As filed with the Securities and Exchange Commission on May 12, 2000
1933 Act Registration No. 333-74325
================================================================================
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
Post-Effective Amendment No. 2 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
-------------
LLANY Separate Account S for
Flexible Premium Variable Life Insurance
(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 Company
Syracuse, NY 13202 350 Church Street
(Name and Address of Agent for Service) 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 first Form 24f-2 for the Registrant is not yet due.
It is proposed that this filing will become effective:
[X] May 12, 2000, pursuant to Rule 485(b)(1)(iii) and 485(d)(2)
- --------------------------------------------------------------------------------
================================================================================
<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 Matters
10(a)-(c) Right to Examine the Policy; Surrenders; Accumulation Unit Value; Reports to Policyowners
10(d) Policy Loans; Partial Surrenders; Allocation of Premiums
10(e) Reinstatement of a Lapsed Policy
10(f) Right to Instruct Voting of Fund Shares
10(g)-(h) *
10(i) Premium Payments; Allocations and Transfers; Death Benefit; Policy Values; Settlement Options
11 Separate Account-Funds
12 Separate Account-Funds
13 Charges and Fees
14 Policy Rights
15 Premium Payments; Allocations and Transfers
16 Separate Account-Funds
17 Partial Surrenders
18 Separate Account-Funds
19 Reports to Policyowners
20 *
21 Policy Loans
22 *
23 The Company
24 Age; Incontestability; Suicide
25 The Company
26 Fund Participation Agreements
27 The Variable Account
28 Directors and Officers of LLANY
29 The Company
30 *
31 *
32 *
33 *
34 *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item of Form N-8B-2 Location in Prospectus
------------------- ----------------------
<S> <C>
35 *
37 *
38 Distribution of Policies
39 Distribution of Policies
40 *
41(a) Distribution of Policies
42 *
43 *
44 Separate Account-Funds; Premium Payments
45 *
46 Partial Surrenders
47 The Variable Account; Partial Surrenders, Allocations and Transfers
48 *
49 *
50 The Variable Account
51 Highlights; Premium Payments
52 LLANY, the Separate Account and the General Account
53 Tax Matters
54 *
55 *
</TABLE>
- ---------------
* Not Applicable
<PAGE>
PROSPECTUS 1
<PAGE>
Lincoln Life & Annuity Company of New York
LLANY Separate Account S for Flexible Premium Variable Life Insurance
Home Office Location: Administrative Office:
120 Madison Street Lincoln Corporate Specialty Markets
Suite 1700 350 Church Street
Syracuse, NY 13202 Hartford, CT 06103-1106
(888) 223-1860 (860) 466-1561
================================================================================
This Prospectus describes LCVUL, a flexible premium variable universal life
insurance contract (the "Policy") offered by Lincoln Life & Annuity Company of
New York. The Policy is available only in New York. The Policies are available
for purchase by corporations or other groups where the individuals share a
common employer or affiliation with the group or sponsoring organization.
The policy features:
o flexible Premium Payments
o a choice of one of three death benefit options
o 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 this Policy.
This Prospectus is intended to describe the variable options used to fund this
Policy through the Separate Account. The variable funding options (collectively,
the "Funds") currently available through the Separate Account are from the
following trusts or corporations:
o American Century Variable Products Group, Inc.
o American Funds Insurance Series
(also known as American Variable Insurance Series)
o Baron Capital Funds Trust
o Delaware Group Premium Fund
o Deutsche Asset Management VIT Funds Trust
(formerly BT Insurance Funds Trust)
o Fidelity Variable Insurance Products Funds
o Franklin Templeton Variable Insurance Products Trust
o Janus Aspen Series
o Lincoln National Funds
o MFS Variable Insurance Trust
o Neuberger Berman Advisers Management Trust
o OCC Accumulation Trust
o OppenheimerFunds
Read this Prospectus and the prospectuses of the Funds available as investment
options through the Separate Account under the Policy offered by this Prospectus
carefully. Keep them 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 12, 2000
<PAGE>
Table of Contents
<TABLE>
<S> <C>
HIGHLIGHTS ................................................. 3
A Flexible Premium Variable Life Insurance Policy ......... 3
Initial Choices to be Made ................................ 3
Amount of Premium Payment ................................. 3
Death Benefit Options ..................................... 3
Selection of Funding Vehicles ............................. 4
Charges and Fees .......................................... 4
Underlying Funds Expenses ................................. 6
Policy Loans, Withdrawals and Surrenders .................. 9
Changes in Specified Amount ............................... 9
LLANY, THE SEPARATE ACCOUNT AND THE GENERAL
ACCOUNT ................................................... 9
BUYING VARIABLE LIFE INSURANCE ............................. 10
ALLOCATION OF PREMIUMS ..................................... 11
Fixed Account ............................................. 11
Separate Account-Funds .................................... 12
Mixed and Shared Funding .................................. 18
Substitution of Securities ................................ 18
CHARGES & FEES ............................................. 19
Premium Load .............................................. 19
Premium Load Refund ....................................... 19
Premium Tax Charge ........................................ 19
Charges and Fees Assessed Against the Total
Account Value ............................................ 19
Mortality and Expense Risk Charge ......................... 20
Reduction of Charges ...................................... 20
POLICY CHOICES ............................................. 21
Premium Payments .......................................... 21
Death Benefit Options ..................................... 22
Allocations and Transfers to Funding Options .............. 23
POLICY VALUES .............................................. 24
Total Account Value ....................................... 24
Accumulation Unit Value ................................... 25
Maturity Value ............................................ 25
Surrender Value ........................................... 25
POLICY RIGHTS .............................................. 25
Partial Surrenders ........................................ 25
Reinstatement of a Lapsed Policy .......................... 26
Policy Loans .............................................. 26
Policy Changes ............................................ 27
Right to Examine the Policy ............................... 28
DEATH BENEFIT .............................................. 28
</TABLE>
<TABLE>
<S> <C>
POLICY SETTLEMENT .......................................... 28
Settlement Options ........................................ 28
TERM INSURANCE RIDER ....................................... 30
THE COMPANY ................................................ 30
Directors and Officers of LLANY ........................... 30
ADDITIONAL INFORMATION ..................................... 32
Reports to Policyowners ................................... 32
Right to Instruct Voting of Fund Shares ................... 33
Disregard of Voting Instructions .......................... 33
State Regulation .......................................... 33
Legal Matters ............................................. 34
The Registration Statement ................................ 34
Distribution of the Policies .............................. 34
Records and Accounts ...................................... 34
Experts ................................................... 34
Advertising ............................................... 35
TAX ISSUES ................................................. 35
Taxation of Life Insurance Contracts in General ........... 35
Policies Which Are MECS ................................... 36
Policies Which Are Not MECS ............................... 37
Other Considerations ...................................... 37
Tax Status of LLANY ....................................... 38
MISCELLANEOUS POLICY PROVISIONS ............................ 38
Payment of Benefits ....................................... 38
Age ....................................................... 39
Incontestability .......................................... 39
Suicide ................................................... 39
Coverage Beyond Maturity .................................. 39
Nonparticipation .......................................... 39
Appendix A --
Illustrations of Death Benefits, Total Account Values
and Surrender Values ...................................... 40
Appendix B --
Applicable Percentages for Cash Value Accumulation
Test ...................................................... 48
Financial Statements .......................................
Separate Account .......................................... I-1
Company ................................................... S-1
</TABLE>
2
<PAGE>
HIGHLIGHTS
A Flexible Premium Variable Life Insurance Policy
This Prospectus describes a flexible premium variable universal life insurance
contract (the "Policy") offered by Lincoln Life & Annuity Company of New York
("LLANY", the "Company", "we", "us", "our") through LLANY Separate Account S for
Flexible Premium Variable Life Insurance (the "Separate Account" or "Account
S"). The Policy may be useful in: funding non-qualified executive deferred
compensation; funding salary continuation programs; funding death benefit
liabilities or cash flow obligations for executive retirement plans.
The value of your Policy and, under one option, the death benefit amount depends
on the investment results of the funding options you select.
Initial Choices to be Made
The Policyowner (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 important choices to make when
the Policy is first purchased. You need to choose:
o the amount of premium you want to pay (see page 21);
o one of three death benefit options (see page 22);
o the amount of the Net Premium Payment to be placed in each of the funding
options selected. The Net Premium is the balance of each Premium Payment
that remains after certain charges are deducted from it.
Amount of Premium Payment
One of your initial decisions is how much premium to pay. Premium Payments may
be changed within the limits described on page 21. If the Policy lapses because
your monthly deduction is larger than the Net Accumulation Value, you may
reinstate the Policy. See page 26.
You may use the value of your Policy to pay the premiums due and continue the
Policy in force if sufficient values are available. 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 increase (see page 19) as the Insured
gets older.
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 time period, your initial premium
payment will be allocated to the Money Market fund. If you then decide you do
not want the Policy, you will receive a refund. See page 28.
Death Benefit Options
The Death Benefit is the amount we pay 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 the Insured died. We will pay the Death
Benefit in one lump sum or under one of the annuity settlement options.
3
<PAGE>
The three death benefit options available usually provide a level, varying or
increasing death benefit, depending on the option selected. See page 22 for more
details on death benefit options.
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 favorable
federal tax treatment. The Company reserves the right to return your premium
payment if it results in your Policy's failing to meet federal tax law
requirements.
If you have surrendered a portion of your Policy, any surrendered amount will
reduce your initial death benefit. If you borrow against your Policy or
surrender a portion of your Policy, the Loan Amount balance and any surrendered
amount will reduce your initial death benefit.
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 take 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 they 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) (Sub-Account(s)) in which you want to place each Net
Premium Payment. These Sub-Accounts make up the Separate Account. Each Sub-
Account invests in shares of a certain Fund. A Sub-Account is not guaranteed and
will increase or decrease in value according to the particular Fund's investment
performance. See page 12.
You may also choose to place the Net Premium Payment or part of it into the
Fixed Account. Net Premium Payments put into the Fixed Account:
o become part of the Company's General Account;
o do not share the investment experience of the Separate Account; and
o have a guaranteed minimum interest rate of 4.0% per year.
For additional information on the Fixed Account, see page 11.
Charges and Fees
A premium load is deducted from all of your premium payments. (See page 18)
Currently, the premium load is:
<TABLE>
<CAPTION>
Policy Year(s)
<S> <C>
1 10.5%
2-5 7.5%
6-7 3.5%
8+ 1.5%
</TABLE>
If you fully surrender your Policy within 24 months after Date of Issue, you may
be entitled to receive partial credit for premium loads deducted from your
Policy. (See page 19).
4
<PAGE>
For these purposes, an increase in Specified Amount is treated as a newly issued
policy.
An explicit premium tax charge equal to the state and municipal taxes associated
with premiums received is also deducted from premium payments.
A Monthly Deduction is made from the total account value on the same day of each
month beginning with the date of issue. The Monthly Deduction includes the Cost
of Insurance and any charges for supplemental riders or benefits. Once a policy
is issued, monthly deductions will begin as of the date of issue, even if the
Policy's issuance was delayed due to the underwriting requirements or other
reasons. The Monthly Deduction also includes a monthly administrative expense
charge during all policy years. The monthly Administrative Expense is currently
$6, and is guaranteed not to exceed $10. See page 19.
A daily deduction is made from the assets of Account S for mortality and expense
risk, currently at an annual rate of:
<TABLE>
<CAPTION>
Policy Year(s)
<S> <C>
1-10 0.70%
11+ 0.35%
</TABLE>
The Company reserves the right to increase the mortality and expense risk charge
but it will never exceed 1.25% annually during Policy Years 1-10 and 0.90%
annually during Policy Years 11 and thereafter. (See page 20).
Each Fund has its own management fee charge, also deducted daily. Investment
results for the Funds you choose will be affected by the fund management charges
and other fund expenses. The table on pages 6 - 7 shows you the current charges
and expenses.
Before the Maturity Date you may make transfers between funding options. The
Company allows twelve transfers each Policy Year; but, after the first 18 months
from Date of Issue, a $25 charge may apply for each additional transfer within
that Policy Year. Within 45 days after each Policy Anniversary, you may also
transfer to the Separate Account 25% of the greatest amount held in the Fixed
Account Value during the prior 5 years or $1000 if greater. See page 24.
There are no Surrender Charges for your Policy.
5
<PAGE>
Underlying Funds 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 Class 2 shares
and Other Expenses). The charge has the effect of reducing the investment
results credited to the Sub-Accounts.
The following table illustrates the investment advisory fees, other expenses and
total expenses paid by each of the Funds as a percentage of average net assets
based on figures for the year ended December 31, 1999 unless otherwise
indicated. Future fund expenses will vary.
<TABLE>
<CAPTION>
Management 12b-1 Other
Fees Fees Expenses
Fund ---------- ----- --------
<S> <C> <C> <C>
American Century VP Income & Growth 0.70% N/A% 0.00 %
American Century VP International 1.34 N/A 0.00
AFIS Bond--Class 2 0.51 0.25 0.02
AFIS Global Growth--Class 2 0.68 0.25 0.03
AFIS Growth--Class 2 0.38 0.25 0.01
AFIS Growth Income--Class 2 0.34 0.25 0.01
AFIS High Yield Bond--Class 2 0.50 0.25 0.01
AFIS U.S. Government/AAA--Class 2 0.51 0.25 0.01
Baron Capital Asset(2) 1.00 0.25 0.63
Delaware Devon Standard Class(3a) 0.65 N/A 0.10
Delaware High Yield Standard Class(3b)
(formerly Delchester) 0.65 N/A 0.07
Delaware International Equity Standard
Class(3c) 0.85 N/A 0.09
Delaware REIT Standard Class(3d) 0.75 N/A 0.21
Delaware Small Value Standard Class(3e) 0.75 N/A 0.10
Deutsche VIT EAFE Index(4) 0.45 N/A 0.70
Deutsche VIT Equity 500 Index(4) 0.20 N/A 0.23
Deutsche VIT Small Cap Index(4) 0.35 N/A 0.83
Fidelity VIP II Asset Manager--Service
Class(5) 0.53 0.10 0.11
Fidelity VIP II Contrafund--Service Class(5) 0.58 0.10 0.10
Fidelity VIP Growth--Service Class(5) 0.58 0.10 0.09
Fidelity VIP High Income--Service Class(5) 0.58 0.10 0.11
Fidelity VIP Overseas--Service Class(5) 0.73 0.10 0.18
Franklin Small Cap--Class 2(9a, b, d) 0.55 0.25 0.27
Janus Aspen Series Aggressive Growth--
Institutional Shares(6) 0.65 N/A 0.02
Janus Aspen Series Balanced--
Institutional Shares(6) 0.65 N/A 0.02
Janus Aspen Series Flexible Income--
Institutional Shares(6) 0.65 N/A 0.07
Janus Aspen Series Global Technology--
Service Shares(6) 0.65 0.25 0.13
Janus Aspen Series Worldwide Growth--
Institutional Shares(6) 0.65 N/A 0.05
LN Bond 0.45 N/A 0.08
LN Capital Appreciation 0.72 N/A 0.06
LN Equity-Income 0.72 N/A 0.07
LN Money Market 0.48 N/A 0.11
LN Social Awareness 0.33 N/A 0.05
MFS Capital Opportunities(7) 0.75 N/A 0.27(1)
<CAPTION>
Total Annual Total Fund
Fund Operating Operating
Expenses Total Expenses
Without Waivers with
Waivers or and Waivers or
Reductions Reductions Reductions
Fund -------------- ---------- ----------
<S> <C> <C> <C>
American Century VP Income & Growth 0.70% N/A% 0.70%
American Century VP International 1.34 N/A 1.34
AFIS Bond--Class 2 0.78 N/A 0.78
AFIS Global Growth--Class 2 0.96 N/A 0.96
AFIS Growth--Class 2 0.64 N/A 0.64
AFIS Growth Income--Class 2 0.60 N/A 0.60
AFIS High Yield Bond--Class 2 0.76 N/A 0.76
AFIS U.S. Government/AAA--Class 2 0.77 N/A 0.77
Baron Capital Asset(2) 1.88 (0.38) 1.50
Delaware Devon Standard Class(3a) 0.75 N/A 0.75
Delaware High Yield Standard Class(3b)
(formerly Delchester) 0.72 N/A 0.72
Delaware International Equity Standard
Class(3c) 0.94 (0.02) 0.92
Delaware REIT Standard Class(3d) 0.96 (0.11) 0.85
Delaware Small Value Standard Class(3e) 0.85 N/A 0.85
Deutsche VIT EAFE Index(4) 1.15 (0.50) 0.65
Deutsche VIT Equity 500 Index(4) 0.43 (0.13) 0.30
Deutsche VIT Small Cap Index(4) 1.18 (0.73) 0.45
Fidelity VIP II Asset Manager--Service
Class(5) 0.74 N/A 0.74
Fidelity VIP II Contrafund--Service Class(5) 0.78 N/A 0.78
Fidelity VIP Growth--Service Class(5) 0.77 N/A 0.77
Fidelity VIP High Income--Service Class(5) 0.79 N/A 0.79
Fidelity VIP Overseas--Service Class(5) 1.01 N/A 1.01
Franklin Small Cap--Class 2(9a, b, d) 1.07 N/A 1.07
Janus Aspen Series Aggressive Growth--
Institutional Shares(6) 0.67 N/A 0.67
Janus Aspen Series Balanced--
Institutional Shares(6) 0.67 N/A 0.67
Janus Aspen Series Flexible Income--
Institutional Shares(6) 0.72 N/A 0.72
Janus Aspen Series Global Technology--
Service Shares(6) 1.03 N/A 1.03
Janus Aspen Series Worldwide Growth--
Institutional Shares(6) 0.70 N/A 0.70
LN Bond 0.53 N/A 0.53
LN Capital Appreciation 0.78 N/A 0.78
LN Equity-Income 0.79 N/A 0.79
LN Money Market 0.59 N/A 0.59
LN Social Awareness 0.38 N/A 0.38
MFS Capital Opportunities(7) 1.02 (0.11)(2) 0.91
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Total Annual Total Fund
Fund Operating Operating
Expenses Total Expenses
Without Waivers with
Management 12b-1 Other Waivers or and Waivers or
Fees Fees Expenses Reductions Reductions Reductions
Fund ---------- ----- -------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
MFS Research(7) 0.75 N/A 0.11(1) 0.86 N/A 0.86
MFS Total Return(7) 0.75 N/A 0.15(1) 0.90 N/A 0.90
MFS Utilities(7) 0.75 N/A 0.16(1) 0.91 N/A 0.91
Neuberger Berman AMT Mid-Cap Growth(8) 0.85 N/A 0.23 1.08 (0.08) 1.00
Neuberger Berman AMT Partners(8) 0.80 N/A 0.07 0.87 N/A 0.87
OCC Accum Trust Managed 0.77 N/A 0.06 0.83 N/A 0.83
Oppenheimer MainStreet Growth & Income 0.73 N/A 0.05 0.78 N/A 0.78
Templeton Asset Strategy (formerly Asset
Allocation) Class 2(9d, f) 0.60 0.25 0.18 1.03 N/A 1.03
Templeton Growth(9c, d, e) Securities
(formerly Stock) Class 2 0.83 0.25 0.05 1.13 N/A 1.13
Templeton International Securities (formerly
International) Class 2(9d, g) 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.
(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 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 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.
(c) The investment advisor for the International Equity 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 0.95%. Without such an arrangement, the total annual
operating expenses for the Series would have been 0.94%. Under its
Management Agreement, the Series pays a management fee based on average
daily net assets as follows: 0.85% on the first $500 million, 0.80% on
the next $500 million, 0.75% on the next $1,500 million, 0.70% 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.
(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); Asset Manager 0.73% (service); Contrafund 0.75%
(service);
7
<PAGE>
(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 into account, "Net Expenses" would be lower for certain series
and would equal:
0.90% for Capital Opportunities Series
0.85% for Research Series
0.89% for Total Return Series
0.90% for Utilities Series
MFS has contractually agreed, subject to reimbursement, to bear expenses for the
Capital Opportunities Series such that such series' "Other Expenses" (after
taking into account the expense offset arrangement described above), do not
exceed the 0.15% of the average daily net assets of the series during the
current fiscal year. This contractual fee arrangement will continue until at
least May 1, 2001, unless changed with the consent of the board of trustees
which oversees the 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 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) A merger and reorganization was approved that combined the fund with
a similar fund of Templeton Variable Products Series Fund.
(b) On 2/8/00, fund shareholders approved new management fees, 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.
(c) The fund administration fee is paid indirectly through the management
fee.
(d) 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.
(e) On 2/8/00, a merger and reorganization was approved that combined the
fund with a similar fund of the Templeton Variable Products Series Fund,
effective 5/1/00. The table shows total expenses based on the fund's
assets as of 12/31/99, and not the assets of the combined fund. However,
if the table reflected combined assets, the fund's expenses after 5/01/00
would be estimated as: Management Fees 0.80%, Distribution and Services
Fees 0.25%, Other Expenses 0.05%, and Total Fund Operating Expenses
1.10%.
(f) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with the Templeton Global Asset Allocation Fund,
effective 5/01/00. The shareholders of that fund had approved new
management fees, which apply to the combined fund effective 5/01/00. The
table shows restated total expenses based on the new fees and the assets
of the fund as of 12/31/99, and not the assets of the combined fund.
However, if the table reflected both the new fees and the the combined
assets, the fund's expenses after 5/1/00 would be estimated as:
Management Fees 0.60%, Distribution and Service Fees 0.25%, Other
Expenses 0.14%, and Total Fund Operating Expenses 0.99%.
(g) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with the Templeton International Equity Fund, effective
5/01/00. The shareholders of that fund had approved new management fees,
which apply to the combined fund effective 5/1/00. The table shows
restated total expenses based on the new fees and the assets of the fund
as of 12/31/99, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's
expenses after 5/1/00 would be estimated as: Management Fees 0.65%,
Distribution and Service Fees 0.25%, Other Expenses 0.20%, and Total Fund
Operating Expenses 1.10%.
8
<PAGE>
Policy Loans, Withdrawals and Surrenders
You may borrow, within described limits, against the Policy. You may surrender
your Policy in full or withdraw part of its value. Upon the maturity of your
Policy, you may select one of the annuity settlement options or, prior to
maturity, you may apply the value of your Policy, minus surrender charges and
loan account amounts, to one of the annuity settlement options.
If you borrow against your policy, interest will accrue at an annual rate which
will be the monthly average (Moody's Investors Service, Inc. Composite Yield on
Corporate Bonds) for the calendar month which ends two months prior to the
Policy Anniversary month, or 5.0% if greater.
Interest will be credited on the Loan Account Value at an annual rate that is
the interest charged on the loan minus a rate not to exceed 0.90%. The minimum
interest credited will be no less than 4.0% annually. See page 26.
Changes in Specified Amount
Within certain limits, you may increase or decrease the specified amount.
Increases may require evidence of insurability. Currently, the minimum Specified
Amount is $100,000. Such changes will affect other aspects of your Policy. See
page 27.
LLANY, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT
LLANY 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.
Account S is a "separate account" of the Company established on March 2, 1999.
Account S was established for the purpose of segregating assets attributable to
the variable portion of life insurance contracts from other assets of the
Company. Under New York law, the assets of Account S attributable to the
Policies, through the property of LLANY, are not chargeable with liabilities of
any other business of LLANY and are available first to satisfy LLANY's
obligations under the Policies. Account S income, gains, and losses are credited
to or charged against Account S without regard to other income, gains, or losses
of LLANY. The values and investment performance of Account S are not guaranteed.
Account S is registered with the Securities and Exchange Commission
("Commission") as a "unit investment trust" under the Investment Company Act of
1940, as amended ("1940 Act") and meets the 1940 Act's definition of "separate
account". The Commission does not supervise the management, investment
practices, or policies of LLANY or Account S. LLANY has numerous other
registered separate accounts which fund its variable life insurance policies and
variable annuity contracts.
Account S 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.
9
<PAGE>
On each Valuation Day, Net Premium Payments allocated to Account S will be
invested in Fund shares at net asset value, and monies necessary to pay for
deductions, charges, transfers and surrenders from Account S are raised by
selling Fund shares at net asset value.
The Funds now available in Account S and their investment objectives are on
pages 12 - 18. More Fund information is in the Funds' prospectuses, which must
accompany or precede this prospectus and should be read carefully. The Funds may
or may not achieve their investment objectives.
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.
LLANY reserves the right to add, withdraw or substitute Funds, subject to the
conditions of the Policy and to compliance with regulatory requirements, if in
its sole discretion, legal, regulatory, marketing, tax or investment
considerations so warrant or in the event a particular Fund is no longer
available to LLANY 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 LLANY and other insurance companies to fund
both variable annuity contracts and variable life insurance policies. While this
is not perceived as problematic, the Funds' governing bodies (Boards of
Directors/Trustees) have agreed to monitor events to identify any material
irreconcilable conflicts which might arise and to decide what responsive action
might be appropriate. If a separate account were to withdraw its investment in a
Fund because of a conflict, a Fund might have to sell portfolio securities at
unfavorable prices.
A Policy may also be funded in whole or in part through the "Fixed Account",
part of LLANY's General Account supporting its insurance and annuity
obligations. The General Account is the Company's general asset account, in
which assets attributable to the non-variable portion of the Policies are held.
Amounts held in the Fixed Account will be credited with interest at rates LLANY
determines 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 Securities Act of 1933, as amended
("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. Policy owners should be prepared to monitor
their investment choices on an ongoing basis.
The Policy is available for purchase by corporations or groups where individuals
share a common employer or affiliation with a group or sponsoring organization.
Each Policy covers a single insured. The Policy may be useful in: funding
non-qualified executive deferred compensation; funding salary continuation
programs; funding
10
<PAGE>
death benefit liabilities or cash flow obligations for executive retirement
plans. The Policy should not be considered for employer pension or profit
sharing programs.
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.
Unless a policy has become a "Modified Endowment Contract" (see page 35), an
owner can borrow Policy values tax-free, without surrender charges and at low
net interest cost. Policy loans can be a source of retirement income.
Depending on the death benefit option chosen, accumulated Policy values may also
be part of the eventual death benefit payable. If a Policy is heavily funded and
investment performance is very favorable, the death benefit may increase even
further because of tax law requirements that the death benefit be a certain
multiple of Policy value, depending on the Insured's age (see page 22).
ALLOCATION OF PREMIUMS
You may allocate all or a part of your Net Premiums to the Fixed Account (part
of the Company's General Account) or to the Funds currently available through
the Separate Account in connection with the Policy. In addition, the Company may
add, withdraw or substitute Funds, subject to the conditions in the Policy and
to compliance with regulatory requirements. The investment results of the Funds,
whose objectives are described below, are likely to differ significantly. Except
where otherwise indicated, all of the Funds are diversified, as defined in the
1940 Act.
Any monies received prior to policy issue will be credited with the return
attributable to the Money Market Fund from the date of receipt until the day the
Policy is issued.
During the Right to Examine Period, the first Net Premium will be allocated in
its entirety as of the issue date to the Money Market Fund, regardless of the
Policy owner's premium allocation percentages. Any other Net Premium received
prior to the expiration of the Right to Examine Period will also be allocated to
the Money Market Fund. On the day following the expiration of the Right to
Examine Period, the policy value and future Net Premiums will be allocated in
accordance with the Policy owner's selected premium allocation percentages.
Fixed Account
The Fixed Account is the only investment option offered with a guaranteed
return. Amounts held in the Fixed Account will be credited with interest at
rates of not less than 4.0% per year. Additional excess interest of up to 0.5%
may be credited to the Fixed Account Value beginning in Policy Year 11. Credited
interest rates reflect the Company's return on Fixed Account invested assets and
the amortization of any realized gains and/or losses which the Company may incur
on these assets.
11
<PAGE>
Separate Account
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 strategy to those of 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.
The portfolios, their investment advisors and distributors, and the Funds within
each that are available under the Policies are:
American Century Variable Products Group, Inc., managed and distributed by
American Century Investment Management, Inc., P.O. Box 419385, Kansas City, MO
64141-6385
American Century VP Income & Growth Fund
American Century VP International Fund
American Funds Insurance Series (also known as 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 Bond Fund--Class 2
AFIS Global Growth Fund--Class 2
AFIS Growth Fund--Class 2
AFIS Growth-Income Fund--Class 2
AFIS High-Yield Bond Fund--Class 2
AFIS U.S. Government/AAA Rated Securities 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, Delaware
International Advisors, LTD., 80 Cheapside, London, England ECV2 6EE and
distributed by Delaware Distributors, L.P., 1818 Market Street, Philadelphia, PA
19103
Delaware Group Devon Series--Standard Class
Delaware Group High Yield Series (formerly Delchester Series)--Standard
Class
Delaware Group International Equity Series--Standard Class
Delaware Group REIT Series--Standard Class
Delaware Group Small Cap Value 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
Deutsche VIT EAFE[RegTM] Equity Index Fund
Deutsche VIT Equity 500 Index Fund
Deutsche VIT Small Cap Index Fund
12
<PAGE>
Fidelity Variable Insurance Products Fund, and Fidelity Variable Insurance
Products Fund II, managed by Fidelity Management & Research Company and
distributed by Fidelity Distributors Corporation, Inc., 82 Devonshire Street,
Boston, MA 02103
Fidelity VIP Growth Portfolio-Service Class
Fidelity VIP High Income Portfolio--Service Class
Fidelity VIP Overseas Portfolio--Service Class
Fidelity VIP II Asset Manager Portfolio-Service Class
Fidelity VIP II Contrafund Portfolio-Service Class
Franklin Templeton Variable Insurance Products Trust, managed by Templeton
Investment Counsel, Inc. Broward Financial Centre, Suite 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.
Franklin Small Cap Fund-Class 2
Templeton Asset Strategy Fund-Class 2 (formerly Templeton Asset Allocation
Fund)
Templeton Growth Securities Fund-Class 2 (formerly Templeton Stock Fund)
Templeton International Securities Fund-Class 2 (formerly Templeton
International Fund)
Janus Aspen Series, managed by Janus Capital and distributed by Janus
Distributors, Inc., 100 Fillmore St., Denver, CO 80206-4928
Janus Aspen Series Aggressive Growth Portfolio--Institutional Shares
Janus Aspen Series Balanced Portfolio--Institutional Shares
Janus Aspen Series Flexible Income 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 Money Market Fund, Inc.
LN Social Awareness Fund, Inc. (Sub-advised by Vantage Investment
Advisors)
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[RegTM] Variable Insurance Trust, managed by Massachusetts Financial Services
Company and distributed by MFS Fund Distributors, Inc., 500 Boylston Street,
Boston, MA 02116
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MFS Capital Opportunities Series
13
<PAGE>
Neuberger Berman Advisers Management Trust, managed and distributed by Neuberger
Berman Management Incorporated, 605 Third Avenue, 2nd Floor, New York, NY
10158-0006
NB AMT Mid-Cap Growth Portfolio
NB AMT Partners Portfolio
OCC Accumulation Trust, managed by OpCap Advisors and distributed by OCC
Distributors, 1345 Avenue of the Americas, New York, NY 10105
OCC Trust Managed Portfolio
OppenheimerFunds, managed by OppenheimerFunds, Inc., and distributed by
OppenheimerFunds Distributors, Inc., Two World Trade Center, New York, NY 10048
Oppenheimer Main Street Growth and Income Fund/VA
The investment advisory fees charged the Funds by their advisors are shown on
pages 6-8.
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.
o American Century VP Income & Growth Fund: Seeks dividend growth, current
income and capital appreciation by investing in a diversified portfolio of
U.S. stocks.
o American Century VP International Fund: Seeks capital growth, by investing
primarily in an internationally diversified portfolio of common stocks that
are considered by management to have prospects for appreciation. The fund
will invest primarily in securities of issuers located in developed
markets.
o AFIS Bond Fund--Class 2: The fund seeks to maximize your level of current
income and preserve your capital by investing primarily in bonds. The fund
is designed for investors seeking income and more price stability than
stocks, and capital preservation over the long-term.
o AFIS Global Growth Fund--Class 2: The fund seeks to make your investment
grow over time by investing primarily in common stocks of companies located
around the world. 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.
o AFIS Growth Fund--Class 2: The fund seeks to make your 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.
o AFIS Growth-Income Fund--Class 2: The fund 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.
o AFIS High-Yield Bond Fund--Class 2: The fund seeks to provide you with a
high level of current income and secondarily capital appreciation by
investing primarily in lower quality debt securities (rated Ba or BB or
lower by Moody's
14
<PAGE>
Investors Services, Inc. or Standard & Poor's Corporation), including those
of non-U.S. issuers. The fund may also invest in equity securities that
provide an opportunity for capital appreciation.
o AFIS U.S. Government/AAA Rated Securities Fund--Class 2: The fund seeks to
provide you with a high level of current income, as well as preserve your
investment. The fund invests primarily in securities that are guaranteed by
the "full faith and credit" pledge of the U.S. Government and securities
that are rated AAA or Aaa by Moody's Investor's Services, Inc. or Standard
& Poor's Corporation or unrated but determined to be of equivalent quality.
o Baron Capital Asset Fund: The investment objective is 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.
o 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.
o 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 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.
o Delaware Group International Equity Series--Standard Class: Seeks long-
term growth without undue risk to principal by investing primarily in
foreign-company stocks with the potential for capital appreciation and
income.
o 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.
o 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.
o Deutsche VIT EAFE[RegTM] Equity Index 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 Index), a
capitalization-weighted index containing approximately 1,100 equity
securities of companies located outside the United States.
o Deutsche VIT Equity 500 Index Fund: Seeks to replicate as closely as
possible the performance of the Standard & Poor's 500 Composite Stock Price
Index, before the deduction of Fund expenses.
o 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.
o Fidelity VIP Growth Portfolio--Service Class: Seeks long-term capital
appreciation. The portfolio normally purchases common stocks.
15
<PAGE>
o 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.
o Fidelity VIP Overseas Portfolio--Service Class: Seeks long-term growth of
capital by investing mainly in foreign securities.
o Fidelity VIP II Asset Manager Portfolio--Service Class: Seeks high total
return with reduced risk over the long term by allocating its assets among
domestic and foreign stocks, bonds and money market instruments.
o Fidelity VIP II Contrafund Portfolio--Service Class: Seeks long-term
capital appreciation by investing primarily in securities of companies
whose value the adviser believes is not fully recognized by the public.
o Franklin Small Cap Fund--Class 2: Seeks long-term capital growth. It
invests primarily in equity securities of U.S. small cap growth companies.
Small cap companies are generally those with market cap values of less than
$1.5 billion at time of purchase. Franklin Advisers, Inc. serves as the
Fund's investment advisor.
o Janus Aspen Series Aggressive Growth Portfolio--Institutional Shares: Seeks
long-term growth of capital. Pursues objective in common stocks selected
for their growth potential and normally invests at least 50% of its equity
assets in medium-sized companies.
o 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.
o Janus Aspen Series Flexible Income Portfolio--Institutional Shares: To seek
maximum total return, consistent with preservation of capital. Pursues
objective primarily through investments in income-producing securities.
o Janus Aspen Series Global Technology Portfolio--Service Shares: To seek
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.
o Janus Aspen Series Worldwide Growth Portfolio--Institutional Shares: Seeks
long-term growth of capital in a manner consistent with the preservation of
capital. Pursues objective by investing primarily in common stocks of
companies of any size throughout the world. The Portfolio normally invests
in issuers 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.
o Lincoln National Bond Fund, Inc.: Seeks maximum current income consistent
with prudent investment strategy. The Fund invests primarily in medium and
long-term corporate and government bonds.
o Lincoln National Capital Appreciation Fund, Inc.: Seeks long-term growth of
capital in a manner consistent with preservation of capital. The fund
primarily buys stocks in a large number of companies of all sizes if the
companies are competing
16
<PAGE>
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.
o Lincoln National Equity-Income Fund, Inc.: Seeks reasonable income by
investing primarily in income-producing equity securities. The fund invests
mostly in high-income stocks with some high-yielding bonds (including junk
bonds).
o Lincoln National Money Market Fund, Inc.: 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.
o Lincoln National Social Awareness Fund, Inc.: Long-term capital
appreciation. The fund buys stocks of established companies which adhere to
certain specific social criteria.
o MFS Research Series: Seeks to provide long-term growth of capital and
future income.
o MFS Total Return Series: Seeks primarily to provide above-average income
(compared to a portfolio entirely in equity securities) consistent with the
prudent employment of capital, and secondarily to provide a reasonable
opportunity for growth of capital and income.
o MFS Utilities Series: Seeks capital growth and current income (income above
that available from a portfolio invested entirely in equity securities).
o MFS Capital Opportunities Series: Seeks capital appreciation.
o Neuberger Berman AMT Mid-Cap Growth Portfolio: Seeks capital appreciation
by investing primarily in common stocks of medium-capitalization companies,
using a growth-oriented investment approach.
o Neuberger Berman AMT Partners Portfolio: Seeks capital growth by investing
mainly in common stocks of mid- to large capitalization established
companies using the value-oriented investment approach. Neuberger Berman
Management Inc. serves as the Fund's investment adviser. Neuberger Berman,
LLC serves as the Fund's investment sub-adviser.
o OCC Accumulation Trust Managed Portfolio: Seeks to achieve 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 manager's
assessments of the relative outlook for such investments.
o Oppenheimer Main Street Growth and Income Fund/VA: Seeks a high total
return (which includes growth in the value of its shares as well as current
income) from equity and debt securities. From time to time the Fund may
focus on small to medium capitalization common stocks, bonds and
convertible securities.
o Templeton Asset Strategy Fund--Class 2 (formerly Templeton Asset Allocation
Fund): 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.
17
<PAGE>
o Templeton Growth Securities Fund--Class 2 (formerly Templeton Stock Fund):
Seeks long-term capital growth. It 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.
o Templeton International Securities Fund--Class 2 (formerly Templeton
International Fund): 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.
There is no assurance that the Funds will achieve their investment objectives.
Policy owners bear the full investment risk of investments in the Funds
selected.
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of leverage
in connection with derivatives can also increase risk of losses. See the
prospectuses for the Funds for a discussion of the risks associated with an
investment in those funds. You should refer to the accompanying prospectuses of
the Funds for more complete information about their investment policies and
restrictions.
LLANY has entered into agreements with the various trusts or corporations and
their advisors or distributors under which LLANY makes the Funds available under
the Policies and performs certain administrative services. In some cases, the
advisors or distributors may compensate LLANY at annual rates of between .10%
and .40% of assets in a particular Fund attributable to the Policies.
Mixed and Shared Funding
Shares of the Funds are available to insurance company separate accounts which
fund variable annuity contracts and variable life insurance policies, including
the Policy described in this Prospectus. Because Fund shares are offered to
separate accounts of both affiliated and unaffiliated insurance companies, it is
conceivable that, in the future, it may not be advantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
these Funds simultaneously, since the interests of such Policyowners or
contractholders may differ. Although neither the Company nor the Funds currently
foresees any such disadvantages either to variable life insurance or to variable
annuity policyholders, each Fund's Board of Trustees/Directors has agreed 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 that Fund to sell
portfolio securities at disadvantageous prices.
Substitution of Securities
If the shares of any Fund should no longer be available for investment by the
Separate Account or if, in our judgment, 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, we 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.
18
<PAGE>
CHARGES & FEES
Premium Load
The premium load is deducted from your premium payments. This load represents
sales and administrative expenses associated with the startup and maintenance of
the policy.
1. Guaranteed Maximum Premium Load
The premium load is guaranteed to be no higher than the amounts shown in the
following table.
<TABLE>
<CAPTION>
For Premiums Paid up to For Premiums Paid greater than
Target Premium -- Target Premium --
load as a percentage of load as a percentage of
Policy Year(s) premium premium
- ---------------- ------------------------- -------------------------------
<S> <C> <C>
1 15% 6%
2-5 10% 6%
6 and after 6% 6%
</TABLE>
2. Current Premium Load
The premium load is currently as shown in the following table.
<TABLE>
<CAPTION>
For Premiums Paid up to For Premiums Paid greater than
Target Premium -- Target Premium --
load as a percentage of load as a percentage of
Policy Year(s) premium premium
- ---------------- ------------------------- -------------------------------
<S> <C> <C>
1 10.5% 2.5%
2-5 7.5% 1.5%
6-7 3.5% 1.5%
8 and after 1.5% 1.5%
</TABLE>
Premium Load Refund
Upon a full surrender of your Policy within the first 24 months if your Policy
is not in default you may be entitled to a credit for some or all of the premium
loads which have been deducted from your premium payments. To determine the
Surrender Value during the premium load refund period, the Total Account Value
will be reduced by the amount of any Loan Account Value, including accrued
interest. That amount would be increased by the applicable credit for the
premium load. A decrease in the specified amount in Policy Years 1 or 2 will
proportionately decrease the amount of the premium load refund.
For Policies surrendered during the first twelve months after the Date of Issue,
the refund is 7% of premium paid in the first Policy Year up to the Target
Premium and 3% of premium paid in the first Policy Year above Target Premium.
For months 13 through 24, the refund is 75% of the First Policy Year refund
amount.
Premium Tax Charge
An amount equal to the state and municipal taxes associated with premiums
received is deducted from premium payments. For Policies issued or delivered in
New York, this charge is currently 1.75% and is guaranteed not to exceed 5% of
premium received.
Charges and Fees Assessed Against the Total Account Value
A Monthly Deduction is made from the Total Account Value. The Monthly Deduction
is made as of the same day each month, beginning with the Date of Issue. The
Monthly Deduction includes the Cost of Insurance and any charges for
supplemental
19
<PAGE>
riders or benefits. The Cost of Insurance is the portion of the monthly
deduction attributable to the basic insurance coverage, not including riders,
supplemental benefits or monthly expense charges. The Cost of Insurance depends
on the Issue Age, risk class of the Insured and the number of Policy Years
elapsed and Specified Amount of the Policy.
Once a Policy is issued, Monthly Deductions, including Cost of Insurance
charges, will begin as of the Date of Issue, even if the Policy's issuance was
delayed due to underwriting requirements, and will be in amounts based on the
Specified Amount of the Policy issued, even if any temporary insurance coverage
provided during the underwriting period was for a lesser amount.
The Monthly Deduction also includes a monthly administrative expense charge of
$6 currently, guaranteed not to exceed $10 during all Policy Years.
The monthly administrative expense charge is for items such as premium billing
and collection, Policy value calculation, confirmations and periodic reports and
will not exceed our costs. The Monthly Deduction is deducted proportionately
from each funding option, if more than one is used. This is accomplished by
liquidating Accumulation Units and withdrawing the value of the liquidated
Accumulation Units from each funding option in the same proportion as their
respective values have to your Fixed Account and Separate Account Values.
Mortality and Expense Risk Charge
The Company deducts a daily charge from the assets of Account S for mortality
and expense risks assumed by it in connection with the Policy.
Currently, the amount of this charge, on an annualized basis, is the following
percentage of Policy value in the Separate Account:
<TABLE>
<CAPTION>
Annualized Mortality and
Policy Years Expense Risk Charge
<S> <C>
1-10 0.70%
11 and later 0.35%
</TABLE>
The mortality and expense risk charge is assessed to compensate the Company for
assuming certain mortality and expense risks under the Policies. The Company
reserves the right to increase the mortality and expense risk charge if it
believes that circumstances have changed so that current charges are no longer
adequate. In no event will the charge exceed 1.25% of average daily net assets
in Policy Years 1-10 and 0.90% of average daily net assets in Policy Years 11
and thereafter, on an annualized basis.
Reduction of Charges
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. We reserve the
right to reduce premium loads or any other charges on certain multiple life
sales ("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 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
20
<PAGE>
insured individuals, the purpose for which the policies are being purchased,
expected persistency of the individual policies, and any other circumstances
which we believe to be relevant to the expected reduction of our expenses. Some
of these reductions may be guaranteed and others may be subject to withdrawal or
modification by us on a uniform case basis. Reductions in charges will not be
unfairly discriminatory to any Policy owners.
POLICY CHOICES
When you buy a Policy, you make several important choices:
o The amount of premium you intend to pay;
o Which one of the three Death Benefit Options you would like, and the
Premium Accumulation Rate you would like if you choose Death Benefit Option
3;
o The way your net premiums will be allocated to the Funds and/or the Fixed
Account.
Each of these choices is described in detail below:
Premium Payments
Planned Premiums are those premiums you choose to pay on a scheduled basis. We
will bill you annually, semiannually, or quarterly, or at any other agreed-upon
frequency. Additional Premiums are any premiums you pay in addition to Planned
Premiums.
Payment of Minimum Monthly Premiums, Planned Premiums, or Additional Premiums in
any amount will not guarantee that your Policy will remain in force. Conversely,
failure to pay Planned Premiums or Additional Premiums will not necessarily
cause your Policy to lapse. The Policy's surrender value must be sufficient to
cover the next Monthly Deduction.
At any time, you may increase your Planned Premium by written notice to us, or
pay Additional Premiums, except that:
o We may require evidence of insurability if the Additional Premium or the
new Planned Premium during the current Policy Year increases the difference
between the Death Benefit and the Total Account Value. If satisfactory
evidence of insurability is requested and not provided, we will refund the
increase in premium without interest and without investing such amounts in
the underlying funding options.
o If, at any time, a premium is paid which would result in total premiums
exceeding such maximum premium limitations, we will only accept that
portion of the premium which will make total premiums equal to the maximum.
Any part of the premium in excess of that amount will be returned or
applied as otherwise agreed and no further premiums will be accepted until
allowed by the then-current maximum premium limitations prescribed by law.
o If you make a sufficient premium payment when you apply for a Policy, and
have answered favorably to certain questions relating to the Insured's
health, a "temporary insurance agreement" in the amount applied for
(subject to stated maximums) will be provided.
21
<PAGE>
o After your first premium payment all premiums must be sent to our
Administrative Office. Your premium payments received will be allocated as
you have directed and amounts allocated to the Funds will be credited at
the Accumulation Unit value determined at the end of the business day after
each payment is received.
You may reallocate your future premium payments at any time free of charge. Any
reallocation will apply to premium payments made after you have received written
verification from us.
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a Date of Issue earlier than the date the application is signed, but
no earlier than six months prior to state approval of the Policy. The Date of
Issue is the date from which policy years, policy anniversaries and Attained Age
are determined. The Date of Coverage is the date on or after the Date of Issue
that the initial premium has been paid (1) while the Insured is alive and (2)
prior to any change in health and insurability, as represented in the
application. Issue Age is the Insured's age on his/her birthday closest to the
Policy Date of Issue. Backdating may be desirable, for example, so that you can
purchase a particular Specified Amount for lower cost of insurance rates, based
on a younger insurance age. For a backdated Policy, you must pay the minimum
premium payable for the period between the Date of Issue and the date the
initial premium is invested in the Separate Account. Backdating of your Policy
will not affect the date on which your premium payments are credited to the
Separate Account and you are credited with Accumulation Units. You cannot be
credited with Accumulation Units until your Net Premium Payment is actually
deposited in the Separate Account. (See "Policy Values.")
If we decline an application for a policy we will refund all premium payments
made.
This Policy must satisfy the Cash Value Accumulation testing method to qualify
as a life insurance contract for tax purposes under Section 7702 of the Code.
This requires a life insurance policy to meet minimum ratios of life insurance
coverage to Total Account Value. We refer to the ratios as Applicable
Percentages. We refer to required life insurance coverage in excess of the Total
Account Value as the Death Benefit corridor.
The Cash Value Accumulation test does not limit premiums which may be paid but
has required Applicable Percentages. For example, Applicable Percentages for
Non-Smokers range from 730% at Attained Age 20 to 380% at Attained Age 40 to
100% at Attained Age 100.
The payment of higher premiums, which is associated with the Cash Value
Accumulation method, increases the possibility that the amount paid into the
Policy will exceed the amount that would have been paid had the Policy provided
for seven level annual premiums (the "7-pay test"). If premiums paid exceed such
limits during any 7-pay testing period, any partial surrender or Policy loan may
be subject to federal income taxation.
Death Benefit Options
At the time of purchase, you must choose from three available Death Benefit
Options. The amount payable under the option chosen will be determined as of the
date of the Insured's death. The Death Benefit may be affected by partial
surrenders.
22
<PAGE>
The Death Benefit for all three options will be reduced by the Loan Account
Value plus any accrued interest.
Under Option 1, the Death Benefit will be the greater of the Specified Amount or
Target Face Amount if a Term Insurance Rider is attached to the Policy (see
"Term Insurance Rider"), or the Applicable Percentage of the Total Account
Value. Option 1 generally provides a level Death Benefit.
Under Option 2, the Death Benefit will be the greater of the Specified Amount,
plus the Total Account Value or the Target Face Amount if a Term Insurance Rider
is attached to the Policy (see "Term Insurance Rider"), or the Applicable
Percentage of the Total Account Value. 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 you choose.
Under Option 3, the Death Benefit will be the greater of the Specified Amount
plus the Accumulated Premium(s) accumulated at the Premium Accumulation Rate or
Target Face Amount if a Term Insurance Rider is attached to the Policy (see
"Term Insurance Rider"), or the Applicable Percentage of the Total Account Value
but will not exceed the total Death Benefit paid under Option 2. This option may
only be selected at issue.
The Accumulated Premium is the sum of all the premiums paid from the Date of
Issue accumulated at the Premium Accumulation Rate. You select the Premium
Accumulation Rate at issue. Any rate requested in excess of 10% may be subject
to additional underwriting.
The choice of Death Benefit Option should be based upon the pattern of Death
Benefits which best matches the intended use of the Policy. For example, an
Option 1 Policy should be chosen for a simple, fixed, level total Death Benefit
need. Option 2 would be chosen to provide a level death benefit in addition to
the Policy Total Account Value, and Option 3 would provide a level death benefit
for the Specified Amount plus a return of Accumulated Premiums.
Choosing the option which provides the lowest pattern of Death Benefits which
meets the desired need will be the most efficient for accumulating potential
cash value, since the lower Cost of Insurance charges will improve the growth or
preservation of the Total Account Value. Other than providing the appropriate
pattern of desired Death Benefits, there is no economic advantage of one option
over another, since the Cost of Insurance charges for all three Options are
based upon the amount at risk, the difference between the Death Benefit and the
Total Account Value each month.
The same is true for the choice of a Premium Accumulation Rate under Option 3.
Choice of a higher Premium Accumulation Rate will cause the death benefit to
increase more rapidly, but this will also generate higher Cost of Insurance
charges and lower the potential growth in Total Account Value.
Allocations and Transfers to Funding Options
At purchase, you must decide how to allocate your Net Premiums among the Funds
and/or the Fixed Account. Net Premiums must be allocated in whole percentages.
You should carefully consider current market conditions and each Fund's
investment
23
<PAGE>
policies and related risks before allocating money to or transferring values
among the Funds.
Before the Maturity Date, you may transfer Policy values from one Fund to
another at any time, or to the Fixed Account. After the first 18 months from
Date of Issue the Company reserves the right to charge $25 for each transfer
after the twelfth transfer per year. Within 45 days after each Policy
anniversary, and before the Maturity Date, you may also transfer a portion of
the Fixed Account Value to one or more Funds. A transfer from the Fixed Account
is allowed only once in the 45-day period after the Policy Anniversary and will
be effective as of the next Valuation Period after your request is received by
our Administrative Office. The amount of such transfer cannot exceed the greater
of 25% of the greatest amount held in the Fixed Account Value during the prior 5
years or $1000.
Any transfer among the Funds or to the Fixed Account will result in the
crediting and cancellation of Accumulation Units based on the Accumulation Unit
values determined at the end of the Valuation Period after your request is
received by our Administrative Office. (See "Accumulation Unit Value.") The
Valuation Period is the period of time from when the Company determines the
Accumulation Unit Value and Settlement Option Unit Value of a variable
investment option until the next time it determines such unit value. Currently,
the calculation occurs after the close of business of the New York Stock
Exchange on any normal business day, Monday through Friday, that the New York
Stock Exchange is open.
POLICY VALUES
Total Account Value
The Total Account Value is the sum of the Fixed Account Value, the Separate
Account Value and the Loan Account Value.
We will allocate each Net Premium (the premium paid, less both the premium load
and the premium tax charge) to a funding option in the Separate Account and
credit it in the form of Accumulation Units. An Accumulation Unit is used to
measure the value of a Policy owner's interest in each applicable funding option
used to calculate the value of the variable portion of the Total Account Value
before election of a settlement option. We will credit each Net Premium we
receive after your policy is issued to your Policy at the Accumulation Unit
Value for a selected Fund at the end of the business day we receive it. The
number of Accumulation Units credited is the Net Premium divided by that
Accumulation Unit Value. Shares in each Fund you select will be purchased for
the Separate Account at the Fund's net asset value next computed after we
receive the Net Premium. Since each Fund has its own Accumulation Unit value if
you choose a combination of funding options, you will have Accumulation Units
credited for each funding option.
Separate Account Value is the sum of values in each Separate Account funding
option which is the total number of Accumulation Units times the current
Accumulation Unit Value. To that we add any Fixed Account values and any Loan
Account Values to arrive at the Policy's Total Account Value.
The number of Accumulation Units you have is not changed by any change in the
value of an Accumulation Unit. The number is increased by contributions or
transfers and decreased by charges and withdrawals.
24
<PAGE>
There is no guarantee that the Separate Account Value will equal or exceed Net
Premiums placed in the Separate Account.
We will notify you annually as to the number of Accumulation Units credited to
your Policy for each Fund, the current Accumulation Unit values, the Separate
Account Value, the Fixed Account Value, and the Total Account Value.
Accumulation Unit Value
We convert any Net Premium payment allocated to, or Policy Value transferred to
a Sub-Account into Accumulation Units. The Accumulation Unit Value for a Sub-
Account is determined by:
o multiplying the Fund shares owned by the Sub-Account at the beginning of
the business day by the net asset value per share at the end of the
business day and adding any dividend or other distribution during the
business day; minus
o the daily Sub-Account charges, including any tax charge or credit; and
o dividing the result of the foregoing subtraction by the number of
Accumulation Units for that Sub-Account at the beginning of the business
day.
The Accumulation Unit Value may increase or decrease from business day to
business day.
Maturity Value
The Maturity Date is the Policy Anniversary nearest the Insured's 100th
birthday.
The Maturity Value of the Policy is the Total Account Value on the Maturity
Date, less the Loan Account Value and any unpaid accrued interest.
Surrender Value
The Surrender Value of your Policy is the amount you can receive in cash by
surrendering the Policy. This equals the Total Account Value minus the Loan
Account Value and any accrued interest, plus any credit for premium loads paid.
All or part of the Surrender Value may be applied to one or more of the
Settlement Options. If you make a full surrender, all coverage under the Policy
will automatically terminate and may not be reinstated.
POLICY RIGHTS
Partial Surrenders
A partial surrender may be made at any time after the first Policy Year. If, at
the time of a partial surrender your Total Account Value is attributable to more
than one funding option, the transaction charge and the amount paid to you upon
the surrender will be taken proportionately from the Accumulation Unit values in
each funding option.
The amount of a partial surrender may not exceed the Surrender Value on the
date the request is received and may not be less than $500.
Partial surrenders may only be made prior to election of a Settlement Option.
For an Option 1 Death Benefit Policy (see "Death Benefit Options"):
25
<PAGE>
A partial surrender will reduce the Total Account Value, Death Benefit, and
Specified Amount. The Specified Amount and Total Account 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 Death Benefit Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value and the Death Benefit,
but it will not reduce the Specified Amount.
For an Option 3 Death Benefit Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value, Death Benefit, and
Specified Amount. The Specified Amount and Total Account Value will be reduced
by equal amounts and will reduce any past increases in the reverse order in
which they occurred.
We will pay you on a full or partial surrender within seven calendar days after
we receive your written request in our Administrative Office in satisfactory
form. Payment may be postponed if the New York Stock Exchange has been closed or
trading has been restricted or an emergency exists. Your payment from the Fixed
Account Values may be deferred up to six months except when used to pay premiums
to the Company.
The Specified Amount remaining in force after a partial surrender may not be
less than $100,000. Any request for 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.
Reinstatement of a Lapsed Policy
A lapse occurs if your Monthly Deduction is greater than the Policy's Surrender
Value and you make no payment to cover the deduction within 61 days of our
notifying you.
You can apply for reinstatement within five years after the date of lapse and
before the Maturity Date. To reinstate your Policy we will require satisfactory
evidence of insurability and an amount sufficient to pay for the current Monthly
Deductions, plus two additional Monthly Deductions. In the event of
reinstatement, the Policy will be reinstated on the Monthly Deduction day
following our approval. The Policy's Total Account Value at reinstatement will
be the net premium paid less the Monthly Deduction due that day. Any loan
Account Value will not be reinstated.
Policy Loans
The maximum loan amount is 90% of Total Account Value. The Loan Account Value,
which is the loan amount plus interest, reduces any proceeds payable.
Any loan made will be taken proportionally from the amount in each funding
option. Repayments on the loan will be allocated in proportion to current
premium allocations, and will reduce the Loan Account Value.
26
<PAGE>
The annual rate we charge during any Policy Year will be:
o the monthly average (Moody's Investors Service, Inc. Composite Yield on
Corporate Bonds) for the calendar month which ends two months before the
month in which the Policy Anniversary occurs, or, if greater,
o 5%
This rate may increase only when it would be at least 0.5% higher than the prior
Policy Year's and decrease only when it would be at least 0.5% lower than the
prior Policy Year's.
When you take a loan, we will tell you the current policy loan interest rate. We
will tell you in advance of any interest rate change. You must pay interest on
the anniversary of the loan, or earlier upon surrender, payment of proceeds, or
maturity of a Policy. Any unpaid interest is added to the loan.
The Loan Account Value will earn interest at an annual rate equal to the greater
of:
o the policy loan interest rate less an annual rate not to exceed 0.90%; or
o 4.0%
The interest earned by the Loan Account Value will be added to the Fixed Account
Value and the Separate Account Value in the same proportion in which the loan
amount was originally deducted from these values.
Policy Changes
You may make changes to your Policy as described below by submitting a written
request to our Administrative Office in a form satisfactory to us.
Increases: You may increase the Specified Amount of your Policy any time subject
to satisfactory evidence of insurability which may be required.
Decreases: Generally, you may decrease the Specified Amount of your Policy;
however, no decrease may reduce the Specified Amount below the minimum for the
type of Policy (see "Death Benefit Options"), and the availability of decreases
before the fifth Policy Year is subject to approval of this feature by the New
York Insurance Department and to the Company's satisfaction that the decrease is
intended to meet a legitimate, non-insurance related business need of the Policy
owner.
The new Specified Amount will equal the Specified Amount less the Total Account
Value at the time of the change.
o Changes from Death Benefit Option 1 to Death Benefit Option 2 are allowed
at any time. The new Specified Amount will equal the Specified Amount less
the Total Account Value at the time of the change.
o Changes from Death Benefit Option 2 to Death Benefit Option 1 are allowed
at any time. The new Specified Amount will equal the Specified Amount plus
the Total Account Value as of the time of the change.
27
<PAGE>
o Changes from Death Benefit Option 3 to Death Benefit Option 1 are allowed
at any time. The Specified Amount will be increased to equal the Specified
Amount prior to the change plus the lesser of the Accumulated Premiums or
the Total Account Value at the time of the change.
o Changes from Death Benefit Option 3 to Death Benefit Option 2 are allowed
at any time. The Specified Amount will be reduced to equal the Specified
Amount prior to the change minus the difference between the Total Account
Value and the sum of the Accumulated Premiums at the time of the change.
o Changes from Death Benefit Options 1 or 2 to Death Benefit Option 3 are not
allowed.
Right to Examine the Policy
The Policy has a "Right to Examine Period" during which you may examine the
Policy. If, for any reason, you are dissatisfied, it may be returned to our
Administrative Office for a refund. It must be returned within ten days after
you receive the Policy. If you return (cancel) the Policy, we will pay a refund
equal to all premiums paid, without interest. Refunds will usually occur within
seven days of notice of cancellation, although a refund of premiums you paid by
check may be delayed until the check clears your bank.
DEATH BENEFIT
The Death Benefit under the Policy will be paid in a lump sum within seven days
after we receive due proof of the Insured's death (a certified copy of the death
certificate), unless you or the beneficiary have elected that it be paid under
one or more of the Settlement Options or such options as we may choose to make
available in the future. Payment of the Death Benefit may be delayed if the
Policy is being contested.
POLICY SETTLEMENT
Settlement Options
Proceeds in the form of Settlement Options are payable by the Company upon the
Insured's death, upon Maturity of the Policy, or upon election of one of the
Settlement Options.
Upon the death of the Insured, the proceeds of the Policy will be paid to the
Beneficiary(ies) in the form of an annuity in Settlement Option 1, 2 or 3 if the
Beneficiary(ies) so elect. An annuity is a series of payments for a definite
period of time or for the life of an individual. For Settlement Option 4,
payments of requested amounts are made at the request of the Payee or payments
may be through one of the other available Settlement Options.
All or part of the Proceeds of this Policy may be applied, under one or more of
the options described below. An election shall be made by written request to our
Administrative Office. The Payee of Proceeds may make this election if no prior
election has been made.
The Payee must designate whether the payments will be:
o on a fixed basis,
o on a variable basis, or
28
<PAGE>
o a combination of fixed and variable bases.
Variable Settlement Options will be supported by the then available Funds of the
Company's Variable Annuity Account N (Account N), a separate account very
similar to the Separate Account, except that Account N supports variable annuity
benefits rather than variable life insurance benefits. We will provide an
Account N prospectus in connection with selection of a Settlement Option. That
prospectus will describe the available Funds, the cost and expenses of such
Funds and the charges imposed on Account N. The available Funds may be, and the
charges imposed on Account N are expected to be, different from those that
relate to the Separate Account prior to commencement of a Settlement Option.
Accordingly, you should review the Account N prospectus, as well as prospectuses
for Account N's underlying Funds, prior to selecting any variable payment
Settlement Option. A minimum monthly payment of $50 from each funding option
will be required.
You make transfers among Funds while receiving payments on a variable basis
under our administrative procedures in effect at the time. Currently, we limit
the number of transfers to three per calendar year, but we can change this limit
in the future.
If no designation is made, the Separate Account Value shall be used to provide a
variable payment, and the Fixed Account Value shall be used to provide a fixed
payment.
If a fixed annuity is chosen, the annuity purchase rate for the option chosen
will reflect at least the minimum guaranteed interest rate of 3.0%.
Annuity Payment Options:
Option 1 -- Life Annuity/Life Annuity with Guaranteed Period -- Fixed and/or
variable annuity payments will be made for the lifetime of the Annuitant with no
certain period, or life and a 10 year certain period, or life and a 20 year
certain period.
Option 2 -- Unit Refund Life Annuity -- Variable annuity payments will be made
for the lifetime of the Annuitant with the guarantee that upon death, if (a) the
number of the Fund settlement option annuity units initially purchased
(determined by dividing the total dollar amount applied to purchase this
settlement option by the Fund settlement option annuity unit value on the
Annuity Commencement Date) is greater than (b) the number of Fund settlement
option annuity units paid as part of each variable annuity benefit payment
multiplied by the number of annuity benefit payments paid prior to death; then a
refund payment equal to the number of Fund settlement option annuity units
determined by (a) minus (b) will be made. The refund payment value will be
determined using the Fund settlement option annuity unit value on the Valuation
Date on which the death claim is approved by us for payment after we have
received (1) proof of death acceptable to us; (2) written authorization for
payment; and (3) all claim forms, fully completed.
Option 3 -- Cash Refund Life Annuity -- Fixed annuity payments will be made for
the lifetime of the Annuitant with the guarantee that upon death, if (a) the
total dollar amount applied to purchase this option is greater than (b) the
fixed annuity benefit payment multiplied by the number of annuity benefit
payments paid prior to death; then a refund payment equal to the dollar amount
of (a) minus (b) will be made. The refund payment will be made on the Valuation
Date on which the death
29
<PAGE>
claim is approved by us for payment after we are in receipt of (1) proof of
death acceptable to us; (2) written authorization for payment; and (3) all claim
forms, fully completed.
Option 4 -- Joint Life Annuity/Joint Life Annuity with Guaranteed Period --
Fixed and/or variable payments will be made during the joint life of the
Annuitant and a Joint Annuitant of the Owner's choice. Payments will be made for
life with no certain period, or life and a 10 year certain period, or life and a
20 year certain period. Payments continue for the life of the survivor at the
death of the Annuitant or Joint Annuitant.
Other Options -- other options may be available as agreed upon in writing by us.
TERM INSURANCE RIDER
The Policy can be issued with a Term Insurance Rider as a portion of the total
Death Benefit. The Rider provides term life insurance on the life of the
Insured, which is annually renewable to Attained Age 100. This rider will
continue in effect unless explicitly canceled by the Policy owner. The Rider
provides a vehicle for short-term insurance protection for Policy owners who
desire lower required premiums under the Policy, in anticipation of growth in
Total Account Value to fund life insurance coverage in later Policy Years.
However, term coverage does not have an associated Account Value. The amount of
coverage provided under the Rider's Benefit Amount, varies from month to month.
The Benefit Amount is the Target Face Amount minus the Specified Amount.
However, if the Death Benefit of the Policy is defined as a percentage of the
Total Account Value, the Benefit Amount is zero.
The cost of the Rider is added to the Monthly Deductions, and is based on the
Insured's premium class, Issue Age and the number of Policy Years elapsed. We
may adjust the monthly rider rate from time to time, but the rate will never
exceed the guaranteed cost of insurance rates for the Rider for that Policy
Year.
If the Policy's Death Benefit increases as a result of an increase in Total
Account Value (see "Life Insurance Qualification"), the Rider's Target Death
Benefit will be reduced by an equivalent amount to maintain the total desired
Death Benefit.
The Rider's Death Benefit is included in the total Death Benefit paid under the
Policy. (See "Death Benefit Options.")
THE COMPANY
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, NY
13202, and each has been employed by LLANY or its affiliates for more than 5
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], First Penn-Pacific
Director Life Insurance Co. Formerly: Chairman and CEO
1801 S. Meyers Road [7/88-1/95], Baker, Rakish, Shipley & Politzer, Inc.
Oakbrook Terrace, IL 60181
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Name, Address and
Position(s) with Registrant Principal Occupations Last Five Years
- ----------------------------- ----------------------------------------------------------
<S> <C>
J. Patrick Barrett Chairman and Chief Executive Officer, CARPAT
Director Investments [9/87-present]; President, Chief Operating
One Telergy Parkway Officer and Director, Telergy, Inc. [4/98-present]; Chief
East Syracuse, NY 13057 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 Officer, The Lincoln
Second Vice President and National Life Insurance Co.
Appointed Actuary
1300 South Clinton Street
Fort Wayne, IN 46802
Thomas D. Bell, Jr. President and Chief Executive Officer Young & Rubicam
Director [1/00-present]. Formerly: President and Chief Executive
285 Madison Avenue Officer [4/95-9/98], Burson-Marstellar; Vice Chairman
New York, NY 10017 [4/94-5/95], Gulfstream Aerospace Corp.
Jon A. Boscia President, Chief Executive Officer and Director, Lincoln
Director National Corp. [1/98-present]. Formerly: President and
Centre Square Chief Executive Officer [10/96-1/98], President and Chief
West Tower Operating Officer [5/94-10/96] The Lincoln National Life
Suite 3900 Insurance Co.
Philadelphia, PA 19102
Joanne B. Collins President, Treasurer and Director, Lincoln Life & Annuity
President, Treasurer and Company of New York [8/99-present]; Second Vice
Director President Lincoln National Corporation [4/96-present].
Formerly: Second Vice President [9/84-3/96] Lincoln
National Corporation - Reinsurance.
John H. Gotta Director, Second Vice President and Assistant Secretary
Director, Second Vice [12/99-present], Lincoln Life & Annuity Company of
President and Assistant New York; Chief Executive Officer of Life Insurance,
Secretary Senior Vice President and Assistant Secretary [12/99-
350 Church Street present] The Lincoln National Life Insurance Company.
Hartford, CT 06103 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 Planning [5/94-
Director present] Lincoln National Corporation
Centre Square
West Tower
1500 Market Street
Suite 3900
Philadelphia, PA 19102
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Name, Address and
Position(s) with Registrant Principal Occupations Last Five Years
- ----------------------------- ----------------------------------------------------------
<S> <C>
Marguerite L. Lachman Principal [11/99-present], Lend Lease Real Estate
Director Investments. Formerly: Managing Director [4/87-11/99],
437 Madison Avenue Schroeder Real Estate Associates.
18th Floor
New York, NY 10022
Louis G. Marcoccia Senior Vice President for Business, Finance and
Director Administrative Services, Syracuse University
Syracuse University [1975-present]. Formerly: Auditor [1969-1975]
Syracuse, NY 13244 Price Waterhouse.
Troy D. Panning Second Vice President and Chief Financial Officer
Second Vice President and [11/96-present], Lincoln Life & Annuity Company of
Chief Financial Officer New York. Formerly: Accountant [9/90-11/96], Ernst
& Young LLP
John M. Pietruski Chairman of the Board, Texas Biotechnology Corp.
Director
One Penn Plaza
Suite 3408
New York, NY 10119
Lawrence T. Rowland Chairman, Chief Executive Officer, President and Director
Director [10/96-present] Lincoln National Reassurance Co.
1700 Magnavox Way Formerly: Senior Vice President [10/95-10/96]; Vice
One Reinsurance Place President [10/91-10/95] Lincoln National Life
Fort Wayne, IN 46802 Reinsurance Co.
Richard C. Vaughan Executive Vice President and Chief Financial Officer
Director [1/95-present]. Formerly: Senior Vice President
Centre Square and Chief Financial Officer [6/92-1/95] Lincoln National
West Tower Corp.
1500 Market Street
Suite 3900
Philadelphia, PA 19102
</TABLE>
ADDITIONAL INFORMATION
Reports to Policyowners
Within 30 days after each Policy Anniversary and before proceeds are applied to
a Settlement Option, we will send you a report containing the following
information:
o a statement of changes in the Total Account Value and Surrender Value since
the prior report or since the Date of Issue, if there has been no prior
report. This includes a statement of Monthly Deductions and investment
results and any interest earnings for the report period;
o Surrender Value, Death Benefit, and any Loan Account Value as of the Policy
Anniversary;
o a projection of the Total Account Value, Loan Account Value and Surrender
Value as of the succeeding Policy Anniversary.
If you have Policy values funded in a Separate Account you will receive, in
addition, such periodic reports as may be required by the Commission.
32
<PAGE>
Right to Instruct Voting of Fund Shares
In accordance with our view of present applicable law, we will vote the shares
of each of the Funds held in each Separate Account. 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 votes will be cast at meetings of the shareholders of the
Fund and will be based on instructions received from Policy owners. However, if
the 1940 Act or any regulations thereunder should be amended or if the present
interpretation thereof should change, and as a result we determine that we are
permitted to vote the shares of the Fund in our own right, we may elect to do
so.
The number of Fund shares which each Policy owner is entitled to direct a vote
is determined by dividing the portion of Total Account Value attributable to a
Fund, if any, by the net asset value of one share in the Fund. Where the value
of the Total Account Value or the Valuation Reserve relates to more than one
Fund, the calculation of votes will be performed separately for each Fund. The
number of shares which a person has a right to vote will be determined as of a
date to be chosen by us, but not more than 90 days before the meeting of the
Fund. Voting instructions will be solicited by written communication at least 14
days before such meeting. Fund shares for which no timely instructions are
received, and Fund shares which are not otherwise attributable to Policy owners,
will be voted by us in the same proportion as the voting instructions which are
received for all Policies participating in each Fund through Account S.
Policy owners having a voting interest will receive periodic reports relating to
the Fund, proxy material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a Fund. In
addition, we may disregard voting instructions in favor of changes initiated by
a Policy owner in the investment policy or the investment adviser of the Fund if
we reasonably disapprove of such changes.
A change would be disapproved only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we determined that the
change would have an adverse effect on the Separate Account in that the proposed
investment policy for a Fund may result in overly speculative or unsound
investments. In the event we do disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next annual
report to Policy owners.
State Regulation
We are subject to regulation and supervision by the Insurance Department of the
state of New York, which periodically examines our affairs. The Policies have
been approved by the New York Insurance Department.
We are required to submit annual statements of our operations, including
financial statements, to the New York Insurance Department, for the purposes of
determining solvency and compliance with insurance laws and regulations.
33
<PAGE>
Legal Matters
LLANY may be involved in various pending or threatened legal proceedings arising
from the conduct of its business. Most of these proceedings are routine and in
the ordinary course of business.
The Registration Statement
A Registration Statement under the 1933 Act has been filed with the Commission
relating to the offering described in this Prospectus. This Prospectus does not
include all the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission. The omitted information may be obtained at the Commission's
principal office in Washington, DC, upon payment of the Commission's prescribed
fees.
Distribution of the Policies
The Policy will be sold by individuals and entities, who in addition to being
appointed as life insurance agents for LLANY are also registered representatives
of Lincoln Financial Advisors Corporation, an affiliate of LLANY, or of other
registered broker-dealers who maintain a selling relationship with LLANY.
Registered broker-dealers and registered representatives of broker-dealers
ordinarily receive commission and service fees up to 35% of the first year
premium as defined and limited by Internal Revenue Code Section 7702, plus up to
10% of all other premiums paid. A registered representative or registered
broker-dealer may be required to return all or part of any commission if the
Policy is not continued for a certain period. All compensation is paid from
LLANY resources, which include sales charges made under this policy.
Records and Accounts
Andesa, TPA, Inc., Suite 502, 1621 N. Cedar Crest Boulevard, Allentown,
Pennsylvania, will act as a Transfer Agent on behalf of LLANY as it relates to
the policies described in this Prospectus. In the role of a Transfer Agent,
Andesa will perform administrative functions, such as decreases, increases,
surrenders and partial surrenders, fund allocation changes and transfers on
behalf of the Company.
All records and accounts relating to the Separate Account and the Funds shares
held in the Separate Account will be maintained by the Company. All financial
transactions will be handled by the Company. All reports required to be made and
information required to be given will be provided by Andesa on behalf of the
Company.
Experts
The statutory-basis financial statements of LLANY appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report which also appears elsewhere in this
document and in the Registration Statement. The financial statements audited by
Ernst & Young LLP have been included in this document in reliance on their
report given on their authority as experts in accounting and auditing.
Legal matters included in this prospectus have been examined by Robert O.
Sheppard, Esq. as stated in the opinion filed as an exhibit to the registration
statement.
Actuarial matters included in this prospectus have been examined by Ronald D.
Franzluebbers, FSA as stated in the opinion filed as an exhibit to this
registration statement.
34
<PAGE>
Advertising
We are a member of 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.
TAX ISSUES
Introduction. The Federal income tax treatment of the policy is complex and
sometimes uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax rules
that may affect you and your policy, and is not intended as tax advice. This
discussion also does not address other Federal tax consequences, or state or
local tax consequences, associated with the policy. As a result, you should
always consult a tax adviser about the application of tax rules to your
individual situation.
Taxation of Life Insurance Contracts In General
Tax Status of the Policy. Section 7702 of the Code establishes a statutory
definition of life insurance for Federal tax purposes. We believe that the
policy will meet the statutory definition of life insurance, which places
limitations on the amount of premium payments that may be made and the contract
values that can accumulate relative to the death benefit. As a result, the death
benefit payable under the policy will generally be excludable from the
beneficiary's gross income, and interest and other income credited under the
policy will not be taxable unless certain withdrawals are made (or are deemed to
be made) from the policy prior to the insured's death, as discussed below. This
tax treatment will only apply, however, if (1) the investments of the Separate
Account are "adequately diversified" in accordance with Treasury Department
regulations, and (2) we, rather than you, are considered the owner of the assets
of the Separate Account for Federal income tax purposes.
Investments in the Separate Account must be diversified. For a policy to be
treated as a life insurance contract for Federal income tax purposes, the
investments of the Separate Account must be "adequately diversified." IRS
regulations define standards for determining whether the investments of the
Separate Account are adequately diversified. If the Separate Account fails to
comply with these diversification standards, you could be required to pay tax
currently on the excess of the contract value over the contract premium
payments. Although we do not control the investments of the subaccounts, we
expect that the subaccounts will comply with the IRS regulations so that the
Separate Account will be considered "adequately diversified."
Restriction on investment options. Federal income tax law limits your right to
choose particular investments for the policy. Because the IRS has not issued
guidance specifying those limits, the limits are uncertain and your right to
allocate contract values among the subaccounts may exceed those limits. If so,
you would be treated as the owner of the assets of the Separate Account and thus
subject to current taxation on the income and gains from those assets. We do not
know what limits may be set by the IRS in any guidance that it may issue and
whether any such limits will apply to existing policies. We reserve the right to
modify the policy without your consent to try to prevent the tax law from
considering you as the owner of the assets of the Separate Account.
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
35
<PAGE>
of this discussion assumes that your policy will be treated as a life insurance
contract for Federal income tax purposes and that the tax law will not impose
tax on any increase in your contract value until there is a distribution from
your policy.
Tax treatment of life insurance death benefit proceeds. In general, the amount
of the death benefit payable from a policy because of the death of the insured
is excludable from gross income. Certain transfers of the policy for valuable
consideration, however, may result in a portion of the death benefit being
taxable. If the death benefit is not received in a lump sum and is, instead,
applied under one of the settlement options, payments generally will be prorated
between amounts attributable to the death benefit which will be excludable from
the beneficiary's income and amounts attributable to interest (accruing after
the insured's death) which will be includible in the beneficiary's income.
Tax deferral during accumulation period. Under existing provisions of the Code,
except as described below, any increase in your contract value is generally not
taxable to you unless amounts are received (or are deemed to be received) from
the policy prior to the insured's death. If there is a total withdrawal from the
policy, the surrender value will be includible in your income to the extent the
amount received exceeds the "investment in the contract." (If there is any debt
at the time of a total withdrawal, such debt will be treated as an amount
received by the owner.) The "investment in the contract" generally is the
aggregate amount of premium payments and other consideration paid for the
policy, less the aggregate amount received under the policy previously to the
extent such amounts received were excludable from gross income. Whether partial
withdrawals (or other amounts deemed to be distributed) from the policy
constitute income to you depends, in part, upon whether the policy is considered
a "modified endowment contract" (a "MEC") for Federal income tax purposes.
Policies Which Are MECS
Characterization of a policy as a MEC. A policy will be classified as a MEC if
premiums are paid more rapidly than allowed by a "7-pay test" under the tax law
or if the policy is received in exchange for another policy that is a MEC. In
addition, even if the policy initially is not a MEC, it may in certain
circumstances become a MEC. These circumstances would include a later increase
in benefits, any other material change of the policy (within the meaning of the
tax law), and a withdrawal or reduction in the death benefit during the first
seven contract years.
Tax treatment of withdrawals, loans, assignments and pledges under MECs. If the
policy is a MEC, withdrawals from the policy will be treated first as
withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the contract value
exceeds the investment in the policy. The Code treats any amount received as a
loan under a policy, and any assignment or pledge (or agreement to assign or
pledge) any portion of your contract value, as a withdrawal of such amount or
portion. Your investment in the policy is increased by the amount includible in
income with respect to such assignment, pledge, or loan.
Penalty taxes payable on withdrawals. A 10% penalty tax may be imposed on any
withdrawal (or any deemed distribution) from your MEC which you must include in
your gross income. The 10% penalty tax does not apply if one of several
exceptions exists. 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
36
<PAGE>
the tax law), or you receive as a series of substantially equal periodic
payments for your life (or life expectancy).
Special rules if you own more than one MEC. In certain circumstances, you must
combine some or all of the life insurance contracts which are MECs that you own
in order to determine the amount of withdrawal (including a deemed withdrawal)
that you must include in income. For example, if you purchase two or more MECs
from the same life insurance company (or its affiliates) during any calendar
year, the Code treats all such policies as one contract. Treating two or more
policies as one contract could affect the amount of a withdrawal (or a deemed
withdrawal) that you must include in income and the amount that might be subject
to the 10% penalty tax described above.
Policies Which Are Not MECS
Tax treatment of withdrawals. If the policy is not a MEC, the amount of any
withdrawal from the policy will generally be treated first as a non-taxable
recovery of premium payments and then as income from the policy. Thus, a
withdrawal from a policy that is not a MEC will not be includible in income
except to the extent it exceeds the investment in the policy immediately before
the withdrawal.
Certain distributions required by the tax law in the first 15 policy years.
Section 7702 places limitations on the amount of premium payments that may be
made and the contract values that can accumulate relative to the death benefit.
Where cash distributions are required under Section 7702 in connection with a
reduction in benefits during the first 15 years after the policy is issued (or
if withdrawals are made in anticipation of a reduction in benefits, within the
meaning of the tax law, during this period), some or all of such amounts may be
includible in income. A reduction in benefits may occur when the face amount is
decreased, withdrawals are made, and in certain other instances.
Tax treatment of loans. If your policy is not a MEC, a loan you receive under
the policy is generally treated as your indebtedness. As a result, no part of
any loan under such a policy constitutes income to you so long as the policy
remains in force. Nevertheless, in those situations where the interest rate
credited to the loan account equals the interest rate charged to you for the
loan, it is possible that some or all of the loan proceeds may be includible in
your income. If a policy lapses (or if all contract value is withdrawn) when a
loan is outstanding, the amount of the loan outstanding will be treated as
withdrawal proceeds for purposes of determining whether any amounts are
includible in the 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
37
<PAGE>
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.
MISCELLANEOUS POLICY PROVISIONS
The Policy, including riders, which you receive and the application you make
when you purchase the Policy are the whole contract. A copy of the application
is attached to the Policy when it is issued to you. Any application for changes,
once approved by us, will become part of the Policy.
Payment of Benefits
All benefits are payable by us. We may require submission of the Policy before
we grant loans, make changes or pay benefits.
38
<PAGE>
Age
If age is misstated on the application, the amount payable on death will be that
which would have been purchased by the most recent monthly deduction at the
current age.
Incontestability
We will not contest coverage under the Policy after the Policy has been in force
during the lifetime of the insured for a period of two years from the Policy's
Date of Issue.
For coverage which takes effect on a later date (e.g., an increase in coverage),
we will not contest such coverage after it has been in force during the lifetime
of the Insured more than two years from its effective date.
Suicide
If the Insured commits suicide within two years from the Date of Issue, the only
benefit paid will be the sum of:
a) premiums paid less amounts allocated to the Separate Account; and
b) the Separate Account Value on the date of suicide, plus the portion of the
Monthly Deduction from the Separate Account Value, minus
c) the amount necessary to repay any loans in full and any interest earned on
the Loan Account Value transferred to the Separate Account Value, and any
surrenders from the Fixed Account.
If the Insured commits suicide within two years from the effective date of any
increase in coverage, we will pay as a benefit only the Monthly Deduction for
the increase, in lieu of the face amount of the increase.
All amounts described in (a) and (c) above will be calculated as of the date of
death.
Coverage Beyond Maturity
The New York Insurance Department does not permit coverage beyond the Maturity
Date.
Nonparticipation
The Policy is not entitled to share in the divisible surplus of the Company. No
dividends are payable.
39
<PAGE>
Appendix A
Illustrations of Death Benefit, Total Account Values and Surrender Values.
The following tables illustrate how the Death Benefit, Total Account Values and
Surrender Values of a Policy change with the investment experience of the
variable funding options. The tables show how the Death Benefit, Total Account
Values and Surrender Values of a Policy issued with an insured of a given age
and a given premium would vary over time if the investment return on the assets
held in each Fund were a uniform, gross after tax annual rate of 0%, 6%, and
12%, respectively.
Tables I and II illustrate Policies issued on a unisex basis, age 45, in the
preferred nonsmoker rate class for fully underwriting issue. Tables III and IV
illustrate Policies issued on a unisex basis, age 45 in the nonsmoker rate class
for guaranteed issue underwriting. Tables V and VI illustrate Policies issued on
a unisex basis, age 45 in the nonsmoker rate class for simplified issue
underwriting. All Tables show values under the Cash Value Accumulation Test for
the definition of life insurance. The Death Benefit, Total Account Values, and
Surrender Values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12%, respectively, over a period
of years, but fluctuated above and below those averages for individual Policy
Years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed rate of 5%. The third through fifth columns illustrate the
Death Benefit of a Policy over a designated period. The sixth through eighth
columns illustrate the Total Account Values, while the ninth through eleventh
columns illustrate the Surrender Values of each Policy over the designated
period. Tables I, III, and V assume the maximum Cost of Insurance allowable
under the Policy is charged in all Policy Years. These tables also assume that
the maximum allowable mortality and expense risk charge of 1.25% in Policy Years
1-10 and 0.90% in Policy Years 11 and thereafter on an annual basis, the maximum
allowable premium load of 15% up to the first year's Target Premium and 6% over
the Target Premium, are assessed in the first Policy Year; the maximum allowable
premium load of 10% up to the second year's Target Premium and 6% over the
Target Premium, are assessed in the second through fifth Policy Year and 6% on
all premium in all Policy years thereafter, and an assumed Premium Tax charge of
5% on all premium in all Policy Years.
Tables II, IV and VI assume that the current scale of Cost of Insurance rates
applies during all Policy Years. These tables also assume the current mortality
and expense risk charge of 0.70% on an annual basis for the first 10 Policy
Years, and 0.35% for Policy Years 11 and thereafter, the current premium load of
10.5% up to the first year's Target Premium and 2.5% over the Target Premium are
assumed in the first Policy Year, the current premium load of 7.5% up to the
second through the fifth years' Target Premiums and 1.5% over the Target
Premiums are assumed in the second through fifth Policy Years, the current load
of 3.5% up to the seventh year's Target Premiums and 1.5% over the Target
Premiums are assumed in the sixth and seventh Policy Years, 1.5% on all premiums
in all Policy Years thereafter, and an assumed Premium Tax charge of 1.75% on
all premiums in all Policy Years.
The amounts shown for Death Benefit, Surrender Values, and Total Account Values
reflect the fact that the net investment return is lower than the gross return
on the assets held in each Fund as a result of expenses paid by each Fund and
Separate Account charges levied.
40
<PAGE>
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See individual prospectuses for each Fund for
more information.
In addition, these values reflect the application of the mortality and expense
risk charge, premium load and assumed premium tax charge described above. After
deduction of these amounts, the illustrated net annual return on a maximum
charge basis is -2.06%, 3.94% and 9.94% for Policy Years 1-10 and -1.71%, 4.29%
and 10.29% on a maximum charge basis for Policy Years 11 and thereafter. The
illustrated net annual return on a current charge basis is -1.51%, 4.49% and
10.49% for Policy Years 1-10 and -1.16%, 4.84% and 10.84% for Policy Years 11
and thereafter.
The amounts shown also reflect the deduction of Fund investment advisory fees
and other expenses which will vary depending on which funding vehicle is chosen
but which are assumed for purposes of these illustrations to be equivalent to an
annual effective rate of 0.81% of the daily net asset value of the Separate
Account. This rate reflects an arithmetic average of total Fund portfolio annual
expenses for the year ending December 31, 1999.
Certain fund groups waive a portion of fund expenses or reimburse the funds for
such expenses. Those waivers or reimbursements remain in effect for varying
periods of time, are usually reviewed at least yearly by each fund group, and
are within the fund group's control. The effect of discontinuing a waiver or
reimbursement arrangement could result in higher expense levels for the affected
fund, as shown in the portfolio expense table. Assuming those waivers and
reimbursements were discontinued, the Fund investment advisory fees and other
expenses arithmetic average would be equivalent to an annual effective rate of
0.86% of the daily net asset value of the Separate Account.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6% or 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefit, Total Account Values, and Surrender Values illustrated.
The tables illustrate the Policy Values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all Net Premiums were allocated to Account S, and if no Policy loans have been
made. The tables are based on the assumptions that the Policyowner has not
requested an increase or decrease in the Specified Amount of the Policy, and no
partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed Insured's
age, and underwriting classification, the Specified Amount or premium requested,
the proposed frequency of premium payments and any available riders requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
41
<PAGE>
Table I
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 PREFERRED NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
FULLY UNDERWRITTEN
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $497,803 $497,803 $ 497,803 $ 17,929 $ 19,077 $ 20,225
2 53,813 497,803 497,803 497,803 36,660 40,155 43,791
3 82,754 497,803 497,803 497,803 54,949 62,018 69,665
4 113,142 497,803 497,803 497,803 72,798 84,696 98,084
5 145,049 497,803 497,803 497,803 90,222 108,235 129,329
6 178,551 497,803 497,803 497,803 108,210 133,720 164,806
7 213,729 497,803 497,803 542,534 125,756 160,187 203,750
8 224,415 497,803 497,803 572,715 120,953 164,433 221,874
9 235,636 497,803 497,803 604,561 116,020 168,688 241,533
10 247,418 497,803 497,803 638,156 110,924 172,930 262,835
15 315,775 497,803 497,803 849,796 83,776 197,001 405,183
20 403,017 497,803 497,803 1,130,471 46,179 219,215 617,660
25 514,362 0 497,803 1,501,775 0 233,989 926,906
30 656,471 0 497,803 1,990,031 0 230,664 1,366,817
20 (Age 65) 403,017 497,803 497,803 1,130,471 46,179 219,215 617,660
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 19,679 $ 20,827 $ 21,975
2 37,972 41,467 45,103
3 54,949 62,018 69,665
4 72,798 84,696 98,084
5 90,222 108,235 129,329
6 108,210 133,720 164,806
7 125,756 160,187 203,750
8 120,953 164,433 221,874
9 116,020 168,688 241,533
10 110,924 172,930 262,835
15 83,776 197,001 405,183
20 46,179 219,215 617,660
25 0 233,989 926,906
30 0 230,664 1,366,817
20 (Age 65) 46,179 219,215 617,660
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges, and
premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
42
<PAGE>
Table II
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 PREFERRED NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
FULLY UNDERWRITTEN
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $497,803 $497,803 $ 497,803 $ 20,630 $ 21,912 $ 23,195
2 53,813 497,803 497,803 497,803 41,530 45,434 49,494
3 82,754 497,803 497,803 497,803 61,982 69,884 78,430
4 113,142 497,803 497,803 497,803 82,022 95,341 110,325
5 145,049 497,803 497,803 497,803 101,688 121,891 145,543
6 178,551 497,803 497,803 509,912 122,004 150,669 185,588
7 213,729 497,803 497,803 611,338 141,994 180,761 229,589
8 224,415 497,803 497,803 650,475 138,367 187,518 251,999
9 235,636 497,803 497,803 692,277 134,684 194,522 276,577
10 247,418 497,803 497,803 736,923 130,923 201,769 303,514
15 315,775 497,803 514,967 1,024,664 111,827 245,537 488,561
20 403,017 497,803 544,105 1,431,093 86,959 297,285 781,912
25 514,362 497,803 585,298 2,034,884 57,846 361,250 1,255,944
30 656,471 497,803 636,747 2,926,057 15,639 437,338 2,009,709
20 (Age 65) 403,017 497,803 544,105 1,431,093 86,959 297,285 781,912
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 22,380 $ 23,662 $ 24,945
2 42,843 46,747 50,807
3 61,982 69,884 78,430
4 82,022 95,341 110,325
5 101,688 121,891 145,543
6 122,004 150,669 185,588
7 141,994 180,761 229,589
8 138,367 187,518 251,999
9 134,684 194,522 276,577
10 130,923 201,769 303,514
15 111,827 245,537 488,561
20 86,959 297,285 781,912
25 57,846 361,250 1,255,944
30 15,639 437,338 2,009,709
20 (Age 65) 86,959 297,285 781,912
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
43
<PAGE>
Table III
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
GUARANTEED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $497,803 $497,803 $ 497,803 $ 17,929 $ 19,077 $ 20,225
2 53,813 497,803 497,803 497,803 36,660 40,155 43,791
3 82,754 497,803 497,803 497,803 54,949 62,018 69,665
4 113,142 497,803 497,803 497,803 72,798 84,696 98,084
5 145,049 497,803 497,803 497,803 90,222 108,235 129,329
6 178,551 497,803 497,803 497,803 108,210 133,720 164,806
7 213,729 497,803 497,803 542,534 125,756 160,187 203,750
8 224,415 497,803 497,803 572,715 120,953 164,433 221,874
9 235,636 497,803 497,803 604,561 116,020 168,688 241,533
10 247,418 497,803 497,803 638,156 110,924 172,930 262,835
15 315,775 497,803 497,803 849,796 83,776 197,001 405,183
20 403,017 497,803 497,803 1,130,471 46,179 219,215 617,660
25 514,362 0 497,803 1,501,775 0 233,989 926,906
30 656,471 0 497,803 1,990,031 0 230,664 1,366,817
20 (Age 65) 403,017 497,803 497,803 1,130,471 46,179 219,215 617,660
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy ------------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ----------- -------------
<S> <C> <C> <C>
1 $ 19,679 $ 20827 $ 21,975
2 37,972 41,467 45,103
3 54,949 62,018 69,665
4 72,798 84,696 98,084
5 90,222 108,235 129,329
6 108,210 133,720 164,806
7 125,756 160,187 203,750
8 120,953 164,433 221,874
9 116,020 168,688 241,533
10 110,924 172,930 262,835
15 83,776 197,001 405,183
20 46,179 219,215 617,660
25 0 233,989 926,906
30 0 230,664 1,366,817
20 (Age 65) 46,179 219,215 617,660
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges, and
premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
44
<PAGE>
Table IV
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
GUARANTEED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $497,803 $497,803 $ 497,803 $ 20,318 $ 21,590 $ 22,863
2 53,813 497,803 497,803 497,803 41,008 44,877 48,901
3 82,754 497,803 497,803 497,803 61,337 69,169 77,639
4 113,142 497,803 497,803 497,803 81,321 94,528 109,385
5 145,049 497,803 497,803 497,803 100,974 121,017 144,480
6 178,551 497,803 497,803 506,670 121,294 149,749 184,408
7 213,729 497,803 497,803 607,873 141,288 179,791 228,288
8 224,415 497,803 497,803 646,727 137,647 186,482 250,547
9 235,636 497,803 497,803 688,158 133,928 193,395 274,932
10 247,418 297,803 497,803 732,335 130,104 200,527 301,624
15 315,775 497,803 510,678 1,016,463 110,483 243,492 484,651
20 403,017 497,803 537,882 1,415,204 84,254 293,885 773,231
25 514,362 497,803 575,484 2,001,464 51,775 355,193 1,235,317
30 656,471 497,803 621,979 2,859,235 3,285 427,195 1,963,813
20 (Age 65) 403,017 407,803 537,882 1,415,204 84,254 293,885 773,231
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 22,068 $ 23,340 $ 24,613
2 42,320 46,190 50,214
3 61,337 69,169 77,639
4 81,321 94,528 109,385
5 100,974 121,017 144,480
6 121,294 149,749 184,408
7 141,288 179,791 228,288
8 137,647 186,482 250,547
9 133,928 193,395 274,932
10 130,104 200,527 301,624
15 110,483 243,492 484,651
20 84,254 293,885 773,231
25 51,775 355,193 1,235,317
30 3,285 427,195 1,963,813
20 (Age 65) 84,254 293,885 773,231
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
45
<PAGE>
Table V
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
SIMPLIFIED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $497,803 $497,803 $ 497,803 $ 17,929 $ 19,077 $ 20,225
2 53,813 497,803 497,803 497,803 36,660 40,155 43,791
3 82,754 497,803 497,803 497,803 54,949 62,018 69,665
4 113,142 497,803 497,803 497,803 72,798 84,696 98,084
5 145,049 497,803 497,803 497,803 90,222 108,235 129,329
6 178,551 497,803 497,803 497,803 108,210 133,720 164,806
7 213,729 497,803 497,803 542,534 125,756 160,187 203,750
8 224,415 497,803 497,803 572,715 120,953 164,433 221,874
9 235,636 497,803 497,803 604,561 116,020 168,688 241,533
10 247,418 497,803 497,803 638,156 110,924 172,930 262,835
15 315,775 497,803 497,803 849,796 83,776 197,001 405,183
20 403,017 497,803 497,803 1,130,471 46,179 219,215 617,660
25 514,362 0 497,803 1,501,775 0 233,989 926,906
30 656,471 0 497,803 1,990,031 0 230,664 1,366,617
20 (Age 65) 403,017 497,803 497,803 1,130,471 46,179 219,215 617,660
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 19,679 $ 20,827 $ 21,975
2 37,972 41,467 45,103
3 54,949 62,018 69,665
4 72,798 84,696 98,084
5 90,222 108,235 129,329
6 108,210 133,720 164,806
7 125,756 160,187 203,750
8 120,953 164,433 221,874
9 116,020 168,688 241,533
10 110,924 172,930 262,835
15 83,776 197,001 405,183
20 46,179 219,215 617,660
25 0 233,989 926,906
30 0 230,664 1,366,617
20 (Age 65) 46,179 219,215 617,660
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges, and
premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
46
<PAGE>
Table VI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
SIMPLIFIED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $497,803
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $497,803 $497,803 $ 497,803 $ 20,494 $ 21,772 $ 23,051
2 53,813 497,803 497,803 497,803 41,350 45,240 49,286
3 82,754 497,803 497,803 497,803 61,834 69,712 76,230
4 113,142 497,803 497,803 497,803 81,960 95,246 110,190
5 145,049 497,803 497,803 497,803 101,741 121,904 145,503
6 178,551 497,803 497,803 510,256 122,172 150,794 185,650
7 213,729 497,803 497,803 612,038 142,257 180,982 229,762
8 224,415 297,803 497,803 651,472 138,693 187,810 252,262
9 235,636 497,803 497,803 693,470 135,030 194,849 276,894
10 247,418 497,803 497,803 738,185 131,239 202,090 303,831
15 315,775 497,803 514,993 1,024,049 111,264 245,248 457,722
20 403,017 497,803 541,454 1,423,159 84,054 295,333 776,357
25 514,362 497,803 579,347 2,012,795 51,342 356,797 1,239,801
30 656,471 497,803 626,841 2,876,833 2,869 429,143 1,971,019
20 (Age 65) 403,017 497,803 541,454 1,423,159 84,054 295,333 776,357
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 22,244 $ 23,522 $ 24,801
2 42,662 46,553 50,598
3 61,834 69,712 78,230
4 81,960 95,246 110,190
5 101,741 121,904 145,503
6 122,172 150,794 185,650
7 142,257 180,982 229,762
8 138,693 187,810 252,262
9 135,030 194,849 276,894
10 131,239 202,090 303,831
15 111,264 245,248 487,722
20 84,054 295,333 776,357
25 51,342 356,797 1,239,801
30 2,869 429,143 1,971,019
20 (Age 65) 84,054 295,333 776,357
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
47
<PAGE>
Appendix B
Applicable Percentages for Cash Value Accumulation Test
<TABLE>
<CAPTION>
Attained Age of Attained Age of
The Insured Corridor The Insured Corridor
(Nearest Birthday) Percentage (Nearest Birthday) Percentage
- ------------------------------------------------------------------------
<S> <C> <C> <C>
18 774% 61 198%
19 752% 62 193%
20 730% 63 188%
21 708% 64 183%
22 687% 65 178%
23 667% 66 174%
24 646% 67 170%
25 626% 68 166%
26 606% 69 162%
27 587% 70 158%
28 568% 71 155%
29 550% 72 152%
30 532% 73 149%
31 514% 74 146%
32 497% 75 143%
33 481% 76 140%
34 465% 77 138%
35 449% 78 136%
36 435% 79 133%
37 420% 80 131%
38 406% 81 129%
39 393% 82 128%
40 380% 83 126%
41 368% 84 124%
42 356% 85 123%
43 344% 86 121%
44 333% 87 120%
45 322% 88 119%
46 312% 89 118%
47 302% 90 117%
48 293% 91 116%
49 284% 92 114%
50 275% 93 113%
51 266% 94 112%
52 258% 95 111%
53 250% 96 109%
54 243% 97 108%
55 236% 98 106%
56 229% 99 104%
57 222% 100+ 100%
58 216%
59 210%
60 204%
</TABLE>
48
<PAGE>
LLANY Separate Account S
for Flexible Premium
Variable Life Insurance
This Separate Account
has not yet commenced operations.
S-1
<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.
March 10, 2000
S-18
<PAGE>
PROSPECTUS 2
<PAGE>
Lincoln Life & Annuity Company of New York
LLANY Separate Account S for Flexible Premium Variable Life Insurance
Home Office Location: Administrative Office:
120 Madison Street Lincoln Corporate Specialty Markets
Suite 1700 350 Church Street
Syracuse, NY 13202 Hartford, CT 06103-1106
(888) 223-1860 (860) 466-1561
================================================================================
This Prospectus describes LCVUL Series III, a flexible premium variable
universal life insurance contract (the "Policy") offered by Lincoln Life &
Annuity Company of New York. The Policy is available only in New York. The
Policies are available for purchase by corporations or other groups where the
individuals share a common employer or affiliation with the group or sponsoring
organization.
The policy features:
o flexible Premium Payments
o a choice of one of three death benefit options
o a choice of underlying investment options
It may not be advantageous to replace existing insurance or supplement an
existing flexible premium variable universal life insurance contract with this
Policy.
This Prospectus is intended to describe the variable options used to fund this
Policy through the Separate Account. The variable funding options (collectively,
the "Funds") currently available through the Separate Account are from the
following trusts or corporations:
o American Century Variable Products Group, Inc.
o American Funds Insurance Series
(also known as American Variable Insurance Series)
o Baron Capital Funds Trust
o Delaware Group Premium Fund
o Deutsche Asset Management VIT Funds Trust
(formerly BT Insurance Funds Trust)
o Fidelity Variable Insurance Products Funds
o Franklin Templeton Variable Insurance Products Trust
o Janus Aspen Series
o Lincoln National Funds
o MFS Variable Insurance Trust
o Neuberger Berman Advisers Management Trust
o OCC Accumulation Trust
o OppenheimerFunds
Read this Prospectus and the prospectuses of the Funds available as investment
options through the Separate Account under the Policy offered by this Prospectus
carefully. Keep them 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 12, 2000
<PAGE>
Table of Contents
<TABLE>
<S> <C>
HIGHLIGHTS ................................................. 3
A Flexible Premium Variable Universal Life
Insurance Policy ......................................... 3
Initial Choices to be Made ................................ 3
Amount of Premium Payment ................................. 3
Death Benefit Options ..................................... 3
Selection of Funding Vehicles ............................. 4
Charges and Fees .......................................... 4
Charges Assessed Against the Underlying Funds ............. 6
Policy Loans, Withdrawals and Surrenders .................. 10
Changes in Specified Amount ............................... 10
LLANY, THE SEPARATE ACCOUNT AND THE GENERAL
ACCOUNT .................................................... 10
BUYING VARIABLE LIFE INSURANCE ............................. 11
ALLOCATION OF PREMIUMS ..................................... 12
Fixed Account ............................................. 12
Separate Account-Funds .................................... 13
Mixed and Shared Funding .................................. 19
Substitution of Securities ................................ 19
CHARGES & FEES ............................................. 19
Premium Load .............................................. 19
Premium Load Refund ....................................... 20
Premium Tax Charge ........................................ 21
Charges and Fees Assessed Against the Total
Account Value ............................................ 21
Mortality and Expense Risk Charge ......................... 21
Reduction of Charges ...................................... 22
POLICY CHOICES ............................................. 22
Premium Payments .......................................... 23
Death Benefit Options ..................................... 24
Allocations and Transfers to Funding Options .............. 25
POLICY VALUES .............................................. 26
Total Account Value ....................................... 26
Accumulation Unit Value ................................... 26
Maturity Value ............................................ 27
Surrender Value ........................................... 27
POLICY RIGHTS .............................................. 27
Partial Surrenders ........................................ 27
Reinstatement of a Lapsed Policy .......................... 28
Policy Loans .............................................. 28
Policy Changes ............................................ 29
Right to Examine the Policy ............................... 30
</TABLE>
<TABLE>
<S> <C>
DEATH BENEFIT .............................................. 30
POLICY SETTLEMENT .......................................... 30
Settlement Options ........................................ 30
TERM INSURANCE RIDER ....................................... 32
THE COMPANY ................................................ 32
Directors and Officers of LLANY ........................... 32
ADDITIONAL INFORMATION ..................................... 34
Reports to Policyowners ................................... 34
Right to Instruct Voting of Fund Shares ................... 34
Disregard of Voting Instructions .......................... 35
State Regulation .......................................... 35
Legal Matters ............................................. 35
The Registration Statement ................................ 36
Distribution of the Policies .............................. 36
Records and Accounts ...................................... 36
Experts ................................................... 36
Advertising ............................................... 36
TAX ISSUES ................................................. 37
Taxation of Life Insurance Contracts in General ........... 37
Policies Which Are MECS ................................... 38
Policies Which Are Not MECS ............................... 39
Other Considerations ...................................... 39
Tax Status of LLANY ....................................... 40
MISCELLANEOUS POLICY PROVISIONS ............................ 40
Payment of Benefits ....................................... 40
Age ....................................................... 41
Incontestability .......................................... 41
Suicide ................................................... 41
Coverage Beyond Maturity .................................. 41
Nonparticipation .......................................... 41
Appendix A --
Illustrations of Death Benefits, Total Account Values
and Surrender Values ...................................... 42
Financial Statements
Separate Account .......................................... I-1
Company ................................................... S-1
</TABLE>
2
<PAGE>
HIGHLIGHTS
A Flexible Premium Variable Universal Life Insurance Policy
This Prospectus describes a flexible premium variable universal life insurance
contract (the "Policy") offered by Lincoln Life & Annuity Company of New York
("LLANY", the "Company", "we", "us", "our") through LLANY Separate Account S for
Flexible Premium Variable Life Insurance (the "Separate Account" or "Account
S"). The Policy may be useful in: funding non-qualified executive deferred
compensation; funding salary continuation programs; funding death benefit
liabilities or cash flow obligations for executive retirement plans.
The value of your Policy and, under one option, the death benefit amount depends
on the investment results of the funding options you select.
Initial Choices to be Made
The Policyowner (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 important choices to make when
the Policy is first purchased. You need to choose:
o the amount of premium you want to pay (see page 22 - 23);
o one of three death benefit options (see page 24);
o the amount of the Net Premium Payment to be placed in each of the funding
options selected. The Net Premium is the balance of each Premium Payment
that remains after certain charges are deducted from it.
Amount of Premium Payment
One of your initial decisions is how much premium to pay. Premium Payments may
be changed within the limits described on page 23. If the Policy lapses because
your monthly deduction is larger than the Net Accumulation Value, you may
reinstate the Policy. See page 28.
You may use the value of your Policy to pay the premiums due and continue the
Policy in force if sufficient values are available. 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 increase (see page 23) as the Insured
gets older.
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 time period, your initial premium
payment will be allocated to the Money Market Fund. If you then decide you do
not want the Policy, you will receive a refund. See page 30.
Death Benefit Options
The Death Benefit is the amount we pay 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
3
<PAGE>
Death Benefit payable as of the date the Insured died. We will pay the Death
Benefit in one lump sum or under one of the annuity settlement options.
The three death benefit options available usually provide a level, varying or
increasing death benefit, depending on the option selected. See page 24 for more
details on death benefit options.
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 favorable
federal tax treatment. The Company reserves the right to return your premium
payment if it results in your Policy's failing to meet federal tax law
requirements.
If you have surrendered a portion of your Policy, any surrendered amount will
reduce your initial death benefit. If you borrow against your Policy or
surrender a portion of your Policy, the Loan Amount balance and any surrendered
amount will reduce your initial death benefit.
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 take 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 they 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) (Sub-Account(s)) in which you want to place each Net
Premium Payment. These Sub-Accounts make up the Separate Account. Each Sub-
Account invests in shares of a certain Fund. A Sub-Account is not guaranteed and
will increase or decrease in value according to the particular Fund's investment
performance. See page 13.
You may also choose to place the Net Premium Payment or part of it into the
Fixed Account. Net Premium Payments put into the Fixed Account:
o become part of the Company's General Account;
o do not share the investment experience of the Separate Account; and
o have a guaranteed minimum interest rate of 4.0% per year.
For additional information on the Fixed Account, see page 12.
Charges and Fees
A premium load is deducted from all of your premium payments. The guaranteed
maximum premium loads for all cases are shown on page 19.
4
<PAGE>
The current premium load for cases with average annual planned premiums of
$100,000 or greater but less than $1,000,000 is:
<TABLE>
<CAPTION>
Portion of Portion of
Premium Paid Premium Paid
Policy Year(s) up to Target Above Target
- ------------------ ------------ ------------
<S> <C> <C>
1 10.50% 2.5%
2-5 7.50% 1.5%
6-7 3.50% 1.5%
8 and thereafter 1.50% 1.5%
</TABLE>
In certain circumstances, if you fully surrender your Policy within 24 months
after Date of Issue, you may be entitled to receive partial credit for premium
loads deducted from your Policy. (See page 20.)
The current premium load for cases with average annual planned premiums of
$1,000,000 or greater is:
<TABLE>
<CAPTION>
Portion of Portion of
Premium Paid Premium Paid
Policy Year(s) up to Target Above Target
- ------------------ ------------ ------------
<S> <C> <C>
1 7.50% 1.00%
2 6.00% 1.00%
3-5 3.50% 1.00%
6 and thereafter 1.50% 1.00%
</TABLE>
For all cases, the premium load is guaranteed to be no higher than the amounts
shown in the following table:
<TABLE>
<CAPTION>
Portion of Portion of
Premium Paid up to Premium Paid greater
Target Premium-- than Target Premium--
load as a percentage load as a percentage
Policy Year(s) of that portion of that portion
- ----------------- -------------------- ---------------------
<S> <C> <C>
1 12.0% 5.0%
2-5 9.0% 5.0%
6 and after 5.0% 5.0%
</TABLE>
In certain circumstances, if you fully surrender your Policy within 60 months
after Date of Issue, you may be entitled to receive partial credit for premium
loads deducted from your Policy. (See page 20).
For the purpose of calculating current and maximum premium loads, an increase in
Specified Amount is treated as a newly issued policy.
An explicit premium tax charge of 0.70% is also deducted from premium payments.
A Monthly Deduction is made from the total account value on the same day of each
month beginning with the date of issue. The Monthly Deduction includes the Cost
of Insurance and any charges for supplemental riders or benefits. Once a policy
is issued, monthly deductions will begin as of the date of issue, even if the
Policy's issuance was delayed due to the underwriting requirements or other
reasons. The Monthly Deduction also includes a monthly administrative expense
charge during all policy years. The monthly Administrative Expense is currently
$6, and is guaranteed not to exceed $10. See page 21.
5
<PAGE>
A daily deduction is made from the assets of Account S for mortality and expense
risk. Currently, for cases with average annual planned premiums of $100,000 or
greater but less than $1,000,000, the mortality and expense risk charge on an
annualized basis equals the following percentage of policy value in the separate
account:
<TABLE>
<CAPTION>
Policy Years
<S> <C>
1-10 0.65%
11-20 0.45%
21 and thereafter 0.35%
</TABLE>
Currently, for cases with average annual planned premiums of $1,000,000 or
greater, the mortality and expense risk charge on an annualized basis equals the
following percentage of policy value in the separate account:
<TABLE>
<CAPTION>
Policy Years
<S> <C>
1-10 0.40%
11-20 0.20%
21 and thereafter 0.10%
</TABLE>
For all cases, the Company reserves the right to increase the mortality and
expense risk charge, but it will never exceed the following on an annualized
basis: (See page 18).
<TABLE>
<CAPTION>
Policy Years
<S> <C>
1-10 1.10%
11-20 0.90%
21 and thereafter 0.80%
</TABLE>
Before the Maturity Date you may make transfers between funding options. The
Company allows twelve transfers each Policy Year; but, after the first 18 months
from Date of Issue, a $25 charge may apply for each additional transfer within
that Policy Year. Within 45 days after each Policy Anniversary, you may also
transfer to the Separate Account 25% of the greatest amount held in the Fixed
Account Value during the prior 5 years or $1000 if greater. See page 26.
There are no Surrender Charges for your Policy.
Each Fund has its own management fee charge, also deducted daily. Investment
results for the Funds you choose will be affected by the fund management charges
and other fund expenses. The table on pages 7 - 9 shows you the current charges
and expenses.
Charges Assessed Against the Underlying Funds
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 Class 2 shares
and Other Expenses). The charge has the effect of reducing the investment
results credited to the Sub-Accounts.
The following table illustrates the investment advisory fees, other expenses and
total expenses paid by each of the Funds as a percentage of average net assets
based on figures for the year ended December 31, 1999 unless otherwise
indicated. Future fund expenses will vary.
6
<PAGE>
Fund Expenses
<TABLE>
<CAPTION>
Management 12b-1 Other
Fund Fees Fees Expenses
---------- ----- --------
<S> <C> <C> <C>
American Century VP Income & Growth 0.70% N/A% 0.00%
American Century VP International 1.34 N/A 0.00
AFIS Bond--Class 2 0.51 0.25 0.02
AFIS Global Growth--Class 2 0.68 0.25 0.03
AFIS Growth--Class 2 0.38 0.25 0.01
AFIS Growth Income--Class 2 0.34 0.25 0.01
AFIS High Yield Bond--Class 2 0.50 0.25 0.01
AFIS U.S. Government/AAA--Class 2 0.51 0.25 0.01
Baron Capital Asset(2) 1.00 0.25 0.63
Delaware Devon Standard Class(3a) 0.65 N/A 0.10
Delaware High Yield Standard Class(3b) (formerly
Delchester) 0.65 N/A 0.07
Delaware International Equity Standard Class(3c) 0.85 N/A 0.09
Delaware REIT Standard Class(3d) 0.75 N/A 0.21
Delaware Small Value Standard Class(3e) 0.75 N/A 0.10
Deutsche VIT EAFE Index(4) 0.45 N/A 0.70
Deutsche VIT Equity 500 Index(4) 0.20 N/A 0.23
Deutsche VIT Small Cap Index(4) 0.35 N/A 0.83
Fidelity VIP II Asset Manager--Service Class(5) 0.53 0.10 0.11
Fidelity VIP II Contrafund--Service Class(5) 0.58 0.10 0.10
Fidelity VIP Growth--Service Class(5) 0.58 0.10 0.09
Fidelity VIP High Income--Service Class(5) 0.58 0.10 0.11
Fidelity VIP Overseas--Service Class(5) 0.73 0.10 0.18
Franklin Small Cap--Class 2(9a, b, d) 0.55 0.25 0.27
Janus Aspen Series Aggressive Growth-- Institutional
Shares(6) 0.65 N/A 0.02
Janus Aspen Series Balanced--Institutional Shares(6) 0.65 N/A 0.02
Janus Aspen Series Flexible Income-- Institutional
Shares(6) 0.65 N/A 0.07
Janus Aspen Series Global Technology--
Service Shares(6) 0.65 0.25 0.13
Janus Aspen Series Worldwide Growth-- Institutional
Shares(6) 0.65 N/A 0.05
LN Bond 0.45 N/A 0.08
LN Capital Appreciation 0.72 N/A 0.06
LN Equity-Income 0.72 N/A 0.07
LN Money Market 0.48 N/A 0.11
LN Social Awareness 0.33 N/A 0.05
MFS Capital Opportunities(7) 0.75 N/A 0.27(1)
MFS Research(7) 0.75 N/A 0.11(1)
MFS Total Return(7) 0.75 N/A 0.15(1)
MFS Utilities(7) 0.75 N/A 0.16(1)
Neuberger Berman AMT Mid-Cap Growth(8) 0.85 N/A 0.23
Neuberger Berman AMT Partners(8) 0.80 N/A 0.07
OCC Accum Trust Managed 0.77 N/A 0.06
Oppenheimer MainStreet Growth & Income 0.73 N/A 0.05
Templeton Asset Strategy Class 2(9d, f) 0.60 0.25 0.18
Templeton Growth(9c, d, e) Securities Class 2 0.83 0.25 0.05
Templeton International Securities Class 2(9d, g) 0.69 0.25 0.19
<CAPTION>
Total
Annual
Fund Total Fund
Operating Operating
Expenses Total Expenses
Without Waivers with
Waivers or and Waivers or
Fund Reductions Reductions Reductions
---------- ---------- ----------
<S> <C> <C> <C>
American Century VP Income & Growth 0.70% N/A% 0.70%
American Century VP International 1.34 N/A 1.34
AFIS Bond--Class 2 0.78 N/A 0.78
AFIS Global Growth--Class 2 0.96 N/A 0.96
AFIS Growth--Class 2 0.64 N/A 0.64
AFIS Growth Income--Class 2 0.60 N/A 0.60
AFIS High Yield Bond--Class 2 0.76 N/A 0.76
AFIS U.S. Government/AAA--Class 2 0.77 N/A 0.77
Baron Capital Asset(2) 1.88 (0.38) 1.50
Delaware Devon Standard Class(3a) 0.75 N/A 0.75
Delaware High Yield Standard Class(3b) (formerly
Delchester) 0.72 N/A 0.72
Delaware International Equity Standard Class(3c) 0.94 (0.02) 0.92
Delaware REIT Standard Class(3d) 0.96 (0.11) 0.85
Delaware Small Value Standard Class(3e) 0.85 N/A 0.85
Deutsche VIT EAFE Index(4) 1.15 (0.50) 0.65
Deutsche VIT Equity 500 Index(4) 0.43 (0.13) 0.30
Deutsche VIT Small Cap Index(4) 1.18 (0.73) 0.45
Fidelity VIP II Asset Manager--Service Class(5) 0.74 N/A 0.74
Fidelity VIP II Contrafund--Service Class(5) 0.78 N/A 0.78
Fidelity VIP Growth--Service Class(5) 0.77 N/A 0.77
Fidelity VIP High Income--Service Class(5) 0.79 N/A 0.79
Fidelity VIP Overseas--Service Class(5) 1.01 N/A 1.01
Franklin Small Cap--Class 2(9a, b, d) 1.07 N/A 1.07
Janus Aspen Series Aggressive Growth-- Institutional
Shares(6) 0.67 N/A 0.67
Janus Aspen Series Balanced--Institutional Shares(6) 0.67 N/A 0.67
Janus Aspen Series Flexible Income-- Institutional
Shares(6) 0.72 N/A 0.72
Janus Aspen Series Global Technology--
Service Shares(6) 1.03 N/A 1.03
Janus Aspen Series Worldwide Growth-- Institutional
Shares(6) 0.70 N/A 0.70
LN Bond 0.53 N/A 0.53
LN Capital Appreciation 0.78 N/A 0.78
LN Equity-Income 0.79 N/A 0.79
LN Money Market 0.59 N/A 0.59
LN Social Awareness 0.38 N/A 0.38
MFS Capital Opportunities(7) 1.02 (0.11)(2) 0.91
MFS Research(7) 0.86 N/A 0.86
MFS Total Return(7) 0.90 N/A 0.90
MFS Utilities(7) 0.91 N/A 0.91
Neuberger Berman AMT Mid-Cap Growth(8) 1.08 (0.08) 1.00
Neuberger Berman AMT Partners(8) 0.87 N/A 0.87
OCC Accum Trust Managed 0.83 N/A 0.83
Oppenheimer MainStreet Growth & Income 0.78 N/A 0.78
Templeton Asset Strategy Class 2(9d, f) 1.03 N/A 1.03
Templeton Growth(9c, d, e) Securities Class 2 1.13 N/A 1.13
Templeton International Securities Class 2(9d, g) 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.
7
<PAGE>
(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 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 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.
(c) The investment advisor for the International Equity 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 0.95%. Without such an arrangement, the total annual
operating expenses for the Series would have been 0.94%. Under its
Management Agreement, the Series pays a management fee based on average
daily net assets as follows: 0.85% on the first $500 million, 0.80% on
the next $500 million, 0.75% on the next $1,500 million, 0.70% 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.
(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); Asset Manager 0.73% (service); Contrafund 0.75%
(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 into account, "Net Expenses" would be lower for certain series
and would equal:
0.90% for Capital Opportunities Series
0.85% for Research Series
0.89% for Total Return Series
0.90% for Utilities Series
MFS has contractually agreed, subject to reimbursement, to bear expenses for the
Capital Opportunities Series such that such series' "Other Expenses" (after
taking into account the expense offset arrangement described above), do not
exceed the 0.15% of the average daily net assets of the series during the
current fiscal year. This contractual fee arrangement will continue until at
least May 1, 2001, unless changed with the consent of the board of trustees
which oversees the 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 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%.
8
<PAGE>
(9)(a) A merger and reorganization was approved that combined the fund with
a similar fund of Templeton Variable Products Series Fund.
(b) On 2/8/00, fund shareholders approved new management fees, 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.
(c) The fund administration fee is paid indirectly through the management
fee.
(d) 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.
(e) On 2/8/00, a merger and reorganization was approved that combined the
fund with a similar fund of the Templeton Variable Products Series Fund,
effective 5/1/00. The table shows total expenses based on the fund's
assets as of 12/31/99, and not the assets of the combined fund. However,
if the table reflected combined assets, the fund's expenses after 5/01/00
would be estimated as: Management Fees 0.80%, Distribution and Service
Fees 0.25%, Other Expenses 0.05% and Total Fund Operating Expenses 1.10%.
(f) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with the Templeton Global Asset Allocation Fund,
effective 5/01/00. The shareholders of that fund had approved new
management fees, which apply to the combined fund effective 5/1/00. The
table shows restated total expenses based on the new fees and the assets
of the funds as of 12/31/99, and not the assets of the combined fund.
However, if the table reflected both the new fees and the combined
assets, the fund's expenses after 5/1/00 would be estimated as:
Management Fees 0.60%, Distribution and Service Fees 0.25%, Other
Expenses 0.14%, and Total Fund Operating Expenses 0.99%.
(g) On 2/8/00, shareholders approved a merger and reorganization that
combined the fund with the Templeton International Equity Fund, effective
5/01/00. The shareholders of that fund had approved new management fees,
which apply to the combined fund effective 5/1/00. The table shows
restated total expenses based on the new fees and assets of the fund as
of 12/31/99, and not the shares of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's
expenses after 5/1/00 would be estimated as: Management Fees 0.65%,
Distribution and Service Fees 0.25%, Other Expenses 0.20%, and Total Fund
Operating Expenses 1.10%.
9
<PAGE>
Policy Loans, Withdrawals and Surrenders
You may borrow, within described limits, against the Policy. You may surrender
your Policy in full or withdraw part of its value. Upon the maturity of your
Policy, you may select one of the annuity settlement options or, prior to
maturity, you may apply the value of your Policy, minus surrender charges and
loan account amounts, to one of the annuity settlement options.
If you borrow against your policy, interest will accrue at an annual rate which
will be the monthly average (Moody's Investor Service, Inc. Corporate Bond Yield
Average--Monthly Average Composites) for the calendar month which ends two
months prior to the Policy Anniversary month, or 4.8% if greater.
The Loan Account Value will earn interest at an annual rate equal to the policy
loan interest rate less an annual rate, which we call a "spread", not to exceed
0.80%. For the current spread see page 29.
Changes in Specified Amount
Within certain limits, you may increase or decrease the specified amount.
Increases may require evidence of insurability. Currently, the minimum Specified
Amount is $100,000. Such changes will affect other aspects of your Policy. See
page 29 - 30.
LLANY, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT
LLANY 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.
Account S is a "separate account" of the Company established on March 2, 1999.
Account S was established for the purpose of segregating assets attributable to
the variable portion of life insurance contracts from other assets of the
Company. Under New York law, the assets of Account S attributable to the
Policies, through the property of LLANY, are not chargeable with liabilities of
any other business of LLANY and are available first to satisfy LLANY's
obligations under the Policies. Account S income, gains, and losses are credited
to or charged against Account S without regard to other income, gains, or losses
of LLANY. The values and investment performance of Account S are not guaranteed.
Account S is registered with the Securities and Exchange Commission
("Commission") as a "unit investment trust" under the Investment Company Act of
1940, as amended ("1940 Act") and meets the 1940 Act's definition of "separate
account". The Commission does not supervise the management, investment
practices, or policies of LLANY or Account S. LLANY has numerous other
registered separate accounts which fund its variable life insurance policies and
variable annuity contracts.
Account S 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.
10
<PAGE>
On each Valuation Day, Net Premium Payments allocated to Account S will be
invested in Fund shares at net asset value, and monies necessary to pay for
deductions, charges, transfers and surrenders from Account S are raised by
selling Fund shares at net asset value.
The Funds now available in Account S and their investment objectives are on
pages 13 - 18. More Fund information is in the Funds' prospectuses, which must
accompany or precede this prospectus and should be read carefully. The Funds may
or may not achieve their investment objectives.
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.
LLANY reserves the right to add, withdraw or substitute Funds, subject to the
conditions of the Policy and to compliance with regulatory requirements, if in
its sole discretion, legal, regulatory, marketing, tax or investment
considerations so warrant or in the event a particular Fund is no longer
available to LLANY 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 LLANY and other insurance companies to fund
both variable annuity contracts and variable life insurance policies. While this
is not perceived as problematic, the Funds' governing bodies (Boards of
Directors/Trustees) have agreed to monitor events to identify any material
irreconcilable conflicts which might arise and to decide what responsive action
might be appropriate. If a separate account were to withdraw its investment in a
Fund because of a conflict, a Fund might have to sell portfolio securities at
unfavorable prices.
A Policy may also be funded in whole or in part through the "Fixed Account",
part of LLANY's General Account supporting its insurance and annuity
obligations. The General Account is the Company's general asset account, in
which assets attributable to the non-variable portion of the Policies are held.
Amounts held in the Fixed Account will be credited with interest at rates LLANY
determines 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 Securities Act of 1933, as amended
("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. Policy owners should be prepared to monitor
their investment choices on an ongoing basis.
The Policy is available for purchase by corporations or groups where individuals
share a common employer or affiliation with a group or sponsoring organization.
Each Policy covers a single insured. The Policy may be useful in: funding
non-qualified executive deferred compensation; funding salary continuation
programs; funding
11
<PAGE>
death benefit liabilities or cash flow obligations for executive retirement
plans. The Policy should not be considered for employer pension or profit
sharing programs.
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.
Unless a policy has become a "Modified Endowment Contract" (see page 35), an
owner can borrow Policy values tax-free, without surrender charges and at low
net interest cost. Policy loans can be a source of retirement income.
Depending on the death benefit option chosen, accumulated Policy values may also
be part of the eventual death benefit payable. If a Policy is heavily funded and
investment performance is very favorable, the death benefit may increase even
further because of tax law requirements that the death benefit be a certain
multiple of Policy value, depending on the Insured's age (see page 24).
ALLOCATION OF PREMIUMS
You may allocate all or a part of your Net Premiums to the Fixed Account (part
of the Company's General Account) or to the Funds currently available through
the Separate Account in connection with the Policy. In addition, the Company may
add, withdraw or substitute Funds, subject to the conditions in the Policy and
to compliance with regulatory requirements. The investment results of the Funds,
whose objectives are described below, are likely to differ significantly. Except
where otherwise indicated, all of the Funds are diversified, as defined in the
1940 Act.
Any monies received prior to policy issue will be credited with the return
attributable to the Money Market Fund from the date of receipt until the day the
Policy is issued.
During the Right to Examine Period, the first Net Premium will be allocated in
its entirety as of the issue date to the Money Market Fund, regardless of the
Policy owner's premium allocation percentages. Any other Net Premium received
prior to the expiration of the Right to Examine Period will also be allocated to
the Money Market Fund. On the day following the expiration of the Right to
Examine Period, the policy value and future Net Premiums will be allocated in
accordance with the Policy owner's selected premium allocation percentages.
Fixed Account
The Fixed Account is the only investment option offered with a guaranteed
return. Amounts held in the Fixed Account will be credited with interest at
rates of not less than 4.0% per year. Additional excess interest of up to 0.5%
may be credited to the Fixed Account Value beginning in Policy Year 11. Credited
interest rates reflect the Company's return on Fixed Account invested assets and
the amortization of any realized gains and/or losses which the Company may incur
on these assets.
12
<PAGE>
Separate Account
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 strategy to those of 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.
The portfolios, their investment advisors and distributors, and the Funds within
each that are available under the Policies are:
American Century Variable Products Group, Inc., managed and distributed by
American Century Investments Management Inc., P.O. Box 419835, Kansas City, MO
64141-6385
American Century VP Income & Growth Fund
American Century VP International Fund
American Funds Insurance Series (also known as 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 Bond Fund--Class 2
AFIS Global Growth Fund--Class 2
AFIS Growth Fund--Class 2
AFIS Growth-Income Fund--Class 2
AFIS High-Yield Bond Fund--Class 2
AFIS U.S. Government/AAA Rated Securities 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, Delaware International
Advisors, LTD., 80 Cheapside, London, England ECV2 6EE and distributed by
Delaware Distributors, L.P., 1818 Market Street, Philadelphia, PA 19103
Delaware Group Devon Series--Standard Class
Delaware Group High Yield Series (formerly Delchester Series)--Standard
Class
Delaware Group International Equity Series--Standard Class
Delaware Group REIT Series--Standard Class
Delaware Group Small Cap Value 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
Deutsche VIT EAFE[RegTM] Equity Index Fund
Deutsche VIT Equity 500 Index Fund
Deutsche VIT Small Cap Index Fund
13
<PAGE>
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 02103
Fidelity VIP Growth Portfolio-Service Class
Fidelity VIP High Income Portfolio--Service Class
Fidelity VIP Overseas Portfolio--Service Class
Fidelity VIP II Asset Manager Portfolio-Service Class
Fidelity VIP II Contrafund Portfolio-Service Class
Franklin Templeton Variable Insurance Products Trust, managed by Templeton
Investment Counsel, Inc., Broward Financial Center, Suite 2100, Ft. Lauderdale,
FL 33394, and its Templeton and Franklin affiliates and distributed by
Franklin/Templeton Distributors, Inc., 777 Mariners Island Blvd., San Mateo, CA
94403.
Franklin Small Cap Fund-Class 2
Templeton Asset Strategy Fund-Class 2 (formerly Asset Allocation Fund)
Templeton Growth Securities Fund-Class 2 (formerly Stock Fund)
Templeton International Securities Fund-Class 2 (formerly International
Fund)
Janus Aspen Series, managed by Janus Capital and distributed by Janus
Distributors, Inc., 100 Fillmore St., Denver, CO 80206-4928
Janus Aspen Series Aggressive Growth Portfolio--Institutional Shares
Janus Aspen Series Balanced Portfolio--Institutional Shares
Janus Aspen Series Flexible Income 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 Money Market Fund, Inc.
LN Social Awareness Fund, Inc. (Sub-advised by Vantage Investment
Advisors)
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[RegTM] Variable Insurance Trust, managed by Massachusetts Financial Services
Company and distributed by MFS Fund Distributors, Inc., 500 Boylston Street,
Boston, MA 02116
MFS Research Series
MFS Total Return Series
MFS Utilities Series
MFS Capital Opportunities Series
14
<PAGE>
Neuberger Berman Advisers Management Trust, managed and distributed by Neuberger
Berman Management Incorporated, 605 Third Avenue, 2nd Floor, New York, NY
10158-0006
NB AMT Mid-Cap Growth Portfolio
NB AMT Partners Portfolio
OCC Accumulation Trust, managed by OpCap Advisors and distributed by OCC
Distributors, 1345 Avenue of the Americas, New York, NY 10105
OCC Trust Managed Portfolio
OppenheimerFunds, managed by OppenheimerFunds, Inc., and distributed by
OppenheimerFunds Distributors, Inc. Two World Trade Center, New York, NY 10048
Oppenheimer Main Street Growth and Income Fund/VA
The investment advisory fees charged the Funds by their advisors are shown on
pages 7 - 9.
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.
o American Century VP Income & Growth Fund: Seeks dividend growth, current
income and capital appreciation by investing in a diversified portfolio of
U.S. stocks.
o American Century VP International Fund: Seeks capital growth, by investing
primarily in an internationally diversified portfolio of common stocks that
are considered by management to have prospects for appreciation. The fund
will invest primarily in securities of issuers located in developed
markets.
o AFIS Bond Fund--Class 2: The fund seeks to maximize your level of current
income and preserve your capital by investing primarily in bonds. The fund
is designed for investors seeking income and more price stability than
stocks, and capital preservation over the long-term.
o AFIS Global Growth Fund--Class 2: The fund seeks to make your investment
grow over time by investing primarily in common stocks of companies located
around the world. 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.
o AFIS Growth Fund--Class 2: The fund seeks to make your 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.
o AFIS Growth-Income Fund--Class 2: The fund 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.
o AFIS High-Yield Bond Fund--Class 2: The fund seeks to provide you with a
high level of current income and secondarily capital appreciation by
investing primarily in lower quality debt securities (rated Ba or BB or
lower by Moody's Investors Services, Inc. or Standard & Poor's
Corporation), including those of non-U.S. issuers. The fund may also invest
in equity securities that provide an opportunity for capital appreciation.
15
<PAGE>
o AFIS U.S. Government/AAA Rated Securities Fund--Class 2: The fund seeks to
provide you with a high level of current income, as well as preserve your
investment. The fund invests primarily in securities that are guaranteed by
the "full faith and credit" pledge of the U.S. Government and securities
that are rated AAA or Aaa by Moody's Investor's Services, Inc. or Standard
& Poor's Corporation or unrated but determined to be of equivalent quality.
o Baron Capital Asset Fund: The investment objective is 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.
o 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.
o 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 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.
o Delaware Group International Equity Series--Standard Class: Seeks long-term
growth without undue risk to principal by investing primarily in foreign
company stocks with the potential for capital appreciation and income.
o 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.
o 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.
o Deutsche VIT EAFE[RegTM] Equity Index 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 Index), a
capitalization-weighted index containing approximately 1,100 equity
securities of companies located outside the United States.
o Deutsche VIT Equity 500 Index Fund: Seeks to replicate as closely as
possible the performance of the Standard & Poor's 500 Composite Stock Price
Index, before the deduction of Fund expenses.
o 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.
o Fidelity VIP Growth Portfolio--Service Class: Seeks long-term capital
appreciation. The portfolio normally purchases common stocks.
o 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.
16
<PAGE>
o Fidelity VIP Overseas Portfolio--Service Class: Seeks long term growth of
capital by investing mainly in foreign securities.
o Fidelity VIP II Asset Manager Portfolio--Service Class: Seeks high total
return with reduced risk over the long-term allocating its assets among
domestic and foreign stocks, bonds and money market instruments.
o Fidelity VIP II Contrafund Portfolio--Service Class: Seeks long-term
capital appreciation by investing primarily in securities of companies
whose value the adviser believes is not fully recognized by the public.
o Franklin Small Cap Fund--Class 2: Seeks long-term capital growth. It
invests primarily in equity securities of U.S. small cap growth companies.
Small cap companies are generally those with market cap values of less than
$1.5 billion at time of purchase. Franklin Advisers, Inc. serves as the
Fund's investment advisor.
o Janus Aspen Series Aggressive Growth Portfolio--Institutional Shares: Seeks
long-term growth of capital. Pursues objective in common stocks selected
for their growth potential and normally invests at least 50% of its equity
assets in medium sized companies.
o 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.
o Janus Aspen Series Flexible Income Portfolio--Institutional Shares: To seek
maximum total return, consistent with preservation of capital. Pursues
objective primarily through investments in income-producing securities.
o Janus Aspen Series Global Technology Portfolio--Service Shares: To seek
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.
o Janus Aspen Series Worldwide Growth Portfolio--Institutional Shares: To
seek long-term growth of capital in a manner consistent with the
preservation of capital. Pursues objective by investing primarily in common
stocks of companies of any size throughout the world. The Portfolio
normally invests in issuers 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.
o Lincoln National Bond Fund, Inc.: Seeks maximum current income consistent
with prudent investment strategy. The Fund invests primarily in medium and
long-term corporate and government bonds.
o Lincoln National Capital Appreciation Fund, Inc.: Seeks long-term growth of
capital in a manner consistent with preservation of capital. The fund
primarily buys stocks 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.
o Lincoln National Equity-Income Fund, Inc.: Seeks reasonable income by
investing primarily in income-producing equity securities. The fund invests
mostly in high-income stocks with some high-yielding bonds (including junk
bonds).
17
<PAGE>
o Lincoln National Money Market Fund, Inc.: 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.
o Lincoln National Social Awareness Fund, Inc.: Long-term capital
appreciation. The fund buys stocks of established companies which adhere to
certain specified social criteria.
o MFS Research Series: Seeks to provide long-term growth of capital and
future income.
o MFS Total Return Series: Seeks primarily to provide above-average income
(compared to a portfolio entirely in equity securities) consistent with the
prudent employment of capital, and secondarily to provide a reasonable
opportunity for growth of capital and income.
o MFS Utilities Series: Seeks capital growth and current income (income above
that available from a portfolio invested entirely in equity securities).
o MFS Capital Opportunities Series: Seeks capital appreciation.
o Neuberger Berman AMT Mid-Cap Growth Portfolio: Seeks capital appreciation
by investing primarily in common stocks of medium-capitalization companies,
using a growth-oriented investment approach.
o Neuberger Berman AMT Partners Portfolio: Seeks capital growth by investing
mainly in common stocks of mid- to large capitalization established
companies using the value-oriented investment approach. Neuberger Berman
Management Inc. serves as the Fund's investment adviser. Neuberger Berman,
LLC serves as the Fund's investment sub-adviser.
o OCC Accumulation Trust Managed Portfolio: Seeks to achieve 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 manager's
assessments of the relative outlook for such investments.
o Oppenheimer Main Street Growth and Income Fund/VA: Seeks a high total
return (which includes growth in the value of its shares as well as current
income) from equity and debt securities. From time to time the Fund may
focus on small to medium capitalization common stocks, bonds and
convertible securities.
o Templeton Asset Strategy Fund--Class 2 (formerly Templeton Asset Allocation
Fund): 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.
o Templeton Growth Securities Fund--Class 2 (formerly Templeton Stock Fund):
Seeks long-term capital growth. It 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.
o Templeton International Securities Fund--Class 2 (formerly Templeton
International Fund): 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
adviser.
18
<PAGE>
There is no assurance that the Funds will achieve their investment objectives.
Policy owners bear the full investment risk of investments in the Funds
selected.
Some of the above Funds may use instruments known as derivatives as part of
their investment strategies, as described in their respective prospectuses. The
use of certain derivatives such as inverse floaters and principal only debt
instruments may involve higher risk of volatility to a Fund. The use of leverage
in connection with derivatives can also increase risk of losses. See the
prospectuses for the Funds for a discussion of the risks associated with an
investment in those funds. You should refer to the accompanying prospectuses of
the Funds for more complete information about their investment policies and
restrictions.
LLANY has entered into agreements with the various trusts or corporations and
their advisors or distributors under which LLANY makes the Funds available under
the Policies and performs certain administrative services. In some cases, the
advisors or distributors may compensate LLANY at annual rates of between .10% to
.40% of assets in a particular Fund attributable to the Policies.
Mixed and Shared Funding
Shares of the Funds are available to insurance company separate accounts which
fund variable annuity contracts and variable life insurance policies, including
the Policy described in this Prospectus. Because Fund shares are offered to
separate accounts of both affiliated and unaffiliated insurance companies, it is
conceivable that, in the future, it may not be advantageous for variable life
insurance separate accounts and variable annuity separate accounts to invest in
these Funds simultaneously, since the interests of such Policyowners or
contractholders may differ. Although neither the Company nor the Funds currently
foresees any such disadvantages either to variable life insurance or to variable
annuity policyholders, each Fund's Board of Trustees/Directors has agreed 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 that Fund to sell
portfolio securities at disadvantageous prices.
Substitution of Securities
If the shares of any Fund should no longer be available for investment by the
Separate Account or if, in our judgment, 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, we 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.
CHARGES & FEES
Premium Load
The premium load is deducted from your premium payments. This load represents
sales and administrative expenses associated with the startup and maintenance of
the policy.
19
<PAGE>
1. Guaranteed Maximum Premium Load
For all cases, the premium load is guaranteed to be no higher than the amounts
shown in the following table:
<TABLE>
<CAPTION>
For the Portion of For the Portion of
Premiums Paid up to Target Premiums Paid greater than
Premium -- load as a Target Premium -- load as a
Policy Year(s) percentage of that portion percentage of that portion
- ---------------- -------------------------- ---------------------------
<S> <C> <C>
1 12.0% 5.0%
2-5 9.0% 5.0%
6 and after 5.0% 5.0%
</TABLE>
2. Current Premium Load
The current premium load for cases with average annual planned premiums of
$100,000 or greater but less than $1,000,000, is shown in the following table:
<TABLE>
<CAPTION>
For the Portion of For the Portion of
Premiums Paid up to Target Premiums Paid greater than
Premium -- load as a Target Premium -- load as a
Policy Year(s) percentage of that portion percentage of that portion
- ---------------- -------------------------- ---------------------------
<S> <C> <C>
1 10.50% 2.50%
2-5 7.50% 1.50%
6-7 3.50% 1.50%
8 and after 1.50% 1.50%
</TABLE>
The current premium load for cases with average annual planned premiums of
$1,000,000 or greater, is shown in the following table:
<TABLE>
<CAPTION>
For the Portion of For the Portion of
Premiums Paid up to Target Premiums Paid greater than
Premium -- load as a Target Premium -- load as a
Policy Year(s) percentage of that portion percentage of that portion
- ---------------- -------------------------- ---------------------------
<S> <C> <C>
1 7.50% 1.00%
2 6.00% 1.00%
3-5 3.50% 1.00%
6 and after 1.50% 1.00%
</TABLE>
Premium Load Refund
Under certain circumstances described below, if you surrender your Policy up to
60 months after Date of Issue, if your Policy is not in default, you may be
entitled to a credit for some or all of the premium loads which have been
deducted from your premium payments. To determine the Surrender Value during the
premium load refund period, the Total Account Value will be reduced by the
amount of any Loan Account Value, including accrued interest. That amount would
be increased by the applicable credit for the premium load. A decrease in the
specified amount in Policy Years 1 or 2 will proportionately decrease the amount
of the premium load refund. This refund is not guaranteed and is not available
if your policy is in default.
Currently, for cases with average annual planned premiums of $100,000 or greater
but less than $1,000,000, if a policy is surrendered during the first twelve
months after the Date of Issue, the refund is 7% of premium paid in the first
Policy Year up to the Target Premium and 3% of premium paid in the first Policy
Year above Target Premium. For months 13 through 24, the refund is 75% of the
First Policy Year refund amount. There is no refund after 24 months.
Currently, for cases with average annual planned premiums of $1,000,000 or
greater, if a policy is surrendered during the first twelve months after the
Date of Issue, the
20
<PAGE>
refund is 7.50% of premium paid in the first Policy Year up to the Target
Premium plus the premium tax charge and 1% of premium paid in the first Policy
Year above Target Premium plus the premium tax charge. For months 13 through 60,
the refund is 100% of the First Policy Year refund amount plus the premium tax
charge. There is no refund after 60 months.
Premium Tax Charge
An amount equal to the state and municipal taxes associated with premiums
received is deducted from premium payments. For Policies issued or delivered in
New York, this charge is currently 1.75% and is guaranteed not to exceed 5% of
premium received.
Charges and Fees Assessed Against the Total Account Value
A Monthly Deduction is made from the Total Account Value. The Monthly Deduction
is made as of the same day each month, beginning with the Date of Issue. The
Monthly Deduction includes the Cost of Insurance and any charges for
supplemental riders or benefits. The Cost of Insurance is the portion of the
monthly deduction attributable to the basic insurance coverage, not including
riders, supplemental benefits or monthly expense charges. The Cost of Insurance
depends on the Issue Age, risk class of the Insured and the number of Policy
Years elapsed and Specified Amount of the Policy.
Once a Policy is issued, Monthly Deductions, including Cost of Insurance
charges, will begin as of the Date of Issue, even if the Policy's issuance was
delayed due to underwriting requirements, and will be in amounts based on the
Specified Amount of the Policy issued, even if any temporary insurance coverage
provided during the underwriting period was for a lesser amount.
The Monthly Deduction also includes a monthly administrative expense charge of
$6 currently, guaranteed not to exceed $10 during all Policy Years.
The monthly administrative expense charge is for items such as premium billing
and collection, Policy value calculation, confirmations and periodic reports and
will not exceed our costs. The Monthly Deduction is deducted proportionately
from each funding option, if more than one is used. This is accomplished by
liquidating Accumulation Units and withdrawing the value of the liquidated
Accumulation Units from each funding option in the same proportion as their
respective values have to your Fixed Account and Separate Account Values.
Mortality and Expense Risk Charge
The Company deducts a daily charge from the assets of Account S for mortality
and expense risks assumed by it in connection with the Policy.
Currently, the amount of this charge, on an annualized basis, is the following
percentage of Policy value in the Separate Account:
Currently, for cases with average annual planned premiums of $100,000 or greater
but less than $1,000,000, the mortality and expense risk charge on an annualized
basis equals the following percentage of policy value in the Separate Account:
21
<PAGE>
<TABLE>
<CAPTION>
Annualized Mortality and
Policy Years Expense Risk Charge
<S> <C>
1-10 0.65%
11-20 0.45%
21 and thereafter 0.35%
</TABLE>
Currently, for cases with average annual planned premiums of $1,000,000 or
greater, the mortality and expense risk charge on an annualized basis equals the
following percentage of policy value in the Separate Account:
<TABLE>
<CAPTION>
Annualized Mortality and
Policy Years Expense Risk Charge
<S> <C>
1-10 0.40%
11-20 0.20%
21 and thereafter 0.10%
</TABLE>
The mortality and expense risk charge is assessed to compensate the Company for
assuming certain mortality and expense risks under the Policies. The Company
reserves the right to increase the mortality and expense risk charge if it
believes that circumstances have changed so that current charges are no longer
adequate. In no event will the mortality and expense risk charge on an
annualized basis exceed the following:
<TABLE>
<CAPTION>
Annualized Mortality and
Policy Years Expense Risk Charge
<S> <C>
1-10 1.10%
11-20 0.90%
21 and thereafter 0.80%
</TABLE>
Reduction of Charges
The Policies are available for purchase by corporations or other groups where
the individuals share a common employer or affiliation with the group or
sponsoring organization. Each Policy covers a single insured. We reserve the
right to reduce premium loads or any other charges on certain multiple life
sales ("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 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, expected persistency of the
individual policies, and any other circumstances which we believe to be relevant
to the expected reduction of our expenses. Some of these reductions may be
guaranteed and others may be subject to withdrawal or modification by us on a
uniform case basis. Reductions in charges will not be unfairly discriminatory to
any Policy owners.
POLICY CHOICES
When you buy a Policy, you make several important choices:
o The amount of premium you intend to pay;
o Which one of the three Death Benefit Options you would like, and the
Premium Accumulation Rate you would like if you choose Death Benefit Option
3;
22
<PAGE>
o The way your net premiums will be allocated to the Funds and/or the Fixed
Account.
Each of these choices is described in detail below:
Premium Payments
Planned Premiums are those premiums you choose to pay on a scheduled basis. We
will bill you annually, semiannually, or quarterly, or at any other agreed-upon
frequency. Additional Premiums are any premiums you pay in addition to Planned
Premiums.
Payment of Minimum Monthly Premiums, Planned Premiums, or Additional Premiums in
any amount will not guarantee that your Policy will remain in force. Conversely,
failure to pay Planned Premiums or Additional Premiums will not necessarily
cause your Policy to lapse. The Policy's surrender value must be sufficient to
cover the next Monthly Deduction.
At any time, you may increase your Planned Premium by written notice to us, or
pay Additional Premiums, except that:
o We may require evidence of insurability if the Additional Premium or the
new Planned Premium during the current Policy Year increases the difference
between the Death Benefit and the Total Account Value. If satisfactory
evidence of insurability is requested and not provided, we will refund the
increase in premium without interest and without investing such amounts in
the underlying funding options.
o If, at any time, a premium is paid which would result in total premiums
exceeding such maximum premium limitations, we will only accept that
portion of the premium which will make total premiums equal to the maximum.
Any part of the premium in excess of that amount will be returned or
applied as otherwise agreed and no further premiums will be accepted until
allowed by the then-current maximum premium limitations prescribed by law.
o If you make a sufficient premium payment when you apply for a Policy, and
have answered favorably to certain questions relating to the Insured's
health, a "temporary insurance agreement" in the amount applied for
(subject to stated maximums) will be provided.
o After your first premium payment all premiums must be sent to our
Administrative Office. Your premium payments received will be allocated as
you have directed and amounts allocated to the Funds will be credited at
the Accumulation Unit value determined at the end of the business day after
each payment is received.
You may reallocate your future premium payments at any time free of charge. Any
reallocation will apply to premium payments made after you have received written
verification from us.
Under limited circumstances, we may backdate a Policy, upon request, by
assigning a Date of Issue earlier than the date the application is signed, but
no earlier than six months prior to state approval of the Policy. The Date of
Issue is the date from which policy years, policy anniversaries and Attained Age
are determined. The Date of Coverage is the date on or after the Date of Issue
that the initial premium has been paid (1) while the Insured is alive and (2)
prior to any change in health and
23
<PAGE>
insurability, as represented in the application. Issue Age is the Insured's age
on his/her birthday closest to the Policy Date of Issue. Backdating may be
desirable, for example, so that you can purchase a particular Specified Amount
for lower cost of insurance rates, based on a younger insurance age. For a
backdated Policy, you must pay the minimum premium payable for the period
between the Date of Issue and the date the initial premium is invested in the
Separate Account. Backdating of your Policy will not affect the date on which
your premium payments are credited to the Separate Account and you are credited
with Accumulation Units. You cannot be credited with Accumulation Units until
your Net Premium Payment is actually deposited in the Separate Account. (See
"Policy Values.")
If we decline an application for a policy we will refund all premium payments
made.
This Policy must satisfy the Cash Value Accumulation testing method to qualify
as a life insurance contract for tax purposes under Section 7702 of the Code.
This requires a life insurance policy to meet minimum ratios of life insurance
coverage to Total Account Value. We refer to the ratios as Applicable
Percentages. We refer to required life insurance coverage in excess of the Total
Account Value as the Death Benefit corridor.
The Cash Value Accumulation test does not limit premiums which may be paid but
has required Applicable Percentages. For example, Applicable Percentages for
Non-Smokers range from 670% at Attained Age 20 to 350% at Attained Age 40 to
100% at Attained Age 100.
The payment of higher premiums, which is associated with the Cash Value
Accumulation method, increases the possibility that the amount paid into the
Policy will exceed the amount that would have been paid had the Policy provided
for seven level annual premiums (the "7-pay test"). If premiums paid exceed such
limits during any 7-pay testing period, any partial surrender or Policy loan may
be subject to federal income taxation.
Death Benefit Options
At the time of purchase, you must choose from three available Death Benefit
Options. The amount payable under the option chosen will be determined as of the
date of the Insured's death. The Death Benefit may be affected by partial
surrenders. The Death Benefit for all three options will be reduced by the Loan
Account Value plus any accrued interest.
Under Option 1, the Death Benefit will be the greater of the Specified Amount or
Target Face Amount if a Term Insurance Rider is attached to the Policy (see
"Term Insurance Rider"), or the Applicable Percentage of the Total Account
Value. Option 1 generally provides a level Death Benefit.
Under Option 2, the Death Benefit will be the greater of the Specified Amount,
plus the Total Account Value or the Target Face Amount if a Term Insurance Rider
is attached to the Policy (see "Term Insurance Rider"), or the Applicable
Percentage of the Total Account Value. 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 you choose.
Under Option 3, the Death Benefit will be the greater of the Specified Amount
plus the Accumulated Premium(s) accumulated at the Premium Accumulation Rate or
24
<PAGE>
Target Face Amount if a Term Insurance Rider is attached to the Policy (see
"Term Insurance Rider"), or the Applicable Percentage of the Total Account Value
but will not exceed the total Death Benefit paid under Option 2. This option may
only be selected at issue.
The Accumulated Premium is the sum of all the premiums paid from the Date of
Issue accumulated at the Premium Accumulation Rate. You select the Premium
Accumulation Rate at issue. Any rate requested in excess of 10% may be subject
to additional underwriting.
The choice of Death Benefit Option should be based upon the pattern of Death
Benefits which best matches the intended use of the Policy. For example, an
Option 1 Policy should be chosen for a simple, fixed, level total Death Benefit
need. Option 2 would be chosen to provide a level death benefit in addition to
the Policy Total Account Value, and Option 3 would provide a level death benefit
for the Specified Amount plus a return of Accumulated Premiums.
Choosing the option which provides the lowest pattern of Death Benefits which
meets the desired need will be the most efficient for accumulating potential
cash value, since the lower Cost of Insurance charges will improve the growth or
preservation of the Total Account Value. Other than providing the appropriate
pattern of desired Death Benefits, there is no economic advantage of one option
over another, since the Cost of Insurance charges for all three Options are
based upon the amount at risk, the difference between the Death Benefit and the
Total Account Value each month.
The same is true for the choice of a Premium Accumulation Rate under Option 3.
Choice of a higher Premium Accumulation Rate will cause the death benefit to
increase more rapidly, but this will also generate higher Cost of Insurance
charges and lower the potential growth in Total Account Value.
Allocations and Transfers to Funding Options
At purchase, you must decide how to allocate your Net Premiums among the Funds
and/or the Fixed Account. Net Premiums must be allocated in whole percentages.
You should carefully consider current market conditions and each Fund's
investment policies and related risks before allocating money to or transferring
values among the Funds.
Before the Maturity Date, you may transfer Policy values from one Fund to
another at any time, or to the Fixed Account. After the first 18 months from
Date of Issue the Company reserves the right to charge $25 for each transfer
after the twelfth transfer per year. Within 45 days after each Policy
anniversary, and before the Maturity Date, you may also transfer a portion of
the Fixed Account Value to one or more Funds. A transfer from the Fixed Account
is allowed only once in the 45-day period after the Policy Anniversary and will
be effective as of the next Valuation Period after your request is received by
our Administrative Office. The amount of such transfer cannot exceed the greater
of 25% of the greatest amount held in the Fixed Account Value during the prior 5
years or $1000.
Any transfer among the Funds or to the Fixed Account will result in the
crediting and cancellation of Accumulation Units based on the Accumulation Unit
values determined at the end of the Valuation Period after your request is
received by our
25
<PAGE>
Administrative Office. (See "Accumulation Unit Value.") The Valuation Period is
the period of time from when the Company determines the Accumulation Unit Value
and Settlement Option Unit Value of a variable investment option until the next
time it determines such unit value. Currently, the calculation occurs after the
close of business of the New York Stock Exchange on any normal business day,
Monday through Friday, that the New York Stock Exchange is open.
POLICY VALUES
Total Account Value
The Total Account Value is the sum of the Fixed Account Value, the Separate
Account Value and the Loan Account Value.
We will allocate each Net Premium (the premium paid, less both the premium load
and the premium tax charge) to a funding option in the Separate Account and
credit it in the form of Accumulation Units. An Accumulation Unit is used to
measure the value of a Policy owner's interest in each applicable funding option
used to calculate the value of the variable portion of the Total Account Value
before election of a settlement option. We will credit each Net Premium we
receive after your policy is issued to your Policy at the Accumulation Unit
Value for a selected Fund at the end of the business day we receive it. The
number of Accumulation Units credited is the Net Premium divided by that
Accumulation Unit Value. Shares in each Fund you select will be purchased for
the Separate Account at the Fund's net asset value next computed after we
receive the Net Premium. Since each Fund has its own Accumulation Unit value if
you choose a combination of funding options, you will have Accumulation Units
credited for each funding option.
Separate Account Value is the sum of values in each Separate Account funding
option which is the total number of Accumulation Units times the current
Accumulation Unit Value. To that we add any Fixed Account values and any Loan
Account Values to arrive at the Policy's Total Account Value.
The number of Accumulation Units you have is not changed by any change in the
value of an Accumulation Unit. The number is increased by contributions or
transfers and decreased by charges and withdrawals.
There is no guarantee that the Separate Account Value will equal or exceed Net
Premiums placed in the Separate Account.
We will notify you annually as to the number of Accumulation Units credited to
your Policy for each Fund, the current Accumulation Unit values, the Separate
Account Value, the Fixed Account Value, and the Total Account Value.
Accumulation Unit Value
We convert any Net Premium payment allocated to, or Policy Value transferred to
a Sub-Account into Accumulation Units. The Accumulation Unit Value for a Sub-
Account is determined by:
o multiplying the Fund shares owned by the Sub-Account at the beginning of
the business day by the net asset value per share at the end of the
business day and adding any dividend or other distribution during the
business day; minus
26
<PAGE>
o the daily Sub-Account charges, including any tax charge or credit; and
o dividing the result of the foregoing subtraction by the number of
Accumulation Units for that Sub-Account at the beginning of the business
day.
The Accumulation Unit Value may increase or decrease from business day to
business day.
Maturity Value
The Maturity Date is the Policy Anniversary nearest the Insured's 100th
birthday.
The Maturity Value of the Policy is the Total Account Value on the Maturity
Date, less the Loan Account Value and any unpaid accrued interest.
Surrender Value
The Surrender Value of your Policy is the amount you can receive in cash by
surrendering the Policy. This equals the Total Account Value minus the Loan
Account Value and any accrued interest, plus any credit for premium loads paid.
All or part of the Surrender Value may be applied to one or more of the
Settlement Options. If you make a full surrender, all coverage under the Policy
will automatically terminate and may not be reinstated.
POLICY RIGHTS
Partial Surrenders
A partial surrender may be made at any time after the first Policy Year. If, at
the time of a partial surrender your Total Account Value is attributable to more
than one funding option, the transaction charge and the amount paid to you upon
the surrender will be taken proportionately from the Accumulation Unit values in
each funding option.
The amount of a partial surrender may not exceed the Surrender Value on the date
the request is received and may not be less than $500.
Partial surrenders may only be made prior to election of a Settlement Option.
For an Option 1 Death Benefit Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value, Death Benefit, and
Specified Amount. The Specified Amount and Total Account 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 Death Benefit Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value and the Death Benefit,
but it will not reduce the Specified Amount.
For an Option 3 Death Benefit Policy (see "Death Benefit Options"):
A partial surrender will reduce the Total Account Value, Death Benefit, and
Specified Amount. The Specified Amount and Total Account Value will be reduced
by equal
27
<PAGE>
amounts and will reduce any past increases in the reverse order in which they
occurred.
We will pay you on a full or partial surrender within seven calendar days after
we receive your written request in our Administrative Office in satisfactory
form. Payment may be postponed if the New York Stock Exchange has been closed or
trading has been restricted or an emergency exists. Your payment from the Fixed
Account Values may be deferred up to six months except when used to pay premiums
to the Company.
The Specified Amount remaining in force after a partial surrender may not be
less than $100,000. Any request for 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.
Reinstatement of a Lapsed Policy
A lapse occurs if your Monthly Deduction is greater than the Policy's Surrender
Value and you make no payment to cover the deduction within 61 days of our
notifying you.
You can apply for reinstatement within five years after the date of lapse and
before the Maturity Date. To reinstate your Policy we will require satisfactory
evidence of insurability and an amount sufficient to pay for the current Monthly
Deductions, plus two additional Monthly Deductions. In the event of
reinstatement, the Policy will be reinstated on the Monthly Deduction day
following our approval. The Policy's Total Account Value at reinstatement will
be the net premium paid less the Monthly Deduction due that day. Any loan
Account Value will not be reinstated.
Policy Loans
The maximum loan amount is 90% of Total Account Value. The Loan Account Value,
which is the loan amount plus interest, reduces any proceeds payable.
Any loan made will be taken proportionally from the amount in each funding
option. Repayments on the loan will be allocated in proportion to current
premium allocations, and will reduce the Loan Account Value.
The annual rate we charge during any Policy Year will be:
o the monthly average (Moody's Investors Service, Inc. Composite Yield on
Corporate Bonds) for the calendar month which ends two months before the
month in which the Policy Anniversary occurs, or, if greater,
o 4.8%
This rate may increase only when it would be at least 0.5% higher than the prior
Policy Year's and decrease only when it would be at least 0.5% lower than the
prior Policy Year's.
When you take a loan, we will tell you the current policy loan interest rate. We
will tell you in advance of any interest rate change. You must pay interest on
the
28
<PAGE>
anniversary of the loan, or earlier upon surrender, payment of proceeds, or
maturity of a Policy. Any unpaid interest is added to the loan.
The loan account value will earn interest at an annual rate equal to the policy
loan interest rate less an annual rate, which we call a spread, not to exceed
0.80%.
Annual Loan Interest earned = policy loan interest rate - spread
Currently, the spread is the following:
o For cases with average annual planned premiums of $100,000 or greater but
less than $1,000,000:
<TABLE>
<S> <C>
Years 1--10 0.70%
Years 11 and thereafter 0.35%
</TABLE>
o For cases with average annual planned premiums of $1,000,000 or greater:
<TABLE>
<S> <C>
Years 1--10 0.40%
Years 11--20 0.20%
Years 20 and thereafter 0.10%
</TABLE>
The interest earned by the Loan Account Value will be added to the Fixed Account
Value and the Separate Account Value in the same proportion in which the loan
amount was originally deducted from these values.
Policy Changes
You may make changes to your Policy as described below by submitting a written
request to our Administrative Office in a form satisfactory to us.
Increases: You may increase the Specified Amount of your Policy any time subject
to satisfactory evidence of insurability which may be required.
Decreases: Generally, you may decrease the Specified Amount of your Policy with
our consent; however, no decrease may reduce the Specified Amount below the
minimum for the type of Policy (see "Death Benefit Options"), and the
availability of decreases before the fifth Policy Year is subject to approval of
this feature by the New York Insurance Department and to the Company's
satisfaction that the decrease is intended to meet a legitimate, non-insurance
related business need of the Policy owner.
o Changes from Death Benefit Option 1 to Death Benefit Option 2 are allowed
at any time. The new Specified Amount will equal the Specified Amount less
the Total Account Value at the time of the change.
o Changes from Death Benefit Option 2 to Death Benefit Option 1 are allowed
at any time. The new Specified Amount will equal the Specified Amount plus
the Total Account Value as of the time of the change.
o Changes from Death Benefit Option 3 to Death Benefit Option 1 are allowed
at any time. The Specified Amount will be increased to equal the Specified
Amount prior to the change plus the lesser of the Accumulated Premiums or
the Total Account Value at the time of the change.
29
<PAGE>
o Changes from Death Benefit Option 3 to Death Benefit Option 2 are allowed
at any time. The Specified Amount will be reduced to equal the Specified
Amount prior to the change minus the greater of zero or the difference
between the Total Account Value and the sum of the Accumulated Premiums at
the time of the change.
o Changes from Death Benefit Options 1 or 2 to Death Benefit Option 3 are not
allowed.
Right to Examine the Policy
The Policy has a "Right to Examine Period" during which you may examine the
Policy. If, for any reason, you are dissatisfied, it may be returned to our
Administrative Office for a refund. It must be returned within ten days after
you receive the Policy. If you return (cancel) the Policy, we will pay a refund
equal to all premiums paid, without interest. Refunds will usually occur within
seven days of notice of cancellation, although a refund of premiums you paid by
check may be delayed until the check clears your bank.
DEATH BENEFIT
The Death Benefit under the Policy will be paid in a lump sum within seven days
after we receive due proof of the Insured's death (a certified copy of the death
certificate), unless you or the beneficiary have elected that it be paid under
one or more of the Settlement Options or such options as we may choose to make
available in the future. Payment of the Death Benefit may be delayed if the
Policy is being contested.
POLICY SETTLEMENT
Settlement Options
Proceeds in the form of Settlement Options are payable by the Company upon the
Insured's death, upon Maturity of the Policy, or upon election of one of the
Settlement Options.
Upon the death of the Insured, the proceeds of the Policy will be paid to the
Beneficiary(ies) in the form of an annuity in Settlement Option 1, 2 or 3 if the
Beneficiary(ies) so elect. An annuity is a series of payments for a definite
period of time or for the life of an individual. For Settlement Option 4,
payments of requested amounts are made at the request of the Payee or payments
may be through one of the other available Settlement Options.
All or part of the Proceeds of this Policy may be applied, under one or more of
the options described below. An election shall be made by written request to our
Administrative Office. The Payee of Proceeds may make this election if no prior
election has been made.
The Payee must designate whether the payments will be:
o on a fixed basis,
o on a variable basis, or
o a combination of fixed and variable bases.
30
<PAGE>
Variable Settlement Options will be supported by the then available Funds of the
Company's Variable Annuity Account N (Account N), a separate account very
similar to the Separate Account, except that Account N supports variable annuity
benefits rather than variable life insurance benefits. We will provide an
Account N prospectus in connection with selection of a Settlement Option. That
prospectus will describe the available Funds, the cost and expenses of such
Funds and the charges imposed on Account N. The available Funds may be, and the
charges imposed on Account N are expected to be, different from those that
relate to the Separate Account prior to commencement of a Settlement Option.
Accordingly, you should review the Account N prospectus, as well as prospectuses
for Account N's underlying Funds, prior to selecting any variable payment
Settlement Option. A minimum monthly payment of $50 from each funding option
will be required.
You make transfers among Funds while receiving payments on a variable basis
under our administrative procedures in effect at the time. Currently, we limit
the number of transfers to three per calendar year, but we can change this limit
in the future.
If no designation is made, the Separate Account Value shall be used to provide a
variable payment, and the Fixed Account Value shall be used to provide a fixed
payment.
If a fixed annuity is chosen, the annuity purchase rate for the option chosen
will reflect at least the minimum guaranteed interest rate of 3.0%.
Annuity Payment Options:
Option 1 -- Life Annuity/Life Annuity with Guaranteed Period -- Fixed and/or
variable annuity payments will be made for the lifetime of the Annuitant with no
certain period, or life and a 10 year certain period, or life and a 20 year
certain period.
Option 2 -- Unit Refund Life Annuity -- Variable annuity payments will be made
for the lifetime of the Annuitant with the guarantee that upon death, if (a) the
number of the Fund settlement option annuity units initially purchased
(determined by dividing the total dollar amount applied to purchase this
settlement option by the Fund settlement option annuity unit value on the
Annuity Commencement Date) is greater than (b) the number of Fund settlement
option annuity units paid as part of each variable annuity benefit payment
multiplied by the number of annuity benefit payments paid prior to death; then a
refund payment equal to the number of Fund settlement option annuity units
determined by (a) minus (b) will be made. The refund payment value will be
determined using the Fund settlement option annuity unit value on the Valuation
Date on which the death claim is approved by us for payment after we have
received (1) proof of death acceptable to us; (2) written authorization for
payment; and (3) all claim forms, fully completed.
Option 3 -- Cash Refund Life Annuity -- Fixed annuity payments will be made for
the lifetime of the Annuitant with the guarantee that upon death, if (a) the
total dollar amount applied to purchase this option is greater than (b) the
fixed annuity benefit payment multiplied by the number of annuity benefit
payments paid prior to death; then a refund payment equal to the dollar amount
of (a) minus (b) will be made. The refund payment will be made on the Valuation
Date on which the death claim is approved by us for payment after we are in
receipt of (1) proof of death
31
<PAGE>
acceptable to us; (2) written authorization for payment; and (3) all claim
forms, fully completed.
Option 4 -- Joint Life Annuity/Joint Life Annuity with Guaranteed Period --
Fixed and/or variable payments will be made during the joint life of the
Annuitant and a Joint Annuitant of the Owner's choice. Payments will be made for
life with no certain period, or life and a 10 year certain period, or life and a
20 year certain period. Payments continue for the life of the survivor at the
death of the Annuitant or Joint Annuitant.
Other Options -- other options may be available as agreed upon in writing by us.
TERM INSURANCE RIDER
The Policy can be issued with a Term Insurance Rider as a portion of the total
Death Benefit. The Rider provides term life insurance on the life of the
Insured, which is annually renewable to Attained Age 100. This rider will
continue in effect unless explicitly canceled by the Policy owner. The Rider
provides a vehicle for short-term insurance protection for Policy owners who
desire lower required premiums under the Policy, in anticipation of growth in
Total Account Value to fund life insurance coverage in later Policy Years.
However, term coverage does not have an associated Account Value. The amount of
coverage provided under the Rider's Benefit Amount, varies from month to month.
The Benefit Amount is the Target Face Amount minus the Specified Amount.
However, if the Death Benefit of the Policy is defined as a percentage of the
Total Account Value, the Benefit Amount is zero.
The cost of the Rider is added to the Monthly Deductions, and is based on the
Insured's premium class, Issue Age and the number of Policy Years elapsed. We
may adjust the monthly rider rate from time to time, but the rate will never
exceed the guaranteed cost of insurance rates for the Rider for that Policy
Year.
If the Policy's Death Benefit increases as a result of an increase in Total
Account Value (see "Life Insurance Qualification"), the Rider's Target Death
Benefit will be reduced by an equivalent amount to maintain the total desired
Death Benefit.
The Rider's Death Benefit is included in the total Death Benefit paid under the
Policy. (See "Death Benefit Options.")
THE COMPANY
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, NY
13202, and each has been employed by LLANY or its affiliates for more than 5
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], First Penn-Pacific
Director Life Insurance Co. Formerly: Chairman and CEO
1801 S. Meyers Road [7/88-1/95], Baker, Rakish, Shipley & Politzer, Inc.
Oakbrook Terrace, IL 60181
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Name, Address and
Position(s) with Registrant Principal Occupations Last Five Years
- ----------------------------- ----------------------------------------------------------
<S> <C>
J. Patrick Barrett Chairman and Chief Executive Officer, CARPAT
Director Investments [9/87-present]; President, Chief Operating
One Telergy Parkway Officer and Director, Telergy, Inc. [4/98-present]; Chief
East Syracuse, NY 13057 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 Officer, The Lincoln
Second Vice President and National Life Insurance Co.
Appointed Actuary
1300 South Clinton Street
Fort Wayne, IN 46802
Thomas D. Bell, Jr. President and Chief Executive Officer Young &
Director Rubicam [1/00-present]. Formerly: President and Chief
285 Madison Avenue Executive Officer [4/95-9/98], Burson-Marstellar; Vice
New York, NY 10017 Chairman [4/94-5/95], Gulfstream Aerospace Corp.
Jon A. Boscia President, Chief Executive Officer and Director,
Director Lincoln National Corp. [1/98-present]. Formerly:
Centre Square President and Chief Executive Officer [10/96-1/98],
West Tower President and Chief Operating Officer [5/94-10/96]
Suite 3900 The Lincoln National Life Insurance Co.
Philadelphia, PA 19102
Joanne B. Collins President, Treasurer and Director, Lincoln Life &
President, Treasurer and Annuity Company of New York [8/99-present]; Second
Director Vice President Lincoln National Corporation [4/96-
present]. Formerly: Second Vice President [9/84-3/96]
Lincoln National Corporation - Reinsurance.
John H. Gotta Director, Second Vice President and Assistant
Director, Second Vice Secretary [12/99-present], Lincoln Life & Annuity
President and Assistant Company of New York; Chief Executive Officer of Life
Secretary Insurance, Senior Vice President and Assistant
350 Church Street Secretary [12/99-present] The Lincoln National Life
Hartford, CT 06103 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 Planning [5/94-
Director present] Lincoln National Corporation
Centre Square
West Tower
1500 Market Street
Suite 3900
Philadelphia, PA 19102
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Name, Address and
Position(s) with Registrant Principal Occupations Last Five Years
- ----------------------------- ------------------------------------------------------
<S> <C>
Marguerite L. Lachman Principal [11/99-present], Lend Lease Real Estate
Director Investments. Formerly: Managing Director
437 Madison Avenue [4/87-11/99], Schroeder Real Estate Associates.
18th Floor
New York, NY 10022
Louis G. Marcoccia Senior Vice President for Business, Finance and
Director Administrative Services, Syracuse University
Syracuse University [1975-present]. Formerly: Auditor [1969-1975]
Syracuse, NY 13244 Price Waterhouse.
Troy D. Panning Second Vice President and Chief Financial Officer
Second Vice President and [11/96-present], Lincoln Life & Annuity Company of
Chief Financial Officer New York. Formerly: Accountant [9/90-11/96], Ernst
& Young LLP
John M. Pietruski Chairman of the Board, Texas Biotechnology Corp.
Director
One Penn Plaza
Suite 3408
New York, NY 10119
Lawrence T. Rowland Chairman, Chief Executive Officer, President and
Director Director [10/96-present] Lincoln National Reassurance
1700 Magnavox Way Co. Formerly: Senior Vice President [10/95-10/96];
One Reinsurance Place Vice President [10/91-10/95] Lincoln National Life
Fort Wayne, IN 46802 Reinsurance Co.
Richard C. Vaughan Executive Vice President and Chief Financial Officer
Director [1/95-present]. Formerly: Senior Vice President
Centre Square and Chief Financial Officer [6/92-1/95] Lincoln
West Tower National Corp.
1500 Market Street
Suite 3900
Philadelphia, PA 19102
</TABLE>
ADDITIONAL INFORMATION
Reports to Policyowners
Within 30 days after each Policy Anniversary and before proceeds are applied to
a Settlement Option, we will send you a report containing the following
information:
o a statement of changes in the Total Account Value and Surrender Value since
the prior report or since the Date of Issue, if there has been no prior
report. This includes a statement of Monthly Deductions and investment
results and any interest earnings for the report period;
o Surrender Value, Death Benefit, and any Loan Account Value as of the Policy
Anniversary;
o a projection of the Total Account Value, Loan Account Value and Surrender
Value as of the succeeding Policy Anniversary.
If you have Policy values funded in a Separate Account you will receive, in
addition, such periodic reports as may be required by the Commission.
Right to Instruct Voting of Fund Shares
In accordance with our view of present applicable law, we will vote the shares
of each of the Funds held in each Separate Account. To determine how many votes
34
<PAGE>
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 votes will be cast at meetings of the shareholders of the
Fund and will be based on instructions received from Policy owners. However, if
the 1940 Act or any regulations thereunder should be amended or if the present
interpretation thereof should change, and as a result we determine that we are
permitted to vote the shares of the Fund in our own right, we may elect to do
so.
The number of Fund shares which each Policy owner is entitled to direct a vote
is determined by dividing the portion of Total Account Value attributable to a
Fund, if any, by the net asset value of one share in the Fund. Where the value
of the Total Account Value or the Valuation Reserve relates to more than one
Fund, the calculation of votes will be performed separately for each Fund. The
number of shares which a person has a right to vote will be determined as of a
date to be chosen by us, but not more than 90 days before the meeting of the
Fund. Voting instructions will be solicited by written communication at least 14
days before such meeting. Fund shares for which no timely instructions are
received, and Fund shares which are not otherwise attributable to Policy owners,
will be voted by us in the same proportion as the voting instructions which are
received for all Policies participating in each Fund through Account S.
Policy owners having a voting interest will receive periodic reports relating to
the Fund, proxy material and a form for giving voting instructions.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the sub-classification or investment objectives of a Fund
or to approve or disapprove an investment advisory contract for a Fund. In
addition, we may disregard voting instructions in favor of changes initiated by
a Policy owner in the investment policy or the investment adviser of the Fund if
we reasonably disapprove of such changes.
A change would be disapproved only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we determined that the
change would have an adverse effect on the Separate Account in that the proposed
investment policy for a Fund may result in overly speculative or unsound
investments. In the event we do disregard voting instructions, a summary of that
action and the reasons for such action will be included in the next annual
report to Policy owners.
State Regulation
We are subject to regulation and supervision by the Insurance Department of the
state of New York, which periodically examines our affairs. The Policies have
been approved by the New York Insurance Department.
We are required to submit annual statements of our operations, including
financial statements, to the New York Insurance Department, for the purposes of
determining solvency and compliance with insurance laws and regulations.
Legal Matters
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.
35
<PAGE>
The Registration Statement
A Registration Statement under the 1933 Act has been filed with the Commission
relating to the offering described in this Prospectus. This Prospectus does not
include all the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission. The omitted information may be obtained at the Commission's
principal office in Washington, DC, upon payment of the Commission's prescribed
fees.
Distribution of the Policies
The Policy will be sold by individuals and entities, who in addition to being
appointed as life insurance agents for LLANY are also registered representatives
of Lincoln Financial Advisors Corporation, an affiliate of LLANY, or of other
registered broker-dealers who maintain a selling relationship with LLANY.
Registered broker-dealers and registered representatives of broker-dealers
ordinarily receive commission and service fees up to 35% of the first year
premium as defined and limited by Internal Revenue Code Section 7702, plus up to
10% of all other premiums paid. A registered representative or registered
broker-dealer may be required to return all or part of any commission if the
Policy is not continued for a certain period. All compensation is paid from
LLANY resources, which include sales charges made under this policy.
Records and Accounts
Andesa, TPA, Inc., Suite 502, 1621 N. Cedar Crest Boulevard, Allentown,
Pennsylvania, will act as a Transfer Agent on behalf of LLANY as it relates to
the policies described in this Prospectus. In the role of a Transfer Agent,
Andesa will perform administrative functions, such as decreases, increases,
surrenders and partial surrenders, fund allocation changes and transfers on
behalf of the Company.
All records and accounts relating to the Separate Account and the Funds shares
held in the Separate Account will be maintained by the Company. All financial
transactions will be handled by the Company. All reports required to be made and
information required to be given will be provided by Andesa on behalf of the
Company.
Experts
The statutory-basis financial statements of LLANY appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report which also appears elsewhere in this
document and in the Registration Statement. The financial statements audited by
Ernst & Young LLP have been included in this document in reliance on their
report given on their authority as experts in accounting and auditing.
Actuarial matters included in this prospectus have been examined by Ronald D.
Franzluebbers, 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.
Advertising
We are a member of 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.
36
<PAGE>
TAX ISSUES
Introduction. The Federal income tax treatment of the policy is complex and
sometimes uncertain. The Federal income tax rules may vary with your particular
circumstances. This discussion does not include all the Federal income tax rules
that may affect you and your policy, and is not intended as tax advice. This
discussion also does not address other Federal tax consequences, or state or
local tax consequences, associated with the policy. As a result, you should
always consult a tax adviser about the application of tax rules to your
individual situation.
Taxation Of Life Insurance Contracts In General
Tax Status of the Policy. Section 7702 of the Code establishes a statutory
definition of life insurance for Federal tax purposes. We believe that the
policy will meet the statutory definition of life insurance, which places
limitations on the amount of premium payments that may be made and the contract
values that can accumulate relative to the death benefit. As a result, the death
benefit payable under the policy will generally be excludable from the
beneficiary's gross income, and interest and other income credited under the
policy will not be taxable unless certain withdrawals are made (or are deemed to
be made) from the policy prior to the insured's death, as discussed below. This
tax treatment will only apply, however, if (1) the investments of the Separate
Account are "adequately diversified" in accordance with Treasury Department
regulations, and (2) we, rather than you, are considered the owner of the assets
of the Separate Account for Federal income tax purposes.
Investments in the Separate Account must be diversified. For a policy to be
treated as a life insurance contract for Federal income tax purposes, the
investments of the Separate Account must be "adequately diversified." IRS
regulations define standards for determining whether the investments of the
Separate Account are adequately diversified. If the Separate Account fails to
comply with these diversification standards, you could be required to pay tax
currently on the excess of the contract value over the contract premium
payments. Although we do not control the investments of the subaccounts, we
expect that the subaccounts will comply with the IRS regulations so that the
Separate Account will be considered "adequately diversified."
Restriction on investment options. Federal income tax law limits your right to
choose particular investments for the policy. Because the IRS has not issued
guidance specifying those limits, the limits are uncertain and your right to
allocate contract values among the subaccounts may exceed those limits. If so,
you would be treated as the owner of the assets of the Separate Account and thus
subject to current taxation on the income and gains from those assets. We do not
know what limits may be set by the IRS in any guidance that it may issue and
whether any such limits will apply to existing policies. We reserve the right to
modify the policy without your consent to try to prevent the tax law from
considering you as the owner of the assets of the Separate Account.
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.
37
<PAGE>
Tax treatment of life insurance death benefit proceeds. In general, the amount
of the death benefit payable from a policy because of the death of the insured
is excludable from gross income. Certain transfers of the policy for valuable
consideration, however, may result in a portion of the death benefit being
taxable. If the death benefit is not received in a lump sum and is, instead,
applied under one of the settlement options, payments generally will be prorated
between amounts attributable to the death benefit which will be excludable from
the beneficiary's income and amounts attributable to interest (accruing after
the insured's death) which will be includible in the beneficiary's income.
Tax deferral during accumulation period. Under existing provisions of the Code,
except as described below, any increase in your contract value is generally not
taxable to you unless amounts are received (or are deemed to be received) from
the policy prior to the insured's death. If there is a total withdrawal from the
policy, the surrender value will be includible in your income to the extent the
amount received exceeds the "investment in the contract." (If there is any debt
at the time of a total withdrawal, such debt will be treated as an amount
received by the owner.) The "investment in the contract" generally is the
aggregate amount of premium payments and other consideration paid for the
policy, less the aggregate amount received under the policy previously to the
extent such amounts received were excludable from gross income. Whether partial
withdrawals (or other amounts deemed to be distributed) from the policy
constitute income to you depends, in part, upon whether the policy is considered
a "modified endowment contract" (a "MEC") for Federal income tax purposes.
Policies Which Are MECS
Characterization of a policy as a MEC. A policy will be classified as a MEC if
premiums are paid more rapidly than allowed by a "7-pay test" under the tax law
or if the policy is received in exchange for another policy that is a MEC. In
addition, even if the policy initially is not a MEC, it may in certain
circumstances become a MEC. These circumstances would include a later increase
in benefits, any other material change of the policy (within the meaning of the
tax law), and a withdrawal or reduction in the death benefit during the first
seven contract years.
Tax treatment of withdrawals, loans, assignments and pledges under MECs. If the
policy is a MEC, withdrawals from the policy will be treated first as
withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the contract value
exceeds the investment in the policy. The Code treats any amount received as a
loan under a policy, and any assignment or pledge (or agreement to assign or
pledge) any portion of your contract value, as a withdrawal of such amount or
portion. Your investment in the policy is increased by the amount includible in
income with respect to such assignment, pledge, or loan.
Penalty taxes payable on withdrawals. A 10% penalty tax may be imposed on any
withdrawal (or any deemed distribution) from your MEC which you must include in
your gross income. The 10% penalty tax does not apply if one of several
exceptions exists. 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
38
<PAGE>
order to determine the amount of withdrawal (including a deemed withdrawal) that
you must include in income. For example, if you purchase two or more MECs from
the same life insurance company (or its affiliates) during any calendar year,
the Code treats all such policies as one contract. Treating two or more policies
as one contract could affect the amount of a withdrawal (or a deemed withdrawal)
that you must include in income and the amount that might be subject to the 10%
penalty tax described above.
Policies Which Are Not MECS
Tax treatment of withdrawals. If the policy is not a MEC, the amount of any
withdrawal from the policy will generally be treated first as a non-taxable
recovery of premium payments and then as income from the policy. Thus, a
withdrawal from a policy that is not a MEC will not be includible in income
except to the extent it exceeds the investment in the policy immediately before
the withdrawal.
Certain distributions required by the tax law in the first 15 policy years.
Section 7702 places limitations on the amount of premium payments that may be
made and the contract values that can accumulate relative to the death benefit.
Where cash distributions are required under Section 7702 in connection with a
reduction in benefits during the first 15 years after the policy is issued (or
if withdrawals are made in anticipation of a reduction in benefits, within the
meaning of the tax law, during this period), some or all of such amounts may be
includible in income. A reduction in benefits may occur when the face amount is
decreased, withdrawals are made, and in certain other instances.
Tax treatment of loans. If your policy is not a MEC, a loan you receive under
the policy is generally treated as your indebtedness. As a result, no part of
any loan under such a policy constitutes income to you so long as the policy
remains in force. Nevertheless, in those situations where the interest rate
credited to the loan account equals the interest rate charged to you for the
loan, it is possible that some or all of the loan proceeds may be includible in
your income. If a policy lapses (or if all contract value is withdrawn) when a
loan is outstanding, the amount of the loan outstanding will be treated as
withdrawal proceeds for purposes of determining whether any amounts are
includible in the 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
39
<PAGE>
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.
MISCELLANEOUS POLICY PROVISIONS
The Policy, including riders, which you receive and the application you make
when you purchase the Policy are the whole contract. A copy of the application
is attached to the Policy when it is issued to you. Any application for changes,
once approved by us, will become part of the Policy.
Payment of Benefits
All benefits are payable by us. We may require submission of the Policy before
we grant loans, make changes or pay benefits.
40
<PAGE>
Age
If age is misstated on the application, the amount payable on death will be that
which would have been purchased by the most recent monthly deduction at the
current age.
Incontestability
We will not contest coverage under the Policy after the Policy has been in force
during the lifetime of the insured for a period of two years from the Policy's
Date of Issue.
For coverage which takes effect on a later date (e.g., an increase in coverage),
we will not contest such coverage after it has been in force during the lifetime
of the Insured more than two years from its effective date.
Suicide
If the Insured commits suicide within two years from the Date of Issue, the only
benefit paid will be the sum of:
a) premiums paid less amounts allocated to the Separate Account; and
b) the Separate Account Value on the date of suicide, plus the portion of the
Monthly Deduction from the Separate Account Value, minus
c) the amount necessary to repay any loans in full and any interest earned on
the Loan Account Value transferred to the Separate Account Value, and any
surrenders from the Fixed Account.
If the Insured commits suicide within two years from the effective date of any
increase in coverage, we will pay as a benefit only the Monthly Deduction for
the increase, in lieu of the face amount of the increase.
All amounts described in (a) and (c) above will be calculated as of the date of
death.
Coverage Beyond Maturity
The New York Insurance Department does not permit coverage beyond the Maturity
Date.
Nonparticipation
The Policy is not entitled to share in the divisible surplus of the Company. No
dividends are payable.
41
<PAGE>
Appendix A
Illustrations of Death Benefit, Total Account Values and Surrender Values.
The following tables illustrate how the Death Benefit, Total Account Values and
Surrender Values of a Policy change with the investment experience of the
variable funding options. The tables show how the Death Benefit, Total Account
Values and Surrender Values of a Policy issued with an insured of a given age
and a given premium would vary over time if the investment return on the assets
held in each Fund were a uniform, gross after tax annual rate of 0%, 6%, and
12%, respectively.
Tables I and II illustrate Policies issued on a unisex basis, age 45, in the
preferred nonsmoker rate class for fully underwriting issue. Tables III and IV
illustrate Policies issued on a unisex basis, age 45 in the nonsmoker rate class
for guaranteed issue underwriting. Tables V and VI illustrate Policies issued on
a unisex basis, age 45 in the nonsmoker rate class for simplified issue
underwriting. All Tables show values under the Cash Value Accumulation Test for
the definition of life insurance. The Death Benefit, Total Account Values, and
Surrender Values would be different from those shown if the gross annual
investment rates of return averaged 0%, 6%, and 12%, respectively, over a period
of years, but fluctuated above and below those averages for individual Policy
Years.
The second column of each table shows the accumulated values of the premiums
paid at an assumed rate of 5%. The third through fifth columns illustrate the
Death Benefit of a Policy over a designated period. The sixth through eighth
columns illustrate the Total Account Values, while the ninth through eleventh
columns illustrate the Surrender Values of each Policy over the designated
period. Tables I, III, and V assume the maximum Cost of Insurance allowable
under the Policy is charged in all Policy Years. These tables also assume that
the maximum allowable mortality and expense risk charge of 1.10% in Policy Years
1-10, 0.90% in Policy Years 11-20, and 0.80% in Policy Years 21 and thereafter
on an annual basis, the maximum allowable premium load of 12.0% up to the first
year's Target Premium and 5% over the Target Premium, are assessed in the first
Policy Year; the maximum allowable premium load of 9% up to the second year's
Target Premium and 5% over the Target Premium, are assessed in the second
through fifth Policy Year and 5% on all premium in all Policy years thereafter,
and an assumed Premium Tax charge of 5% on all premium in all Policy Years.
Tables II, IV and VI assume that the current scale of Cost of Insurance rates
applies during all Policy Years. These tables also assume the current mortality
and expense risk charge of 0.65% on an annual basis for the first 10 Policy
Years, 0.45% for Policy Years 11 through 20, and 0.35% for Policy Years 21 and
thereafter, the current premium load of 10.5% up to the first year's Target
Premium and 2.5% over the Target Premium are assumed in the first Policy Year,
the current premium load of 7.5% up to the second through the fifth years'
Target Premiums and 1.5% over the Target Premiums are assumed in the second
through fifth Policy Years, the current load of 3.5% up to the seventh year's
Target Premiums and 1.5% over the Target Premiums are assumed in the sixth and
seventh Policy Years, 1.5% on all premiums in all Policy Years thereafter, and
an assumed Premium Tax charge of 2.00% on all premiums in all Policy Years.
The amounts shown for Death Benefit, Surrender Values, and Total Account Values
reflect the fact that the net investment return is lower than the gross return
on the
42
<PAGE>
assets held in each Fund as a result of expenses paid by each Fund and Separate
Account charges levied.
The values shown take into account the daily investment advisory fee and other
Fund expenses paid by each Fund. See individual prospectuses for each Fund for
more information.
In addition, these values reflect the application of the mortality and expense
risk charge, premium load and assumed premium tax charge described above. After
deduction of these amounts, the illustrated net annual return on a maximum
charge basis is -1.91%, 4.09% and 10.09% for Policy Years 1-10, -1.71%, 4.29%
and 10.29% on a maximum charge basis for Policy Years 11 -20, and -1.61%, 4.39%
and 10.39% for Policy Years 21 and thereafter. The illustrated net annual return
on a current charge basis is -1.21%, 4.79% and 10.79% for Policy Years 1-10,
- -1.01%, 4.99% and 10.99% for Policy Years 11-20, and -.91%, 5.09% and 11.09% for
policy years 21 and thereafter.
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 .81% of the daily net asset value of the Separate
Account. This rate reflects an arithmetic average of total Fund portfolio annual
expenses for the year ending December 31, 1999.
Certain fund groups waive a portion of fund expenses or reimburse the funds for
such expenses. Those waivers or reimbursements remain in effect for varying
periods of time, are usually reviewed at least yearly by each fund group, and
are within the fund group's control. The effect of discontinuing a waiver or
reimbursement arrangement could result in higher expense levels for the affected
fund, as shown in the portfolio expense table. Assuming those waivers and
reimbursements were discontinued, the Fund investment advisory fees and other
expenses arithmetic average would be equivalent to an annual effective rate of
0.86% of the daily net asset value of the Separate Account.
The hypothetical values shown in the tables do not reflect any Separate Account
charges for federal income taxes, since we are not currently making such
charges. However, such charges may be made in the future, and in that event, the
gross annual investment rate of return would have to exceed 0%, 6% or 12% by an
amount sufficient to cover the tax charges in order to produce the Death
Benefit, Total Account Values, and Surrender Values illustrated.
The tables illustrate the Policy Values that would result based upon the
hypothetical investment rates of return if premiums were paid as indicated, if
all Net Premiums were allocated to Account S, and if no Policy loans have been
made. The tables are based on the assumptions that the Policyowner has not
requested an increase or decrease in the Specified Amount of the Policy, and no
partial surrenders have been made.
Upon request, we will provide an illustration based upon the proposed Insured's
age, and underwriting classification, the Specified Amount or premium requested,
the proposed frequency of premium payments and any available riders requested.
The hypothetical gross annual investment return assumed in such an illustration
will not exceed 12%.
43
<PAGE>
Table I
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 PREFERRED NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
FULLY UNDERWRITTEN
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $467,500
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $467,500 $467,500 $ 467,500 $ 18,311 $ 19,491 $ 20,673
2 53,813 467,500 467,500 467,500 38,939 40,498 44,202
3 82,754 467,500 467,500 467,500 55,145 62,312 70,070
4 113,142 467,500 467,500 467,500 72,944 84,982 98,540
5 145,049 467,500 467,500 467,500 90,335 108,544 129,892
6 178,551 467,500 467,500 467,500 108,313 134,099 165,563
7 213,729 467,500 467,500 516,183 125,877 160,696 204,742
8 224,415 467,500 467,500 545,576 120,798 164,802 222,830
9 235,636 467,500 467,500 576,622 115,541 168,896 242,424
10 247,418 467,500 467,500 609,423 110,072 172,959 263,631
15 315,775 467,500 467,500 811,250 79,600 194,440 402,266
20 403,017 467,500 467,500 1,080,857 37,855 213,850 608,515
25 514,362 0 467,500 1,443,163 0 226,543 910,608
30 656,471 0 467,500 1,923,514 0 222,212 1,343,169
20 (Age 65) 403,017 467,500 467,500 1,080,857 37,855 213,850 608,515
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 20,736 $ 21,916 $ 23,098
2 39,364 42,923 46,627
3 57,570 64,737 72,495
4 75,369 87,407 100,965
5 92,760 110,969 132,317
6 108,313 134,099 165,563
7 125,877 168,696 204,742
8 120,798 164,802 222,830
9 115,541 166,896 242,424
10 110,072 172,959 263,631
15 79,600 194,440 402,266
20 37,855 213,850 608,515
25 0 226,543 910,608
30 0 222,212 1,343,169
20 (Age 65) 37,855 213,850 608,515
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges, and
premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
44
<PAGE>
Table II
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 PREFERRED NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
FULLY UNDERWRITTEN
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $467,500
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $467,500 $467,500 $ 467,500 $ 21,435 $ 22,762 $ 24,090
2 53,813 467,500 467,500 467,500 42,832 46,859 51,047
3 82,754 467,500 467,500 467,500 64,467 72,650 81,497
4 113,142 467,500 467,500 467,500 85,753 99,604 115,178
5 145,049 467,500 467,500 467,500 106,728 127,818 152,493
6 178,551 467,500 477,749 504,818 127,921 157,920 194,396
7 213,729 467,500 483,108 606,415 148,858 189,497 240,532
8 224,415 467,500 488,688 648,395 145,679 197,316 264,824
9 235,636 467,500 494,492 693,509 142,451 205,454 291,566
10 247,418 467,500 501,460 742,010 139,154 213,912 320,986
15 315,775 467,500 530,705 1,052,129 121,731 263,155 521,708
20 403,017 467,500 571,745 1,497,645 98,991 321,888 843,163
25 514,362 467,500 628,902 2,176,005 72,698 396,825 1,373,017
30 656,471 467,500 697,936 3,189,612 34,251 487,631 2,227,271
20 (Age 65) 403,017 467,500 571,745 1,497,645 98,991 321,888 843,163
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 23,860 $ 25,187 $ 26,515
2 45,257 49,284 53,472
3 66,892 75,075 83,922
4 88,178 102,029 117,603
5 109,153 130,243 154,918
6 127,921 157,920 194,396
7 148,858 189,497 240,532
8 145,679 197,316 264,824
9 142,451 205,454 291,566
10 139,154 213,912 320,986
15 121,731 263,155 521,708
20 98,991 321,888 843,163
25 72,698 396,825 1,373,017
30 34,251 487,631 2,227,271
20 (Age 65) 98,991 321,888 843,163
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
45
<PAGE>
Table III
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
GUARANTEED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $467,500
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $467,500 $467,500 $ 467,500 $ 18,311 $ 19,491 $ 20,673
2 53,813 467,500 467,500 467,500 36,939 40,498 44,202
3 82,754 467,500 467,500 467,500 55,145 62,312 70,070
4 113,142 467,500 467,500 467,500 72,944 84,982 98,540
5 145,049 467,500 467,500 467,500 90,335 108,544 129,892
6 178,551 467,500 467,500 467,500 108,313 134,099 165,563
7 213,729 467,500 467,500 516,183 125,877 160,696 204,742
8 224,415 467,500 467,500 545,576 120,798 164,802 222,830
9 235,636 467,500 467,500 576,622 115,541 168,896 242,424
10 247,418 467,500 467,500 609,423 110,072 172,959 263,631
15 315,775 467,500 467,500 811,250 79,600 194,440 402,266
20 403,017 467,500 467,500 1,080,857 37,855 213,850 608,515
25 514,362 0 467,500 1,443,163 0 226,543 910,608
30 656,471 0 467,500 1,923,514 0 222,212 1,343,169
20 (Age 65) 403,017 467,500 467,500 1,080,857 37,855 213,850 608,515
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 20,736 $ 21,916 $ 23,098
2 39,364 42,923 46,627
3 57,570 64,737 72,495
4 75,369 87,407 100,965
5 92,760 110,969 132,317
6 108,313 134,099 165,563
7 125,877 160,696 204,742
8 120,798 164,802 222,830
9 115,541 168,896 242,424
10 110,072 172,959 263,631
15 79,600 194,440 402,266
20 37,855 213,850 608,515
25 0 226,543 910,608
30 0 222,212 1,343,169
20 (Age 65) 37,855 213,850 608,515
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges, and
premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
46
<PAGE>
Table IV
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
GUARANTEED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $467,500
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $467,500 $467,500 $ 467,500 $ 21,122 $ 22,439 $ 23,758
2 53,813 467,500 467,500 467,500 42,309 46,302 50,454
3 82,754 467,500 467,500 467,500 63,823 71,936 80,708
4 113,142 467,500 467,500 467,500 85,053 98,791 114,240
5 145,049 467,500 467,500 467,500 106,013 126,943 151,430
6 178,551 467,500 467,500 501,760 127,209 156,996 193,218
7 213,729 467,500 475,299 603,132 148,147 188,526 239,230
8 224,415 467,500 480,580 644,826 144,954 196,283 263,367
9 235,636 467,500 486,044 689,571 141,691 204,343 289,910
10 247,418 467,500 491,689 737,605 138,336 212,700 319,081
15 315,775 467,500 526,824 1,044,156 120,437 261,231 517,755
20 403,017 467,500 565,908 1,481,970 96,464 318,602 834,339
25 514,362 467,500 619,329 2,142,343 67,102 390,784 1,351,777
30 656,471 467,500 683,065 3,120,902 22,901 476,977 2,179,292
20 (Age 65) 403,017 467,500 565,908 1,481,970 96,464 318,602 834,339
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 23,547 $ 24,864 $ 26,183
2 44,734 48,727 52,879
3 66,248 74,361 83,133
4 87,478 101,216 116,665
5 108,438 129,368 153,855
6 127,209 156,996 193,218
7 148,147 188,526 239,230
8 144,954 196,283 263,367
9 141,691 204,343 289,910
10 138,336 212,700 319,081
15 120,437 261,231 517,755
20 96,464 318,602 834,339
25 67,102 390,784 1,351,777
30 22,901 476,977 2,179,292
20 (Age 65) 96,464 318,602 834,339
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
47
<PAGE>
Table V
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
GUARANTEED INSURANCE COSTS AND MAXIMUM CHARGES ASSUMED
SIMPLIFIED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $467,500
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $467,500 $467,500 $ 467,500 $ 18,311 $ 19,491 $ 20,673
2 53,813 467,500 467,500 467,500 36,939 40,498 44,202
3 82,754 467,500 467,500 467,500 55,145 62,312 70,070
4 113,142 467,500 467,500 467,500 72,944 84,982 98,540
5 145,049 467,500 467,500 467,500 90,335 108,544 129,892
6 178,551 467,500 467,500 467,500 108,313 134,099 165,563
7 213,729 467,500 467,500 516,183 125,877 160,696 204,742
8 224,415 467,500 467,500 545,576 120,798 164,802 222,830
9 235,636 467,500 467,500 576,622 115,541 168,896 242,424
10 247,418 467,500 467,500 609,423 110,072 172,959 263,631
15 315,775 467,500 467,500 811,250 79,600 194,440 402,266
20 403,017 467,500 467,500 1,080,857 37,855 213,850 608,515
25 514,362 0 467,500 1,443,163 0 226,543 910,608
30 656,471 0 467,500 1,923,514 0 222,212 1,343,169
20 (Age 65) 403,017 467,500 467,500 1,080,857 37,855 213,850 608,515
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 20,736 $ 21,916 $ 23,098
2 39,364 42,923 46,627
3 57,570 64,737 72,495
4 75,369 87,407 100,965
5 92,760 110,969 132,317
6 108,313 134,099 165,563
7 125,877 160,696 204,742
8 120,798 164,802 222,830
9 115,541 168,896 242,424
10 110,072 172,959 263,631
15 79,600 194,440 402,266
20 37,855 213,850 608,515
25 0 226,543 910,608
30 0 222,212 1,343,169
20 (Age 65) 37,855 213,850 608,515
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Guaranteed cost of insurance rates
assumed. Maximum mortality and expense risk charges, administrative charges, and
premium load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
48
<PAGE>
Table VI
FLEXIBLE PREMIUM CORPORATE VARIABLE UNIVERSAL LIFE INSURANCE POLICY UNISEX
ISSUE AGE 45 NONSMOKER RISK
CURRENT INSURANCE COSTS AND CURRENT CHARGES ASSUMED
SIMPLIFIED ISSUE
$25,000 ANNUAL PREMIUM FOR SEVEN YEARS
CASH VALUE ACCUMULATION TEST
FACE AMOUNT $467,500
DEATH BENEFIT OPTION 1
<TABLE>
<CAPTION>
Premiums Death Benefit
Accumulated Guaranteed Annual Investment Total Account Value
at Return of Annual Investment Return of
Policy 5% Interest ----------------------------------- -----------------------------------
Year Per Year Gross 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12%
- ------ ------------ ---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 26,250 $467,500 467,500 $ 467,500 $ 21,298 $ 22,621 $ 23,945
2 53,813 467,500 467,500 467,500 42,651 46,664 50,838
3 82,754 467,500 467,500 467,500 64,288 72,446 81,266
4 113,142 467,500 467,500 467,500 85,576 99,389 114,921
5 145,049 467,500 467,500 467,500 106,552 127,593 152,207
6 178,551 467,500 467,500 502,871 127,747 157,682 194,079
7 213,729 467,500 476,386 604,650 148,685 189,249 240,184
8 224,415 467,500 481,906 646,746 145,507 197,056 264,440
9 235,636 467,500 487,564 691,872 142,281 205,184 291,143
10 247,418 467,500 493,354 740,254 138,962 213,610 320,491
15 315,775 467,500 528,365 1,047,433 121,064 262,364 520,070
20 403,017 467,500 566,650 1,484,132 97,091 319,986 838,072
25 514,362 467,500 620,196 2,145,603 67,743 392,484 1,357,832
30 656,471 467,500 684,373 3,127,174 23,608 479,071 2,189,136
20 (Age 65) 403,017 467,500 566,650 1,484,132 97,091 319,986 838,072
<CAPTION>
Cash Surrender Value
Annual Investment Return of
Policy -----------------------------------
Year Gross 0% Gross 6% Gross 12%
- ------ ---------- ---------- -------------
<S> <C> <C> <C>
1 $ 23,723 $ 25,046 $ 26,370
2 45,076 49,089 53,263
3 66,713 74,871 83,691
4 88,001 101,814 117,346
5 108,977 130,018 154,632
6 127,747 157,682 194,079
7 148,685 189,249 240,184
8 145,507 197,056 264,440
9 142,281 205,184 291,143
10 138,962 213,610 320,491
15 121,064 262,364 520,070
20 97,091 319,986 838,072
25 67,743 392,484 1,357,832
30 23,608 479,071 2,189,136
20 (Age 65) 97,091 319,986 838,072
</TABLE>
If premiums are paid more frequently than annually, the Death Benefits, Total
Account Values, and Cash Surrender Values would be less than those illustrated.
If a larger premium is paid, the Surrender Value as a percentage of the Total
Account Value will be greater than or equal to those illustrated. If a smaller
premium is paid, the Surrender Value as a percentage of the Total Account Value
will be less than or equal to those illustrated.
Assumes no Policy loan has been made. Current cost of insurance rates assumed.
Current mortality and expense risk charges, administrative charges, and premium
load assumed.
These investment results are illustrative only and should not be considered a
representation of past or future investments 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 Fund's rate of return. The
Total Account Value and Cash Surrender Value for a Policy would be different
from those shown in 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 definitely be achieved for any one year or sustained over a period
of time.
49
<PAGE>
LLANY Separate Account S for Flexible Premium
Variable Life Insurance
This Separate Account
has not yet commenced operations.
S-1
<PAGE>
<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.
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 Policies, 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 TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
INDEMNIFICATION
(a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of Lincoln Life & Annuity
Company of New York (LLANY) provides that LLANY will indemnify
certain persons against expenses, judgments and certain other
specified costs incurred by any such person if he/she is made a
party or is threatened to be made a party to a suit or proceeding
because he/she was a director, officer, or employee of LLANY, as
long as he/she acted in good faith and in a manner he/she
reasonably believed to be in the best interests of, or not
opposed to the best interests of, LLANY. Certain additional
conditions apply to indemnification in criminal proceedings.
In particular, separate conditions govern indemnification of
directors, officers, and employees of LLANY in connection with
suits by, or in the right of, LLANY.
Please refer to Article VII of the By-Laws of LLANY (Exhibit No.
6(b) hereto) for the full text of the indemnification provisions.
Indemnification is permitted by, and is subject to the
requirements of New York law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the
Securities Act of 1933.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
provisions described in Item 28(a) above or otherwise, the
Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of
the Registrant in the successful defense of any such action, suit
or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement consists of the following papers and documents:
<PAGE>
The facing sheet;
A cross-reference sheet (reconciliation and tie)
An Incorporation-by-Reference sheet;
Prospectus #1, consisting of 50 pages, and #2, consisting of 50 pages
Required Undertakings, Descriptions and Representations;
Signatures;
Powers of Attorney;
Written consents of the following persons;
1. Opinion of Counsel
2. Actuarial Opinion
3. Consent of Independent Auditors;
Required Exhibits
<TABLE>
<S> <C>
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.(8)
(2)Not applicable.
(3)(a) Form of Selling Group Agreement.(7)
(b) Commission Schedule for Variable Life Policies.*
(4)Not applicable.
(5)(a) Proposed Form of Policy and Application--LN920NY and B10392NY through
B10395NY.(3)
(b) Riders. (N/A)
(c) Form of Policy. No. LN925(6)
(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) American Century Variable Products Group, Inc.(5)
(b) American Funds Insurance Series*
(c) Baron Capital Funds Trust(4)
(d) BT Insurance Funds Trust(2)
(e) Delaware Group Premium Fund, Inc.(2)
(f) Fidelity Variable Insurance Products Fund(2)
(g) Fidelity Variable Insurance Products Fund II(2)
(h) Janus Aspen Series(4)
(i) Lincoln National Funds(2)
(j) MFS[RegTM] Variable Insurance Trust(2)
(k) Neuberger & Berman Advisers Management Trust(4)
(l) OCC Accumulation Trust(2)
(m) OppenheimerFunds*
(n) Templeton Variable Products Series Fund(2)
(9)Form of Services Agreement between Lincoln Life & Annuity Company of New
York and Delaware Management Co. is incorporated herein by reference to
Registration Statement on Form N-4 (File No. 333-38007) filed on October
16, 1997.(6)
(10)See Exhibit 1(5).
See Exhibit 1(5).
Opinion and Consent of Counsel
Not applicable.
Not applicable.
Opinion and consent of Actuary
Consent of Independent Auditors
Not applicable.
</TABLE>
*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 Post-Effective Amendment No. 1 to Registration
Statement S-6 (File No. 333-42507) filed on February 26, 1999.
<PAGE>
(3) Incorporated by reference to Registration Statement on Form S-6 filed on
March 12, 1999.
(4) Incorporated by reference to Post-Effective Amendment No. 5 (File No.
333-10863) filed on April 29, 1999.
(5) Incorporated by reference to Pre-Effective Amendment No. 1 (File No.
333-10863) filed on September 30, 1996.
(6) Incorporated by reference to Post-Effective Amendment No. 1 on Form S-6
(File No. 333-74325) filed on February 18, 2000.
(7) Incorporated by reference to Post-Effective Amendment No. 1 on Form S-6
(File No. 333-42507) filed on February 26, 1999.
(8) Incorporated by reference to Registration Statement on Form N-8B-2 (File
No. 811-08651) on February 11, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
LLANY Separate Account S for Flexible Premium Variable Life Insurance, has duly
caused this Post-Effective Amendment No. 2 to its Registration Statement on Form
S-6 (File Number 333-74325) 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 12th day of May, 2000. Registrant certifies that this amendment meets all of
the requirements for effectiveness pursuant to rule 485(b) under the Securities
Act of 1933.
LLANY Separate Account S for
Flexible Premium Variable Life
Insurance
(Name of 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
(Name of 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. 2 to this Registration Statement (File No.
333-74325) has been signed below on May 12, 2000 by the following persons, as
officers and directors of the Depositor, in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Joanne B. Collins President, Treasurer and Director
- ---------------------------------- (Principal Executive Officer)
Joanne B. Collins
/s/ Troy D. Panning * Second Vice President and Chief Financial Officer
- ---------------------------------- (Principal Financial Officer and Principal Accounting Officer)
Troy D. Panning
/s/ Jon A. Boscia * Director
- ----------------------------------
Jon A. Boscia
/s/ Richard C. Vaughan * Director
- ----------------------------------
Richard C. Vaughan
/s/ Thomas D. Bell, Jr. * Director
- ----------------------------------
Thomas D. Bell, Jr.
/s/ Roland C. Baker * Director
- ----------------------------------
Roland C. Baker
/s/ 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
/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. 2 to the Registration Statement.
</TABLE>
<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.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Joanne B. Collins President, Treasurer and Director
- ----------------------------- (Principal Executive Officer)
Joanne B. Collins
/s/ Troy D. Panning Second Vice President and Chief Financial Officer
- ----------------------------- (Principal Financial Officer and Principal Accounting Officer)
Troy D. Panning
/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.
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
Director
- -----------------------------
Lawrence T. Rowland
/s/ J. Patrick Barrett Director
- -----------------------------
J. Patrick Barrett
/s/ Louis G. Marcoccia Director
- -----------------------------
Louis G. Marcoccia
</TABLE>
<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.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Lawrence T. Rowland Director
- -----------------------------
Lawrence T. Rowland
STATE OF INDIANA ) Subscribed and sworn to before me this
)SS: 4th day of February, 2000
COUNTY OF ALLEN )
/s/ Janet L. Lindenberg
-----------------------------
Notary Public
Commission Expires: 7-10-2001
</TABLE>
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.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Roland C. Baker Director
- -----------------------------
Roland C. Baker
STATE OF ILLINOIS ) Subscribed and sworn to before me this
)SS: 11th day of February, 2000
COUNTY OF DuPAGE )
/s/ Sharon A. Gehrke
-----------------------------
Notary Public
Commission Expires: 8-12-2000
</TABLE>
Robert O. Sheppard Lincoln Financial Group
Corporate Counsel Lincoln Life & Annuity
Company of New York
120 Madison Street, Suite 1700
Syracuse, NY 13202-2802
Telephone: (315) 428-8420
Facsimile: (315) 428-8419
May 12, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0506
Re: LLANY Separate Account S for Flexible Premium Variable Life Insurance (the
"Account") Lincoln Life & Annuity Company of New York
Post-Effective Amendment Number 2, File No. 333-74325
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. 2 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
[Graphic; Lincoln Logo
Financial Group
Lincoln Life]
The Lincoln National Life Insurance Company
350 Church Street
Hartford, CT 06103-1106
May 12, 2000
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.20549-0506
Re: LLANY Separate Account S for Flexible Premium Variable Life Insurance
("Account") Lincoln Life & Annuity Company of New York
Post-Effective Amendment Number 2, File No. 333-74325
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/ Ronald D. Franzluebbers
Ronald D. Franzluebbers, FSA, MAAA
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. 2 to the Registration Statement (Form S-6 No.
333-74325) pertaining to LLANY Separate Account S for Flexible Premium Variable
Life Insurance, and to the use therein of our report dated March 10, 2000, with
respect to the statutory-basis financial statements of Lincoln Life & Annuity
Company of New York.
/s/ Ernst & Young
Fort Wayne, Indiana
May 8, 2000
