMIUM VARIABLE LIFE ACCOUNT M
<TABLE>
<S> <C>
HOME OFFICE LOCATION: ADMINISTRATIVE OFFICE:
120 MADISON STREET PERSONAL SERVICE CENTER MVLI
SUITE 1700 350 CHURCH STREET
SYRACUSE, NY 13202 HARTFORD, CT 06103-1106
(888) 223-1860 (800) 444-2363
</TABLE>
- --------------------------------------------------------------------------------
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
- --------------------------------------------------------------------------------
This Prospectus describes a flexible premium variable life insurance contract
(the "Policy"), offered by Lincoln Life & Annuity Company of New York ("LLANY,"
"we," "our" or "us").
The Policy features 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.
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
AMERICAN FUNDS INSURANCE SERIES
(ALSO KNOWN AS AMERICAN VARIABLE INSURANCE SERIES)
Global Small Capitalization Fund -- Class 2
Growth Fund -- Class 2
Growth-Income Fund -- Class 2
BARON CAPITAL FUNDS TRUST
Baron Capital Asset Fund -- Insurance Shares
DELAWARE GROUP PREMIUM FUND
Devon Series -- Standard Class
Emerging Markets Series -- Standard Class
High Yield Series -- Standard Class
(formerly Delchester Series)
REIT Series -- Standard Class
Small Cap Value Series -- Standard Class
Trend Series -- Standard Class
DEUTSCHE ASSET MANAGEMENT VIT FUNDS TRUST
(FORMERLY BT INSURANCE FUNDS TRUST)
EAFE-Registered Trademark- Equity Index Fund
Equity 500 Index Fund
Small Cap Index Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Growth Portfolio -- Service Class
High Income Portfolio -- Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Contrafund Portfolio -- Service Class
FIDELITY VARIABLE INSURANCE PRODUCTS FUND III
Growth Opportunities Portfolio -- Service Class
FRANKLIN TEMPLETON VARIABLE PRODUCTS SERIES FUND
Templeton Growth Securities Fund -- Class 2
(formerly Templeton Stock Fund)
Templeton International Securities Fund -- Class 2
(formerly Templeton International Fund)
JANUS ASPEN SERIES
Janus Aspen Series Balanced Portfolio --
Institutional Shares
Janus Aspen Series Global Technology Portfolio --
Service Shares
Janus Aspen Series Worldwide Growth Portfolio --
Institutional Shares
LINCOLN NATIONAL (LN)
LN Bond Fund, Inc.
LN Capital Appreciation Fund, Inc.
LN Equity-Income Fund, Inc.
LN Global Asset Allocation Fund, Inc.
LN Money Market Fund, Inc.
LN Social Awareness Fund, Inc.
MFS-Registered Trademark- VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
AMT Mid-Cap Growth Portfolio
AMT Partners Portfolio
TO BE VALID, THIS PROSPECTUS MUST HAVE THE CURRENT MUTUAL FUNDS' PROSPECTUSES
WITH IT. KEEP ALL FOR FUTURE REFERENCE.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIMINAL OFFENSE TO STATE OTHERWISE.
Prospectus dated: May 1, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------- ----
<S> <C>
HIGHLIGHTS............................ 3
Initial Choices To Be Made.......... 3
Level or Varying Death Benefit...... 3
Amount of Premium Payments.......... 4
Selection of Funding Vehicles....... 4
Charges and Fees.................... 5
Changes in Specified Amount......... 5
LLANY, THE SEPARATE ACCOUNT AND THE
GENERAL ACCOUNT...................... 6
BUYING VARIABLE LIFE INSURANCE........ 7
Replacements........................ 8
APPLICATION........................... 8
OWNERSHIP............................. 9
BENEFICIARY........................... 9
THE POLICY............................ 9
Policy Specifications............... 10
PREMIUM FEATURES...................... 10
Planned Premiums; Additional
Premiums........................... 10
Limits on Right to Make Payments
of Additional and Planned
Premiums......................... 10
Premium Load; Net Premium
Payment.......................... 11
RIGHT-TO-EXAMINE PERIOD............... 11
TRANSFERS AND ALLOCATION AMONG
ACCOUNTS............................. 11
Allocation of Net Premium
Payments........................... 11
Transfers........................... 11
Optional Sub-Account Allocation
Programs........................... 12
Dollar Cost Averaging............. 12
Automatic Rebalancing............. 12
POLICY VALUES......................... 13
Accumulation Value.................. 13
Separate Account Value.............. 13
Accumulation Unit Value........... 13
Accumulation Units................ 14
Fixed Account and Loan Account
Value.............................. 14
Net Accumulation Value.............. 14
FUNDS................................. 14
Substitution of Securities.......... 20
Voting Rights....................... 20
Fund Participation Agreements....... 21
CHARGES AND FEES...................... 21
Deductions from Premium Payments.... 21
Deductions Made Monthly............. 21
Monthly Deduction................. 31
Cost of Insurance Charge.......... 21
Mortality and Expense Risk Charge... 22
Fund Expenses....................... 22
Surrender Charges................... 26
Reduction of Charges -- Purchases on
a Case Basis....................... 26
Transaction Fee for Excess
Transfers.......................... 27
DEATH BENEFITS........................ 27
Death Benefit Options............... 27
Changes in Death Benefit Options and
Specified Amount................... 28
</TABLE>
<TABLE>
Federal Income Tax Definition of
Life Insurance..................... 28
NOTICE OF DEATH OF INSURED............ 29
<CAPTION>
CONTENTS PAGE
- -------- ----
<S> <C>
PAYMENT OF DEATH BENEFIT PROCEEDS..... 29
Settlement Options.................. 29
POLICY LIQUIDITY...................... 30
Policy Loans........................ 30
Partial Surrender................... 31
Surrender of the Policy............. 31
Surrender Value................... 31
Deferral of Payment and Transfers... 31
ASSIGNMENT; CHANGE OF OWNERSHIP....... 32
LAPSE AND REINSTATEMENT............... 32
Lapse of a Policy................... 32
Reinstatement of a Lapsed Policy.... 32
COMMUNICATIONS WITH LLANY............. 33
Proper Written Form................. 33
OTHER POLICY PROVISIONS............... 33
Issuance............................ 33
Date of Coverage.................... 33
Incontestability.................... 33
Misstatement of Age or Gender....... 33
Suicide............................. 34
Nonparticipating Policies........... 34
Riders.............................. 34
TAX ISSUES............................ 34
Taxation of Life Insurance Contracts
in General......................... 34
Policies Which Are MECS............. 35
Policies Which Are Not MECS......... 36
Other Considerations................ 37
Tax Status of LLANY................. 38
FAIR VALUE OF THE POLICY.............. 38
DIRECTORS AND OFFICERS OF LLANY....... 39
DISTRIBUTION OF POLICIES.............. 41
CHANGES OF INVESTMENT POLICY.......... 41
OTHER CONTRACTS ISSUED BY LLANY....... 41
STATE REGULATION...................... 41
REPORTS TO OWNERS..................... 42
ADVERTISING........................... 42
LEGAL PROCEEDINGS..................... 42
EXPERTS............................... 42
REGISTRATION STATEMENT................ 43
APPENDIX 1: GUARANTEED MAXIMUM COST OF
INSURANCE RATES...................... 44
APPENDIX 2: ILLUSTRATION OF SURRENDER
CHARGES.............................. 45
APPENDIX 3: CORRIDOR PERCENTAGES...... 47
APPENDIX 4: ILLUSTRATION OF
ACCUMULATION VALUES, SURRENDER VALUES
AND DEATH BENEFIT PROCEEDS........... 48
FINANCIAL STATEMENTS..................
Separate Account.................... M-1
Lincoln Life & Annuity Company of
New York........................... S-1
</TABLE>
2
<PAGE>
HIGHLIGHTS
This section is an overview of key Policy features. Your
Policy is a flexible premium variable life insurance policy
under which flexible premium payments are permitted and the
Death Benefit and Policy values may vary with the investment
performance of the funding option(s) selected. Its value may
change on a:
1) fixed basis;
2) variable basis; or a
3) combination of both fixed and variable bases.
Review your personal financial objectives and discuss them
with a qualified financial counselor before you buy a
variable life insurance policy. This Policy may, or may not,
be appropriate for your individual financial goals. 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. LLANY calculates the Death Benefit payable as of
the date on which the Insured died.
When you purchase your Policy, you must choose one of two
Death Benefit Options:
1) a level death benefit; or
2) a varying death benefit.
If you choose the level Death Benefit Option, the Death
Benefit will be the greater of:
1) the "Specified Amount", which is the amount of the death
benefit in effect for the Policy when the Insured died (The
Specified Amount is on the Policy's Specification Page); or
3
<PAGE>
2) the "Corridor Death Benefit," which is the death benefit
calculated as a percentage of the Accumulation Value. (The
"Net Accumulation Value" is the total of the balances in the
Fixed Account and the Separate Account minus any outstanding
Loan Account amounts.)
If you choose the varying Death Benefit Option, the Death
Benefit will be the greater of:
1) the Specified Amount plus the Net Accumulation Value when
the Insured died or
2) the Corridor Death Benefit.
See page 27.
If you have borrowed against your Policy or surrendered a
portion of your Policy, your Initial Death Benefit will be
reduced by the Loan Account balance and any surrendered
amount.
AMOUNT OF PREMIUM PAYMENT
When you apply for your Policy, you must decide how much
premium to pay. Premium payments may be changed within the
limits described on page 10.
You may use the value of the Policy to pay the premiums due
and continue the Policy in force if sufficient values are
available for premium payments. Be careful; if the
investment options you choose do not do as well as you
expect, there may not be enough value to continue the Policy
in force without more premium payments. Charges against
Policy values for the Cost of Insurance see page 21 increase
as the Insured gets older.
If your Policy lapses because your Monthly Premium Deduction
is larger than the Net Accumulation Value, you may reinstate
your Policy. See page 32.
When you first receive your Policy you will have 10 days to
look it over. This is called the "Right-to-Examine" period.
Use this time to review your Policy and make sure it meets
your needs. During this period, your Initial Premium Payment
will be deposited in the Money Market Sub-Account. If you
then decide you do not want your Policy, we will return all
Premium Payments to you with no interest paid. See page 11.
SELECTION OF FUNDING VEHICLES
This Prospectus focuses on the Separate Account investment
information that makes up the "variable" part of the Policy.
If you put money into the variable funding options, you
assume all the investment risk on that money. This means
that if the mutual fund(s) you select go up in value, the
value of your Policy, net of charges and expenses, also goes
up. If those funds lose value, so does your Policy. Each
fund has its own investment objective. You should carefully
read each Fund's prospectus before making your decision.
You must choose the Sub-Accounts in which you want to place
your Net Premium Payment. These Sub-Accounts make up the
Separate Account. Each Sub-Account invests in shares of a
certain Fund. You may also place your Net Premium Payment or
part of it into the Fixed Account. A Sub-Account is not
guaranteed and will increase or decrease in value according
to the particular Fund's investment performance. See
page 15.
You may also use LLANY's Fixed Account to fund your Policy.
Net Premium payments put into the Fixed Account:
- become part of LLANY's General Account;
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- do not share the investment experience of the Separate
Account; and
- have a guaranteed minimum interest rate of 4% per year.
Interest beyond 4% is credited at LLANY's discretion. For
additional information on the Fixed Account, see page 7.
CHARGES AND FEES
We deduct a premium charge of 5% from each Premium Payment.
We make monthly deductions for administrative expenses
(currently, $15 per month for the first Policy Year and $5
per month afterwards, guaranteed not to exceed $10 after the
first Policy Year) along with the Cost of Insurance and any
riders that are placed on your Policy. We make daily charges
against the Separate Account for mortality and expense risk,
at an annual rate of 0.75% for Policy Years 1-10, 0.35% for
Policy Years 11-20 and 0.20% for Policy Years 21 and beyond.
Each Fund has its own management fee charge, also deducted
daily. Each Fund's expense levels will affect its investment
results. The table on page 22 shows you current expense
levels for each Fund.
Each Policy Year you may make 12 transfers between funding
options without charge. Beyond 12, a $25 fee may apply.
You may borrow within described limits against the Policy.
You may surrender the Policy in full or withdraw part of its
value.
The Surrender Charge is the amount retained by us if you
totally surrender your Policy in up to the first 15 Policy
years.
We charge you $25, but not more than 2% of the amount
withdrawn, each time you request a partial surrender of your
Policy. The length of the surrender charge period varies
based on your age at the date of issue or any increase in
Specified Amount. See page 26.
If you borrow against your Policy, interest will be charged
to the Loan Account Value. The annual interest rate is 8%.
You may pay that interest or have it added to your loan.
LLANY will credit interest on the Loan Account Value at an
annual rate equal to the interest rate charged minus 1% for
the first ten Policy Years, and thereafter at the annual
interest rate charged on the loan.
Charges and fees may be reduced in some circumstances where
Policies are purchased by corporations and other groups or
sponsoring organizations on a case basis. See page 26.
LLANY may derive a profit from its charges and may use these
profits to finance distribution of the Policies.
CHANGES IN SPECIFIED AMOUNT
The Initial Specified Amount, chosen by the Policy Owner, is
the initial Death Benefit.
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 28.
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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 The Lincoln National Life Insurance
Company ("Lincoln Life") and in turn by Lincoln National
Corporation ("LNC"), a publicly held Indiana insurance
holding company incorporated in 1968, it is licensed to sell
life insurance policies and annuity contracts in New York.
Its principal office is at 120 Madison Street, Suite 1700,
Syracuse, NY 13202. LLANY, Lincoln Life, LNC and their
affiliates comprise the "Lincoln Financial Group" which
provides a variety of wealth accumulation and protection
products and services.
Lincoln Life & Annuity Flexible Premium Variable Life
Account M ("Account M") is a "separate account" established
pursuant to a resolution of the Board of Directors of LLANY.
Under New York law, the assets of Account M attributable to
the Policies, though LLANY's property, are not chargeable
with liabilities of any other business of LLANY and are
available first to satisfy LLANY's obligations under the
Policies. Account M's income, gains, and losses are credited
to or charged against Account M without regard to other
income, gains, or losses of LLANY. Its values and investment
performance are not guaranteed. It is registered with the
Securities and Exchange Commission (the "Commission") as a
"unit investment trust" under the 1940 Act and meets the
1940 Act's definition of "separate account". Such
registration does not involve supervision by the Commission
of Account M's or our management, investment practices, or
policies. We have other registered separate accounts which
fund other variable life insurance policies and variable
annuity contracts.
Account M is divided into Sub-Accounts, each of which is
invested solely in the shares of one of the Funds available
as funding vehicles under the Policies. On each Valuation
Day (any day on which the New York Stock Exchange is open),
Net Premium Payments allocated to Account M will be invested
in Fund shares at net asset value, and monies necessary to
pay for deductions, charges, transfers and surrenders from
Account M are raised by selling Fund shares at net asset
value.
The Funds and their investment objectives, which they may or
may not achieve, are described in 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 the investment
results of any other fund.
We reserve the right to add, withdraw or substitute Funds,
subject to the conditions of the Policy and to compliance
with regulatory requirements, if in our sole discretion
legal, regulatory, marketing, tax or investment
considerations so warrant or in the event a particular Fund
is no longer available for investment by the Sub-Accounts.
No substitution will take place without prior approval of
the Commission, to the extent required by law.
Shares of the Funds may be used by us and other insurance
companies to fund both variable annuity contracts and
variable life insurance policies. While this is not
perceived as problematic, the Funds' governing bodies
(Boards of Directors/Trustees) have agreed to monitor events
to identify any material irreconcilable conflicts which
might arise and
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to decide what responsive action might be appropriate. If a
separate account were to withdraw its investment in a Fund
because of a conflict, a Fund might have to sell portfolio
securities at unfavorable prices.
A Policy may also be funded in whole or in part through the
"Fixed Account", part of LLANY's General Account supporting
its insurance and annuity obligations. We will credit
interest on amounts held in the Fixed Account as we
determine from time to time, but not less than 4% per year.
Interest, once credited, and Fixed Account principal are
guaranteed. Interests in the Fixed Account have not been
registered under the 1933 Act in reliance on exemptive
provisions. The Commission has not reviewed Fixed Account
disclosures, but they are subject to securities law
provisions relating to accuracy and completeness.
BUYING VARIABLE LIFE INSURANCE
The Policies this Prospectus offers are variable life
insurance policies which provide death benefit protection.
Investors not needing death benefit protection should
consider other forms of investment, as there are extra costs
and expenses of providing the insurance feature. Further,
life insurance purchasers who are risk-aversive or want more
predictable premium levels and benefits may be more
comfortable buying more traditional, non-variable life
insurance. However, variable life insurance is a flexible
tool for financial and investment planning for persons
needing death benefit protection and willing to assume
investment risk and to monitor investment choices they have
made.
Flexibility starts with the ability to make differing levels
of premium payments. A young family just starting out may
only be able to pay modest premiums initially but hope to
increase premium payments over time. At first, this family
would be paying primarily for the insurance feature (perhaps
at ages where the insurance cost is relatively low) and
later use a Policy more as a savings vehicle. A customer at
peak earning capacity may wish to pay substantial premiums
for a limited number of years prior to retirement, after
which Policy values may suffice, based on future expected
return results, though not guaranteed, to keep the Policy
inforce for the expected lifetime and to provide, through
loans, supplemental retirement income. A customer may be
able to pay a large single premium, using the Policy
primarily as a savings and investment vehicle for potential
tax advantages. A parent or grandparent may find a policy on
the life of a child or grandchild a useful gifting
opportunity over a period of years and the basis of an
investment program for the donee. A business may be able to
use a Policy to fund non-qualified executive compensation or
business continuation plans.
Sufficient premiums must always be paid to keep a policy
inforce, and there is a risk of lapse if premiums are too
low in relation to the insurance amount and if investment
results are less favorable than anticipated.
Flexibility also results from being able to select, monitor
and change investment choices within a Policy. With the wide
variety of funding options available, it is possible to fine
tune an investment mix and change it to meet changing
personal objectives or investment conditions. Policy owners
should be prepared to monitor their investment choices on an
ongoing basis.
Variable life insurance has significant tax advantages under
current tax law. A transfer of values from one fund to
another within the Policy generates no taxable gain or loss.
And any investment income and realized capital gains within
a fund are automatically reinvested without being taxed to
the Policy owners. Policy values therefore accumulate on a
tax-deferred basis. These situations would normally result
in immediate tax liabilities in the case of direct
investment in mutual funds.
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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 BENEFITS). The
death benefit is income-tax free and may, with proper estate
planning, be estate-tax free. A tax advisor should be
consulted.
There are costs and expenses of variable life insurance
ownership which are directly related to Policy values (i.e.
asset based costs),as is true with investment in mutual
funds or variable annuities. A significant additional cost
of variable life insurance is the "cost of insurance" charge
which is imposed on the "amount at risk" (the death benefit
less Policy value) and increases as the insured grows older.
This charge varies by age, underwriting classification,
smoking status and in most states by gender. The effect of
its increase can be seen in illustrations in this Prospectus
(see Appendix 4) or in personalized illustrations available
upon request. Surrender Charges, which decrease over time,
are another significant additional cost if the Policy is not
retained.
REPLACEMENTS
Before purchasing the Policy to replace, or to be funded
with proceeds borrowed or withdrawn from, an existing life
insurance policy, the applicant should consider a number of
matters. Will any commission will be paid to an agent or any
other person with respect to the replacement? Are coverages
and comparable values available from the Policy, as compared
to his or her existing policy? The Insured may no longer be
insurable, or the contestability period may have elapsed
with respect to the existing policy, while the Policy could
be contested. The Owner should consider similar matters
before deciding to replace the Policy or withdraw funds from
the Policy for the purchase of funding a new policy of life
insurance.
APPLICATION
Any person who wants to buy a Policy must first complete an
application on a form provided by LLANY.
A completed application identifies the prospective Insured
and provides sufficient information about the prospective
insured to permit LLANY to begin underwriting the risks
under the Policy. We require a medical history and
examination of the Insured. LLANY may decline to provide
insurance, or may place the Insured into a special
underwriting category (these include preferred, non-smoker
standard, smoker standard, non-smoker substandard and smoker
substandard). The amount of the Cost of Insurance deducted
monthly from the Policy value after issue varies among the
underwriting categories as well as by age of the Insured at
his/her nearest birthday and, in most states, gender of the
Insured.
The applicant will initially select the Beneficiary or
Beneficiaries who are to receive Death Benefit Proceeds, the
initial face amount (the Initial Specified Amount) of the
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Death Benefit and which of two methods of computing the
Death Benefit is to be used. (See DEATH BENEFITS, Death
Benefit Options). The applicant will also indicate both the
frequency and amount of Premium Payments, (see PREMIUM
FEATURES), and how Policy values are initially to be
allocated among the available funding options following the
expiration of the Right-to-Examine Period. (See
RIGHT-TO-EXAMINE PERIOD).
OWNERSHIP
The Owner is the person or persons named as Owner in the
application, and on the Date of Issue will usually be
identified as Owner in the Policy Specifications. If no
person is identified as Owner in the Policy Specifications,
then the Insured is the Owner. The person or persons
designated to be Owner of the Policy must have, or hold
legal title for the sole benefit of a person who has, an
"insurable interest" in the life of the Insured under
applicable state law. The Owner may be the Insured, or any
other natural person or non-natural entity.
The Owner is entitled to exercise rights under the Policy so
long as the Insured is living. These rights include the
power to select the Beneficiary and the Death Benefit
Option. The Owner generally also has the right to request
policy loans, make partial surrenders or surrender the
Policy. The Owner may also name a new owner, assign the
Policy or agree not to exercise all of the Owner's rights
under the Policy.
If the Owner predeceases the Insured, the Owner's rights in
the Policy will belong to the Owner's estate, unless
otherwise specified to LLANY.
BENEFICIARY
The Beneficiary is designated by the Owner or the Applicant
and is the person who will receive the Death Benefit
proceeds payable under the Policy. Multiple Beneficiaries
will be paid in equal shares, unless otherwise specified to
LLANY.
Except when LLANY has acknowledged an assignment of the
Policy or an agreement not to change the Beneficiary, the
Owner may change the Beneficiary at any time while the
Insured is living. Any request for a change in the
Beneficiary must be in a written form satisfactory to LLANY
and submitted to LLANY. Unless the Owner has reserved the
right to change the Beneficiary, such a request must be
signed by both the Owner and the Beneficiary. When LLANY has
recorded the change of Beneficiary, it will be effective as
of the date of signature or, if there is no such date, the
date recorded. No change of Beneficiary will affect or
prejudice LLANY as to any payment made or action taken by
LLANY before it was recorded.
If any Beneficiary dies before the Insured, the
Beneficiary's potential interest shall pass to any surviving
Beneficiaries, unless otherwise specified to LLANY. If no
named Beneficiary survives the Insured, any Death Benefit
Proceeds will be paid to the Owner or the Owner's executor,
administrator or assignee.
THE POLICY
The Policy is the life insurance contract described in this
Prospectus. The Date of Issue is the date on which LLANY
begins life insurance coverage under a Policy. A Policy Year
is each twelve month period, beginning on the Date of Issue,
during which the Policy is in effect. The Policy Anniversary
is the day of the year the Policy was issued, or the next
Valuation Day if that day is not a Valuation Day or is
non-existent for that year. On issuance, a life insurance
contract (Policy) will be delivered to the Owner. The Owner
should promptly review the Policy to confirm that it sets
forth the features specified in the application. The
ownership and other options set forth in the Policy are
registered,
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and may be transferred, solely on LLANY's books and records.
Mere possession of the Policy does not imply ownership
rights. If the Owner loses the Policy, LLANY will issue a
replacement on request. LLANY may impose a Policy
replacement fee.
POLICY SPECIFICATIONS
The Policy includes a Policy Specifications page, with
supporting schedules, stating Policy information including
the identity of the Owner, the Date of Issue, the Initial
Specified Amount, the Death Benefit Option selected, the
Insured, the Issue Age, the Beneficiary, the initial Premium
Payment, the Surrender Charges, Expense Charges and Fees,
Guaranteed Maximum Cost of Insurance Rates, and the No Lapse
Premium.
PREMIUM FEATURES
The Policy permits flexible premium payments, meaning that
the Owner may select the frequency and the amount of Premium
Payments. After the Initial Premium Payment is made there is
no minimum premium required, except to maintain the No Lapse
Provision. (See LAPSE AND REINSTATEMENT No Lapse Provision).
The initial Premium Payment is due on the Effective Date
(the date on which the initial premium is applied to the
Policy) and must be equal to or exceed the amount necessary
to provide for two Monthly Deductions.
PLANNED PREMIUMS; ADDITIONAL PREMIUMS
Planned Premiums are the amount of premium (as shown in the
Policy Specifications) the Applicant chooses to pay LLANY on
a scheduled basis. This is the amount for which LLANY sends
a premium reminder notice.
Any subsequent Premium Payments (Additional Premiums) must
be sent directly to the Administrative Office. Additional
Premiums will be credited only when actually received by
LLANY. Planned Premiums may be billed annually,
semiannually, or quarterly. Pre-authorized automatic Premium
Payments can also be arranged at any time.
Unless specifically otherwise directed, any payment received
(other than any Premium Payment necessary to prevent, or
cure, Policy Lapse) will be applied first to reduce Policy
Indebtedness. There is no premium load on such payments to
the extent applied to reduce indebtedness.
LIMITS ON RIGHT TO MAKE PAYMENTS OF ADDITIONAL AND PLANNED
PREMIUMS
The Owner may increase Planned Premiums, or pay Additional
Premiums, subject to the following limitations and LLANY's
right to limit the amount or frequency of Additional
Premiums.
LLANY may require evidence of insurability if any payment of
Additional Premium (including Planned Premium) would
increase the difference between the Death Benefit and the
Accumulation Value. If LLANY is unwilling to accept the
risk, the increase in premium will be refunded without
interest and without participation of such amounts in any
underlying investment.
LLANY may also decline any Additional Premium (including
Planned Premium) or a portion thereof that would result in
total Premium Payments exceeding the maximum limitation for
life insurance under federal tax laws. The excess amount
would be returned.
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PREMIUM LOAD; NET PREMIUM PAYMENT
LLANY deducts 5% from each Premium Payment. This amount,
sometimes referred to as premium load, covers certain
Policy-related state tax and federal income tax liabilities
and a portion of the sales expenses incurred by LLANY. The
Premium Payment, net of the premium load, is called the "Net
Premium Payment."
RIGHT-TO-EXAMINE PERIOD
The Owner may return the Policy to LLANY for cancellation as
follows.
If the Owner mails or delivers the Policy to the
Administrative Office on or before 10 days after delivery of
the Policy (60 days for Policies issued in replacement of
other insurance) (Right-to-Examine Period), LLANY will
refund to the Owner all Premium Payments.
Any Premium Payments received by LLANY before the end of the
Right-to-Examine Period will be held in the Money Market
Sub-Account, and will be allocated to the Sub-Accounts
designated by the Owner at the end of the Right-to-Examine
Period. If the Policy is returned for cancellation within
the Right-to-Examine Period, we will return any Premium
Payments within seven days, although refund of a Premium
Payment made by check may be delayed until the check clears.
TRANSFERS AND ALLOCATION AMONG ACCOUNTS
ALLOCATION OF NET PREMIUM PAYMENTS
The allocation of Net Premium Payments among the Fixed
Account and the Sub-Accounts may be set forth in the
application. An Owner may change the allocation of future
Net Premium Payments at any time. In any allocation, the
amount allocated to any Sub-Account must be in whole
percentages and result in a Sub-Account Value of at least
$100 or a Fixed Account Value of $2,500. LLANY, at its sole
discretion, may waive minimum balance requirements on the
Sub-Accounts.
TRANSFERS
The Owner may make transfers among the Sub-Accounts, on the
terms set forth below, at any time before the Insured
reaches Age 100. The Owner should carefully consider current
market conditions and each Sub-Account's investment policies
and related risks before allocating money to the
Sub-Accounts.
Transfer of amounts from one Sub-Account to another or from
the Sub-Accounts to the Fixed Account are possible at any
time. Within 30 days after each anniversary of the Date of
Issue, the Owner may transfer up to 20% of the Fixed Account
Value (as of the preceding anniversary of the Date of Issue)
to one or more Sub-Accounts. The cumulative amount of
transfers from the Fixed Account within any such 30 day
period cannot exceed 20% of the Fixed Account Value on the
most recent Policy Anniversary. Up to 12 transfer requests
(a request may involve more than a single transfer) may be
made in any Policy Year without charge, and any value
remaining in a Sub-Account after a transfer must be at least
$100. LLANY reserves the right to impose a minimum transfer
amount of $100 and a charge for each transfer request in
excess of 12 requests in any Policy Year. LLANY may further
limit transfers from the Fixed Account at any time.
Transfers must be made in proper written form, unless the
Owner has given written authorization to LLANY to accept
telephone transactions. Contact our Administrative Office
for authorization forms and information on permitted
telephone transactions.
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Written transfer requests or adequately authenticated
telephone transfer requests received at the Administrative
Office by the close of the New York Stock Exchange (usually
4:00 PM ET) on a Valuation Day will be effective as of that
day. Otherwise, requests will be effective as of the next
Valuation Day.
Any transfer among the Sub-Accounts or to the Fixed Account
will result in the crediting and cancellation of
Accumulation Units based on the Accumulation Unit values
next determined after the Administrative Office receives a
request in proper written form or adequately authenticated
telephone transfer requests. Any transfer made which causes
the remaining value of Accumulation Units for a Sub-Account
or the Fixed Account to be less than $100 may result in
those remaining Accumulation Units being canceled and their
aggregate value reallocated proportionately among the other
Sub-Accounts and the Fixed Account to which Policy values
are then allocated.
OPTIONAL SUB-ACCOUNT ALLOCATION PROGRAMS
You may elect to participate in programs providing for
Dollar Cost Averaging or Automatic Rebalancing, currently
without charge, but may participate in only one program at
any time. Transfers under these programs do not count
against the 12 transfers per year without charge.
DOLLAR COST AVERAGING
Dollar Cost Averaging systematically transfers specified
dollar amounts from the Money Market Sub-Account. Transfer
allocations may be made to one or more of the Sub-Accounts
(not the Fixed Account) on a monthly or quarterly basis.
These transfers do not count against the free transfers
available. By making allocations on a regularly scheduled
basis, instead of on a lump sum basis, an Owner may reduce
exposure to market volatility. Dollar Cost Averaging will
not assure a profit or protect against a declining market.
If the Owner elects Dollar Cost Averaging, the value in the
Money Market Sub-Account must be at least $1,000 initially.
The minimum amount that may be allocated is $50 monthly.
An election for Dollar Cost Averaging is effective after the
Administrative Office receives a request from the Owner in
proper written form or by telephone, if adequately
authenticated. An election is effective within ten business
days, but only if there is sufficient value in the Money
Market Sub-Account. LLANY may, in its sole discretion, waive
Dollar Cost Averaging minimum deposit and transfer
requirements.
Dollar Cost Averaging terminates automatically: (1) if the
number of designated transfers has been completed; (2) if
the value in the Money Market Sub-Account is insufficient to
complete the next transfer; (3) within one week after the
Administrative Office receives a request for termination in
proper written form. or (4) if the Policy is surrendered.
AUTOMATIC REBALANCING
Automatic Rebalancing periodically restores to a
pre-determined level the percentage of Policy value
allocated to each Sub-Account (e.g. 20% Money Market, 50%
Growth, 30% Utilities). The Fixed Account is not subject to
rebalancing. The pre-determined level is the allocation
initially selected on the application, until you change it.
If Automatic Rebalancing is elected, all Net Premium
Payments allocated to the Sub-Accounts will be subject to
Automatic Rebalancing.
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The Owner may select Automatic Rebalancing on a quarterly,
semi-annual or annual basis. Automatic Rebalancing may be
elected, terminated or the allocation may be changed at any
time, effective within ten business days upon receipt by the
Administrative Office of a request in proper written form or
by telephone if adequately authenticated.
POLICY VALUES
The Accumulation Value is the sum of the Fixed Account
Value, Separate Account Value and the Loan Account Value.
The Accumulation Value of the Policy depends on the
performance of the underlying investments. Policy values are
used to pay for Policy fees and expenses, including the Cost
of Insurance. Premium Payments to meet your objectives will
vary based on the investment performance of the underlying
investments. A market downturn, affecting the Sub-Accounts
upon which the Accumulation Value of a particular Policy
depends, may require additional premium payments beyond
those expected (unless the No Lapse Provision requirements
have been satisfied) to maintain the level of coverage or to
avoid lapse of the Policy. We strongly suggest you review
periodic statements to determine if additional premium
payments must be made to avoid lapse of the Policy.
We will tell you at least annually the Accumulation Value,
the number of Accumulation Units credited to the Policy,
current Accumulation Unit values, Sub-Account values, the
Fixed Account Value and the Loan Account Value.
ACCUMULATION VALUE
The portion of a Premium Payment, after deduction for 5.0%
for the premium load, is the Net Premium Payment. It is the
Net Premium Payment that is available for allocation to the
Fixed Account or the Sub-Accounts.
We credit each Net Premium Payment to the Policy as of the
end of the Valuation Period in which it is received at the
Administrative Office. The Valuation Period is the time
between Valuation Days, and a Valuation Day is every day on
which the New York Stock Exchange is open and trading
unrestricted. Accumulation Units are valued on every
Valuation Day.
The "Accumulation Value" of a Policy is determined by:
(1) multiplying the total number of Accumulation Units
credited to the Policy for each Sub-Account by its
appropriate current Accumulation Unit Value; (2) if a
combination of Sub-Accounts is elected, totaling the
resulting values; and (3) adding any values attributable to
the Fixed Account and the Loan Account. The Accumulation
Value will be affected by Monthly Deductions.
SEPARATE ACCOUNT VALUE
The Separate Account Value is the portion of the
Accumulation Value that is attributable to the Separate
Account.
ACCUMULATION UNIT VALUE
All or a part of a Net Premium Payment allocated to a
Sub-Account is converted into Accumulation Units by dividing
the amount allocated by the value of the Accumulation Unit
for the Sub-Account next calculated after it is received at
the Administrative Office. The Accumulation Unit value for
each Sub-Account was initially established at $10.00.
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The Accumulation Unit Value for each Sub-Account would
thereafter increase or decrease from one Valuation Period to
the next. Allocations to Sub-Accounts are made only as of
the end of a Valuation Day.
ACCUMULATION UNITS
An "Accumulation Unit" is a unit of measure used in the
calculation of the value of each Sub-Account. The
Accumulation Unit value for a Sub-Account for a Valuation
Period is determined as follows:
1. The total value of Fund shares held in the Sub-Account
is calculated by multiplying the number of Fund shares
owned by the Sub-Account at the beginning of the
Valuation Period by the net asset value per share of
the Fund at the end of the Valuation Period, and
adding any dividend or other distribution of the Fund
if an ex-dividend date occurs during the Valuation
Period; minus
2. The liabilities of the Sub-Account at the end of the
Valuation Period; such liabilities include daily
charges imposed on the Sub-Account, and may include a
charge or credit with respect to any taxes paid or
reserved for by LLANY that LLANY determines result
from the operations of the Separate Account; and
3. The result of (2) is divided by the number of
Accumulation Units outstanding at the beginning of the
Valuation Period.
The daily charge imposed on a Sub-Account for any Valuation
Period is equal to the daily mortality and expense risk
charge multiplied by the number of calendar days in the
Valuation Period. The amount of Monthly Deduction allocated
to each Sub-Account will result in the cancellation of
Accumulation Units that have an aggregate value on the date
of such deduction equal to the total amount by which the
Sub-Account is reduced.
The number of Accumulation Units credited to a Policy will
not be changed by any subsequent change in the value of a
Variable Accumulation Unit. Such value may vary from
Valuation Period to Valuation Period to reflect the
investment experience of the Fund used in a particular
Sub-Account and fees and charges under the Policy.
FIXED ACCOUNT AND LOAN ACCOUNT VALUE
The Fixed Account Value and the Loan Account Value reflect
amounts allocated to LLANY's General Account through payment
of premiums or through transfers from the Separate Account.
LLANY guarantees the Fixed Account Value.
NET ACCUMULATION VALUE
The "Net Accumulation Value" is the Accumulation Value less
the Loan Account Value. The Net Accumulation Value
represents the net value of the Policy and is the basis for
calculating the Surrender Value.
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,
14
<PAGE>
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.
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. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
AMERICAN FUNDS INSURANCE SERIES (FORMERLY AMERICAN VARIABLE
INSURANCE SERIES), managed by Capital Research and
Management Company and distributed by American Funds
Distributors, Inc., 333 South Hope Street, Los Angeles, CA
90071
AFIS Global Small Capitalization Fund -- Class 2
AFIS Growth Fund -- Class 2
AFIS Growth-Income Fund -- Class 2
BARON CAPITAL FUNDS TRUST, managed by BAMCO, Inc. and
distributed by Baron Capital Inc., 767 Fifth Avenue, New
York, NY 10153
Baron Capital Asset Fund -- Insurance Shares
DELAWARE GROUP PREMIUM FUND, managed by Delaware Management
Company, One Commerce Square, Philadelphia, PA 19103 and for
International and Emerging Markets, Delaware International
Advisers, Ltd., 80 Cheapside, London, England ECV2 6EE, and
distributed by Delaware Distributors, L.P., 1818 Market
Street, Philadelphia, PA 19103
Devon Series -- Standard Class
Emerging Markets Series -- Standard Class
High Yield Series -- Standard Class (formerly Delchester
Series)
REIT 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
EAFE-Registered Trademark- Equity Index Fund
Equity 500 Index Fund
Small Cap Index Fund
FIDELITY VARIABLE INSURANCE PRODUCTS FUND, FIDELITY VARIABLE
INSURANCE PRODUCTS FUND II, AND VARIABLE INSURANCE PRODUCTS
FUND III, managed by Fidelity Management & Research Company
and distributed by Fidelity Distributors Corporation, 82
Devonshire Street, Boston, MA 02109
Fidelity VIP Growth -- Service Class
Fidelity VIP High Income -- Service Class
Fidelity VIP II Contrafund Portfolio -- Service Class
Fidelity VIP III Growth Opportunities Portfolio --
Service Class
15
<PAGE>
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 Growth Securities Fund -- Class 2 (formerly
Templeton International Fund)
Templeton International Securities Fund -- Class 2
(formerly Templeton Stock Fund)
JANUS ASPEN SERIES, managed by Janus Capital and distributed
by Janus Distributors, Inc., 100 Fillmore Street, Denver, CO
80206-4928.
Janus Aspen Series Balanced Portfolio -- Institutional
Shares
Janus Aspen Series Global Technology Portfolio --
Service Shares
Janus Aspen Series Worldwide Growth Portfolio --
Institutional Shares
LINCOLN NATIONAL FUNDS, 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.
Sub-advisors are also noted.
LN Bond Fund, Inc.
LN Capital Appreciation Fund, Inc. (Sub-advised by Janus
Capital Corp.)
LN Equity-Income Fund, Inc. (Sub-advised by Fidelity
Management Trust Co.)
LN Global Asset Allocation Fund, Inc. (Sub-advised by
Putnam Investment Management, Inc.)
LN Money Market Fund, Inc.
LN Social Awareness Fund, Inc. (Sub-advised by Vantage
Investment Advisors Inc.)
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 some changes in, and additions to,
personnel. See the prospectuses for these funds for more
information.
MFS-REGISTERED TRADEMARK- VARIABLE INSURANCE TRUST, managed
by Massachusetts Financial Services Company and distributed
by MFS Fund Distributors, Inc., 500 Boylston Street, Boston,
MA 02116
MFS Emerging Growth Series
MFS Total Return Series
MFS Utilities Series
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST, managed and
distributed by Neuberger Berman Management Inc., 605 Third
Avenue, 2nd Floor, New York, NY 10158-0006
NB AMT Mid-Cap Growth Portfolio
NB AMT Partners Portfolio
The investment advisory fees charged the Funds by their
advisers are shown listed under "Fund Expenses" in this
Prospectus.
16
<PAGE>
Below is a brief description of the investment objective and
program of each Fund. There can be no assurance that any of
the stated investment objectives will be achieved.
AIM V.I. GROWTH FUND: 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. INTERNATIONAL EQUITY FUND: Seeks to provide
long-term growth of capital by investing in a diversified
portfolio of international equity securities whose issuers
are considered to have strong earnings momentum. The fund
seeks to meet this objective by investing at least 70% of
its total assets in marketable equity securities of foreign
companies that are listed on a recognized foreign securities
exchange or traded in a foreign over-the-counter market.
AIM V.I. VALUE FUND: 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.
AFIS GLOBAL SMALL CAPITALIZATION FUND -- CLASS 2: Seeks to
make your investment grow over time by investing primarily
in stocks of smaller companies located around the world that
typically have market capitalization of $50 million to $1.5
billion. The fund is designed for investors seeking capital
appreciation through stocks. Investors in the fund should
have a long-term perspective and be able to tolerate
potentially wide price fluctuations.
AFIS GROWTH FUND -- CLASS 2: Seeks to make you investment
grow over time by investing primarily in common stocks of
companies that appear to offer superior opportunities for
growth of capital. The fund is designed for investors
seeking capital appreciation through stocks. Investors in
the fund should have a long-term perspective and be able to
tolerate potentially wide price fluctuations.
AFIS GROWTH-INCOME FUND -- CLASS 2: Seeks to make your
investment grow and provide you with income over time by
investing primarily in common stocks or other securities
which demonstrate the potential for appreciation and/or
dividends. The fund is designed for investors seeking both
capital appreciation and income.
BARON CAPITAL ASSET FUND -- INSURANCE SHARES: Seeks to
purchase stocks judged by the advisor to have the potential
of increasing their value at least 50% over two subsequent
years, although that goal may not be achieved.
DELAWARE GROUP DEVON SERIES -- STANDARD CLASS: Seeks growth
and income by investing primarily in income-producing stocks
that the manager believes have the potential for
above-average dividend increases over time. This fund blends
traditional growth and value investment styles.
DELAWARE GROUP EMERGING MARKETS SERIES -- STANDARD CLASS:
Seeks long-term growth by investing primarily in stocks of
companies located or operating in emerging or developing
countries.
DELAWARE GROUP HIGH YIELD SERIES -- STANDARD CLASS (FORMERLY
DELCHESTER SERIES): Seeks total return and as a secondary
objective, high current income. The Series invests in rated
and unrated corporate bonds, (including high-risk, high
yield bonds commonly
17
<PAGE>
known as junk bonds), foreign bonds, U.S. government
securities and commercial paper. An investment in this
Series may involve greater risks than an investment in a
portfolio comprised primarily of investment grade bonds.
DELAWARE GROUP REIT SERIES -- STANDARD CLASS: Seeks to
achieve maximum long-term total return by investing
primarily in the securities of real estate investment trusts
and real estate operating companies.
DELAWARE GROUP SMALL CAP VALUE SERIES -- STANDARD CLASS:
Seeks growth by investing primarily in stocks of small cap
companies whose market values appear low relative to
underlying value or future earnings and growth potential.
DELAWARE GROUP TREND -- 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 EAFE-REGISTERED TRADEMARK- FUND: Seeks to
replicate as closely as possible (before the deduction of
Expenses) the total return of the Europe, Australia, Far
East Index (the EAFE-Registered Trademark- Index), a
capitalization-weighted index containing approximately 1,100
equity securities of companies located outside of the United
States.
DEUTSCHE VIT EQUITY 500 FUND: Seeks to replicate as closely
as possible the performance of the Standard & Poor's 500
Composite Price Index, before the deduction of the Fund
expenses.
DEUTSCHE VIT SMALL CAP INDEX FUND: Seeks to replicate as
closely as possible (before the deduction of expenses) the
total return of the Russell 2000 Small Stock Index (the
"Russell 2000"), an index consisting of approximately 2,000
small capitalization common stocks.
FIDELITY VIP GROWTH PORTFOLIO -- SERVICE CLASS: Seeks
long-term capital appreciation. The portfolio normally
purchases common stocks.
FIDELITY VIP HIGH INCOME PORTFOLIO -- SERVICE CLASS: Seeks
high current income by investing at least 65% of total
assets in income-producing debt securities, with an emphasis
on lower quality securities.
FIDELITY VIP II CONTRAFUND PORTFOLIO -- SERVICE CLASS: Seeks
capital appreciation by investing primarily in securities of
companies whose value the advisor believes is not fully
recognized by the public.
FIDELITY VIP III GROWTH OPPORTUNITIES PORTFOLIO -- SERVICE
CLASS: Seeks capital growth by investing primarily in common
stocks.
JANUS ASPEN SERIES BALANCED PORTFOLIO -- INSTITUTIONAL
SHARES: Seeks long term growth of capital, consistent with
the preservation of capital and balanced by current income.
The Portfolio normally invests 40-60% of its assets in
securities selected primarily for their growth potential and
40-60% of its assets in securities selected primarily for
their income potential.
JANUS ASPEN SERIES GLOBAL TECHNOLOGY -- SERVICE SHARES:
Seeks long-term growth of capital. The Portfolio invests
primarily in equity securities of U.S. and foreign
companies, selected for their growth potential. Normally, it
invests at least 65% of its total assets in securities or
companies that the portfolio manager believes will benefit
significantly from advancements or improvements in
technology.
18
<PAGE>
JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO --
INSTITUTIONAL SHARES: Seeks long-term growth of capital in a
manner consistent with the preservation of capital by
investing primarily in common stocks of companies of any
size throughout the world. The Portfolio normally invests in
insurers from at least 5 different countries, including the
U.S. The Portfolio may at times invest in fewer than five
countries or even a single country.
LINCOLN NATIONAL BOND FUND: Seeks maximum current income
consistent with prudent investment strategy. The fund
invests primarily in medium-and long-term corporate and
government bonds.
LINCOLN NATIONAL CAPITAL APPRECIATION FUND: Seeks long-term
growth of capital in a manner consistent with preservation
of capital. The fund invests in a large number of companies
of all sizes if the companies are competing well and if
their products and services are in high demand. It may also
buy some money market securities and bonds, including junk
(high risk) bonds.
LINCOLN NATIONAL EQUITY-INCOME FUND: Seeks to achieve
reasonable income by investing primarily in income-producing
equity securities. The fund invests mostly in high-yielding
bonds (including junk bonds)
LINCOLN NATIONAL GLOBAL ASSET ALLOCATION FUND: Seeks
long-term total return consistent with preservation of
capital. The fund allocates its assets among several
categories of equity and fixed-income securities, both of
U.S. and foreign insurers.
LINCOLN NATIONAL MONEY MARKET FUND: Seeks maximum current
income consistent with the preservation of capital. The fund
invests in short term obligations issued by U.S.
corporations, the U.S. government, and federally-chartered
banks and U.S. branches of foreign banks.
LINCOLN NATIONAL SOCIAL AWARENESS FUND: Seeks to achieve
long-term capital appreciation, by investing in stocks of
established companies which adhere to certain specific
social criteria.
MFS EMERGING GROWTH SERIES: Seeks to provide long-term
growth of capital.
MFS TOTAL RETURN SERIES: Seeks primarily to provide
above-average income (compared to a portfolio invested
entirely in equity securities) consistent with the prudent
employment of capital, and secondarily to provide a
reasonable opportunity for growth of capital and income.
MFS UTILITIES SERIES: Seeks capital growth and current
income (income above that available from a portfolio
invested entirely in equity securities).
NB AMT MID-CAP GROWTH PORTFOLIO: Seeks growth of capital
through an investment approach that is designed to increase
capital with reasonable risk. It invests mainly in common
stocks of mid-to-large capitalization companies.
NB AMT PARTNERS PORTFOLIO: Seeks growth of capital and
invests mainly in common stocks of mid-to-large
capitalization companies, using the value-oriented
investment approach.
TEMPLETON GROWTH SECURITIES FUND -- CLASS 2: 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 Investment Counsel, Inc. serves
as the Fund's investment advisor.
19
<PAGE>
TEMPLETON INTERNATIONAL SECURITIES FUND -- CLASS 2: 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 Fund's
investment advisor.
Several of the Funds may invest in non-investment grade,
high-yield, high-risk debt securities (commonly referred to
as "junk bonds"), as detailed in the individual Fund
Prospectuses. Please review the prospectuses carefully.
There is no assurance that the investment objective of any
of the Funds will be met. You assume all of the investment
performance risk for the Sub-Accounts you select. There is
investment performance risk in each of the Sub-Accounts,
although the amount of such risk varies significantly among
the Sub-Accounts. Owners should read each Fund's prospectus
carefully and understand the risks before making or changing
investment choices. Additional Funds may, from time to time,
be made available as underlying investments with prior
approval of the New York Insurance Department. The right to
select among Funds will be limited by the terms and
conditions imposed by LLANY (See ALLOCATION OF NET PREMIUM
PAYMENTS).
SUBSTITUTION OF SECURITIES
If the shares of any Fund should no longer be available for
investment by the Separate Account or if, in the judgment of
LLANY, further investment in such shares should cease to be
appropriate in view of the purpose of the Separate Account
or in view of legal, regulatory or federal income tax
restrictions, LLANY may substitute shares of another Fund.
There will be no substitution of securities in any
Sub-Account without prior approval of the Commission.
Substitute Funds may have higher charges than the Funds
being replaced.
VOTING RIGHTS
LLANY will vote the shares of each Fund held in the Separate
Account at special meetings of the shareholders of the
particular Fund in accordance with instructions received by
the Administrative Office in proper written form from
persons having a voting interest in the Separate Account.
LLANY will vote shares for which it has not received
instructions in the same proportion as it votes shares in
the Separate Account for which it has received instructions.
The Funds do not hold regular meetings of shareholders.
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 number of shares which a person has a right to vote will
be determined as of a date to be chosen by the appropriate
Fund not more than sixty (60) days prior to the meeting of
the particular Fund. Voting instructions will be solicited
by written communication at least fourteen (14) days prior
to the meeting.
20
<PAGE>
FUND PARTICIPATION AGREEMENTS
LLANY has entered into 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.
CHARGES AND FEES
LLANY deducts charges in connection with the Policy to
compensate it for providing the insurance benefit set forth
in the Policy, administering the Policy, assuming certain
risks in connection with the Policy and for incurring
expenses associated with the distribution of the Policy.
The nature and amount of these charges are as follows:
DEDUCTIONS FROM PREMIUM PAYMENTS
We deduct a premium charge of 5% from each Premium Payment.
DEDUCTIONS MADE MONTHLY
We make various expense deductions monthly. The Monthly
Deductions, including the Cost of Insurance Charge and
charges for supplemental riders or benefits, if any, are
deducted proportionately from the Net Accumulation Value of
each underlying investment subject to the charge. For
Sub-Accounts, Accumulation Units are canceled and the value
of the canceled Units withdrawn in the same proportion as
their respective values have to the Net Accumulation Value.
The Monthly Deductions are made on the "Monthly Anniversary
Day", the Date of Issue and the same day of each month
thereafter, or if there is no such date in a given month,
then the first Valuation Day of the next month. If the day
that would otherwise be a Monthly Anniversary Day is not a
Valuation Day, then the Monthly Anniversary Day is the next
Valuation Day.
If the Net Accumulation Value is insufficient to cover the
current Monthly Deduction, you have a 61-day period (Grace
Period) to make a payment sufficient to cover that
deduction. (See LAPSE AND REINSTATEMENT Lapse of a Policy).
MONTHLY DEDUCTION
There is a flat dollar Monthly Deduction of $15 until the
first Policy Anniversary and, currently, $5 thereafter
(guaranteed not to exceed $10 after the first Policy Year).
These charges compensate LLANY for administrative expenses
associated with Policy issue and ongoing Policy maintenance
including premium billing and collection, policy value
calculation, confirmations, periodic reports and other
similar matters.
COST OF INSURANCE CHARGE
The Cost of Insurance is the portion of the Monthly
Deduction designed to compensate LLANY for the anticipated
cost of paying Death Benefits in excess of the Accumulation
Value, not including riders, supplemental benefits or
monthly expense charges.
The Cost of Insurance charge depends on the Age, policy
duration, underwriting category and gender (in accordance
with state law) of the Insured and the current Net
21
<PAGE>
Amount at Risk. The Net Amount at Risk is the Death Benefit
minus the Accumulation Value. The rate on which the Monthly
Deduction for the Cost of Insurance is based will generally
increase as the Insured ages, although the Cost of Insurance
charge could decline if the Net Amount at Risk drops
relatively faster than the Cost of Insurance Rate increases.
The Cost of Insurance charge is determined by dividing the
Death Benefit at the beginning of the Policy Month by
1.0032737 (the monthly equivalent of an annual rate of 4%),
subtracting the Accumulation Value at the beginning of the
Policy Month and multiplying the result (the Net Amount at
Risk) by the applicable Cost of Insurance Rate as determined
by LLANY. The Guaranteed Cost of Insurance Rates are in
Appendix 3.
MORTALITY AND EXPENSE RISK CHARGE
LLANY deducts a daily charge as a percentage of the assets
of the Separate Account as a mortality and expense risk
charge. The mortality risk assumed is that insureds may live
for a shorter period than estimated, and therefore, a
greater amount of death benefit will be payable. The expense
risk assumed is that expenses incurred in issuing and
administering the policies will be greater than estimated.
The mortality and expense risk charge is guaranteed at an
annual rate of 0.75% in Policy Years 1-10, 0.35% in Policy
Years 11-20 and 0.20% in Policy Years 21 and beyond.
FUND EXPENSES
The investment advisor for each of the Funds deducts a daily
charge as a percent of the net assets in each fund as an
asset management charge. The charge reflects asset
management fees of the investment advisor (Management Fees),
and other expenses incurred by the funds (including 12b-1
fees for a class of shares and Other Expenses). The charge
has the effect of reducing the investment results credited
to the Sub-Accounts. Future Fund expenses will vary.
<TABLE>
<CAPTION>
Total
Annual Total fund
Fund operating
Operating expenses
Expenses Total with
without waivers waivers
MANAGEMENT 12(b)1 Other waivers or and and
FUND FEES(1) FEE EXPENSES REDUCTIONS REDUCTIONS REDUCTIONS
--------------------------- ----------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
AIM V.I. Growth Fund....... 0.63% N/A% 0.10% 0.73% N/A 0.73%
AIM V.I. International
Equity Fund.............. 0.75% N/A 0.22% 0.97% N/A 0.97%
AIM V.I. Value Fund........ 0.61% N/A 0.15% 0.76% N/A 0.76%
AFIS Global Small
Capitalization Fund-
Class 2.................. 0.78% 0.25% 0.03% 1.06% N/A 1.06%
AFIS Growth Class 2........ 0.38% 0.25% 0.01% 0.64% N/A 0.64%
AFIS Growth Income
Class 2.................. 0.34% 0.25% 0.01% 0.60% N/A 0.60%
Baron Capital Asset
Fund-Insurance
Shares(2)................ 0.62% 0.25% 0.63% 1.88% (0.38)% 1.50%
Delaware Devon Series
Standard Class (3a)...... 0.65% N/A 0.10% 0.75% N/A 0.75%
Delaware Emerging Markets
Series-Standard
Class (3b)............... 1.19% N/A 0.28% 1.53% (0.06)% 1.47%
Delaware High Yield Series
(formerly Delchester)
Standard Class (3c)...... 0.65% N/A 0.07% 0.72% N/A 0.72%
Delaware REIT Series
Standard Class (3d)...... 0.64% N/A 0.21% 0.96% (0.11)% 0.85%
Delaware Small Value Series
Standard Class (3e)...... 0.75% N/A 0.10% 0.85% N/A 0.85%
Delaware Trend Series
Standard Class (3f)...... 0.75% N/A 0.07% 0.82% N/A 0.82%
Deutsche VIT EAFE Index
Fund(4).................. 0.26% N/A 0.39% 1.15% (0.50)% 0.65%
Deutsche VIT Equity 500
Index Fund(4)............ 0.14% N/A 0.16% 0.43% (0.13)% 0.30%
Deutsche VIT Small Cap
Index Fund(4)............ 0.13% N/A 0.32% 1.18% (0.73)% 0.45%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Total
Annual Total fund
Fund operating
Operating expenses
Expenses Total with
without waivers waivers
MANAGEMENT 12(b)1 Other waivers or and and
FUND FEES(1) FEE EXPENSES REDUCTIONS REDUCTIONS REDUCTIONS
--------------------------- ----------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fidelity VIP Growth
Portfolio Service
Class (5)................ 0.58% 0.10% 0.09% 0.77% N/A 0.77%
Fidelity VIP High Income
Portfolio Service
Class (5)................ 0.58% 0.10% 0.11% 0.79% N/A 0.79%
Fidelity VIP II ContraFund
Portfolio-Service
Class (5)................ 0.58% 0.10% 0.10% 0.78% N/A 0.78%
Fidelity VIP III Growth
Opportunities Portfolio
Service Class (5)........ 0.58% 0.10% 0.11% 0.79% N/A 0.79%
Janus Aspen Series Balanced
Portfolio (Institutional
Shares)(6)............... 0.65% N/A 0.02% 0.67% N/A 0.67%
Janus Aspen Series Global
Technology Portfolio
(Service Shares)(6)...... 0.65% 0.25% 0.13% 1.03% N/A 1.03%
Janus Aspen Series
Worldwide Growth
Portfolio(6)............. 0.65% N/A 0.05% 0.70% N/A 0.70%
LN Bond Fund............... 0.45% N/A 0.08% 0.53% N/A 0.53%
LN Capital Appreciation
Fund..................... 0.72% N/A 0.06% 0.78% N/A 0.78%
LN Equity-Income Fund...... 0.72% N/A 0.07% 0.79% N/A 0.79%
LN Global Asset Allocation
Fund..................... 0.72% N/A 0.19% 0.91% N/A 0.91%
LN Money Market Fund....... 0.48% N/A 0.11% 0.59% N/A 0.59%
LN Social Awareness Fund... 0.33% N/A 0.05% 0.38% N/A 0.38%
MFS Emerging Growth
Fund(7).................. 0.75% N/A .09%(1) 0.84% N/A 0.84%
MFS Total Return
Series(7)................ 0.75% N/A 0.15%(1) 0.90% N/A 0.90%
MFS Utilities
Series (7)............... 0.75% N/A 0.16%(1) 0.91% N/A 0.91%
Neuberger Berman AMT
Mid-Cap Growth
Portfolio(8)............. 0.85% N/A 0.15% 1.08% (0.08)% 1.00%
Neuberger Berman AMT
Partners Portfolio(8).... 0.80% N/A 0.07% 0.87% N/A 0.87%
Templeton Growth Securities
Fund Class 2(9a,b,c)..... 0.83% 0.25% 0.05% 1.13% N/A 1.13%
Templeton International
Securities Fund
Class 2(9b,d)............ 0.69% 0.25% 0.19% 1.13% N/A 1.13%
</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. Some advisors pay higher fees
than others.
(2) The Adviser is contractually obligated to reduce its
fee to the extent required to limit Baron Capital
Asset Fund's total operating expenses to 1.5% for the
first $250 million of assets in the Fund, 1.35% for
Fund assets over $250 million and 1.25% for Fund
assets over $500 million. Without the expense
limitations, total operating expenses for the Fund
for the period January 1, 1999 through December 31,
1999 would have been 1.88%.
(3)(a) The investment advisor for the Devon 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 each Series for expenses to the extent
that total expenses will not
23
<PAGE>
exceed 0.80%. Under its Management Agreement, the
Series pays a management fee based on average daily
net assets as follows: 0.65% on the first $500
million, 0.60% on the next $500 million, 0.55% on
the next $1,500 million, 0.50% on assets in excess
of $2,500 million; all per year.
(b) 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 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.
(c) The investment advisor for the High Yield 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 0.80%. Under its
Management Agreement, the Series pays a management
fee based on average daily net assets as follows:
0.65% on the first $500 million, 0.60% on the next
$500 million, 0.55% on the next $1,500 million, 0.50%
on assets in excess of $2,500 million; all per year.
(d) The investment advisor for the REIT 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%. Without such an
arrangement, the total annual operating expenses for
the Series would have been 0.96%. 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.
(e) 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.
(f) 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.
(4) 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. Under the
Advisory Agreement with the "Advisor", the Small Cap
Index Fund will pay an advisory fee at an annual
percentage rate of 0.35% of the average daily net
assets of the fund. These fees are accrued daily and
paid monthly. The Advisor has voluntarily undertaken
to waive its fee and to reimburse the fund for
certain expenses so that the fund's total operating
expenses will not exceed 0.45% of average daily net
assets. Under the Advisory Agreement the "Advisor",
the EAFE Equity Index Fund will pay an advisory fee
at an annual percentage rate of 0.45% of the average
daily net assets of the fund. These fees are accrued
daily and paid monthly. The Advisor has voluntarily
undertaken to waive its fee and to reimburse the fund
for certain expenses so that the fund's total
operating expenses will not exceed 0.65% 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,
1.18% for the Small Cap Index Fund and 1.15% for the
EAFE Equity Index Fund.
(5) 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: Growth 0.75%
(service); Contrafund 0.75% (service); Growth
Opportunities 0.78% (service).
(6) Expenses (except for Global Technology Portfolio) are
based upon expenses for the fiscal year ended
December 31, 1999, restated to reflect a reduction in
the management fee for Growth, Aggressive Growth,
Worldwide Growth, and Balanced Portfolios. Expenses
for Global Technology Portfolio are based on the
estimated expenses that the Portfolio expects to
incur in its initial fiscal year. All expenses are
shown without the effect of expense offset
arrangements.
(7) 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 ton
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
(8) Expenses reflect expense reimbursement. Neuberger
Berman Management Inc. ("NBMI") has undertaken
through May 1, 2001 to reimburse certain operating
expenses, including the compensation
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<PAGE>
of NBMI and excluding taxes, interest, extraordinary
expenses, brokerage commissions and transaction
costs, that exceed in the aggregate, 1.0% of the AMT
Mid-Cap Growth Portfolio's average daily net asset
value. Absent such reimbursement, Total Annual
Expenses for the portfolio for the year ended
December 31, 1999 would have been 1.08%.
(9)(a) The fund administration fee is paid indirectly
through the management fee.
(b) The fund's class 2 distribution plan or "rule 12b-1
plan" is described in the fund's prospectus. While
the maximum amount payable under the fund's class 2
rule 12b-1 plan is 0.35% per year of the fund's
average daily net assets, the Board of Trustees of
Franklin Templeton Variable Insurance Products Trust
has set the current rate at 0.25% per year.
(c) A merger and reorganization was approved that
combined the fund with a similar fund of Templeton
Variable Products Series Fund on 5/1/00. The table
shows restated total expenses for the fund based on
the combined assets of the two funds as of 12/31/99,
even though the merger did not become effective until
5/1/00.
(d) On 2/8/00, shareholders approved a merger and
reorganization that combined the fund with the
Templeton International Equity Fund. The shareholders
of that fund approved new management fees, which
apply to the combined fund effective 5/1/00. The
table shows restated total expenses for the fund
based on the new fund fees and the combined assets of
the two funds as of 12/31/99, even though the merger
and the new fees did not become effective until
5/1/00.
25
<PAGE>
SURRENDER CHARGES
A generally declining "Surrender Charge" may apply if the
Policy is totally surrendered or lapses during the first
fifteen years following the Date of Issue or the first
fifteen years following an increase in Specified Amount. The
Surrender Charge varies by Age of the Insured, the number of
years since the Date of Issue, and Specified Amount. The
length of the Surrender Charge period varies based on the
Age of the Insured on the date of issue or date of increase
in Specified Amount as follows:
<TABLE>
<CAPTION>
AGE SURRENDER CHARGE PERIOD
---- -----------------------
<S> <C>
0-50 15 years
51 14 years
52 13 years
53 12 years
54 11 years
55+ 10 years
</TABLE>
The charge is in part a deferred sales charge and in part a
recovery of certain first year administrative costs and is
retained by LLANY. The maximum Surrender Charge is included
in each Policy and is in compliance with each state's
nonforfeiture law. Examples of the Surrender Charge can be
seen in Appendix 2.
The Surrender Charge under a Policy is proportional to the
face amount of the Policy. Expressed as a percentage of face
amount, it is higher for older than for younger issue ages.
The Surrender Charge cannot exceed Policy value. All
Surrender Charges decline to zero over the 15 years
following issuance of the Policy. See, for example, the
illustrations in Appendix 4 for issue ages 45 and 55.
If the Specified Amount is increased, a new Surrender Charge
will be applicable, in addition to any existing Surrender
Charge. The Surrender Charge applicable to the increase
would be equal to the Surrender Charge on a new Policy whose
Specified Amount was equal to the amount of the increase.
Supplemental Policy Specifications will be sent to the Owner
upon an increase in Specified Amount reflecting the maximum
additional Surrender Charge in the Table of Surrender
Charges. The minimum allowable increase in Specified Amount
is $1,000. LLANY may change this at any time.
If the Specified Amount is decreased while the Surrender
Charge applies, the Surrender Charge will remain the same.
No Surrender Charge is imposed on a partial surrender, but
an administrative fee of $25 (not to exceed 2% of the amount
surrendered) is imposed, allocated pro-rata among the
Sub-Accounts from which the partial surrender proceeds are
taken.
Any surrender may result in tax implications. (SEE TAX
ISSUES)
Based on its actuarial determination, LLANY does not
anticipate that the Surrender Charge, together with the
portion of the premium load attributable to sales expense,
will cover all sales and administrative expenses which LLANY
will incur in connection with the Policy. Any such
shortfall, including but not limited to payment of sales and
distribution expenses, would be available for recovery from
the general account of LLANY, which supports insurance and
annuity obligations.
REDUCTION OF CHARGES -- PURCHASES ON A CASE BASIS
This Policy is available for purchases by corporations and
other groups or sponsoring organizations on a Case basis.
LLANY reserves the right to reduce premium loads or
26
<PAGE>
any other charges on certain cases, where it is expected
that the amount or nature of such cases will result in
savings of sales, underwriting, administrative or other
costs. Eligibility for these reductions and the amount of
reductions will be determined by a number of factors,
including but not limited to, the number of lives to be
insured, the total premiums expected to be paid, total
assets under management for the policy owner, the nature of
the relationship among the insured individuals, the purpose
for which the Policies are being purchased, the expected
persistency of the individual policies and any other
circumstances which LLANY believes to be relevant to the
expected reduction of its expenses. Some of these reductions
may be guaranteed and others may be subject to withdrawal or
modification by LLANY on a uniform Case basis. Reductions in
these charges will not be unfairly discriminatory against
any person, including the affected Policy Owners funded by
Account M.
TRANSACTION FEE FOR EXCESS TRANSFERS
LLANY reserves the right to impose a charge for each
transfer request in excess of 12 in any Policy Year. A
single transfer request may consist of multiple
transactions.
DEATH BENEFITS
The Death Benefit Proceeds is the amount payable to the
Beneficiary upon the death of the Insured, in accordance
with the Death Benefit Option selected. Loans (if any) and
overdue deductions are deducted from the Death Benefit
Proceeds prior to payment.
The applicant must select the Specified Amount of the Death
Benefit, which may not be less than $100,000, and the Death
Benefit Option. The two Death Benefit Options are described
below. The applicant must consider a number of factors in
selecting the Specified Amount, including the amount of
proceeds required when the Insured dies and the Owner's
ability to make Premium Payments. The ability of the Owner
to support the Policy, particularly in later years, is an
important factor in selecting between the Death Benefit
Options, because the greater the Net Amount at Risk at any
time, the more that will be deducted each month from the
value of the Policy to pay the Cost of Insurance.
DEATH BENEFIT OPTIONS
Two different Death Benefit Options are available under the
Policy. The Death Benefit Proceeds payable under the Policy
is the greater of (a) the Corridor Death Benefit or (b) the
amount determined under the Death Benefit Option in effect
on the date of the Insured's Death, less (in each case) any
indebtedness under the Policy. In the case of Death Benefit
Option 1, the Specified Amount is reduced by the amount of
any partial surrender. The Corridor Death Benefit is the
applicable percentage (the Corridor Percentage) of the
Accumulation Value (rather than by reference to the
Specified Amount) required to maintain the Policy as a "life
insurance contract" for Federal income tax purposes. The
Corridor Percentage is 250% through the time the insured
reaches Age 40 and decreases in accordance with the table in
Appendix 3 to 100% when the Insured reaches Age 95.
Death Benefit Option 1 provides Death Benefit Proceeds equal
to the Specified Amount (a minimum of $100,000). If
Option 1 is selected, the Policy pays level Death Benefit
Proceeds unless the Minimum Death Benefit exceeds the
Specified Amount. (See DEATH BENEFITS, Federal Income Tax
Definition of Life Insurance).
Death Benefit Option 2 provides Death Benefit Proceeds equal
to the sum of the Specified Amount plus the Net Accumulation
Value as of the date of the Insured's death.
27
<PAGE>
If Option 2 is selected, the Death Benefit Proceeds increase
or decrease over time, depending on the amount of premium
paid and the investment performance of the underlying
Sub-Accounts.
If for any reason the applicant fails to affirmatively elect
a particular Death Benefit Option, Death Benefit Option 1
shall apply until changed as provided below.
Owners who prefer insurance coverage that generally does not
vary in amount and generally has lower Cost of Insurance
Charges should elect Option 1. Owners who prefer to have
favorable investment experience reflected in increased
insurance coverage should select Option 2. Under Option 1,
any Surrender Value at the time of the Insured's Death will
revert to LLANY.
CHANGES IN DEATH BENEFIT OPTIONS AND SPECIFIED AMOUNT
All requests for changes between Death Benefit Options and
changes in the Specified Amount must be submitted in proper
written form to the Administrative Office. The minimum
increase in Specified Amount currently permitted is $1,000.
If requested, a supplemental application and evidence of
insurability must also be submitted to LLANY.
In a change from Death Benefit Option 1 to Death Benefit
Option 2, the Specified Amount shall be reduced so it
thereafter equals (a) the amount payable under the Death
Benefit Option in effect immediately before the change,
minus (b) the Accumulation Value immediately before the
change. In a change from Death Benefit Option 2 to Death
Benefit Option 1, the Specified Amount shall be increased so
that it thereafter equals the amount payable under the Death
Benefit Option in effect immediately before the change.
Any reductions in Specified Amount will be made against the
initial Specified Amount and any later increase in the
Specified Amount on a last in, first out basis. Any increase
in the Specified Amount will increase the amount of the
Surrender Charge applicable to the Policy.
LLANY may at its discretion decline any request for a change
between Death Benefit Options or increase in the Specified
Amount. LLANY may at its discretion decline any request for
change of the Death Benefit Option or reduction of the
Specified Amount if, after the change, the Specified Amount
would be less than the minimum Specified Amount or would
reduce the Specified Amount below the level required to
maintain the Policy as life insurance for purposes of
Federal income tax law.
Any change is effective on the first Monthly Anniversary Day
on or after the date of approval of the request by LLANY,
unless the Monthly Deduction Amount would increase as a
result of the change. In that case, the change is effective
on the first Monthly Anniversary Day on which the
Accumulation Value is equal to or greater than the Monthly
Deduction Amount, as increased.
FEDERAL INCOME TAX DEFINITION OF LIFE INSURANCE
The amount of the Death Benefit must satisfy certain
requirements under the Code if the policy is to qualify as
insurance for federal income tax purposes. The amount of the
Death Benefit Proceeds required to be paid under the Code to
maintain the Policy as life insurance under each of the
Death Benefit Options (see INSURANCE COVERAGE PROVISIONS,
Death Benefit) is equal to the product of the Accumulation
Value and the applicable Corridor Percentage. A table of
Corridor Percentages is in Appendix 3.
28
<PAGE>
NOTICE OF DEATH OF INSURED
Due Proof of Death must be furnished to LLANY at the
Administrative Office as soon as reasonably practical after
the death of the Insured, the person whose life is insured
under the Policy. Due Proof of Death must be in proper
written form and includes a certified copy of an official
death certificate, a certified copy of a decree of a court
of competent jurisdiction as to the finding of death, or any
other proof of death satisfactory to LLANY.
PAYMENT OF DEATH BENEFIT PROCEEDS
The Death Benefit Proceeds under the Policy will ordinarily
be paid within seven days, if in a lump sum, or in
accordance with any Settlement Option selected by the Owner
or the Beneficiary, after receipt at the Administrative
Office of Due Proof of Death of the Insured. The amount of
the Death Benefit Proceeds under Option 2 will be determined
as of the date of the Insured's death. Payment of the Death
Benefit Proceeds may be delayed if the Policy is contested
or if Separate Account values cannot be determined.
SETTLEMENT OPTIONS
There are several ways in which the Beneficiary may receive
the Death Benefit Proceeds or in which the Owner may choose
to receive payments upon the surrender of the Policy.
The Owner may elect or change a Settlement Option while the
insured is alive; If the Owner has not irrevocably selected
a Settlement Option, the Beneficiary may do so within 90
days after the Insured dies. If no Settlement Option is
selected, the Death Benefit Proceeds will be paid in a lump
sum.
If the Policy is assigned as collateral security, LLANY will
pay any amount due the assignee in one lump sum. Any
remaining Death Benefit Proceeds will be paid as elected.
A request to elect, change, or revoke a Settlement Option
must be received in proper written form by the
Administrative Office before payment of the lump sum or
under any Settlement Option. The first payment under the
Settlement Option selected will become payable on the date
proceeds are settled under the option. Payments after the
first payment will be made on the first day of each month.
Once payments have begun, the Policy cannot be surrendered
and neither the payee nor the Settlement Option may be
changed.
There are at least four Settlement Options:
The first Settlement Option is an annuity for the
lifetime of the payee.
The second Settlement Option is an annuity for the
lifetime of the payee, with monthly payments guaranteed
for 60, 120, 180, or 240 months.
29
<PAGE>
Under the third Settlement Option, LLANY makes monthly
payments for a stated number of years, at least five but
no more than thirty.
Under the fourth Settlement Option, LLANY pays at least
3% interest annually on the sum left on deposit, and pays
the amount on deposit on the payee's death.
Any other Settlement Option offered by LLANY at the time of
election may also be selected.
POLICY LIQUIDITY
The accumulated value of the Policy is available for loans
or withdrawals. Subject to certain limitations, the Owner
may borrow against the Surrender Value of the Policy, may
make a partial surrender of some of the Surrender Value of
the Policy and may fully surrender the Policy for its
Surrender Value.
POLICY LOANS
The Owner may at any time borrow in the aggregate up to 100%
of the Surrender Value at the time a Policy Loan is made.
LLANY may, however, limit the amount of the loan so that the
total Policy indebtedness will not exceed 90% of the amount
of the Accumulation Value less any Surrender Charge that
would be imposed on a full surrender. The Owner must execute
a loan agreement and assign the Policy to LLANY free of any
other assignments. The Loan Account is the account in which
Policy indebtedness (outstanding loans and interest) accrues
once it is transferred out of the Fixed Account or the
Sub-Accounts. Interest on Policy Loans accrues at an annual
rate of 8%, and is payable to LLANY (for its account) once a
year in arrears on each Policy Anniversary, or earlier upon
full surrender or other payment of proceeds of a Policy.
The amount of a loan, plus any accrued but unpaid interest,
is added to the outstanding Policy Loan balance. Unless paid
in advance, any loan interest due will be transferred
proportionately from the values in the Fixed Account and
each Sub-Account, and treated as an additional Policy Loan,
and added to the Loan Account Value.
LLANY credits interest to the Loan Account Value of 7% in
Policy Years 1-10 and 8% thereafter, so the net cost of a
Policy Loan is 1% in years 1-10 and 0% thereafter.
If the Net Accumulation Value is distributed among more than
one of the Sub-Accounts (including for this purpose the
Fixed Account), transfers from each for loans and loan
interest will be made in proportion to the assets in each
such Sub-Account at that time, unless LLANY is instructed
otherwise in proper written form at the Administrative
Office. Repayments on the loan and interest credited on the
Loan Account Value will be allocated according to the most
recent Premium Payment allocation at the time of the
repayment.
A Policy Loan, whether or not repaid, affects the proceeds
payable upon the Death and the Accumulation Value. The
longer a Policy Loan is outstanding, the greater the effect
is likely to be. While an outstanding Policy Loan reduces
the amount of assets invested, depending on the investment
results of the Sub-Accounts, the effect could be favorable
or unfavorable.
If at any time the total indebtedness against the Policy,
including interest accrued but not due, equals or exceeds
the then current Accumulation Value less Surrender Charges,
the Policy will terminate without value subject to the
conditions in the Grace Period Provision, unless the No
Lapse Provision is in effect. (SEE LAPSE AND REINSTATEMENT,
Lapse of a Policy)
30
<PAGE>
If a Policy lapses while a loan is outstanding, adverse tax
consequences may result.
PARTIAL SURRENDER
You may make a partial surrender at any time while the
Insured is alive by request to the Administrative Office in
proper written form or by telephone, if you have authorized
telephone transactions. A $25 transaction fee (not to exceed
2% of the amount surrendered) is charged for each partial
surrender. Total partial surrenders may not exceed 90% of
the Surrender Value of the Policy. Each partial surrender
may not be less than $500. Partial surrenders are subject to
other limitations as described below.
Partial surrenders may reduce the Specified Amount and, in
each case, reduce the Death Benefit Proceeds. To the extent
that a requested partial surrender would cause the Specified
Amount to be less than $100,000, the partial surrender will
not be permitted by LLANY. In addition, if following a
partial surrender and the corresponding decrease in the
Specified Amount, the Policy would not comply with the
maximum premium limitations required by federal tax law, the
surrender may be limited to the extent necessary to meet the
federal tax law requirements.
The effect of partial surrenders on the Death Benefit
Proceeds depends on the Death Benefit Option elected under
the Policy. If Death Benefit Option 1 has been elected, a
partial surrender would reduce the Accumulation Value and
the Specified Amount. The reduction in the Specified Amount,
which would reduce any past increases on a last in, first
out basis, reduces the amount of the Death Benefit Proceeds.
If Death Benefit Option 2 has been elected, a partial
surrender would reduce the Accumulation Value, but would not
reduce the Specified Amount. The reduction in the
Accumulation Value reduces the amount of the Death Benefit
Proceeds.
If the Net Accumulation Value is distributed among more than
one of the Sub-Accounts, surrenders from each will be made
in proportion to the assets in each Sub-Account at the time
of the surrender, unless LLANY is instructed otherwise in
proper written form at the Administrative Office. LLANY may
at its discretion decline any request for a partial
surrender.
SURRENDER OF THE POLICY
You may surrender the Policy at any time on surrender of the
Policy, LLANY will pay you, or your assignee, the Surrender
Value next computed after receipt of the request in proper
written form at the Administrative Office. If the owner
makes a full surrender, all coverage under the policy will
automatically terminate and may not be reinstated.
SURRENDER VALUE
The "Surrender Value" of a Policy is the amount you can
receive in a lump sum by surrendering the Policy. The
Surrender Value is the Net Accumulation Value less the
Surrender Charge (SEE CHARGES AND FEES, Surrender Charge).
All or part of the Surrender Value may be applied to one or
more of the Settlement Options. Surrender Values are
illustrated in Appendix 4.
DEFERRAL OF PAYMENT AND TRANSFERS
Payment of loans or of the Surrender Value from any of the
Sub-Accounts will generally be made within seven days.
Payment or transfer from the Fixed Account may be
31
<PAGE>
deferred up to six months at LLANY's option. If LLANY
exercises its right to defer any payment from the Fixed
Account, interest will accrue and be paid as required by law
from the date the recipient would otherwise have been
entitled to receive the payment.
ASSIGNMENT; CHANGE OF OWNERSHIP
While the Insured is living, you may assign your rights in
the Policy, including the right to change the beneficiary
designation. The assignment must be in proper written form,
signed by you and recorded at the Administrative Office. No
assignment will affect, or prejudice LLANY as to, any
payment made or action taken by LLANY before it was
recorded. LLANY is not responsible for any assignment not
submitted for recording, nor is LLANY responsible for the
sufficiency or validity of any assignment. Any assignment is
subject to any indebtedness owed to LLANY at the time the
assignment is recorded and any interest accrued on such
indebtedness after recordation of any assignment.
Once recorded, the assignment remains effective until
released by the assignee in proper written form. So long as
an effective assignment remains outstanding, you will not be
permitted to take any action with respect to the Policy
without the consent of the assignee in proper written form.
So long as the Insured is living, you may name a new Owner
by recording a change in ownership in proper written form at
the Administrative Office. On recordation, the change will
be effective as of the date of execution of the document of
transfer or, if there is no such date, the date of
recordation. No such change of ownership will affect, or
prejudice LLANY as to, any payment made or action taken by
LLANY before it was recorded. LLANY may require that the
Policy be submitted to it for endorsement before making a
change.
LAPSE AND REINSTATEMENT
LAPSE OF A POLICY
If at any time the Net Accumulation Value is insufficient to
pay the Monthly Deduction, the Policy is subject to lapse
and automatic termination of all coverage under the Policy.
The Net Accumulation Value may be insufficient (1) because
it has been exhausted by earlier deductions, (2) due to poor
investment performance, (3) due to partial surrenders,
(4) due to indebtedness for Policy Loans, or (5) because of
some combination of the foregoing factors.
If LLANY has not received a Premium Payment or payment of
indebtedness on Policy Loans necessary so that the Net
Accumulation Value is sufficient to pay the Monthly
Deduction Amount on a Monthly Anniversary Day, LLANY will
send a written notice to the Owner and any assignee of
record. The notice will state the amount of the Premium
Payment or payment of indebtedness on Policy Loans necessary
such that the Net Accumulation Value is at least equal to
two times the Monthly Deduction Amount. If the minimum
required amount set forth in the notice is not paid to LLANY
on or before the day that is the later of (a) 31 days after
the date of mailing of the notice, and (b) 61 days after the
date of the Monthly Anniversary Day with respect to which
such notice was sent (together, the Grace Period), then the
policy shall terminate and all coverage under the policy
shall lapse without value.
REINSTATEMENT OF A LAPSED POLICY
After the Policy has lapsed due to the failure to make a
necessary payment before the end of an applicable Grace
Period, it may be reinstated provided (a) it has not been
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<PAGE>
surrendered, (b) there is an application for reinstatement
in proper written form, (c) evidence of insurability of the
insured is furnished to LLANY and it agrees to accept the
risk, (d) LLANY receives a payment sufficient to keep the
Policy in force for at least two months, and (e) any accrued
loan interest is paid. The effective date of the reinstated
Policy shall be the Monthly Anniversary Day after the date
on which LLANY approves the application for reinstatement.
Surrender Charges will be reinstated as of the Policy Year
in which the Policy lapsed.
If the Policy is reinstated, such reinstatement is effective
on the Monthly Anniversary Day following LLANY approval. The
Accumulation Value at reinstatement will be the Net Premium
Payment then made less all Monthly Deductions due.
If the Surrender Value is not sufficient to cover the full
Surrender Charge at the time of lapse, the remaining portion
of the Surrender Charge will also be reinstated at the time
of Policy reinstatement.
COMMUNICATIONS WITH LLANY
PROPER WRITTEN FORM
Whenever this Prospectus refers to a communication "in
proper written form," it means a written document, in form
and substance reasonably satisfactory to LLANY, received at
the Administrative Office.
OTHER POLICY PROVISIONS
ISSUANCE
A Policy may only be issued upon receipt of satisfactory
evidence of insurability, and generally only when the
Insured is at least Age 18 and at most Age 80.
DATE OF COVERAGE
The date of coverage will be the Date of Issue, provided the
Insured is alive and prior to any change in the health and
insurability of the Insured as represented in the
application.
INCONTESTABILITY
LLANY will not contest payment of the Death Benefit Proceeds
based on the initial Specified Amount after the Policy has
been in force during the Insured's lifetime for two years
from the Date of Issue. For any increase in Specified Amount
requiring evidence of insurability, LLANY will not contest
payment of the Death Benefit Proceeds based on such an
increase after it has been in force for two years from its
effective date.
MISSTATEMENT OF AGE OR GENDER
If the Age or gender of the Insured has been misstated, the
affected benefits will be adjusted. The amount of the Death
Benefit Proceeds will be 1. multiplied by 2. and then the
result added to 3. where:
1. is the Net Amount at Risk at the time of the Insured's
Death;
2. is the ratio of the monthly Cost of Insurance applied in
the Policy month of death to the monthly Cost of
Insurance that should have been applied at the true Age
and gender in the Policy month of death; and
3. is the Accumulation Value at the time of the Insured's
Death.
33
<PAGE>
SUICIDE
If the Insured dies by suicide, while sane or insane, within
two years from the Date of Issue, LLANY will pay no more
than the sum of the premiums paid, less any indebtedness and
the amount of any partial surrenders. If the Insured dies by
suicide, while sane or insane, within two years from the
date an application is accepted for an increase in the
Specified Amount, LLANY will pay no more than a refund of
the monthly charges for the cost of such additional benefit.
NONPARTICIPATING POLICIES
These are nonparticipating Policies on which no dividends
are payable. These Policies do not share in the profits or
surplus earnings of LLANY.
RIDERS
A Waiver of Monthly Deduction Rider may be added to the
Policy. Under this Rider, LLANY will maintain the Death
Benefit by paying covered monthly deductions during periods
of disability. 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 the 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
34
<PAGE>
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. 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 the 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
general, this policy will constitute a MEC unless (1) it was
received in exchange for another life insurance
35
<PAGE>
contract which was not a MEC, and (2) no premium payments
(other than the exchanged contract) are paid into the policy
during the first seven contract years. 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. 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
(described below), 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,
36
<PAGE>
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 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.
37
<PAGE>
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.
FAIR VALUE OF THE POLICY
It is sometimes necessary for tax and other reasons to
determine the "fair value" of the Policy. The fair value of
the Policy is measured differently for different purposes.
It is not necessarily the same as the Accumulation Value or
the Net Accumulation Value, although the amount of the Net
Accumulation Value will typically be important in valuing
the Policy for this purpose. For some but not all purposes,
the fair value of the Policy may be the Surrender Value of
the Policy. The fair value of the Policy may be impacted by
developments other than the performance of the underlying
investments. For example, without regard to any other
factor, it increases as the Insured grows older. Moreover,
on the death of the Insured, it tends to increase
significantly. The Owner should consult with his or her
advisors for guidance as to the appropriate methodology for
determining the fair value of the Policy for a particular
purpose.
38
<PAGE>
DIRECTORS AND OFFICERS OF LLANY
The following persons are Directors and Officers of LLANY.
Except as indicated below, the address of each is 120
Madison Street, Suite 1700, Syracuse, New York 13202 and
each has been employed by LLANY or its affiliates for more
than five years.
<TABLE>
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 West Tower Suite [1/98-present]. Formerly: President and
3900 Chief Executive Officer [10/96-1/98],
Philadelphia, PA 19102 President and Chief Operating Officer
[5/94-10/96] The Lincoln National Life
Insurance Co.
JOANNE B. COLLINS President, Treasurer and Director, Lincoln
PRESIDENT, TREASURER Life & Annuity Company of New York
AND 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>
39
<PAGE>
<TABLE>
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 West Tower Corporation
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, 18th Floor Director [4/87-11/99], Schroeder Real
New York, NY 10022 Estate Associates.
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
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>
40
<PAGE>
DISTRIBUTION OF POLICIES
LLANY intends to offer the Policy 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 ("NASD"). The principal business address of LFA is
350 Church Street, Hartford, CT 06103.
The Policy may be sold by individuals, who in addition to
being appointed as life insurance agents for LLANY, are also
registered representatives of LFA or other broker-dealers.
These representatives may receive commission and service
fees up to 98% of the first year premium, plus up to 10% of
all other premiums paid. In lieu of premium-based
commission, LLANY may pay equivalent amounts based on
Accumulation Value. The selling office receives additional
compensation on the first year premium and all additional
premiums. In some situations, the selling office may elect
to share its commission with the registered representative.
Selling representatives are also eligible for bonuses and
non-cash compensation if certain production levels are
reached. All compensation is paid from LLANY's resources,
which include sales charges made under this Policy.
CHANGES OF INVESTMENT POLICY
LLANY may materially change the investment policy of the
Separate Account. LLANY must inform the Owners and obtain
all necessary regulatory approvals. Any change must be
submitted to the various state insurance departments which
shall disapprove it if deemed detrimental to the interests
of the Owners or if it renders LLANY's operations hazardous
to the public. If an Owner objects, the Policy may be
converted to a substantially comparable fixed benefit life
insurance policy offered by LLANY on the life of the
Insured. The Owner has the later of 60 days from the date of
the investment policy change or 60 days from being informed
of such change to make this conversion. LLANY will not
require evidence of insurability for this conversion.
The new policy will not be affected by the investment
experience of any separate account. The new policy will be
for an amount of insurance not exceeding the Death Benefit
of the Policy converted on the date of such conversion.
OTHER CONTRACTS ISSUED BY LLANY
LLANY from time to time offers other variable annuity
contracts and variable life insurance policies with benefits
which vary in accordance with the investment experience of a
separate account of LLANY.
STATE REGULATION
LLANY is subject to the laws of New York governing insurance
companies and to regulation by the New York Insurance
Department. An annual statement in a prescribed form is
filed with the New York Insurance Department each year
covering the operation of LLANY for the preceding year and
its financial condition as of the end of such year.
Regulation by the Insurance Department includes periodic
examination to determine LLANY's contract liabilities and
reserves so that the Insurance Department may certify the
items are correct. LLANY's books and accounts are subject to
review by the Insurance Department at all times and a full
examination of its operations is conducted periodically by
the New York Department of Insurance. Such regulation does
not, however, involve any supervision of management or
investment practices or policies.
41
<PAGE>
A blanket bond with a per event limit of $25 million and an
annual policy aggregate limit of $50 million covers all of
the officers and employees of LLANY.
REPORTS TO OWNERS
LLANY maintains Policy records and will mail to each Owner,
at the last known address of record, an annual statement
showing the amount of the current Death Benefit, the
Accumulation Value, and Surrender Value, premiums paid and
monthly charges deducted since the last report, the amounts
invested in each Sub-Account and any Loan Account Value.
Owners will also be sent annual reports containing financial
statements for the Variable Account and annual and
semi-annual reports of the Funds as required by the 1940
Act.
In addition, Owners will receive statements of significant
transactions, such as changes in Specified Amount, changes
in Death Benefit Option, transfers among Sub-Accounts,
Premium Payments, loans, loan repayments, reinstatement and
termination.
ADVERTISING
LLANY is also ranked and rated by independent financial
rating services, including Moody's, Standard & Poor's,
Duff & Phelps and A.M. Best Company. The purpose of these
ratings is to reflect the financial strength or
claims-paying ability of LLANY. The ratings are not intended
to reflect the investment experience or financial strength
of the Separate Account. LLANY may advertise these ratings
from time to time. In addition, LLANY may include in certain
advertisements, endorsements in the form of a list of
organizations, individuals or other parties which recommend
LLANY or the Policies. Furthermore, LLANY may occasionally
include in advertisements comparisons of currently taxable
and tax deferred investment programs, based on selected tax
brackets, or discussions of alternative investment vehicles
and general economic conditions.
We are a member of the Insurance Marketplace Standards
Association ("IMSA") and may include the IMSA logo and
information about IMSA membership in our advertisements.
Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and services
for individually sold life insurance and annuities.
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.
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.
42
<PAGE>
REGISTRATION STATEMENT
A Registration Statement has been filed with the Securities
and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the Policies offered hereby. This
Prospectus does not contain all the information set forth in
the Registration Statement and amendments thereto and
exhibits filed as a part thereof, to all of which reference
is hereby made for further information concerning the
Variable Account, LLANY, and the Policies offered hereby.
Statements contained in this Prospectus as to the content of
Policies and other legal instruments are summaries. For a
complete statement of the terms thereof, reference is made
to such instruments as filed.
43
<PAGE>
APPENDIX 1
GUARANTEED MAXIMUM COST OF INSURANCE RATES
The Guaranteed Maximum Cost of Insurance Rates, per $1,000
of Net Amount at Risk, for standard risks are set forth in
the following Table based on the 1980 Commissioners Standard
Ordinary Mortality Tables, Age Nearest Birthday (1980 CSO);
or for unisex rates, on the 1980 CSO-B Table.
<TABLE>
<CAPTION>
ATTAINED AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- --------- -------- -------- --------
<S> <C> <C> <C>
0 0.34845 0.24089 0.32677
1 0.08917 0.07251 0.08667
2 0.08251 0.06750 0.07917
3 0.08167 0.06584 0.07834
4 0.07917 0.06417 0.07584
5 0.07501 0.06334 0.07251
6 0.07167 0.06084 0.06917
7 0.06667 0.06000 0.06584
8 0.06334 0.05834 0.06250
9 0.06167 0.05750 0.06084
10 0.06084 0.05667 0.06000
11 0.06417 0.05750 0.06250
12 0.07084 0.06000 0.06917
13 0.08251 0.06250 0.07834
14 0.09584 0.06887 0.09001
15 0.11085 0.07084 0.10334
16 0.12585 0.07601 0.11585
17 0.13919 0.07917 0.12752
18 0.14836 0.08167 0.13502
19 0.15502 0.08501 0.14085
20 0.15836 0.08751 0.14502
21 0.15919 0.08917 0.14585
22 0.15752 0.09084 0.14419
23 0.15502 0.09251 0.14252
24 0.15189 0.09501 0.14085
25 0.14752 0.09668 0.13752
26 0.11419 0.09918 0.13585
27 0.14252 0.10168 0.13418
28 0.14169 0.10501 0.13418
29 0.14252 0.10635 0.13585
30 0.14419 0.11251 0.13752
31 0.14836 0.11668 0.14169
32 0.15252 0.12085 0.14585
33 0.15919 0.12502 0.15252
34 0.16889 0.13168 0.15919
35 0.17586 0.13752 0.16836
36 0.18670 0.14669 0.17837
37 0.20004 0.15752 0.19170
38 0.21505 0.17003 0.20588
39 0.23255 0.18503 0.22338
40 0.25173 0.20171 0.24173
41 0.27424 0.22005 0.26340
42 0.29675 0.23922 0.28508
43 0.32260 0.25757 0.31010
44 0.34929 0.27674 0.33428
45 0.37931 0.29675 0.36263
46 0.41017 0.31677 0.39182
47 0.44353 0.33761 0.42268
48 0.47856 0.36096 0.45437
49 0.51777 0.38598 0.49107
<CAPTION>
ATTAINED AGE MALE FEMALE UNISEX
(NEAREST MONTHLY MONTHLY MONTHLY
BIRTHDAY) RATE RATE RATE
- --------- -------- -------- --------
<S> <C> <C> <C>
50 0.55948 0.41350 0.53028
51 0.60870 0.44270 0.57533
52 0.66377 0.47523 0.62539
53 0.72636 0.51276 0.68297
54 0.79730 0.55114 0.74722
55 0.87326 0.59118 0.81566
56 0.95591 0.63123 0.88996
57 1.04192 0.66961 0.96593
58 1.13378 0.70633 1.04609
59 1.23236 0.74556 1.13211
60 1.34180 0.78979 1.22817
61 1.46381 0.84488 1.33511
62 1.60173 0.91417 1.45796
63 1.75809 1.00267 1.59922
64 1.93206 1.10539 1.75725
65 2.12283 1.21731 1.92955
66 2.32623 1.33511 2.11195
67 2.54312 1.45461 2.30614
68 2.77350 1.57247 2.50878
69 3.02328 1.69955 2.72909
70 3.30338 1.84590 2.97466
71 3.62140 2.02325 3.25640
72 3.98666 2.24419 3.58279
73 4.40599 2.51548 3.95978
74 4.87280 2.83552 4.38330
75 5.37793 3.19685 4.84334
76 5.91225 3.59370 5.33245
77 6.46824 4.01942 5.84227
78 7.04089 4.47410 6.36948
79 7.64551 4.97042 6.92851
80 8.30507 5.52957 7.54229
81 9.03761 6.17118 8.22883
82 9.86724 6.91414 9.01216
83 10.80381 7.77075 9.90124
84 11.82571 8.72632 10.87533
85 12.91039 9.76952 11.92213
86 14.03509 10.89151 13.01471
87 15.18978 12.08770 14.15507
88 16.36948 13.35774 15.33494
89 17.57781 14.70820 16.56493
90 18.82881 16.15259 17.85746
91 20.14619 17.71416 19.23699
92 21.57655 19.43814 20.76665
93 23.20196 21.40786 22.49837
94 25.28174 23.63051 24.70915
95 28.27411 27.16158 27.82758
96 33.10577 32.32378 32.78845
97 41.68476 41.21204 41.45783
98 58.01259 57.81394 57.95663
99 90.90909 90.90909 90.90909
</TABLE>
44
<PAGE>
APPENDIX 2
ILLUSTRATION OF SURRENDER CHARGES
The initial Surrender Charge is calculated as (a) times (b),
plus (c), with that result not to exceed (d), where
(a) is 1.25;
(b) is the curtate net level premium for the Specified
Amount of insurance, calculated using the 1980
Commissioners Standard Ordinary mortality table and 4%
interest;
(c) is $10 per $1000 of Specified Amount; and
(d) is $50 per $1000 of Specified Amount.
The Surrender Charge decreases from its initial amount to
zero over a period of at most 15 years. If the insured's Age
at issue is 55 or greater, then the Surrender Charge
decreases to zero over a period of ten years. In general
terms, the initial Surrender Charge is amortized in
proportion to a twenty year life contingent annuity due,
with a further reduction in the final years of the surrender
charge period. In formulas, the Surrender Charge a point in
time "t" years after issue is (a) times (b) times (c), where
(a) is the initial Surrender Charge;
(b) is the ratio of a life contingent annuity due beginning
at time t and ending 20 years after issue, divided by a
life contingent annuity due beginning at issue and
ending 20 years after issue, both calculated using the
1980 Commissioners Standard Ordinary mortality table and
4% interest; and
(c) is a durational factor depending on the issue Age and
policy year "t". Values are shown below for issue Age 50
or less, and for issue Age 55 or more. Values for Ages
51 through 54 fall in between these values.
<TABLE>
<CAPTION>
AGE 50 AGES 55
T OR LESS OR MORE
- ------- -------
<S> <C> <C>
7 or less 100% 75%
8 100% 50%
9 100% 25%
10 100% 0%
11 80% 0%
12 60% 0%
13 40% 0%
14 20% 0%
15 or more 0% 0%
</TABLE>
EXAMPLE 1: A male, Age 45, purchases a policy with a
Specified Amount of $100,000.
The initial Surrender Charge is computed as follows:
net level premium = 1987.66
$10 per $1000 of Specified Amount = $1000
$50 per $1000 of Specified Amount = $5000
initial Surrender Charge = 1.25 X $1987.66 + 1000 =
$3,484.57, which is less than $5000.
45
<PAGE>
This amount decreased to zero over 15 years as follows:
<TABLE>
<CAPTION>
YEARS INITIAL
AFTER SURRENDER ANNUITY DURATIONAL SURRENDER
ISSUE CHARGE RATIO FACTOR CHARGE
----- --------- ------- ---------- ---------
<S> <C> <C> <C> <C>
0 $3,484.57 1.00000 100% 3,484.57
1 $3,484.57 0.96609 100% 3,366.42
2 $3,484.57 0.93101 100% 3,244.18
3 $3,484.57 0.89471 100% 3,117.68
4 $3,484.57 0.85711 100% 2,986.67
5 $3,484.57 0.81818 100% 2,850.99
6 $3,484.57 0.77782 100% 2,710.36
7 $3,484.57 0.73600 100% 2,564.64
8 $3,484.57 0.69265 100% 2,413.59
9 $3,484.57 0.64769 100% 2,256.93
10 $3,484.57 0.60104 100% 2,094.38
11 $3,484.57 0.55257 80% 1,540.37
12 $3,484.57 0.50212 60% 1,049.80
13 $3,484.57 0.44952 40% 626.55
14 $3,484.57 0.39456 20% 274.97
15 $3,484.57 0.33701 0% 0.00
</TABLE>
EXAMPLE 2: A female, Age 55, purchases a policy with a
Specified Amount of $200,000.
The initial Surrender Charge is computed as follows:
net level premium = $4,996.55
$10 per $1000 of Specified Amount = $2,000
$50 per $1000 of Specified Amount = $10,000
initial Surrender Charge = 1.25 X $4996.55 + 2000 =
$8,245.68, which is less than $10,000.
This amount decreased to zero over 10 years as follows:
<TABLE>
<CAPTION>
YEARS INITIAL
AFTER SURRENDER ANNUITY DURATIONAL SURRENDER
ISSUE CHARGE RATIO FACTOR CHARGE
----- --------- ------- ---------- ---------
<S> <C> <C> <C> <C>
0 $8,245.68 1.00000 100% 8,245.68
1 $8,245.68 0.96649 100% 7,969.40
2 $8,245.68 0.93185 100% 7,683.73
3 $8,245.68 0.89596 100% 7,387.80
4 $8,245.68 0.85871 100% 7,080.67
5 $8,245.68 0.82003 100% 6,761.74
6 $8,245.68 0.77986 100% 6,430.50
7 $8,245.68 0.73818 75% 4,565.07
8 $8,245.68 0.69496 50% 2,885.22
9 $8,245.68 0.65022 25% 1,340.37
10 $8,245.68 0.60387 0% 0.00
</TABLE>
46
<PAGE>
APPENDIX 3
CORRIDOR PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED AGE OF
THE INSURED CORRIDOR
(NEAREST BIRTHDAY) PERCENTAGE
- ------------------ ----------
<S> <C>
0-40 250%
41 243%
42 236%
43 229%
44 222%
45 215%
46 209%
47 203%
48 197%
49 191%
50 185%
51 178%
52 171%
53 164%
54 157%
55 150%
56 146%
57 142%
58 138%
59 134%
60 130%
61 128%
62 126%
63 124%
64 122%
65 120%
66 119%
67 118%
68 117%
69 116%
70 115%
71 113%
72 111%
73 109%
74 107%
75-90 105%
91 104%
92 103%
93 102%
94 101%
95-99 100%
</TABLE>
47
<PAGE>
APPENDIX 4
ILLUSTRATIONS OF ACCUMULATION VALUES, SURRENDER VALUES, AND
DEATH BENEFIT PROCEEDS
The illustrations in this Prospectus have been prepared to
help show how values under the Policies change with
investment performance. The illustrations illustrate how
Accumulation Values, Surrender Values and Death Benefit
Proceeds under a Policy would vary over time if the
hypothetical gross investment rates of return were a uniform
annual effective rate of either 0%, 6% or 12%. If the
hypothetical gross investment rate of return averages 0%,
6%, or 12% over a period of years, but fluctuates above or
below those averages for individual years, the Accumulation
Values, Surrender Values and Death Benefit Proceeds may be
different. The illustrations also assume there are no Policy
Loans or Partial Surrenders, no additional Premium Payments
are made other than shown, no Accumulation Values are
allocated to the Fixed Account, and there are no changes in
the Specified Amount or Death Benefit Option.
The amounts shown for the Accumulation Value, Surrender
Value and Death Benefit Proceeds as of each Policy
Anniversary reflect the fact that charges are made and
expenses applied which lower investment return on the assets
held in the Sub-Accounts. Daily charges are made against the
assets of the Sub-Accounts for assuming mortality and
expense risks. The mortality and expense risk charges are
equivalent to an annual effective rate of 0.75% of the daily
net asset value of the Separate Account in years 1-10, 0.35%
in years 11-20 and 0.20% in years 21 and later. In addition,
the amounts shown also reflect the deduction of Fund
investment advisory fees and other expenses which will vary
depending on which funding vehicle is chosen but which are
assumed for purposes of these illustrations to be equivalent
to an annual effective rate of 0.82% of the daily net asset
value of the Separate Account. This rate reflects an
arithmetic average of total Fund portfolio annual expenses
for the year ending December 31, 1998.
Considering charges for mortality and expense risks and the
assumed Fund expenses, gross annual rates of 0%, 6% and 12%
correspond to net investment experience at annual rates of
-1.57%, 4.43% and 10.43%, for years 1-10, -1.17%, 4.83% and
10.83% in years 11-20, and -1.02%, 4.98% and 10.98% in years
21 and later.
The illustrations also reflect the fact that LLANY makes
monthly charges for providing insurance protection. Current
values reflect current Cost of Insurance charges and
guaranteed values reflect the maximum Cost of Insurance
charges guaranteed in the Policy. The values shown are for
Policies which are issued as preferred and standard.
Policies issued on a substandard basis would result in lower
Accumulation Values and Death Benefit Proceeds than those
illustrated.
The illustrations also reflect the fact that LLANY deducts a
premium load of 5% from each Premium Payment.
The Surrender Values shown in the illustrations reflect the
fact that LLANY will deduct a Surrender Charge from the
Policy's Accumulation Value for any Policy surrendered in
full during the first fifteen Policy Years. Surrender
Charges reflect, in part, age and Specified Amount, and are
shown in the illustrations.
In addition, the illustrations reflect the fact that LLANY
deducts a monthly administrative charge at the beginning of
each Policy Month. This monthly administrative expense
charge is a flat dollar charge of $15 per month in the first
year. Current values reflect a current flat dollar monthly
administrative expense charge of $5 (and guaranteed values,
$10) in subsequent Policy Years.
Upon request, LLANY will furnish a comparable illustration
based on the proposed insured's age, gender classification,
smoking classification, risk classification and premium
payment requested.
48
<PAGE>
MALE AGE 45 NONSMOKER
PREFERRED -- $5,396 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
PREMIUMS
ACCUMULATED SURRENDER VALUE
AT DEATH BENEFIT TOTAL ACCUMULATION VALUE ANNUAL INVESTMENT
END OF 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF RETURN OF
POLICY YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6%
-- -------- -------- -------- -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,666 500,000 500,000 500,000 3,447 3,701 3,955 0 0
2 11,615 500,000 500,000 500,000 5,984 6,682 7,413 0 0
3 17,861 500,000 500,000 500,000 8,299 9,610 11,042 0 0
4 24,420 500,000 500,000 500,000 10,387 12,473 14,853 0 0
5 31,306 500,000 500,000 500,000 12,228 15,247 18,844 0 1,238
6 38,537 500,000 500,000 500,000 13,811 17,915 23,024 493 4,597
7 46,130 500,000 500,000 500,000 15,097 20,430 27,374 2,495 7,828
8 54,102 500,000 500,000 500,000 16,057 22,752 31,884 4,197 10,892
9 62,473 500,000 500,000 500,000 16,651 24,833 36,533 5,561 13,743
10 71,262 500,000 500,000 500,000 16,836 26,612 41,296 6,544 16,321
15 122,257 500,000 500,000 500,000 10,938 30,070 67,992 10,938 30,070
20 187,341 0 500,000 500,000 0 16,073 96,586 0 6,073
25 270,407 0 0 500,000 0 0 120,730 0 0
30 376,421 0 0 500,000 0 0 122,105 0 0
<S> <C>
END OF
POLICY YEAR GROSS 12%
-- --------
1 0
2 0
3 0
4 177
5 4,835
6 9,706
7 14,772
8 20,024
9 25,443
10 31,004
15 67,992
20 96,586
25 120,730
30 122,105
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
49
<PAGE>
MALE AGE 45 NONSMOKER
PREFERRED -- $5,396 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- --------------------- ----------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 5,666 500,000 500,000 500,000 3,447 3,701 3,955
2 11,615 500,000 500,000 500,000 6,871 7,598 8,356
3 17,861 500,000 500,000 500,000 10,139 11,562 13,107
4 24,420 500,000 500,000 500,000 13,279 15,623 18,274
5 31,306 500,000 500,000 500,000 16,317 19,812 23,930
6 38,537 500,000 500,000 500,000 19,279 24,162 30,153
7 46,130 500,000 500,000 500,000 22,145 28,658 36,983
8 54,102 500,000 500,000 500,000 24,803 33,192 44,369
9 62,473 500,000 500,000 500,000 27,416 37,931 52,541
10 71,262 500,000 500,000 500,000 29,919 42,819 61,516
15 122,257 500,000 500,000 500,000 40,320 69,763 122,944
20 187,341 500,000 500,000 500,000 46,993 101,131 224,857
25 270,407 500,000 500,000 500,000 50,188 139,743 402,074
30 376,421 500,000 500,000 755,782 43,660 182,859 706,338
<CAPTION>
END OF SURRENDER VALUE
POLICY ANNUAL INVESTMENT RETURN OF
YEAR GROSS 0% GROSS 6% GROSS 12%
- --------------------- -------- -------- ---------
<S> <C> <C> <C>
1 0 0 0
2 0 0 0
3 0 0 0
4 0 947 3,598
5 2,307 5,803 9,920
6 5,961 10,844 16,835
7 9,543 16,056 24,381
8 12,943 21,332 32,509
9 16,326 26,841 41,451
10 19,628 32,527 51,225
15 40,320 69,763 122,944
20 46,993 101,131 224,857
25 50,188 139,743 402,074
30 43,660 182,859 706,338
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
50
<PAGE>
MALE AGE 55 NONSMOKER
PREFERRED -- $9,184 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- --------------------- ----------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 9,643 500,000 500,000 500,000 5,873 6,306 6,740
2 19,768 500,000 500,000 500,000 8,778 9,927 11,134
3 30,400 500,000 500,000 500,000 11,173 13,240 15,512
4 41,563 500,000 500,000 500,000 13,030 16,197 19,848
5 53,284 500,000 500,000 500,000 14,318 18,747 24,106
6 65,591 500,000 500,000 500,000 14,976 20,807 28,221
7 78,514 500,000 500,000 500,000 14,934 22,280 32,115
8 92,083 500,000 500,000 500,000 14,100 23,041 35,678
9 106,330 500,000 500,000 500,000 12,361 22,938 38,775
10 121,290 500,000 500,000 500,000 9,604 21,812 41,256
15 208,084 0 0 500,000 0 0 39,330
20 318,858 0 0 0 0 0 0
25 460,236 0 0 0 0 0 0
30 640,675 0 0 0 0 0 0
<CAPTION>
END OF SURRENDER VALUE
POLICY ANNUAL INVESTMENT RETURN OF
YEAR GROSS 0% GROSS 6% GROSS 12%
- --------------------- -------- -------- ---------
<S> <C> <C> <C>
1 0 0 0
2 0 0 0
3 0 0 0
4 0 0 0
5 0 0 3,950
6 0 1,637 9,051
7 1,318 8,664 18,499
8 5,545 14,486 27,124
9 8,353 18,931 34,767
10 9,604 21,812 41,256
15 0 0 39,330
20 0 0 0
25 0 0 0
30 0 0 0
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
51
<PAGE>
MALE AGE 55 NONSMOKER
PREFERRED -- $9,184 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- --------------------- ----------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 9,643 500,000 500,000 500,000 5,873 6,306 6,740
2 19,768 500,000 500,000 500,000 11,485 12,718 14,005
3 30,400 500,000 500,000 500,000 16,747 19,147 21,758
4 41,563 500,000 500,000 500,000 21,755 25,693 30,154
5 53,284 500,000 500,000 500,000 26,467 32,316 39,221
6 65,591 500,000 500,000 500,000 31,021 39,159 49,178
7 78,514 500,000 500,000 500,000 35,442 46,262 60,153
8 92,083 500,000 500,000 500,000 39,713 53,620 72,246
9 106,330 500,000 500,000 500,000 43,678 61,091 85,431
10 121,290 500,000 500,000 500,000 47,264 68,613 99,775
15 208,084 500,000 500,000 500,000 61,104 109,864 199,266
20 318,858 500,000 500,000 500,000 64,002 154,726 368,268
25 460,236 500,000 500,000 704,375 45,823 199,876 670,833
30 640,675 0 500,000 1,236,622 0 246,534 1,177,735
<CAPTION>
END OF SURRENDER VALUE
POLICY ANNUAL INVESTMENT RETURN OF
YEAR GROSS 0% GROSS 6% GROSS 12%
- --------------------- -------- -------- ----------
<S> <C> <C> <C>
1 0 0 0
2 0 0 0
3 0 0 0
4 641 4,578 9,040
5 6,311 12,160 19,065
6 11,850 19,989 30,007
7 21,826 32,646 46,537
8 31,159 45,066 63,691
9 39,670 57,084 81,424
10 47,264 68,613 99,775
15 61,104 109,864 199,266
20 64,002 154,726 368,268
25 45,823 199,876 670,833
30 0 246,534 1,177,735
</TABLE>
Amounts are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
52
<PAGE>
FEMALE AGE 45 NONSMOKER
PREFERRED -- $4,391 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- --------------------- ----------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,611 500,000 500,000 500,000 2,848 3,056 3,265
2 9,452 500,000 500,000 500,000 4,996 5,570 6,172
3 14,535 500,000 500,000 500,000 6,996 8,079 9,262
4 19,872 500,000 500,000 500,000 8,837 10,569 12,543
5 25,477 500,000 500,000 500,000 10,512 13,031 16,026
6 31,361 500,000 500,000 500,000 12,009 15,449 19,720
7 37,540 500,000 500,000 500,000 13,322 17,814 23,641
8 44,028 500,000 500,000 500,000 14,434 20,105 27,797
9 50,840 500,000 500,000 500,000 15,320 22,291 32,187
10 57,992 500,000 500,000 500,000 15,977 24,363 36,837
15 99,491 500,000 500,000 500,000 16,209 33,499 66,556
20 152,456 500,000 500,000 500,000 8,886 37,309 109,847
25 220,053 0 500,000 500,000 0 25,910 172,663
30 306,326 0 0 500,000 0 0 269,279
<CAPTION>
END OF SURRENDER VALUE
POLICY ANNUAL INVESTMENT RETURN OF
YEAR GROSS 0% GROSS 6% GROSS 12%
- --------------------- -------- -------- ---------
<S> <C> <C> <C>
1 0 0 0
2 0 0 0
3 0 0 0
4 0 0 20
5 0 1,074 4,069
6 638 4,079 8,350
7 2,561 7,053 12,880
8 4,306 9,977 17,669
9 5,851 12,821 22,718
10 7,192 15,578 28,052
15 16,209 33,499 66,556
20 8,886 37,309 109,847
25 0 25,910 172,663
30 0 0 269,279
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
53
<PAGE>
FEMALE AGE 45 NONSMOKER
PREFERRED -- $4,391 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- --------------------- ----------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 4,611 500,000 500,000 500,000 2,848 3,056 3,265
2 9,452 500,000 500,000 500,000 5,695 6,292 6,915
3 14,535 500,000 500,000 500,000 8,460 9,632 10,905
4 19,872 500,000 500,000 500,000 11,143 13,082 15,272
5 25,477 500,000 500,000 500,000 13,749 16,648 20,058
6 31,361 500,000 500,000 500,000 16,229 20,287 25,258
7 37,540 500,000 500,000 500,000 18,588 24,005 30,919
8 44,028 500,000 500,000 500,000 20,829 27,809 37,094
9 50,840 500,000 500,000 500,000 23,001 31,751 43,888
10 57,992 500,000 500,000 500,000 25,107 35,841 51,371
15 99,491 500,000 500,000 500,000 34,831 59,380 103,510
20 152,456 500,000 500,000 500,000 42,183 87,543 190,039
25 220,053 500,000 500,000 500,000 47,750 123,064 339,163
30 306,326 500,000 500,000 636,737 48,704 165,579 595,081
<CAPTION>
END OF SURRENDER VALUE
POLICY ANNUAL INVESTMENT RETURN OF
YEAR GROSS 0% GROSS 6% GROSS 12%
- --------------------- -------- -------- ---------
<S> <C> <C> <C>
1 0 0 0
2 0 0 0
3 0 0 0
4 0 559 2,750
5 1,792 4,691 8,101
6 4,859 8,917 13,888
7 7,827 13,244 20,158
8 10,701 17,681 26,966
9 13,532 22,282 34,419
10 16,322 27,056 42,586
15 34,831 59,380 103,510
20 42,183 87,543 190,039
25 47,750 123,064 339,163
30 48,704 165,579 595,081
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
54
<PAGE>
FEMALE AGE 55 NONSMOKER
PREFERRED -- $7,260 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
GUARANTEED BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- --------------------- ----------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 7,623 500,000 500,000 500,000 4,819 5,166 5,515
2 15,627 500,000 500,000 500,000 7,805 8,750 9,740
3 24,032 500,000 500,000 500,000 10,545 12,291 14,202
4 32,857 500,000 500,000 500,000 13,052 15,799 18,943
5 42,123 500,000 500,000 500,000 15,315 19,262 23,983
6 51,852 500,000 500,000 500,000 17,311 22,651 29,332
7 62,068 500,000 500,000 500,000 18,981 25,904 34,966
8 72,794 500,000 500,000 500,000 20,247 28,934 40,844
9 84,057 500,000 500,000 500,000 21,006 31,625 46,894
10 95,883 500,000 500,000 500,000 21,181 33,882 53,069
15 164,496 500,000 500,000 500,000 12,484 37,517 87,684
20 252,066 0 500,000 500,000 0 15,388 124,838
25 363,830 0 0 500,000 0 0 145,464
30 506,473 0 0 500,000 0 0 95,062
<CAPTION>
END OF SURRENDER VALUE
POLICY ANNUAL INVESTMENT RETURN OF
YEAR GROSS 0% GROSS 6% GROSS 12%
- --------------------- -------- -------- ---------
<S> <C> <C> <C>
1 0 0 0
2 0 0 0
3 0 0 0
4 0 0 1,499
5 0 2,604 7,325
6 1,469 6,809 13,490
7 7,734 14,657 23,719
8 13,189 21,875 33,785
9 17,704 28,323 43,592
10 21,181 33,882 53,069
15 12,484 37,517 87,684
20 0 15,388 124,838
25 0 0 145,464
30 0 0 95,062
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
55
<PAGE>
FEMALE AGE 55 NONSMOKER
PREFERRED -- $7,260 ANNUAL PREMIUM
FACE AMOUNT $500,000
DEATH BENEFIT OPTION 1
CURRENT BASIS
<TABLE>
<CAPTION>
PREMIUMS
ACCUMULATED
END OF AT DEATH BENEFIT TOTAL ACCUMULATION VALUE
POLICY 5% INTEREST ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
YEAR PER YEAR GROSS 0% GROSS 6% GROSS 12% GROSS 0% GROSS 6% GROSS 12%
- --------------------- ----------- -------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 7,623 500,000 500,000 500,000 4,819 5,166 5,515
2 15,627 500,000 500,000 500,000 9,466 10,462 11,503
3 24,032 500,000 500,000 500,000 13,884 15,833 17,952
4 32,857 500,000 500,000 500,000 18,138 21,346 24,980
5 42,123 500,000 500,000 500,000 22,199 26,982 32,620
6 51,852 500,000 500,000 500,000 26,158 32,834 41,032
7 62,068 500,000 500,000 500,000 30,022 38,921 50,308
8 72,794 500,000 500,000 500,000 33,789 45,251 60,542
9 84,057 500,000 500,000 500,000 37,344 51,722 71,724
10 95,883 500,000 500,000 500,000 40,654 58,307 83,931
15 164,496 500,000 500,000 500,000 55,084 95,594 168,935
20 252,066 500,000 500,000 500,000 64,351 139,748 312,471
25 363,830 500,000 500,000 592,552 61,706 188,993 564,336
30 506,473 500,000 500,000 1,040,042 36,023 240,083 990,516
<CAPTION>
END OF SURRENDER VALUE
POLICY ANNUAL INVESTMENT RETURN OF
YEAR GROSS 0% GROSS 6% GROSS 12%
- --------------------- -------- -------- ---------
<S> <C> <C> <C>
1 0 0 0
2 0 0 0
3 0 0 0
4 694 3,904 7,536
5 5,541 10,324 15,962
6 10,316 16,992 25,190
7 18,776 27,674 39,062
8 26,731 38,192 53,483
9 34,042 48,420 68,422
10 40,654 58,307 83,931
15 55,084 95,594 168,935
20 64,351 139,748 312,471
25 61,706 188,993 564,336
30 36,023 240,083 990,516
</TABLE>
Amount are in Dollars
If Premiums are paid more frequently than
annually, the Death Benefit Proceeds,
Accumulation Values and Surrender Values would
be less than those illustrated.
Assumes no policy loans or partial surrenders
have been made. Current cost of insurance
rates assumed. Current mortality and expense
risk charges, administrative fees and premium
load assumed.
These investment results are illustrative only
and should not be considered a representation
of past or future investment results. Actual
investment results may be more or less than
those shown and will depend on a number of
factors, including the Policy Owner's
allocations and the Funds' rates of return.
Accumulation Values and Surrender Values for a
Policy would be different from those shown if
the actual investment rates of return averaged
0%, 6% and 12% over a period of years, but
fluctuated above or below those averages for
individual Policy Years. No representations
can be made that these rates of return will in
fact be achieved for any one year or sustained
over a period of time.
The amounts shown in these illustrations
reflect (1) the deduction of mortality and
expense risk charges and (2) assumed Fund
total expenses of 0.82% per year.
56
<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--Affilia
(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 & Annuit
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>
AIM V.I. AIM V.I.
CAPITAL DIVERSIFIED AIM V.I. AIM V.I.
APPRECIATION INCOME GROWTH VALUE
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <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
Dividends from net realized
gains on investments 5,283 732 -- 2,587 779
Mortality and expense
guarantees (1,727) (33) (12) (168) (159)
------------------------------ -------- ------------ ---------- ---------- ----------
NET INVESTMENT INCOME (LOSS) 9,162 723 642 2,567 769
Net Realized and Unrealized
Gain (Loss) on Investments:
Net realized gain (loss) on
investments 12,143 854 (276) 3,033 3,182
Net change in unrealized
appreciation or
depreciation on investments 28,828 3,521 (441) 5,999 3,693
------------------------------ -------- ------------ ---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 40,971 4,375 (717) 9,032 6,875
------------------------------ -------- ------------ ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 50,133 $ 5,098 $ (75) $ 11,599 $ 7,644
------------------------------ ======== ============ ========== ========== ==========
<CAPTION>
DELAWARE DELAWARE FIDELITY
PREMIUM DELAWARE PREMIUM VIP
BT EQUITY SMALL PREMIUM EMERGING EQUITY-
500 INDEX CAP VALUE TREND MARKETS INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
------------------------------
PERIOD FROM MAY 18, 1999 TO
DECEMBER 31, 1999
Net Investment Income (Loss):
Dividends from investment
income $ 334 $ -- $ -- $ -- $ --
Dividends from net realized
gains on investments 157 -- -- -- --
Mortality and expense
guarantees (330) (7) (21) (5) (182)
------------------------------ ---------- ------- ---------- ------- ----------
NET INVESTMENT INCOME (LOSS) 161 (7) (21) (5) (182)
Net Realized and Unrealized
Gain (Loss) on Investments:
Net realized gain (loss) on
investments 3,641 (50) 332 1 (1,003)
Net change in unrealized
appreciation or
depreciation on investments 2,320 161 2,641 195 595
------------------------------ ---------- ------- ---------- ------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 5,961 111 2,973 196 (408)
------------------------------ ---------- ------- ---------- ------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 6,122 $ 104 $ 2,952 $ 191 $ (590)
------------------------------ ========== ======= ========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP II VIP II LN MFS MFS
ASSET INVESTMENT MONEY EMERGING TOTAL MFS
MANAGER GRADE BOND MARKET GROWTH RETURN UTILITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <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 $ -- $-- $ --
Dividends from net realized
gains on investments -- -- -- -- -- --
Mortality and expense
guarantees (6) (13) (655) (45) (8) (8)
------------------------------ ---- ---- ----- ----- --- ----
NET INVESTMENT INCOME (LOSS) (6) (13) 3,543 (45) (8) (8)
Net Realized and Unrealized
Gain (Loss) on Investments:
Net realized gain (loss) on
investments 2 5 -- 2,307 (1) 8
Net change in unrealized
appreciation or
depreciation on investments 190 (56) -- 6,675 50 604
------------------------------ ---- ---- ----- ----- --- ----
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 192 (51) -- 8,982 49 612
------------------------------ ---- ---- ----- ----- --- ----
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $186 $(64) $3,543 $8,937 $41 $604
------------------------------ ==== ==== ===== ===== === ====
<CAPTION>
OCC
ACCUMULATION OCC TEMPLETON
GLOBAL ACCUMULATION ASSET TEMPLETON TEMPLETON
EQUITY MANAGED ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
------------------------------
PERIOD FROM MAY 18, 1999 TO
DECEMBER 31, 1999
Net Investment Income (Loss):
Dividends from investment
income $ 99 $ -- $ -- $ -- $ --
Dividends from net realized
gains on investments 1,028 -- -- -- --
Mortality and expense
guarantees (8) (23) (6) (21) (17)
------------------------------ ----- ---- ---- ----- -----
NET INVESTMENT INCOME (LOSS) 1,119 (23) (6) (21) (17)
Net Realized and Unrealized
Gain (Loss) on Investments:
Net realized gain (loss) on
investments 5 (3) 2 91 13
Net change in unrealized
appreciation or
depreciation on investments (772) 164 231 1,441 1,617
------------------------------ ----- ---- ---- ----- -----
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (767) 161 233 1,532 1,630
------------------------------ ----- ---- ---- ----- -----
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 352 $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 DELAWARE
V.I. V.I. AIM AIM PREMIUM DELAWARE
CAPITAL DIVERSIFIED V.I. V.I. BT EQUITY SMALL PREMIUM
APPRECIATION INCOME GROWTH VALUE 500 INDEX CAP VALUE TREND
COMBINED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Changes From Operations:
Net investment income (loss) $ 9,162 $ 723 $ 642 $ 2,567 $ 769 $ 161 $ (7) $ (21)
Net realized gain (loss) on
investments 12,143 854 (276) 3,033 3,182 3,641 (50) 332
Net change in unrealized
appreciation or depreciation
on investments 28,828 3,521 (441) 5,999 3,693 2,320 161 2,641
------------------------------ --------- ------------ ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 50,133 5,098 (75) 11,599 7,644 6,122 104 2,952
Change From Unit Transactions:
Participant purchases 1,875,382 43,325 29,982 95,471 105,861 58,729 8,911 13,532
Participant withdrawals (472,888) (4,379) (6,929) (8,219) (10,142) (12,320) (3,526) (990)
------------------------------ --------- ------------ ---------- ---------- ---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 1,402,494 38,946 23,053 87,252 95,719 46,409 5,385 12,542
------------------------------ --------- ------------ ---------- ---------- ---------- ---------- ---------- ----------
TOTAL INCREASE IN NET ASSETS 1,452,627 44,044 22,978 98,851 103,363 52,531 5,489 15,494
------------------------------ --------- ------------ ---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT DECEMBER 31,
1999 $1,452,627 $ 44,044 $ 22,978 $ 98,851 $ 103,363 $ 52,531 $ 5,489 $ 15,494
------------------------------ ========= ============ ========== ========== ========== ========== ========== ==========
<CAPTION>
DELAWARE FIDELITY
PREMIUM VIP
EMERGING EQUITY-
MARKETS INCOME
SUBACCOUNT SUBACCOUNT
<S> <C> <C>
------------------------------
Changes From Operations:
Net investment income (loss) $ (5) $ (182)
Net realized gain (loss) on
investments 1 (1,003)
Net change in unrealized
appreciation or depreciation
on investments 195 595
------------------------------ ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 191 (590)
Change From Unit Transactions:
Participant purchases 1,001 81,119
Participant withdrawals (92) (5,804)
------------------------------ ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 909 75,315
------------------------------ ---------- ----------
TOTAL INCREASE IN NET ASSETS 1,100 74,725
------------------------------ ---------- ----------
NET ASSETS AT DECEMBER 31,
1999 $ 1,100 $ 74,725
------------------------------ ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP VIP II LN MFS MFS
ASSET INVESTMENT MONEY EMERGING TOTAL MFS
MANAGER GRADE BOND MARKET GROWTH RETURN UTILITIES
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
Changes From Operations:
Net investment income (loss) $ (6) $ (13) $ 3,543 $ (45) $ (8) $ (8)
Net realized gain (loss) on
investments 2 5 -- 2,307 (1) 8
Net change in unrealized
appreciation or depreciation
on investments 190 (56) -- 6,675 50 604
------------------------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 186 (64) 3,543 8,937 41 604
Change From Unit Transactions:
Participant purchases 11,041 29,161 1,255,833 25,098 5,599 7,414
Participant withdrawals (6,154) (6,084) (395,802) (1,965) (648) (373)
------------------------------ ---------- ---------- ----------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 4,887 23,077 860,031 23,133 4,951 7,041
------------------------------ ---------- ---------- ----------- ---------- ---------- ----------
TOTAL INCREASE IN NET ASSETS 5,073 23,013 863,574 32,070 4,992 7,645
------------------------------ ---------- ---------- ----------- ---------- ---------- ----------
NET ASSETS AT DECEMBER 31,
1999 $ 5,073 $ 23,013 $ 863,574 $ 32,070 $ 4,992 $ 7,645
------------------------------ ========== ========== =========== ========== ========== ==========
<CAPTION>
OCC
ACCUMULATION OCC TEMPLETON
GLOBAL ACCUMULATION ASSET TEMPLETON TEMPLETON
EQUITY MANAGED ALLOCATION INTERNATIONAL STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
<S> <C> <C> <C> <C> <C>
------------------------------
Changes From Operations:
Net investment income (loss) $ 1,119 $ (23) $ (6) $ (21) $ (17)
Net realized gain (loss) on
investments 5 (3) 2 91 13
Net change in unrealized
appreciation or depreciation
on investments (772) 164 231 1,441 1,617
------------------------------ ------------ ------------ ---------- ------------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS 352 138 227 1,511 1,613
Change From Unit Transactions:
Participant purchases 9,006 37,381 3,939 24,119 28,860
Participant withdrawals (1,826) (2,372) (151) (3,136) (1,976)
------------------------------ ------------ ------------ ---------- ------------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM UNIT
TRANSACTIONS 7,180 35,009 3,788 20,983 26,884
------------------------------ ------------ ------------ ---------- ------------- ----------
TOTAL INCREASE IN NET ASSETS 7,532 35,147 4,015 22,494 28,497
------------------------------ ------------ ------------ ---------- ------------- ----------
NET ASSETS AT DECEMBER 31,
1999 $ 7,532 $ 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)
The carrying values and estimated fair values of the Company's financial
instruments are as follows:
<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 Untied 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
<PAGE>
PART II
FEES AND CHARGES REPRESENTATION
Lincoln Life & Annuity Company of New York represents that the fees and
charges deducted under the Contracts, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by Lincoln Life & Annuity Company of New York.
UNDERTAKING
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
INDEMNIFICATION
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of Lincoln Life & Annuity
Company of New York (LLANY) provides that LLANY will indemnify
certain persons against expenses, judgments and certain other
specified costs incurred by any such person if he/she is made a party
or is threatened to be made a party to a suit or proceeding because
he/she was a director, officer, or employee of LLANY, as long as
he/she acted in good faith and in a manner he/she reasonably believed
to be in the best interests of, or not opposed to the best interests
of, LLANY. Certain additional conditions apply to indemnification in
criminal proceedings.
In particular, separate conditions govern indemnification of
directors, officers, and employees of LLANY in connection with suits
by, or in the right of, LLANY.
Please refer to Article VII of the By-Laws of LLANY (Exhibit No. 6(b)
hereto) for the full text of the indemnification provisions.
Indemnification is permitted by, and is subject to the requirements
of, New York law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the
Securities Act of 1933.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 28(a) above or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of
any such action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment No. 5 to this registration statement comprises
the following papers and documents:
The facing sheet;
The cross reference sheet;
2 Prospectuses: Prospectus 1 (78 pages) and Prospectus 2 (79 pages);
The undertaking to file reports;
The fees and charges representation;
Statements regarding indemnification;
The signatures
Consents of
Robert O. Sheppard, Esquire
Vaughn W. Robbins, FSA
Ernst & Young LLP
<PAGE>
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of Lincoln Life & Annuity
Company of New York and related documents authorizing establishment
of the Account. (2)
(2) Not applicable.
(3) (a) Form of Principal Underwriting Agreement between Lincoln
Financial Advisors Corporation and Lincoln Life & Annuity
Company of New York (4)
(b) Form of Selling Group Agreement.*
(c) Commission Schedule for Variable Life Policies.*
(4) Not applicable.
(5) (a) Forms of Policy and Application.
(1) Policy Form LN 660 NY and Application B10399NY. (3)
(2) Proposed Policy Form LN 660 NY and Application B 10399 NY.
(4)
(b) Riders. LR 434 NY LNY and LR 435 NY LNY. (3)
(6) (a) Articles of Incorporation of Lincoln Life & Annuity Company of
New York. (1)
(b) Bylaws of Lincoln Life & Annuity Company of New York. (1)
(7) Not applicable.
(8) Fund Participation Agreements.
Agreements between Lincoln Life & Annuity Company of New York and:
(a) AIM Variable Insurance Funds, Inc. (4)
(b) American Variable Insurance Series (6)
(c) Baron Capital Funds Trust. (5)
(d) BT Insurance Funds Trust. (4)
(e) Delaware Group Premium Fund, Inc.
(f) Fidelity Variable Insurance Products Fund. (4)
(g) Fidelity Variable Insurance Products Fund II. (4)
(h) Fidelity Variable Insurance Products Fund III (7)
(i) Janus Aspen Series. (5)
(j) Lincoln National Money Market Fund, Inc. (4)
(k) MFS-Registered Trademark- Variable Insurance Trust. (4)
(l) Neuberger & Berman Advisers Management Trust. (5)
(m) Templeton Variable Products Series Fund. (4)
(n) OCC Accumulation Trust. (4)
(9) Not applicable.
(10) See Exhibit 1(5).
2. See Exhibit 1(5).
3. Opinion and Consent of Robert O. Sheppard, Esq.
4. Not applicable.
5. Not applicable.
6. Opinion and consent of Vaughn W. Robbins, FSA
7. Consent of Ernst & Young LLP, Independent Auditors.
8. Not applicable.
* To be filed by amendment
- ------------------------
(1) Incorporated by reference to Registration Statement on Form N-4 (File
No. 333-38007) filed on October 16, 1997.
(2) Incorporated by reference to Registration Statement on Form N-8B-2 (File
No. 811-08651) filed on February 11, 1998.
(3) Incorporated by reference to Pre-Effective Amendment No. 1 to this
Registration Statement on Form S-6 (File No. 333-42507) filed on July 2,
1998.
(4) Incorporated by reference to Post-Effective Amendment No. 1 on Form S-6
(File No. 333-42507) filed on February 26, 1999.
<PAGE>
(5) Incorporated by reference to Post-Effective Amendment No. 5 on Form N-4
(File No. 333-10863) filed on April 29, 1999.
(6) Incorporated by reference to Post-Effective Amendment No. 4 on Form S-6
(File No. 333-42509) filed on May 13, 1999.
(7) Incorporated by reference to Post-Effective Amendment No. 5 (File No.
333-10863) filed on April 29, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Lincoln Life & Annuity Flexible Premium Variable Life Account M, has duly caused
this Post-Effective Amendment No. 5 to this Registration Statement on Form S-6
(File No. 333-42507) to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Syracuse and the State of New York, on the 25th
day of April, 2000. Registrant certifies that this amendment meets all of the
requirements for effectiveness pursuant to Rule 485(b) under the Securities Act
of 1933.
Lincoln Life & Annuity Flexible
Premium
Variable Life Account M
(Registrant)
By: /s/ JOANNE B. COLLINS
-----------------------------------
Joanne B. Collins
PRESIDENT, TREASURER AND DIRECTOR
OF LINCOLN LIFE & ANNUITY COMPANY
OF NEW YORK
Lincoln Life & Annuity Company of New
York
(Depositor)
By: /s/ JOANNE B. COLLINS
-----------------------------------
Joanne B. Collins
PRESIDENT, TREASURER AND DIRECTOR
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 5 to this Registration Statement (File No.
333-42507) has been signed below on April 25, 2000 by the following persons, as
officers and directors of the Depositor, in the capacities indicated:
SIGNATURE TITLE
--------- -----
President, Treasurer and
/s/ JOANNE B. COLLINS Director
------------------------------------------- (Principal Executive
Joanne B. Collins Officer)
Second Vice President and
/s/ TROY D. PANNING* Chief Financial Officer
------------------------------------------- (Principal Financial
Troy D. Panning Officer and Principal
Accounting Officer)
/s/ JON A. BOSCIA*
------------------------------------------- Director
Jon A. Boscia
/s/ RICHARD C. VAUGHAN*
------------------------------------------- Director
Richard C. Vaughan
/s/ THOMAS D. BELL, JR.*
------------------------------------------- Director
Thomas D. Bell, Jr.
RolaND C. BAKER*
------------------------------------------- Director
Roland C. Baker
/s/ JOHN H. GOTTA*
------------------------------------------- Director
John H. Gotta
/s/ BARBARA STEURY KOWALCZYK*
------------------------------------------- Director
Barbara Steury Kowalczyk
/s/ MARGUERITE LEANNE LACHMAN*
------------------------------------------- Director
Marguerite Leanne Lachman
/s/ JOHN M. PIETRUSKI*
------------------------------------------- Director
John M. Pietruski
/s/ LAWRENCE T. ROWLAND*
------------------------------------------- Director
Lawrence T. Rowland
<PAGE>
/s/ J. PATRICK BARRETT*
------------------------------------------- Director
J. Patrick Barrett
/s/ LOUIS G. MARCOCCIA*
------------------------------------------- Director
Louis G. Marcoccia
*By:/s/ JOANNE B. COLLINS
-----------------------------------
Joanne B. Collins, pursuant to a
Power of Attorney filed with this
Post-Effective Amendment No. 5 to the
Registration Statement.
2000LNY-M Sig-s.doc
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Lincoln Life & Annuity Company
of New York, hereby severally constitute and appoint, Joanne B. Collins, Robert
O. Sheppard and Troy D. Panning, individually, our true and lawful
attorneys-in-fact, with full power to each of them to sign for us, in our names
and in the capacities indicated below, any and all Registration Statements on
Form S-6, Form N-8B-2 and/or Form N-6, or any successors to these Forms, and
amendments thereto, filed with the Securities and Exchange Commission under the
Securities Act of 1933, on behalf of the Company in its own name or in the name
of one of its Separate Accounts, hereby ratifying and confirming our signatures
as they may be signed by any of our attorneys-in-fact to any such Registration
Statement or amendment to said Registration Statement. The execution of this
document by each of the undersigned hereby revokes any and all Powers of
Attorney previously executed by said individual for this specific purpose.
WITNESS our hands and common seal on this 7th day of
February, 2000.
SIGNATURE TITLE
--------- -----
President, Treasurer and
/s/ JOANNE B.COLLINS Director
------------------------------------------- (Principal Executive
Joanne B.Collins Officer)
Second Vice President
and Chief Financial
/s/ TROY D. PANNING Officer
------------------------------------------- (Principal Financial
Troy D. Panning Officer
and Principal Accounting
Officer)
/s/ JON A. BOSCIA
------------------------------------------- Director
Jon A. Boscia
/s/ RICHARD C. VAUGHAN
------------------------------------------- Director
Richard C. Vaughan
/s/ THOMAS D. BELL, JR.
------------------------------------------- Director
Thomas D. Bell, Jr.
/s/ JOHN H. GOTTA
------------------------------------------- Director
John H. Gotta
/s/ BARBARA STEURY KOWALCZYK
------------------------------------------- Director
Barbara Steury Kowalczyk
/s/ MARGUERITE LEANNE LACHMAN
------------------------------------------- Director
Marguerite Leanne Lachman
<PAGE>
/s/ JOHN M. PIETRUSKI
------------------------------------------- Director
John M. Pietruski
/s/ J. PATRICK BARRETT
------------------------------------------- Director
J. Patrick Barrett
/s/ LOUIS G. MARCOCCIA
------------------------------------------- Director
Louis G. Marcoccia
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Lincoln Life & Annuity Company
of New York, hereby severally constitute and appoint, Joanne B. Collins, Robert
O. Sheppard and Troy D. Panning, individually, our true and lawful
attorneys-in-fact, with full power to each of them to sign for us, in our names
and in the capacities indicated below, any and all Registration Statements on
Form S-6, Form N-8B-2 and/or Form N-6, or any successors to these Forms, and
amendments thereto, filed with the Securities and Exchange Commission under the
Securities Act of 1933, on behalf of the Company in its own name or in the name
of one of its Separate Accounts, hereby ratifying and confirming our signatures
as they may be signed by any of our attorneys-in-fact to any such Registration
Statement or amendment to said Registration Statement. The execution of this
document by each of the undersigned hereby revokes any and all Powers of
Attorney previously executed by said individual for this specific purpose.
WITNESS our hands and common seal on this 4th day of
February, 2000.
SIGNATURE TITLE
--------- -----
/s/ LAWRENCE T. ROWLAND
------------------------------------------- Director
Lawrence T. Rowland
Subscribed and sworn to
STATE OF INDIANA ) before me this
) SS: 4th day of February, 2000
COUNTY OF ALLEN )
/s/ JANET L. LINDENBERG Notary Public
---------------------------- Commission Expires:
Janet L. Lindenberg 7-10-2001
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Lincoln Life & Annuity Company
of New York, hereby severally constitute and appoint, Joanne B. Collins, Robert
O. Sheppard and Troy D. Panning, individually, our true and lawful
attorneys-in-fact, with full power to each of them to sign for us, in our names
and in the capacities indicated below, any and all Registration Statements on
Form S-6, Form N-8B-2 and/or Form N-6, or any successors to these Forms, and
amendments thereto, filed with the Securities and Exchange Commission under the
Securities Act of 1933, on behalf of the Company in its own name or in the name
of one of its Separate Accounts, hereby ratifying and confirming our signatures
as they may be signed by any of our attorneys-in-fact to any such Registration
Statement or amendment to said Registration Statement. The execution of this
document by each of the undersigned hereby revokes any and all Powers of
Attorney previously executed by said individual for this specific purpose.
WITNESS our hands and common seal on this 11th day of
February, 2000.
SIGNATURE TITLE
--------- -----
/s/ ROLAND C. BAKER
------------------------------------------- Director
Roland C. Baker
Subscribed and sworn to
STATE OF ILLINOIS ) before me this
11th day of February,
) SS: 2000
COUNTY OF DuPAGE )
/s/ SHARON A. GEHRKE Notary Public
---------------------------- Commission Expires:
Sharon A. Gehrke 8-12-00
<PAGE>
Robert O. Sheppard Lincoln Financial Group
Corporate Counsel Lincoln Life & Annuity
Company of New York
120 Madison Street, Suite 1700
Syracuse, NY 13202-2802
Telephone: (315) 428 8420
Facsimile: (315) 428 8419
April 25, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0506
Re: Lincoln Life & Annuity Flexible Premium Variable Life Account M
(the "Account")
Lincoln Life & Annuity Company of New York
Post-Effective Amendment Number 5, File No. 333-42507
Dear Sirs:
As Corporate Counsel of Lincoln Life & Annuity Company of New York ("LLANY"), I
am familiar with the actions of the Board of Directors of LLANY, establishing
the Account and its method of operation and authorizing the filing of a
Registration Statement under the Securities Act of 1933, (and amendments
thereto) for the securities to be issued by the Account and the Investment
Company Act of 1940 for the Account itself.
In the course of preparing this opinion, I have reviewed the Charter and the
By-Laws of the Company, the Board actions with respect to the Account, and such
other matters as I deemed necessary or appropriate. Based on such review, I am
of the opinion that the variable life insurance policies (and interests therein)
which are the subject of the Registration Statement under the Securities Act of
1933, as amended, for the Account will, when issued, be legally issued and will
represent binding obligations of the Company, the depositor for the Account.
I further consent to the use of this opinion as an Exhibit to Post-Effective
Amendment No. 5 to said Registration Statement and to the reference to me under
the heading "Experts" in said Registration Statement, as amended.
Very truly yours,
/s/ Robert O. Sheppard
Robert O. Sheppard
Corporate Counsel
<PAGE>
[LOGO] Lincoln
-------------
FINANCIAL GROUP
LINCOLN LIFE
The Lincoln National Life Insurance Company
350 Church Street
Hartford, CT 06103-1106
April 25, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0506
Re: Lincoln Life & Annuity Flexible Premium Variable Life Account M ("Account")
Lincoln Life & Annuity Company of New York
Post-Effective Amendment Number 5, File No. 333-42507
Dear Sirs:
This opinion is furnished in connection with the filing of the Registration
Statement on Form S-6 by Lincoln Life & Annuity Company of New York under the
Securities Act of 1933. The Prospectus included in said Registration Statement
describes flexible premium variable universal life insurance policies (the
"Policies"). The forms of Policies were prepared under my direction.
In my opinion, the illustrations of benefits under the Policies included in the
section entitled "Illustrations" in the Prospectus, based on assumptions stated
in illustrations, are consistent with the provisions of the forms of the
Policies. The ages selected in the illustrations are representative of the
manner in which the Policies operate.
I hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and the reference to me under the heading "Experts" in the Prospectus.
Very truly yours,
/s/ Vaughn W. Robbins
Vaughn W. Robbins, FSA, MAAA
<PAGE>
Exhibit 7
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Post-Effective Amendment No. 5 to the Registration Statement (Form S-6 No.
333-42507) pertaining to the Lincoln Life & Annuity Flexible Premium Variable
Life Account M, and to the use therein of our reports dated (a) March 10,
2000, with respect to the statutory-basis financial statements of Lincoln
Life & Annuity Company of New York, and (b) March 24, 2000, with respect to
the financial statements of Lincoln Life & Annuity Flexible Premium Variable
Life Account M.
/s/ Ernst & Young LLP
Fort Wayne, Indiana
April 24, 2000
<PAGE>
PARTICIPATION AGREEMENT
Among
DELAWARE GROUP PREMIUM FUND, INC.
And
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
And
DELAWARE DISTRIBUTORS, LP
THIS AGREEMENT, made and entered into this 15th day of October, 1999, by
and between DELAWARE GROUP PREMIUM FUND INC., a corporation organized under the
laws of Maryland (the "Fund"), and LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK, a
New York insurance corporation (the "Company"), on its own behalf and on behalf
of each separate account of the Company named in Schedule 1 to this Agreement as
in effect at the time this Agreement is executed and such other separate
accounts that may be added to Schedule 1 from time to time in accordance with
the provisions of Article XI of this Agreement (each such account referred to as
the "Account"), and DELAWARE DISTRIBUTORS, LP, a Delaware limited partnership
(the "Distributor").
WHEREAS, the Fund is engaged in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
policies and variable annuity contracts (collectively referred to as "Variable
Insurance Products," the owners of such products being referred to as "Product
owners") to be offered by insurance companies which have entered into
participation agreements with the Fund ("Participating Insurance Companies");
and
WHEREAS, the common stock of the Fund (the "Fund shares") consists of
separate series ("Series") issuing separate classes of shares ("Series shares"),
each such class representing an interest in a particular managed portfolio of
securities and other assets; and
WHEREAS, the Series available to these Variable Insurance Products are
listed on Schedule 4, as may be amended; and
WHEREAS, the Fund filed with the Securities and Exchange Commission (the
"SEC") and the SEC has declared effective a registration statement (referred to
herein as the "Fund Registration Statement" and the prospectus contained
therein or filed pursuant to Rule 497 under the 1933 Act, referred to herein as
the "Fund Prospectus") on Form N-1A to register itself as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and the Fund shares under the Securities Act of 1933, as amended
(the "1933 Act"); and
<PAGE>
WHEREAS, the Company has filed a registration statement with the SEC to
register under the 1933 Act, unless exempt, certain variable annuity contracts
described in Schedule 2 to this Agreement as in effect at the time this
Agreement is executed and such other variable annuity contracts and variable
life insurance policies which may be added to Schedule 2 from time to time in
accordance with Article XI of this Agreement (such policies and contracts shall
be referred to herein collectively as the "Contracts," each such registration
statement for a class or classes of contracts listed on Schedule 2 being
referred to as the "Contracts Registration Statement" and the prospectus for
each such class or classes being referred to herein as the "Contracts
Prospectus," and the owners of the such contracts, as distinguished from all
Product Owners, being referred to as "Contractowners"); and
WHEREAS, each Account, a validly existing separate account, duly authorized
by the Company on the date set forth on Schedule 1, sets aside and invests
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will have registered each Account,
unless exempt, with the SEC as a unit investment trust under the 1940 Act before
any Contacts are issued by that Account; and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, the Distributor and the Fund have entered into an agreement (the
"Fund Distribution Agreement") pursuant to which the Distributor will distribute
Fund shares; and
WHEREAS, Delaware Management Company (the "Investment Manager") is
registered as an investment adviser under the INVESTMENT ADVISERS ACT OF 1940
and any applicable state securities laws and serves as an investment manager to
the Fund pursuant to an agreement; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase Series shares on behalf of each
Account to fund its Contracts and the Distributor is authorized to sell such
Series shares to unit investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Distributor agree as follows:
ARTICLE I. SALE OF FUND SHARES
1.1. The Distributor agrees to sell to the Company those Series shares
which the Company orders on behalf of the Account, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
2
<PAGE>
1.2. The Fund agrees to make the shares of its Series available for
purchase by the Company on behalf of the Account at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use its best efforts to calculate such net asset
value by 6:00 p.m., Now York time, on each such Business Day. Notwithstanding
any other provision in this Agreement to the contrary, the Board of Directors of
the Fund (the "Fund Board") may suspend or terminate the offering of Fund shares
of any Series, if such action is required by law or by regulatory authorities
having jurisdiction or if, in the sole discretion of the Fund Board acting in
good faith and in light of its fiduciary duties under Federal and any applicable
state laws, suspension or termination is necessary and in the best interests of
the shareholders of any Series (it being understood that "shareholders" for this
purpose shall mean Product owners). Such suspension or termination of the
offering of any Series of Fund shares does not by itself constitute the
termination of this Agreement.
1.3. The Fund agrees to redeem, at the Company's request, any full or
fractional shares of the Fund held by the Account or the Company, executing such
requests at the net asset value on a daily basis in accordance with Section 1.4
of this Agreement, the applicable provisions of the 1940 Act and the then
currently effective Fund Prospectus. Notwithstanding the foregoing, the Fund may
delay redemption of Fund shares of any Series to the extent permitted by the
1940 Act, any rules, regulations or orders thereunder, or the then currently
effective Fund Prospectus.
1.4.
(a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall be
the agent of the Fund for the limited purpose of receiving redemption and
purchase requests from the Account (but not from the general account of the
Company), and receipt on any Business Day by the Company as such limited
agent of the Fund prior to the time prescribed in the current Fund
Prospectus (which as of the date of execution of this Agreement is the
close of trading on the New York Stock Exchange) shall constitute receipt
by the Fund on that same Business Day, provided that the Fund receives
notice of such redemption or purchase request by 11:00 a.m., New York time
on the next following Business Day. For purposes of this Agreement,
"Business Day" shall mean any day on which the New York Stock Exchange is
open for trading.
(b) The Company shall pay for shares of each Series on the same day
that it places an order with the Fund to purchase those Series shares for
an Account. Payment for Series shares will be made by the Account or the
Company in Federal Funds transmitted to the Fund by wire to be received by
11:00 a.m., New York time on the day the Fund is properly notified of the
purchase order for Series shares. If Federal Funds are not received on
time, such funds will be invested, and Series shares purchased thereby
will be issued, as soon as practicable.
3
<PAGE>
(c) Payment for Series shares redeemed by the Account or the Company
will be made in Federal Funds transmitted to the Company by wire on the day
the Fund is notified of the redemption order of Series shares, except that
the Fund reserves the right to delay payment of redemption proceeds, but
in no event may such payment be delayed longer than the period permitted
under Section 22(e) of the 1940 Act. Neither the Fund nor the Distributor
shall bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds; the Company alone shall be responsible
for such action.
1.5. Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income dividends or capital gain distributions payable on any
Series shares. The Company, on its behalf and on behalf of the Account, hereby
elects to receive all such dividends and distributions as are payable on any
Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends in cash. The Fund shall notify the
Company of the number of Series shares so issued as payment of such dividends
and distributions.
1.7 The Fund shall use its best efforts to make the net asset value per
share for each Series available to the Company by 6 p.m., New York time each
Business Day, and in any event, as soon as reasonably practicable after the net
asset value per share for such Series is calculated, and shall calculate such
net asset value in accordance with the then currently effective Fund Prospectus.
Neither the Fund, any Series, the Distributor, nor the Investment Manager nor
any of their affiliates shall be liable for any information provided to the
Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company to the Fund, the Distributor or the
Investment Manager.
1.8
(a) The Company may withdraw the Account's investment in the Fund or
a Series only: (i) as necessary to facilitate Contract owner requests; (ii)
upon a determination by a majority of the Fund Board, or a majority of
disinterested Fund Board members, that an irreconcilable material conflict
exists among the interests of (x) any Product Owners or (y) the interests
of the Participating Insurance Companies investing in the Fund; (iii) upon
requisite vote of the Contractowners having an interest in the affected
Series to substitute the shares of another investment company for Series
shares in accordance with the terms of the Contracts; (iv) as required by
state and/or federal laws or regulations or judicial or other legal
precedent of general application; or (v) at the Company's sole discretion,
pursuant to an order of the SEC under Section 26(b) of the 1940 Act.
4
<PAGE>
(b) The parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive and that the Fund shares may be sold to
other insurance companies (subject to Section 1.9 hereof) and the cash
value of the Contracts may be invested in other investment companies.
(c) The Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law), take any action to operate
the Account as a management investment company under the 1940 Act.
1.9. The Fund and the Distributor agree that Fund shares will be sold
only to Participating Insurance Companies and their separate accounts. The Fund
and the Distributor will not sell Fund shares to any insurance company or
separate account unless an agreement complying with Article VII of this
Agreement is in effect to govern such sales. No Fund shares of any Series will
be sold to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants (a) that the Contracts are
registered under the 1933 Act or will be so registered before the issuance
thereof, unless exempt, (b) that the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws and (c) that
the Company will require of every person distributing the Contracts that the
Contracts be offered and sold in compliance in all material respects with all
applicable Federal and state laws. The Company further represents and warrants
that it is an insurance company duly organized and in good standing under
applicable law and that it has legally and validly authorized each Account as a
separate account under Section 4240 of the New York Insurance Law (NYIL), and
has registered or, prior to the issuance of any Contracts, will register each
Account as a unit investment trust in accordance with the provisions of the
1940 Act, unless exempt, to serve as a separate account for its Contracts, and
that it will maintain such registrations for so long as the law requires.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for so long as the Fund shares are sold. The Fund
further represents and warrants that it is a corporation duly organized and in
good standing under the laws of Maryland.
2.3. The Fund represents and warrants that it currently qualifies as a
Regulated Investment Company Under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund further represents and warrants that it
will make every effort to continue to qualify and to maintain such qualification
(under Subchapter M or any successor or similar provision), and that it will
notify the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.4. The Fund represents and warrants that it will comply with
Section 817(h) of the Code, and all regulations issued thereunder.
5
<PAGE>
2.5. The Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify the
Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses, and operations are and shall at all times remain in material
compliance with the laws of the state of Maryland, to the extent required to
perform this Agreement; and with state-mandated investment restrictions (if any)
set forth on Schedule 3, as amended from time to time by the Company in
accordance with Section 6.6. The Fund, however, makes no representation as to
whether any aspect of its operations (including, but not limited to, fees and
expenses and investment policies) otherwise complies with the insurance laws or
regulations of any state. The Company alone shall be responsible for informing
the Fund of any investment restrictions imposed by state insurance law and
applicable to the Fund.
2.7. The Distributor represents and warrants that it is duly registered
as a broker-dealer under the 1934 Act, a member in good standing of the NASD,
and duly registered as a broker-dealer under applicable state securities laws;
its operations are in compliance with applicable law, and it will distribute the
Fund shares according to applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents and
warrants that the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940 and is in compliance with applicable
federal and state securities laws.
2.9. The Fund represents and warrants that it has and maintains a
fidelity bond in accordance with Rule 17g-1 under the 1940 Act. The Fund will
immediately notify the Company in the event the fidelity bond coverage should
lapse at any time.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; SALES MATERIAL AND OTHER
INFORMATION
3.1. The Distributor shall provide the Company with as many copies of the
current Fund Prospectus as the Company may reasonably request. If requested by
the Company in lieu thereof, the Fund at its expense shall provide to the
Company a camera-ready copy of the current Fund Prospectus suitable for printing
and other assistance as is reasonably necessary in order for the Company to have
a new Contracts Prospectus printed together with the Fund Prospectus in one
document. See Article V for a detailed explanation of the responsibility for the
cost of printing and distributing Fund prospectuses.
6
<PAGE>
3.2. The Fund Prospectus shall state that the Statement of Additional
Information for the Fund is available from the Distributor (or, in the Fund's
discretion, the Fund Prospectus shall state that such Statement is available
from the Fund), and the Distributor (or the Fund) shall provide such Statement
free of charge to the Company and to any outstanding or prospective
Contractowner who requests such Statement.
3.3.
(a) The Fund at its expense shall provide to the Company a
camera-ready copy of the Fund's shareholder reports and other
communications to shareholders (except proxy material), in each case in a
form suitable for printing. The Fund shall be responsible for the costs of
printing and distributing these materials to Contractowners.
(b) The Fund at its expense shall be responsible for preparing,
printing and distributing its proxy material. The Company will provide the
appropriate Contractowner names and addresses to the Fund for this purpose.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager is named to the
Fund or the Distributor prior to its use. No such material shall be used, except
with the prior written permission of the Fund or the Distributor. The Fund and
the Distributor agree to respond to any request for approval on a prompt and
timely basis. Failure of the Fund to respond within 10 days of the request by
the Company shall relieve the Company of the obligation to obtain the prior
written permission of the Fund or the Distributor.
3.5. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund other
than the information or representations contained in the Fund Registration
Statement or Fund Prospectus, as such Registration Statement and Prospectus may
be amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved by
the Fund or by the Distributor, except with the prior written permission of the
Fund or the Distributor. The Fund agrees to respond to any request for
permission on a prompt and timely basis. If neither the Fund nor the Distributor
responds within 10 days of a request by the Company, then the Company shall be
relieved of the obligation to obtain the prior written permission of the Fund.
7
<PAGE>
3.6. The Fund and the Distributor shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented from
time to time, or in published reports of the Account which are in the public
domain or approved in writing by the Company for distribution to Contractowners,
or in sales literature or other promotional material approved in writing by the
Company, except with the prior written permission of the Company. The Company
agrees to respond to any request for permission on a prompt and timely basis. If
the Company fails to respond within 10 days of a request by the Fund or the
Distributor, then the Fund and the Distributor are relieved of the obligation to
obtain the prior written permission of the Company.
3.7. The Fund will provide to the Company at least one complete copy of
all Fund Registration Statements, Fund Prospectuses, Statements of Additional
Information, annual and semi-annual reports and other reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Fund or Fund shares, promptly after the filing of such
document with the SEC or other regulatory authorities.
3.8. The Company will provide to the Fund at least one complete copy of
all Contracts Registration Statements, Contracts Prospectuses, Statements of
Additional Information, Annual and Semi-annual Reports, sales literature and
other promotional materials, and all amendments or supplements to any of the
above, that relate to the Contracts, promptly after the filing of such document
with the SEC or other regulatory authorities.
3.9. Each party will provide to the other party copies of draft versions
of any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting instructions,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
8
<PAGE>
3.10. For purposes of this Article III, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine or
other periodical, radio, television, telephone or tape recording, videotape
display, computer net site, signs or billboards, motion pictures or other public
media), sales literature ( I.E., any written communication distributed or made
generally available to customers or the public, in print or electronically,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, or reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, Statements of Additional
Information, shareholder reports and proxy materials, and any other material
constituting sales literature or advertising under state insurance laws, NASD
rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
4.1. Subject to applicable law and the order referred to in Article VII,
the Fund shall: solicit voting instructions from Contractowners;
4.2. Subject to applicable law and the order referred to in Article VII,
the Company shall:
(a) vote Fund shares of each Series attributable to Contractowners in
accordance with instructions or proxies received in timely fashion from
such Contractowners;
(b) vote Fund shares of each Series attributable to Contractowners for
which no instructions have been received in the same proportion as Fund
shares of such Series for which instructions have been received in timely
fashion; and
(c) vote Fund shares of each Series held by the Company on its own
behalf or on behalf of the Account that are not attributable to
Contractowners in the same proportion as Fund shares of such Series for
which instructions have been received in timely fashion.
The Company shall be responsible for assuring that voting privileges for the
Accounts are calculated in a manner consistent with the provisions set forth
above.
ARTICLE V. FEES AND EXPENSES
All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Section 1.4 and Article VII of this Agreement, the
Company shall not bear any of the expenses for the cost of registration and
qualification of the Fund shares under Federal and any state securities law,
preparation and filing of the Fund Prospectus and Fund Registration Statement,
the preparation of all statements and notices required by any Federal or state
securities law, all taxes an the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act.
9
<PAGE>
The Fund is responsible for the cost of printing and distributing Fund
Prospectuses and SAIs to existing Contractowners. (If for this purpose the
Company prints the Fund Prospectuses and SAIs in a booklet containing disclosure
for the Contracts and for underlying funds other than those of the Fund, then
the Fund shall pay only its proportionate share of the total cost to distribute
the booklet to existing Contractowners.)
The Company is responsible for the cost of printing and distributing Fund
prospectuses and SAIs for new sales; and Account Prospectuses and SAIs for
existing Contractowners. The Company shall have the final decision on choice of
printer for all Prospectuses and SAIs.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Subchapter M and Section 817(h)
of the Code, and all regulations issued thereunder.
6.2. The Company shall amend the Contracts Registration Statements under
the 1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company shall
register and qualify the Contracts for sale to the extent required by applicable
securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933
Act and the 1940 Act from time to time as required in order to effect for so
long as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
possible that such Contract would be deemed a "modified endowment contract," as
that term is defined in Section 7702A of the Code, will describe the
circumstances under which a Contract could be treated as a modified endowment
contract (or policy).
6.5. To the extent that it decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Fund Board of Directors,
a majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
6.6.
(a) The Company shall amend Schedule 3 when appropriate in order to
inform the Fund of any applicable state-mandated investment restrictions
with which the Fund must comply.
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(b) Should the Fund or the Distributor become aware of any
restrictions which may be appropriate for inclusion in Schedule 3, the
Company shall be informed immediately of the substance of those
restrictions.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Company has reviewed a copy of the order (the "Mixed and Shared
Funding Order") dated November 2, 1987 of the Securities and Exchange Commission
under Section 6(c) of the Act and, in particular, has reviewed the conditions to
the relief set forth in the related Notice. As set forth therein, the Company
agrees to report to the Board of Directors of the Fund (the "Board") any
potential or existing conflicts between the interests of Product Owners of all
separate accounts investing in the Fund, and to assist the Board in carrying out
its responsibilities under the conditions of the Mixed and Shared Funding Order
by providing all information reasonably necessary for the Board to consider any
issues raised, including information as to a decision to disregard voting
instructions of variable Contractowners.
7.2. If a majority of the Board, or a majority of disinterested Board
Members, determines that a material irreconcilable conflict exists, the Board
shall give prompt notice to all Participating Insurance Companies.
(a) If a majority of the whole Board, after notice to the Company and
a reasonable opportunity for the Company to appear before it and present
its case, determines that the Company is responsible for said conflict, and
if the Company agrees with that determination, the Company shall, at its
sole cost and expense, take whatever steps are necessary to remedy the
irreconcilable material conflict. These steps could include: (i)
withdrawing the assets allocable to some or all of the affected Accounts
from the Fund or any Series and reinvesting such assets in a different
investment vehicle, including another Series of the Fund, or submitting the
question of whether such segregation should be implemented to a vote of all
affected Contractowners and, as appropriate, segregating the assets of any
particular group (i.e., variable annuity Contractowners, variable life
insurance policyowners, or variable Contractowners of one or more
Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Contractowners the option of making such a
change; and (ii) establishing a new registered mutual fund or management
separate account, or taking such other action as is necessary to remedy or
eliminate the irreconcilable material conflict.
(b) If the Company disagrees with the Board's determination, the
Company shall file a written protest with the Board, reserving its right to
dispute the determination as between just the Company and the Fund. After
reserving that right the Company, although disagreeing with the Board that
it (the Company) was responsible for the conflict, shall take the necessary
steps, under protest, to remedy the conflict, substantially in accordance
with paragraph (a) just above, for the protection of Contractowners.
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(c) As between the Company and the Fund, if within 45 days after the
Board's determination the Company elects to press the dispute, it shall so
notify the Board in writing. The parties shall then attempt to resolve the
matter amicably through negotiation by individuals from each party who are
authorized to settle the controversy.
If the matter has not been amicably resolved within 60 days from the date of the
Company's notice of its intent to press the dispute, then before either party
shall undertake to litigate the dispute it shall be submitted to non-binding
arbitration conducted expeditiously in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes, by a sole arbitrator;
PROVIDED, HOWEVER, that if one party has requested the other party to seek an
amicable resolution and the other party has failed to participate, the
requesting party may initiate arbitration before expiration of the 60-day period
set out just above.
If within 45 days of the commencement of the process to select an arbitrator the
parties cannot agree upon the arbitrator, then he or she will be selected from
the CPR Panels of Neutrals. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. Sec. 1-16. The place of arbitration shall be
Syracuse, New York. The Arbitrator is not empowered to award damages in excess
of compensatory damages.
(d) If the Board shall determine that the Fund or another insurer was
responsible for the conflict, then the Board shall notify the Company
immediately of that determination. The Fund shall assure the Company that
it (the Fund) or that other insurer, as applicable, shall, at its sole cost
and expense, take whatever steps are necessary to eliminate the conflict.
7.3. If a material irreconcilable conflict arises because of the
Company's decision to disregard Contractowner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall withdraw (without charge or penalty) the Account's investment in
the Fund, if the Fund so elects.
7.4 Subject to the terms of Section 7.2 above, the Company shall carry
out the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict with a view only to the
interests of Contractowners.
7.5. For purposes of this Article, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable conflict, but in no event will the Fund
be required to establish a new funding medium for any variable contract, nor
will the Company be required to establish a new funding medium for any Contract
if an offer to do so has been declined by a vote of a majority of affected
Contractowners.
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ARTICLE VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless the Fund, the Distributor and each person who controls or is
associated with the Fund (other than another Participating Insurance Company) or
the Distributor within the meaning of such terms under the federal securities
laws and any officer, trustee, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were
made; provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing to the Company by the Fund or the Distributor (or a person
authorized in writing to do so on behalf of the Fund or the Distributor)
for use in the Contracts Registration Statement, Contracts Prospectus or in
the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by or on behalf of the Company (other
than statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature or other promotional
material of the Fund not supplied by the Company or persons under its
control) or wrongful conduct of the Company or persons under its control
with respect to the sale or distribution of the Contracts or Fund shares;
or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Fund Registration Statement, Fund
Prospectus or sales literature or other promotional material of the Fund or
any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission was
made in reliance upon and in conformity with information furnished to the
Fund by or on behalf of the Company; or
(d) arise as a result of any failure by the Company to provide the
services and furnish the materials or to make any payments under the terms
of this Agreement; or
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<PAGE>
(e) arise out of any material breach by the Company of this Agreement,
including but not limited to any failure to transmit a request for
redemption or purchase of Fund shares on a timely basis in accordance with
the procedures set forth in Article I; or
(f) arise as a result of the Company's providing the Fund with
inaccurate information, which causes the Fund to calculate its Net Asset
Values incorrectly.
This indemnificiation will be in addition to any liability which the Company
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. INDEMNIFICATION BY THE DISTRIBUTOR. The Distributor agrees to
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such terms under the federal
securities laws and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto) or
sales literature or other promotional material of the Fund, or arise out of
or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which
they were made; provided that this obligation to indemnify shall not apply
if such statement or omission or alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing by the Company to the Fund or the Distributor for use in the Fund
Registration Statement, Fund Prospectus (or any amendment or supplement
thereto) or sales literature for the Fund or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact made by the Distributor or the Fund
(other than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature or other
promotional material of the Fund not supplied by the Distributor or the
Fund or persons under their control) or wrongful conduct of the Distributor
or persons under its control with respect to the sale or distribution of
the Contracts or Fund shares; or
14
<PAGE>
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contract's Registration Statement, Contracts
Prospectus or sales literature or other promotional material for the
Contracts (or any amendment or supplement thereto), or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement or omission
was made in reliance upon information furnished in writing by the
Distributor or the Fund to the Company (or a person authorized in writing
to do so on behalf of the Fund or the Distributor); or
(d) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including, but not by way of limitation, a failure, whether unintentional
or in good faith or otherwise: (i) to comply with the diversification
requirements of Article VI of this Agreement; and (ii) to provide the
Company with accurate information sufficient for it to calculate its
accumulation and/or annuity unit values in timely fashion as required by
law and by the Contracts Prospectuses); or
(e) arise out of any material breach by the Distributor or the Fund of
this Agreement.
This indemnification will be in addition to any liability which the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
15
<PAGE>
8.3. INDEMNIFICATION PROCEDURES. After receipt by a party entitled to
indemnification ("indemnified party") under this Article VIII of notice of the
commencement of any action, if a claim in respect thereof is to be made by the
indemnified party against any person obligated to provide indemnification under
this Article VIII ("indemnifying party"), such indemnified party will notify the
indemnifying party in writing of the commencement thereof as soon as
practicable thereafter, provided that the omission to so notify the indemnifying
party will not relieve it from any liability under this Article VIII, except to
the extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York,
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant,
and the terms hereof shall be limited, interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate
(a) at the option of any party upon six months advance written notice
to the other parties; or
16
<PAGE>
(b) at the option of the Company if shares of any Series are not
available to meet the requirements of the Contracts as determined by the
Company. Prompt notice of the election to terminate for such cause shall be
furnished by the Company. Termination shall be effective ten days after the
giving of notice by the Company; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any
state or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Contracts, the operation of
the Account, the administration of the Contracts or the purchase of Fund
shares, or an expected or anticipated ruling, judgment or outcome which
would, in the Fund's reasonable judgment, materially impair the Company's
ability to perform the Company's obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund, the Distributor, the Investment Manager or
any Sub-Investment Manager, by the NASD, the SEC, or any state securities
or insurance commission or any other regulatory body regarding the duties
of the Fund or the Distributor under this Agreement, or an expected or
anticipated ruling, judgment or outcome which would, in the Company's
reasonable judgment, materially impair the Fund's or the Distributor's
ability to perform Fund's or Distributor's obligations and duties
hereunder; or
(e) at the option of the Company upon institution of formal
proceedings against the Investment Manager or Sub-investment Manager by the
NASD, the SEC, or any state securities or insurance commission or any other
regulatory body which would, in the good faith opinion of the Company,
result in material harm to the Accounts, the Company, or Contractowners.
(f) upon requisite vote of the Contractowners having an interest in
the affected Series (unless otherwise required by applicable law) and
written approval of the Company, to substitute the shares of another
investment company for the corresponding Series shares of the Fund in
accordance with the terms of the Contracts; or
(g) at the option of the Fund in the event any of the Contracts are
not registered, issued or sold in accordance with applicable Federal and/or
state law; or
(h) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of disinterested Fund Board
members, that an irreconcilable material conflict exists among the
interests of (i) any Product owners or (ii) the interests of the
Participating Insurance Companies investing in the Fund; or
(i) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code, or under any
successor or similar provision, or if the Company reasonably believes,
based on an opinion of its counsel, that the Fund may fail to so qualify;
or
17
<PAGE>
(j) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Section 817(h) of the Code and
any regulations thereunder, or
(k) at the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under the
Code, or if the Fund reasonably believes that the Contracts may fail to so
qualify; or
(l) at the option of either the Fund or the Distributor if the Fund or
the Distributor, respectively, shall determine, in their sole judgment
exercised in good faith, that either (1) the Company shall have suffered a
material adverse change in its business or financial condition; or (2) the
Company shall have been the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations
of either the Fund or the Distributor; or
(m) at the option of the Company, if the Company shall determine, in
its sole judgment exercised in good faith, that either: (1) the Fund and
the Distributor, or either of them, shall have suffered a material adverse
change in their respective businesses or financial condition; or (2) the
Fund or the Distributor, or both of them, shall have been the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company; or
(n) upon the assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Accounts to another
insurance company pursuant to an assumption reinsurance agreement) unless
the non-assigning party consents thereto or unless this Agreement is
assigned to an affiliate of the Distributor.
10.2. NOTICE REQUIREMENT. Except as otherwise provided in Section 10.1, no
termination of this Agreement shall be effective unless and until the party
terminating this Agreement gives prior written notice to all other parties to
this Agreement of its intent to terminate, and that notice shall set forth the
basis for such termination. Furthermore:
(a) In the event that any termination is based upon the provisions of
Article VII or the provisions of Section 10.1(a) of this Agreement, such
prior written notice shall be given in advance of the effective date of
termination as required by such provisions; and
(b) In the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, such prior written notice
shall be given at least ninety (90) days before the effective date of
termination, or sooner if required by law or regulation.
(c) In the event that any termination is based upon the provisions of
Section 10.1(e) of this Agreement, such prior written notice shall be
given at least sixty (60) days before the date of any proposed vote to
replace the Fund's shares.
18
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10.3. EFFECT OF TERMINATION
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor will, at
the option of the Company, continue to make available additional Fund
shares for so long after the termination of this Agreement as the Company
desires, pursuant to the terms and conditions of this Agreement as provided
in paragraph (b) below, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as ("Existing
Contracts"). Specifically, without limitation, if the Company so elects to
make additional Fund shares available, the owners of the Existing Contracts
or the Company, whichever shall have legal authority to do so, shall be
permitted to reallocate investments in the Fund, redeem investments in the
Fund and/or invest in the Fund upon the making of additional purchase
payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant to
Section 10.1 of this Agreement, the Fund and the Distributor shall
promptly notify the Company whether the Distributor and the Fund will
continue to make Fund shares available after such termination. If Fund
shares continue to be made available after such termination, the provisions
of this Agreement shall remain in effect except for Section 10.1(a) and
thereafter either the Fund or the Company may terminate the Agreement, as
so continued pursuant to this Section 10.3, upon prior written notice to
the other party, such notice to be for a period that is reasonable under
the circumstances but, if given by the Fund, need not be for more than six
months.
(c) The parties agree that this Section 10.3 shall not apply to any
termination made pursuant to Article VII or any conditions or undertakings
incorporated by reference in Article VII, and the effect of such Article
VII termination shall be governed by the provisions set forth or
incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance policies
to be issued by the Company through a Separate Account investing in the Fund.
The provisions of this Agreement shall be equally applicable to each such class
of contracts or policies, unless the context otherwise requires. The schedule of
available series in the Fund may also be amended from time to time.
19
<PAGE>
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party(ies) at the address of such party(ies) set forth below
or at such other address as such party(ies) may from time to time specify in
writing to the other party.
If to the Fund:
Delaware Group Premium Fund, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Christopher Price
If to the Company:
Lincoln Life & Annuity Company of New York
120 Madison Street, Suite 1700
Syracuse, New York 13202-2802
Attn: Troy Panning
If to the Distributor:
Delaware Distributors, Inc.
1818 Market Street
Philadelphia, PA 19103
Attn: Bruce D. Barton
ARTICLE XIII. MISCELLANEOUS
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
13.4. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
20
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13.5. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
DELAWARE GROUP PREMIUM FUND, INC. (Fund)
Date: By: /s/ David K. Downes
---------- ----------------------------
Name: David K. Downes
Title: President and Chief Executive Officer
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
(Company)
Date: 11-5-99 By:/s/ Joanne B. Collins
---------- ----------------------------
Name: Joanne B. Collins
--------------------
Title: President
--------------------
DELAWARE DISTRIBUTORS, LP (Distributor)
by DELAWARE DISTRIBUTORS, INC. (General Parties)
Date: By:/s/ Bruce Barton
---------- ----------------------------
Name: Bruce D. Barton
Title: President
21
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SCHEDULE 1
Separate Accounts of Lincoln Life & Annuity Company of New York
Investing in the Fund
As of October 11, 1999
Separate Account Date Created
- ---------------- ------------
Lincoln Life & Annuity Separate Account M November 24, 1997
Lincoln Life & Annuity Separate Account N March 11, 1999
Lincoln Life & Annuity Separate Account R January 29, 1998
Lincoln Life & Annuity Separate Account S March 2, 1999
22
<PAGE>
SCHEDULE 2
Variable Annuity Contracts
and Variable Life Insurance Policies
Supported by Separate Accounts
Listed on Schedule 1
As of October 15, 1999
LLANY FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE -- VUL
CHOICE PLUS VARIABLE ANNUITY
LLANY FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE -- SVUL
CVUL
23
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SCHEDULE 3
State-mandated Investment Restrictions
Applicable to the Fund
As of October 11, 1999
None.
24
<PAGE>
SCHEDULE 4
Series in the Fund Available
to the Contracts and Policies
Listed on Schedule 2
As of October 15, 1999
Trend Series
Emerging Markets Series
Small Cap Value Series
Delchester Series
REIT Series
Devon Series
25
