485BPOS 1 a2191235z485bpos.txt 485BPOS As filed with the Securities and Exchange Commission on April 16, 2009 1933 Act Registration No. 333-141760 1940 Act Registration No. 811-09763 -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / / POST-EFFECTIVE AMENDMENT NO. 6 /X/ and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / / AMENDMENT NO. 120 /X/ Lincoln New York Account N for Variable Annuities (Exact Name of Registrant) Lincoln ChoicePlus II Bonus and Lincoln ChoicePlus Assurance (Bonus) LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK (Name of Depositor) 100 Madison Street, Suite 1860 Syracuse, New York 13202 (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number, Including Area Code: (315) 428-8400 Robert O. Sheppard, Esquire Lincoln Life & Annuity Company of New York 100 Madison Street, Suite 1860 Syracuse, New York 13202 (Name and Address of Agent for Service) Copy to: Ronald R. Bessette, Esquire The Lincoln National Life Insurance Company One Granite Place Concord, NH 03301 Approximate Date of Proposed Public Offering: Continuous It is proposed that this filing will become effective: / / immediately upon filing pursuant to paragraph (b) of Rule 485 /x/ on May 1, 2009, pursuant to paragraph (b) of Rule 485 / / 60 days after filing pursuant to paragraph (a)(1) of Rule 485 / / on ______________ pursuant to paragraph (a)(1) of Rule 485 Title of Securities being registered: Interests in a separate account under individual flexible payment deferred variable annuity contracts. PROSPECTUS 1 Lincoln ChoicePlus II Bonus Lincoln New York Account N for Variable Annuities Individual Variable Annuity Contracts Home Office: Lincoln Life & Annuity Company of New York 100 Madison Street, Suite 1860 Syracuse, NY 13202 www.LincolnFinancial.com Servicing Office: Lincoln Life & Annuity Company of New York PO Box 7866 Fort Wayne, IN 46802-7866 1-888-868-2583 This prospectus describes an individual flexible premium deferred variable annuity contract that is issued by Lincoln Life & Annuity Company of New York. This prospectus is primarily for use with nonqualified plans and qualified retirement plans under Sections 408 (IRAs) and 408A (Roth IRAs) of the tax code. Generally, you do not pay federal income tax on the contract's growth until it is paid out. Qualified retirement plans already provide for tax deferral. Therefore, there should be reasons other than tax deferral for acquiring the contract within a qualified plan. The contract is designed to accumulate contract value and to provide retirement income that you cannot outlive or for an agreed upon time. These benefits may be a variable or fixed amount, if available, or a combination of both. If you die before the annuity commencement date, we will pay your beneficiary a death benefit. In the alternative, you generally may choose to receive a death benefit upon the death of the annuitant. The minimum initial purchase payment for the contract is $10,000. Additional purchase payments may be made to the contract and must be at least $100 per payment ($25 if transmitted electronically), and at least $300 annually. Except as noted below, you choose whether your contract value accumulates on a variable or a fixed (guaranteed) basis or both. Your contract may not offer a fixed account or if permitted by your contract, we may discontinue accepting purchase payments or transfers into the fixed side of the contract at any time. If your purchase payments, bonus credits and persistency credits are in the fixed account, we guarantee your principal and a minimum interest rate. For the life of your contract or during certain periods, we may impose restrictions on the fixed account. For contracts issued after September 30, 2003, the only fixed account available is for dollar cost averaging purposes. We do offer variable annuity contracts that have lower fees. Expenses for contracts offering a bonus or persistency credit may be higher. Because of this, the amount of the bonus or persistency credits may, over time, be offset by additional fees and charges. You should carefully consider whether or not this contract is the best product for you. All purchase payments, bonus credits and persistency credits for benefits on a variable basis will be placed in Lincoln New York Account N for Variable Annuities (variable annuity account [VAA]). The VAA is a segregated investment account of Lincoln New York. You take all the investment risk on the contract value and the retirement income for amounts placed into one or more of the contract's variable options. If the subaccounts you select make money, your contract value goes up; if they lose money, it goes down. How much it goes up or down depends on the performance of the subaccounts you select. We do not guarantee how any of the variable options or their funds will perform. Also, neither the U.S. Government nor any federal agency insures or guarantees your investment in the contract. The contracts are not bank deposits and are not endorsed by any bank or government agency. The available funds are listed below: AIM Variable Insurance Funds (Series II): AIM V.I. Capital Appreciation Fund* AIM V.I. Core Equity Fund* AIM V.I. International Growth Fund* AllianceBernstein Variable Products Series Fund (Class B): AllianceBernstein VPS Global Thematic Growth Portfolio (formerly AllianceBernstein VPS Global Technology Portfolio) AllianceBernstein VPS Growth and Income Portfolio AllianceBernstein VPS International Value Portfolio AllianceBernstein VPS Large Cap Growth Portfolio* AllianceBernstein VPS Small/Mid Cap Value Portfolio American Century Investments Variable Products (Class II): American Century Investments VP Inflation Protection Fund American Funds Insurance SeriesSM (Class 2): American Funds Global Growth Fund American Funds Global Small Capitalization Fund American Funds Growth Fund American Funds Growth-Income Fund American Funds International Fund BlackRock Variable Series Funds, Inc. (Class III): BlackRock Global Allocation V.I. Fund* 1 Delaware VIP Trust (Service Class): Delaware VIP Diversified Income Series Delaware VIP Emerging Markets Series Delaware VIP High Yield Series Delaware VIP Limited-Term Diversified Income Series (formerly Delaware VIP Capital Reserves Series) Delaware VIP REIT Series Delaware VIP Small Cap Value Series Delaware VIP Trend Series Delaware VIP U.S. Growth Series Delaware VIP Value Series DWS Investments VIT Funds (Class A): DWS Equity 500 Index VIP DWS Small Cap Index VIP DWS Variable Series II (Class B): DWS Alternative Asset Allocation Plus VIP Portfolio* Fidelity (Reg. TM) Variable Insurance Products (Service Class 2): Fidelity (Reg. TM) VIP Contrafund Portfolio Fidelity (Reg. TM) VIP Equity-Income Portfolio* Fidelity (Reg. TM) VIP Growth Portfolio Fidelity (Reg. TM) VIP Mid Cap Portfolio Fidelity (Reg. TM) VIP Overseas Portfolio Franklin Templeton Variable Insurance Products Trust (Class 2): FTVIPT Franklin Income Securities Fund FTVIPT Franklin Small-Mid Cap Growth Securities Fund FTVIPT Mutual Shares Securities Fund FTVIPT Templeton Global Bond Securities Fund (formerly FTVIPT Templeton Global Income Securities Fund) FTVIPT Templeton Growth Securities Fund Janus Aspen Series (Service Class): Janus Aspen Balanced Portfolio* Janus Aspen Enterprise Portfolio* (formerly Janus Aspen Mid Cap Growth Portfolio) Janus Aspen Worldwide Portfolio* (formerly Janus Aspen Worldwide Growth Portfolio) Lincoln Variable Insurance Products Trust (Standard Class): LVIP Delaware Bond Fund LVIP Delaware Foundation Aggressive Allocation Fund* LVIP Delaware Social Awareness Fund LVIP Janus Capital Appreciation Fund LVIP Mondrian International Value Fund LVIP Money Market Fund LVIP T. Rowe Price Structured Mid-Cap Growth Fund LVIP UBS Global Asset Allocation Fund* Lincoln Variable Insurance Products Trust (Service Class): LVIP Baron Growth Opportunities Fund LVIP Capital Growth Fund LVIP Cohen & Steers Global Real Estate Fund LVIP Columbia Value Opportunities Fund LVIP Delaware Growth and Income Fund LVIP Delaware Special Opportunities Fund LVIP FI Equity-Income Fund* LVIP Global Income Fund* LVIP Marsico International Growth Fund LVIP MFS Value Fund LVIP Mid-Cap Value Fund LVIP SSgA Bond Index Fund LVIP SSgA Developed International 150 Fund LVIP SSgA Emerging Markets 100 Fund LVIP SSgA International Index Fund LVIP SSgA Large Cap 100 Fund LVIP SSgA Small/Mid Cap 200 Fund LVIP SSgA S&P 500 Index Fund** LVIP SSgA Small-Cap Index Fund LVIP T. Rowe Price Growth Stock Fund LVIP Templeton Growth Fund LVIP Turner Mid-Cap Growth Fund LVIP Wilshire 2010 Profile Fund LVIP Wilshire 2020 Profile Fund LVIP Wilshire 2030 Profile Fund LVIP Wilshire 2040 Profile Fund LVIP Wilshire Aggressive Profile Fund LVIP Wilshire Conservative Profile Fund LVIP Wilshire Moderate Profile Fund LVIP Wilshire Moderately Aggressive Profile Fund MFS (Reg. TM) Variable Insurance TrustSM (Service Class): MFS (Reg. TM) VIT Core Equity Series* MFS (Reg. TM) VIT Growth Series* MFS (Reg. TM) VIT Total Return Series MFS (Reg. TM) VIT Utilities Series Neuberger Berman Advisers Management Trust (I Class): Neuberger Berman AMT Mid-Cap Growth Portfolio Neuberger Berman AMT Regency Portfolio PIMCO Variable Insurance Trust (Advisor Class): PIMCO VIT Commodity Real Return Strategy Portfolio* Putnam Variable Trust (Class IB): Putnam VT Global Health Care Fund* (formerly Putnam VT Health Sciences Fund) Putnam VT Growth & Income Fund* *Not all funds are available in all contracts. Refer to Description of Funds for specific information regarding the availability of funds. **"S&P 500" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by Lincoln Variable Insurance Products Trust and its affiliates. The product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of purchasing the product. (Please see the Statement of Additional Information which sets forth additional disclaimers and limitations of liability on behalf of S&P.) This prospectus gives you information about the contracts that you should know before you decide to buy a contract and make purchase payments. You should also review the prospectuses for the funds that accompany this prospectus, and keep all prospectuses for future reference. Neither the SEC nor any state securities commission has approved this contract or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. More information about the contracts is in the current Statement of Additional Information (SAI), dated the same date as this prospectus. The SAI is incorporated by reference into this prospectus and is legally part of this prospectus. For a free copy of the SAI, write: Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne, IN 46802-7866, or call 1-888-868-2583. The SAI and other 2 information about Lincoln New York and the VAA are also available on the SEC's website (http://www.sec.gov). There is a table of contents for the SAI on the last page of this prospectus. May 1, 2009 3 Table of Contents
Item Page Special Terms 5 Expense Tables 7 Summary of Common Questions 10 Lincoln Life & Annuity Company of New York 13 Variable Annuity Account (VAA) 13 Investments of the Variable Annuity Account 14 Charges and Other Deductions 19 The Contracts 25 Purchase Payments 26 Bonus Credits 26 Persistency Credits 26 Transfers On or Before the Annuity Commencement Date 27 Surrenders and Withdrawals 30 Death Benefit 33 Investment Requirements 35 Living Benefit Riders 37 Lincoln Lifetime IncomeSM Advantage 37 Lincoln SmartSecurity (Reg. TM) Advantage 44 i4LIFE (Reg. TM) Advantage 50 Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage 54 4LATER (Reg. TM) Advantage 56 Annuity Payouts 61 Fixed Side of the Contract 63 Distribution of the Contracts 64 Federal Tax Matters 65 Additional Information 70 Voting Rights 70 Return Privilege 70 Other Information 71 Legal Proceedings 71 Contents of the Statement of Additional Information (SAI) for Lincoln New York Account N for Variable Annuities 72 Appendix A - Condensed Financial Information A-1
4 Special Terms In this prospectus, the following terms have the indicated meanings: 4LATER (Reg. TM) Advantage or 4LATER (Reg. TM) - An option that provides an Income Base during the accumulation period, which can be used to establish a Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage in the future. Account or variable annuity account (VAA) - The segregated investment account, Account N, into which we set aside and invest the assets for the variable side of the contract offered in this prospectus. Account Value - Under i4LIFE (Reg. TM) Advantage, the initial Account Value is the contract value on the valuation date that i4LIFE (Reg. TM) Advantage is effective, less any applicable premium taxes. During the Access Period, the Account Value equals the initial Account Value plus investment gains minus losses, regular income payments, Guaranteed Income Benefit payments, and withdrawals. Accumulation unit - A measure used to calculate contract value for the variable side of the contract before the annuity commencement date and to calculate the i4LIFE (Reg. TM) Advantage Account Value during the Access Period. Annuitant - The person upon whose life the annuity benefit payments are based, and upon whose life a death benefit may be paid. Annuity commencement date - The valuation date when funds are withdrawn or converted into annuity units or fixed dollar payout for payment of retirement income benefits under the annuity payout option you select. Annuity payout - An amount paid at regular intervals after the annuity commencement date under one of several options available to the annuitant and/or any other payee. This amount may be paid on a variable or fixed basis, or a combination of both. Annuity unit - A measure used to calculate the amount of annuity payouts for the variable side of the contract after the annuity commencement date. See Annuity Payouts. Beneficiary - The person you choose to receive any death benefit paid if you die before the annuity commencement date. Bonus credit - The additional amount credited to the contract for each purchase payment. Contractowner (you, your, owner) - The person who can exercise the rights within the contract (decides on investment allocations, transfers, payout option, designates the beneficiary, etc.). Usually, but not always, the contractowner is the annuitant. Contract value (may be referenced to as account value in marketing materials) - At a given time before the annuity commencement date, the total value of all accumulation units for a contract plus the value of the fixed side of the contract, if any. Contract year - Each one-year period starting with the effective date of the contract and starting with each contract anniversary after that. Death benefit - Before the annuity commencement date, the amount payable to your designated beneficiary if the contractowner dies or, if selected, to the contractowner if the annuitant dies. See The Contracts - Death Benefit for a description of the various death benefit options. Good Order - The actual receipt at our Servicing Office of the requested transaction in writing or by other means we accept, along with all information and supporting legal documentation necessary to effect the transaction. The forms we provide will identify the necessary documentation. We may, in our sole discretion, determine whether any particular transaction request is in good order, and we reserve the right to change or waive any good order requirements at any time. Guaranteed Income Benefit - An option that provides a guaranteed minimum payout floor for the i4LIFE (Reg. TM) Advantage regular income payments. The calculation of the Guaranteed Income Benefit or the features applicable to the Guaranteed Income Benefit may vary based on the rider provisions applicable to certain contractowners. i4LIFE (Reg. TM) Advantage - An income program which combines periodic variable lifetime income payments with the ability to make withdrawals during a defined period. Lincoln New York (we, us, our) - Lincoln Life & Annuity Company of New York (LNY) Lincoln Lifetime IncomeSM Advantage - Provides minimum guaranteed lifetime periodic withdrawals that may increase. Lincoln SmartSecurity (Reg. TM) Advantage - Provides minimum guaranteed periodic withdrawals (for life, if the 1 Year Automatic Step-Up option is chosen), regardless of the investment performance of the contract and provided certain conditions are met, that may increase due to subsequent purchase payments and step-ups. Living Benefit - A general reference to certain riders that may be available for purchase that provide some type of a minimum guarantee while you are alive. If you select a Living Benefit rider, excess withdrawals may have adverse effects on the benefit, and you may be subject to Investment Requirements. These riders are the Lincoln Smart Security (Reg. TM) Advantage, Lincoln Lifetime Income AdvantageSM, 4LATER (Reg. TM) Advantage and i4LIFE (Reg. TM) Advantage (with or without the Guaranteed Income Benefit). 5 Persistency credit - The additional amount credited to the contract after the fourteenth contract anniversary. Purchase payments - Amounts paid into the contract other than bonus credits and persistency credits. Subaccount - The portion of the VAA that reflects investments in accumulation and annuity units of a class of a particular fund available under the contracts. There is a separate subaccount which corresponds to each class of a fund. Valuation date - Each day the New York Stock Exchange (NYSE) is open for trading. Valuation period - The period starting at the close of trading (currently 4:00 p.m. New York time) on each day that the NYSE is open for trading (valuation date) and ending at the close of such trading on the next valuation date. 6 Expense Tables The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the contract. The first table describes the fees and expenses that you will pay at the time that you buy the contract, surrender the contract, or transfer contract value between investment options and/or the fixed account. State premium taxes may also be deducted. Contractowner Transaction Expenses: o Surrender charge (as a percentage of purchase payments surrendered/withdrawn): 8.5%* o Transfer charge: $ 25**
* The surrender charge percentage is reduced over time. The later the redemption occurs, the lower the surrender charge with respect to that surrender or withdrawal. We may waive this charge in certain situations. See Charges and Other Deductions-Surrender Charge. **The transfer charge will not be imposed on the first 12 transfers during a contract year. We reserve the right to charge a $25 fee for the 13th and each additional transfer during any contract year, excluding automatic dollar cost averaging, portfolio rebalancing and cross reinvestment transfers. We may apply an interest adjustment to amounts being withdrawn, surrendered or transferred from a guaranteed period account only (except for dollar cost averaging, portfolio rebalancing, cross-reinvestment, withdrawals up to the Maximum Annual Withdrawal amount under the Lincoln SmartSecurity (Reg. TM) Advantage and regular income payments under i4LIFE (Reg. TM) Advantage). See Fixed Side of the Contract. The next table describes the fees and expenses that you will pay periodically during the time that you own the contract, not including fund fees and expenses. Annual Account Fee: $30* Separate Account Annual Expenses (as a percentage of average daily net assets in the subaccounts):
With Enhanced Guarantee of Guaranteed Minimum Principal Death Death Benefit (EGMDB) Benefit (GOP) ----------------------- ---------------- o Mortality and expense risk charge 1.45% 1.35% o Administrative charge 0.15% 0.15% ---- ---- o Total annual charge for each subaccount 1.60% 1.50%
* We do not assess the account fee on contracts issued prior to October 1, 2003. The account fee will be waived if your contract value is $50,000 or more at the end of any particular year. The account fee will be waived after the fifteenth contract year. Optional Rider Charges: Lincoln Lifetime IncomeSM Advantage:
Lincoln Lifetime IncomeSM Advantage -------------------------- o Guaranteed maximum annual percentage charge* 1.50% o Current annual percentage charge* ** 0.90%
*The annual percentage charge is assessed against the Guaranteed Amount (initial purchase payment and any bonus credit or contract value at the time of election) as increased for subsequent purchase payments, any bonus credits, Automatic Annual Step-ups, 5% Enhancements, and the 200% Step-up and decreased for withdrawals. These changes to the Guaranteed Amount are discussed below. This charge is deducted from the contract value on a quarterly basis. See Charges and Other Deductions for further information. **For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.75% to 0.90% upon the earlier of (a) the next Automatic Annual Step-up of the Guaranteed Amount or (b) the Benefit Year anniversary if cumulative purchase payments received after the first Benefit Year anniversary equal or exceed $100,000. 7 Lincoln SmartSecurity (Reg. TM) Advantage:
Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-Up option+ ** --------------------------------- o Guaranteed maximum annual percentage charge* 0.95% o Current annual percentage charge* 0.65% Lincoln SmartSecurity (Reg. TM) Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Advantage - 1 Year Automatic Step-Up option Step-Up option - Single Life (and prior version) - Joint Life ----------------------------------- -------------------------------- o 1.50% 1.50% o 0.65% 0.80%
*The annual percentage charge is assessed against the Guaranteed Amount (initial purchase payment and any bonus credit or contract value at the time of election) as increased for subsequent purchase payments, any bonus credits, and step-ups and decreased for withdrawals. This charge is deducted from the contract value on a quarterly basis. See Charges and Other Deductions for further information. **For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.45% to 0.65% upon the next election of a step-up of the Guaranteed Amount. +As of January 16, 2009, the Lincoln SmartSecurity (Reg. TM)Advantage - 5 Year Elective Step-up option is no longer available for purchase. 4LATER (Reg. TM) Advantage: o Guaranteed maximum annual percentage charge* 1.50% o Current annual percentage charge* ** 0.65%
*The annual percentage charge for the 4LATER (Reg. TM) Advantage is multiplied by the Income Base (initial purchase payment or contract value at the time of election) as increased for subsequent purchase payments, bonus credits, automatic 15% Enhancements, and Resets and decreased for withdrawals. The 4LATER (Reg. TM) Advantage charge is deducted from the subaccounts on a quarterly basis. **For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.50% to 0.65% upon the next election to reset the Income Base. The next table describes charges that apply only when i4LIFE (Reg. TM) Advantage is in effect. The charge for any Guaranteed Income Benefit, if elected, is added to the i4LIFE (Reg. TM) Advantage charge and the total is deducted from your average daily account value. i4LIFE (Reg. TM) Advantage Payout Phase (On and After the Periodic Income Commencement Date): i4LIFE (Reg. TM) Advantage (as a daily percentage of average account value):
Enhanced Guaranteed Guarantee of Minimum Death Principal Death Benefit (EGMDB) Benefit Account Value Death Benefit --------------------- ---------------- ---------------------------- o Annual charge* 2.05% 1.90% 1.85%
*During the Lifetime Income Period, the charge will be the same rate as the i4LIFE (Reg. TM) Advantage Account Value Death Benefit. Optional Rider Charges : i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (as a daily percentage of average account value): o Guaranteed maximum annual percentage charge 1.50%** o Current annual percentage charge 0.50%*
4LATER (Reg. TM) Advantage Guaranteed Income Benefit (as a daily percentage of average account value): o Guaranteed maximum annual percentage charge 1.50% o Current annual percentage charge 0.65%* ***
For example, if you purchase the i4LIFE (Reg. TM) Advantage EGMDB for 2.05% with the 4LATER (Reg. TM) Advantage Guaranteed Income Benefit at a maximum charge of 1.50%, your total annual charge is 3.55% (as a daily percentage of average account value). *The percentage charge will change to the current charge in effect upon election of a new step-up period, not to exceed the guaranteed maximum charge. **Purchasers of Lincoln Lifetime IncomeSM Advantage are guaranteed the ability in the future to purchase i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit may purchase the Guaranteed Income Benefit at or below the guaranteed maximum charge that is in effect on the date that they purchase the Lincoln Lifetime IncomeSM Advantage. ***For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.50% to 0.65% upon the next election to reset the Income Base. The next table describes the separate account annual expenses (as a percentage of average daily net assets in the subaccounts) you pay on and after the Annuity Commencement Date: o Mortality and expense risk charge and Administrative charge 1.40%
8 The next item shows the minimum and maximum total annual operating expenses charged by the funds that you may pay periodically during the time that you own the contract. The expenses are for the year ended December 31, 2008. More detail concerning each fund's fees and expenses is contained in the prospectus for each fund.
Maximum Minimum --------- -------- Total Annual Fund Operating Expenses (expenses that are deducted from fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses): 4.15% 0.33% Net Total Annual Fund Operating Expenses (after contractual waivers/reimbursements*): 1.81% 0.33%
9 EXAMPLES This Example is intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include contractowner transaction expenses, contract fees, separate account annual expenses, and fund fees and expenses. The Example assumes that you invest $10,000 in the contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year, the maximum fees and expenses of any of the funds and that the EGMDB and Lincoln Lifetime IncomeSM Advantage at the guaranteed maximum charge are in effect. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1) If you surrender your contract at the end of the applicable time period:
1 year 3 years 5 years 10 years ----------- --------- --------- --------- $1,579 $2,998 $4,284 $7,496
2) If you annuitize or do not surrender your contract at the end of the applicable time period:
1 year 3 years 5 years 10 years -------- --------- --------- --------- $729 $2,198 $3,684 $7,496
For more information, see Charges and Other Deductions in this prospectus, and the prospectuses for the funds. Premium taxes may also apply, although they do not appear in the examples. The examples do not reflect bonus credits or persistency credits. Different fees and expenses not reflected in the examples may be imposed during a period in which regular income payments or annuity payouts are made. See The Contracts - i4LIFE (Reg. TM) Advantage including the Guaranteed Income Benefit, 4LATER (Reg. TM) Advantage and Annuity Payouts. These examples should not be considered a representation of past or future expenses. Actual expenses may be more or less than those shown. For information concerning compensation paid for the sale of the contracts, see Distribution of the Contracts. Summary of Common Questions What kind of contract am I buying? It is an individual variable or fixed and/or interest adjusted, if applicable, annuity contract between you and Lincoln New York. This prospectus primarily describes the variable side of the contract. See The Contracts. What is the variable annuity account (VAA)? It is a separate account we established under New York insurance law, and registered with the SEC as a unit investment trust. VAA assets are allocated to one or more subaccounts, according to your investment choices. VAA assets are not chargeable with liabilities arising out of any other business which we may conduct. See Variable Annuity Account. What are Asset Allocation Models? Asset allocation models are designed to assist you in deciding how to allocate your purchase payments among the various subaccounts. Each model provides a diversified investment portfolio by combining different asset classes to help it reach its stated investment goal. See The Contracts - Asset Allocation Models. What are Investment Requirements? If you elect one of the following riders: Lincoln Lifetime IncomeSM Advantage, 4LATER (Reg. TM) Advantage, the Lincoln SmartSecurity (Reg. TM) Advantage, or i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit, you will be subject to certain requirements for your subaccount investments. You will be limited in how much you can invest in certain subaccounts. See The Contracts - Investment Requirements. What are my investment choices? Based upon your instruction for purchase payments, the VAA applies your purchase payments, bonus credits and persistency credits to buy shares in one or more of the investment options. In turn, each fund holds a portfolio of securities consistent with its investment policy. See Investments of the Variable Annuity Account - Description of the Funds. Who invests my money? Several different investment advisers manage the investment options. See Investments of the Variable Annuity Account - Description of the Funds. How does the contract work? If we approve your application, we will send you a contract. When you make purchase payments during the accumulation phase, you receive bonus credits and you buy accumulation units. If you decide to receive an annuity payout, your accumulation units are converted to annuity units. Your annuity payouts will be based on the number of annuity units you received and the value of each annuity unit on payout days. See The Contracts. What charges do I pay under the contract? If you withdraw purchase payments, you pay a surrender charge from 0% to 8.5% of the surrendered or withdrawn purchase payment, depending upon how long those payments have been invested in the contract. We may waive surrender charges in certain situations. See Charges and Other Deductions - Surrender Charge. 10 We reserve the right to charge a $25 fee for the 13th and each additional transfer during any contract year, excluding automatic dollar cost averaging, portfolio rebalancing and cross-reinvestment transfers. The transfer charge will not be imposed on the first 12 transfers during the contract year. We will deduct any applicable premium tax from purchase payments or contract value at the time the tax is incurred or at another time we choose. See Expense Tables and Charges and Other Deductions for additional fees and expenses in these contracts. The funds' investment management fees, expenses and expense limitations, if applicable, are more fully described in the prospectuses for the funds. The surrender, withdrawal or transfer of value from a fixed account guaranteed period may be subject to the interest adjustment, if applicable. See Fixed Side of the Contract. Charges may also be imposed during the regular income or annuity payout period, including i4LIFE (Reg. TM) Advantage, if elected. See The Contracts and Annuity Payouts. For information about the compensation we pay for sales of contracts, see The Contracts - Distribution of the Contracts. What purchase payments do I make, and how often? Subject to the minimum and maximum payment amounts, your payments are completely flexible. See The Contracts - Purchase Payments. What is a bonus credit and a persistency credit? When purchase payments are made, we will credit an additional amount to the contract, known as a bonus credit. The amount of the bonus credit is calculated as a percentage of the purchase payments. The bonus credit percentage will vary based on the owner's cumulative purchase payments, as defined in this prospectus. All bonus credits become part of the contract value at the same time as the corresponding purchase payments. Bonus credits are not considered to be purchase payments. See The Contracts - Bonus Credits. A persistency credit of 0.05% of contract value less purchase payments that have been in the contract less than fourteen years will be credited on a quarterly basis after the fourteenth anniversary. See The Contracts - Persistency Credits. We offer a variety of variable annuity contracts. Other annuity contracts that we offer have no provision for bonus credits but may have lower mortality and expense risk charges and/or lower surrender charges. The amount of bonus credit may be more than offset by higher surrender charges associated with the bonus credit. After the fourteenth contract anniversary, the persistency credits are designed to fully or partially offset these additional bonus charges. We encourage you to talk with your financial adviser and determine which annuity contract is most appropriate for you. How will my annuity payouts be calculated? If you decide to annuitize, you may select an annuity option and start receiving annuity payouts from your contract as a fixed option or variable option or a combination of both. See Annuity Payouts - Annuity Options. Remember that participants in the VAA benefit from any gain, and take a risk of any loss, in the value of the securities in the funds' portfolios. What happens if I die before I annuitize? Your beneficiary will receive death benefit proceeds based upon the death benefit you select. Your beneficiary has options as to how the death benefit is paid. In the alternative, you may choose to receive a death benefit on the death of the annuitant. See The Contracts - Death Benefit. May I transfer contract value between variable options and between the variable and fixed sides of the contract? Yes, subject to currently effective restrictions. For example, transfers made before the annuity commencement date are generally restricted to no more than twelve (12) per contract year. If permitted by your contract, we may discontinue accepting transfers into the fixed side of the contract at any time. See The Contracts - Transfers On or Before the Annuity Commencement Date and Transfers After the Annuity Commencement Date. What is Lincoln Lifetime IncomeSM Advantage? Lincoln Lifetime IncomeSM Advantage is a rider that you may purchase for an additional charge on or after you have reached age 60 and which provides minimum guaranteed, periodic withdrawals for your life regardless of the investment performance of the contract provided certain conditions are met. Withdrawals are based on the Guaranteed Amount which is equal to the initial purchase payment (or contract value if elected after contract issue). The Guaranteed Amount is not available as a separate benefit upon death or surrender and is increased by subsequent purchase payments, Automatic Annual Step-ups, 5% Enhancements and the step-up to 200% of the initial Guaranteed Amount and is decreased by withdrawals in accordance with provisions described later in this prospectus. See The Contracts-Lincoln Lifetime IncomeSM Advantage. You may not simultaneously elect Lincoln Lifetime IncomeSM Advantage and another one of the Living Benefit riders. By electing this rider you will be subject to Investment Requirements. See The Contracts - Investment Requirements. What are Living Benefit Riders? Living Benefit riders are optional riders available to purchase for an additional fee. These riders provide different types of minimum guarantees if you meet certain conditions. If you select a Living Benefit rider, excess withdrawals may have adverse effects on the benefit, and you will be subject to Investment Requirements. These riders are the Lincoln Smart Security (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage (both of which are withdrawal benefit riders) and 4LATER (Reg. TM) Advantage and 11 i4LIFE (Reg. TM) Advantage (with or without the Guaranteed Income Benefit) (both of which are annuity payout riders). These riders are discussed in detail in this prospectus. In addition, there is an overview of these riders that is provided with this prospectus. What is the Lincoln SmartSecurity (Reg. TM) Advantage? This benefit, which may be available for purchase at an additional charge, provides a Guaranteed Amount equal to the initial purchase payment and its corresponding bonus credits (or contract value at the time of election) as adjusted. You may access this benefit through periodic withdrawals. Excess withdrawals will adversely affect the Guaranteed Amount. You cannot simultaneously elect Lincoln SmartSecurity (Reg. TM) Advantage with any other Living Benefit rider. By electing this benefit, you will be subject to Investment Requirements. See The Contracts - Lincoln SmartSecurity (Reg. TM) Advantage. What is i4LIFE (Reg. TM) Advantage? i4LIFE (Reg. TM) Advantage is an income program, available for purchase at an additional charge, that provides periodic variable lifetime income payments, a death benefit, and the ability to make withdrawals during a defined period of time (Access Period). For an additional charge, you may purchase a minimum payout floor, the Guaranteed Income Benefit. We assess a charge, imposed only during the i4LIFE (Reg. TM) Advantage payout phase, based on the i4LIFE (Reg. TM) Advantage death benefit you choose and whether or not the Guaranteed Income Benefit is in effect. What is the Guaranteed Income Benefit? The Guaranteed Income Benefit provides a minimum payout floor for your i4LIFE (Reg. TM) regular income payments. The i4LIFE (Reg. TM) Guaranteed Income Benefit is purchased at the time you elect i4LIFE (Reg. TM) Advantage or any time during the Access Period subject to terms and conditions at that time. 4LATER (Reg. TM) Advantage, Lincoln Smart Security (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage have features that may be used to establish the amount of the Guaranteed Income Benefit. 4LATER (Reg. TM) Advantage is purchased prior to the time you elect i4LIFE (Reg. TM) Advantage and provides a guaranteed value, the Income Base, which can be used to establish the Guaranteed Income Benefit floor in the future. The i4LIFE (Reg. TM) Guaranteed Income Benefit does not have an Income Base; the minimum floor is based on the contract value at the time you elect i4LIFE (Reg. TM) with the Guaranteed Income Benefit. You may use your Guaranteed Amount from Lincoln Smart Security (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage to establish the Guaranteed Income Benefit at the time you terminate Lincoln Smart Security (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage to purchase i4LIFE (Reg. TM) Advantage. By electing this benefit, you will be subject to Investment Requirements. See The Contracts - i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, 4LATER (Reg. TM) Advantage Guaranteed Income Benefit, and Lincoln Lifetime IncomeSM Advantage - i4LIFE (Reg. TM) Advantage option. What is 4LATER (Reg. TM) Advantage? 4LATER (Reg. TM) Advantage, which may be available for purchase at an additional charge, is a way to guarantee today a minimum payout floor (a Guaranteed Income Benefit) in the future for the i4LIFE (Reg. TM) Advantage regular income payments. 4LATER (Reg. TM) Advantage provides an initial Income Base that is guaranteed to increase at a specified percentage over the accumulation period of the annuity. By electing this benefit, you will be subject to Investment Requirements. See The Contracts - 4LATER (Reg. TM) Advantage. May I surrender the contract or make a withdrawal? Yes, subject to contract requirements and to the restrictions of any qualified retirement plan for which the contract was purchased. See The Contracts - Surrenders and Withdrawals. If you surrender the contract or make a withdrawal, certain charges may apply. See Charges and Other Deductions. A portion of surrender or withdrawal proceeds may be taxable. In addition, if you decide to take a distribution before age 591/2, a 10% Internal Revenue Service (IRS) tax penalty may apply. A surrender or a withdrawal also may be subject to 20% withholding. See Federal Tax Matters. Do I get a free look at this contract? Yes. You can cancel the contract within ten days of the date you first receive the contract. You need to return the contract, postage prepaid, to our Servicing office. You assume the risk of any market drop on purchase payments you allocate to the variable side of the contract. We will not refund any bonus credits credited to your contract value if you elect to cancel your contract; however, we will assume the risk of investment loss on the bonus credits. See Return Privilege. Where may I find more information about accumulation unit values? Appendix A to this prospectus provides more information about accumulation unit values. Investment Results At times, the VAA may compare its investment results to various unmanaged indices or other variable annuities in reports to shareholders, sales literature and advertisements. The results will be calculated on a total return basis for various periods, with or without contingent deferred sales charges. Results calculated without contingent deferred sales charges will be higher. Total returns include the reinvestment of all distributions, which are reflected in changes in unit value. The money market subaccount's yield is based upon investment performance over a 7-day period, which is then annualized. Note that there can be no assurance that any money market fund will be able to maintain a stable net asset value per share. During extended periods of low interest rates, and due in part to the contract fees and expenses, the yields of any subaccount investing in a money market fund may also become extremely low and possibly negative. The money market yield figure and annual performance of the subaccounts are based on past performance and do not indicate or represent future performance. 12 Lincoln Life & Annuity Company of New York Lincoln New York (the Company) is a stock life insurance company chartered in New Jersey in 1897 and redomesticated to New York on April 2, 2007. Lincoln New York is a subsidiary of The Lincoln National Life Insurance Company (Lincoln Life). Lincoln Life is an Indiana-domiciled insurance corporation, engaged primarily in the direct issuance of life insurance contracts and annuities. Lincoln Life is wholly owned by Lincoln National Corporation (LNC), a publicly held insurance and financial services holding company incorporated in Indiana. Lincoln New York is obligated to pay all amounts promised to policy owners under the policies. Depending on when you purchased your contract, you may be permitted to make allocations to the fixed account, which is part of our general account. See The Fixed Side of the Contract. In addition, any guarantees under the contract that exceed your contract value, such as those associated with death benefit options and Living Benefit riders are paid from our general account (not the VAA). Therefore, any amounts that we may pay under the contract in excess of contract value are subject to our financial strength and claims-paying ability and our long-term ability to make such payments. We issue other types of insurance policies and financial products as well, and we also pay our obligations under these products from our assets in the general account. Moreover, unlike assets held in the VAA, the assets of the general account are subject to the general liabilities of the Company and, therefore, to the Company's general creditors. In the event of an insolvency or receivership, payments we make from our general account to satisfy claims under the contract would generally receive the same priority as our other contractowner obligations. Our Financial Condition. Among the laws and regulations applicable to us as an insurance company are those which regulate the investments we can make with assets held in our general account. In general, those laws and regulations determine the amount and type of investments which we can make with general account assets. In addition, state insurance regulations require that insurance companies calculate and establish on their financial statements, a specified amount of reserves in order to meet the contractual obligations to pay the claims of our policyholders. In order to meet our claims-paying obligations, we regularly monitor our reserves to ensure we hold sufficient amounts to cover actual or expected contract and claims payments. However, it is important to note that there is no guarantee that we will always be able to meet our claims paying obligations, and that there are risks to purchasing any insurance product. State insurance regulators also require insurance companies to maintain a minimum amount of capital in excess of liabilities, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurer's operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on assets held in our general account, which include bonds, mortgages, general real estate investments, and stocks, as well as the loss in value of these investments resulting from a loss in their market value. How to Obtain More Information. We encourage both existing and prospective policyholders to read and understand our financial statements. We prepare our financial statements on both a statutory basis and according to Generally Accepted Accounting Principles (GAAP). Our audited GAAP financial statements, as well as the financial statements of the VAA, are located in the SAI. If you would like a free copy of the SAI, please write to us at: PO Box 7866 , Fort Wayne, IN 46802-7866, or call 1-888-868-2583 . In addition, the Statement of Additional Information is available on the SEC's website at http://www.sec.gov. You may obtain our audited statutory financial statements and any unaudited statutory financial statements that may be available by visiting our website at www.LincolnFinancial.com. You also will find on our website information on ratings assigned to us by one or more independent rating organizations. These ratings are opinions of an operating insurance company's financial capacity to meet the obligations of its insurance and annuity contracts based on its financial strength and/or claims-paying ability. Additional information about rating agencies is included in the Statement of Additional Information. Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. Lincoln Financial Group sells a wide variety of financial products and solutions through financial advisors: mutual funds, managed accounts, retirement solutions, life insurance, 401(k) and 403(b) plans, savings plans, institutional investments and comprehensive financial planning and advisory services. Variable Annuity Account (VAA) On March 11, 1999, the VAA was established as an insurance company separate account under New York law. It is registered with the SEC as a unit investment trust under the provisions of the Investment Company Act of 1940 (1940 Act). The VAA is a segregated investment account, meaning that its assets may not be charged with liabilities resulting from any other business that we may conduct. Income, gains and losses, whether realized or not, from assets allocated to the VAA are, in accordance with the applicable annuity contracts, credited to or charged against the VAA. They are credited or charged without regard to any other income, gains or losses of Lincoln New York. We are the issuer of the contracts and the obligations set forth in the contract, other than those of the contractowner, are ours. The VAA satisfies the definition of a separate account under the federal securities laws. We do not guarantee 13 the investment performance of the VAA. Any investment gain or loss depends on the investment performance of the funds. You assume the full investment risk for all amounts placed in the VAA. The VAA is used to support other annuity contracts offered by us in addition to the contracts described in this prospectus. The other annuity contracts supported by the VAA generally invest in the same funds as the contracts described in this prospectus. These other annuity contracts may have different charges that could affect the performance of their subaccounts, and they offer different benefits. Financial Statements The December 31, 2008 financial statements of the VAA and the December 31, 2008 financial statements of Lincoln New York are located in the SAI. If you would like a free copy of the SAI, complete and mail the request on the last page of this prospectus, or call 1-888-868-2583. Investments of the Variable Annuity Account You decide the subaccount(s) to which you allocate purchase payments. Bonus credits are allocated to the subaccounts at the same time and at the same percentage as the purchase payments being made. There is a separate subaccount which corresponds to each class of each fund. You may change your allocation without penalty or charges. Shares of the funds will be sold at net asset value with no initial sales charge to the VAA in order to fund the contracts. The funds are required to redeem fund shares at net asset value upon our request. Investment Advisers As compensation for its services to the fund, the investment adviser receives a fee from the fund which is accrued daily and paid monthly. This fee is based on the net assets of each fund, as defined in the prospectus for the fund. Certain Payments We Receive with Regard to the Funds With respect to a fund, including affiliated funds, the adviser and/or distributor, or an affiliate thereof, may make payments to us (or an affiliate). It is anticipated that such payments will be based on a percentage of assets of the particular fund attributable to the contracts along with certain other variable contracts issued or administered by us (or an affiliate). These percentages are negotiated and vary with each fund. Some funds may pay us significantly more than other funds and the amount we receive may be substantial. These percentages currently range up to 0.50%, and as of the date of this prospectus, we were receiving payments from each fund family. We (or our affiliates) may profit from these payments or use these payments for a variety of purposes, including payment of expenses that we (and our affiliates) incur in promoting, marketing, and administering the contracts and, in our role as intermediary, the funds. These payments may be derived, in whole or in part, from the investment advisory fee deducted from fund assets. Contractowners, through their indirect investment in the funds, bear the costs of these investment advisory fees (see the funds' prospectuses for more information). Additionally, a fund's adviser and/or distributor or its affiliates may provide us with certain services that assist us in the distribution of the contracts and may pay us and/or certain affiliates amounts for marketing programs and sales support, as well as amounts to participate in training and sales meetings. The AIM, AllianceBernstein, American Century, American Funds, BlackRock, Delaware, DWS, Fidelity, Franklin Templeton, Janus, Lincoln, MFS, PIMCO and Putnam Funds offered as part of this contract make payments to us under their distribution plans (12b-1 plans). The payment rates range up to 0.35% based on the amount of assets invested in those Funds. Payments made out of the assets of the fund will reduce the amount of assets that otherwise would be available for investment, and will reduce the fund's investment return. The dollar amount of future asset-based fees is not predictable because these fees are a percentage of the fund's average net assets, which can fluctuate over time. If, however, the value of the fund goes up, then so would the payment to us (or our affiliates). Conversely, if the value of the funds goes down, payments to us or our affiliates would decrease. Description of the Funds Each of the subaccounts of the VAA is invested solely in shares of one of the funds available under the contract. Each fund may be subject to certain investment policies and restrictions which may not be changed without a majority vote of shareholders of that fund. We select the funds offered through the contract based on several factors, including, without limitation, asset class coverage, the strength of the manager's reputation and tenure, brand recognition, performance, and the capability and qualification of each sponsoring investment firm. Another factor we consider during the initial selection process is whether the fund or an affiliate of the fund will make payments to us or our affiliates. We review each fund periodically after it is selected. Upon review, we may remove a fund or restrict allocation of additional purchase payments to a fund if we determine the fund no longer meets one or more of the factors and/or if the fund has not attracted significant contractowner assets. Finally, when we develop a variable annuity product in cooperation with a fund family or distributor (e.g., a "private label" product), we generally will include funds based on recommendations made by the fund family or distributor, whose selection criteria may differ from our selection criteria. 14 Certain funds offered as part of this contract have similar investment objectives and policies to other portfolios managed by the adviser. The investment results of the funds, however, may be higher or lower than the other portfolios that are managed by the adviser or sub-adviser. There can be no assurance, and no representation is made, that the investment results of any of the funds will be comparable to the investment results of any other portfolio managed by the adviser or sub-adviser, if applicable. Following are brief summaries of the fund descriptions. More detailed information may be obtained from the current prospectus for the fund. You should read each fund prospectus carefully before investing. Please be advised that there is no assurance that any of the funds will achieve their stated objectives. AIM Variable Insurance Funds, advised by Invesco AIM Advisors, Inc. o Capital Appreciation Fund (Series II): Capital appreciation. This fund is not offered in contracts issued on or after May 24, 2004. o Core Equity Fund (Series II): Long-term growth. This fund is not offered in contracts issued on or after May 24, 2004. o International Growth Fund (Series II): Long-term growth. This fund is not offered in contracts issued on or after May 24, 2004. AllianceBernstein Variable Products Series Fund, advised by AllianceBernstein, L.P. o AllianceBernstein VPS Global Thematic Growth Portfolio (Class B): Maximum capital appreciation. (formerly AllianceBernstein VPS Global Technology Portfolio) o AllianceBernstein VPS Growth and Income Portfolio (Class B): Growth and income. o AllianceBernstein VPS International Value Portfolio (Class B): Long-term growth. o AllianceBernstein VPS Large Cap Growth Portfolio (Class B): Maximum capital appreciation. This fund is not offered in contracts issued on or after June 6, 2005. o AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class B): Long-term growth. American Century Investments Variable Products, advised by American Century Investment Management, Inc. o Inflation Protection Fund (Class II): Long-term total return. American Funds Insurance SeriesSM, advised by Capital Research and Management Company o Global Growth Fund (Class 2): Long-term growth. o Global Small Capitalization Fund (Class 2): Long-term growth. o Growth Fund (Class 2): Long-term growth. o Growth-Income Fund (Class 2): Growth and income. o International Fund (Class 2): Long-term growth. BlackRock Variable Series Funds, Inc., advised by BlackRock Advisors, LLC and subadvised by BlackRock Investment Management, LLC o BlackRock Global Allocation V.I. Fund (Class III): High total return. This fund will be available on or about June 30, 2009. Consult your financial advisor. Delaware VIP Trust, advised by Delaware Management Company o Diversified Income Series (Service Class): Total return. o Emerging Markets Series (Service Class): Capital appreciation. o High Yield Series (Service Class): Total return. o Limited-Term Diversified Income Series (Service Class): Current income. (formerly Capital Reserves Series) o REIT Series (Service Class): Total return. This fund is not available in contracts issued after June 4, 2007. This fund will be reopened and available in all contracts on or about June 30, 2009. Consult your financial advisor. o Small Cap Value Series (Service Class): Capital appreciation. o Trend Series (Service Class): Capital appreciation. o U.S. Growth Series (Service Class): Capital appreciation. 15 o Value Series (Service Class): Long-term capital appreciation. DWS Investments VIT Funds, advised by Deutsche Investment Management Americas, Inc. and subadvised by Northern Trust Investments, Inc. o DWS Equity 500 Index VIP (Class A): Capital appreciation. o DWS Small Cap Index VIP (Class A): Capital appreciation. DWS Variable Series II, advised by Deutsche Asset Management Inc, and subadvised by RREEF America L.L.C. o DWS Alternative Asset Allocation Plus VIP Portfolio (Class B): Capital appreciation. This fund will be available on or about June 30, 2009. Consult your financial advisor. Fidelity (Reg. TM) Variable Insurance Products, advised by Fidelity Management and Research Company and subadvised by FMR Co., Inc. o Contrafund (Reg. TM) Portfolio (Service Class 2): Long-term capital appreciation. o Equity-Income Portfolio (Service Class 2): Reasonable income. This fund is not offered in contracts issued on or after June 6, 2005. o Growth Portfolio (Service Class 2): Capital appreciation. o Mid Cap Portfolio (Service Class 2): Long-term growth. o Overseas Portfolio (Service Class 2): Long-term growth. Franklin Templeton Variable Insurance Products Trust, advised by Franklin Advisers, Inc. for the Franklin Income Securities Fund and the Franklin Small-Mid Cap Growth Securities Fund, by Templeton Global Advisors Limited for the Templeton Global Bond Securities Fund and the Templeton Growth Securities Fund, and by Franklin Mutual Advisors, LLC for the Mutual Shares Securities Fund. o Franklin Income Securities Fund (Class 2): Current income. o Franklin Small-Mid Cap Growth Securities Fund (Class 2): Long-term growth. o Mutual Shares Securities Fund (Class 2): Capital appreciation. o Templeton Global Bond Securities Fund (Class 2): Total return. (formerly Templeton Global Income Securities Fund) o Templeton Growth Securities Fund (Class 2): Long-term growth. Janus Aspen Series, advised by Janus Capital Management LLC o Balanced Portfolio (Service Class): Long-term growth and current income. This fund is not offered in contracts issued on or after June 6, 2005. o Enterprise Portfolio (Service Class): Long-term growth. (formerly Mid Cap Growth Portfolio) This fund is not offered in contracts issued on or after June 6, 2005. o Worldwide Portfolio (Service Class): Long-term growth. (formerly Worldwide Growth Portfolio) This fund is not offered in contracts issued on or after May 24, 2004. Lincoln Variable Insurance Products Trust, advised by Lincoln Investment Advisors Corporation. o LVIP Baron Growth Opportunities Fund (Service Class): Capital appreciation. (Subadvised by BAMCO, Inc.) o LVIP Capital Growth Fund (Service Class): Capital growth. (Subadvised by Wellington Management) o LVIP Cohen & Steers Global Real Estate Fund (Service Class): Total return. (Subadvised by Cohen & Steers Capital Management) o LVIP Columbia Value Opportunities Fund (Service Class): Long-term capital appreciation. (Subadvised by Columbia Management Advisors, LLC) o LVIP Delaware Bond Fund (Standard Class): Current income. (Subadvised by Delaware Management Company) o LVIP Delaware Foundation Aggressive Allocation Fund (Standard Class): Long-term capital growth. (Subadvised by Delaware Management Company) This fund will not be available until the merger with the LVIP UBS Global Asset Allocation Fund is complete. 16 o LVIP Delaware Growth and Income Fund (Service Class): Capital appreciation. (Subadvised by Delaware Management Company) o LVIP Delaware Social Awareness Fund (Standard Class): Capital appreciation. (Subadvised by Delaware Management Company) o LVIP Delaware Special Opportunities Fund (Service Class): Capital appreciation. (Subadvised by Delaware Management Company) o LVIP FI Equity-Income Fund (Service Class): Income. (Subadvised by Pyramis Global Advisors LLC) This fund is not offered in contracts issued before June 6, 2005. o LVIP Global Income Fund (Service Class): Current income consistent with preservation of capital. (Subadvised by Mondrian Investment Partners Limited and Templeton Investment Counsel, LLC) This fund will be available on or about June 30, 2009. Consult your financial advisor. o LVIP Janus Capital Appreciation Fund (Standard Class): Long-term growth. (Subadvised by Janus Capital Management LLC) o LVIP Marsico International Growth Fund (Service Class): Long-term capital appreciation. (Subadvised by Marsico Capital Management, LLC) o LVIP MFS (Reg. TM) Value Fund (Service Class): Long term growth of capital. (Subadvised by Massachusetts Financial Services Company) o LVIP Mid-Cap Value Fund (Service Class): Long-term capital appreciation. (Subadvised by Wellington Management) o LVIP Mondrian International Value Fund (Standard Class): Long-term capital appreciation. (Subadvised by Mondrian Investment Partners, Limited) o LVIP Money Market Fund (Standard Class): Preservation of capital. (Subadvised by Delaware Management Company) o LVIP SSgA Bond Index Fund (Service Class): Replicate Barclays Aggregate Bond Index. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Developed International 150 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Emerging Markets 100 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA International Index Fund (Service Class): Replicate broad foreign index. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Large Cap 100 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Small/Mid Cap 200 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA S&P 500 Index Fund (Service Class): Replicate S&P 500 Index. (Subadvised by SSgA Funds Management, Inc.) o LVIP SSgA Small-Cap Index Fund (Service Class): Replicate Russell 2000 Index. (Subadvised by SSgA Funds Management, Inc.) o LVIP T. Rowe Price Growth Stock Fund (Service Class): Long-term growth of capital. (Subadvised by T. Rowe Price Associates, Inc.) o LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Standard Class): Maximum capital appreciation. (Subadvised by T. Rowe Price Associates, Inc.) o LVIP Templeton Growth Fund (Service Class): Long-term growth of capital. (Subadvised by Templeton Investment Counsel, LLC) o LVIP Turner Mid-Cap Growth Fund (Service Class): Capital appreciation. (Subadvised by Turner Investment Partners) o LVIP UBS Global Asset Allocation Fund (Standard Class): Total return. (Subadvised by UBS Global Asset Management (Americas) Inc. (UBS Global AM) The Board of Trustees of the Lincoln Variable Insurance Products Trust has approved a reorganization pursuant to which the assets of the LVIP UBS Global Asset Allocation Fund would be acquired and the liabilities of such fund would be assumed by the LVIP Delaware Foundation (Reg. TM) Aggressive Allocation Fund in exchange for 17 shares of the LVIP Delaware Foundation (Reg. TM) Aggressive Allocation Fund. This reorganization is subject to the approval of the LVIP UBS Global Asset Allocation Fund's shareholders. This reorganization is expected to occur in June 2009. o LVIP Wilshire 2010 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire 2020 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire 2030 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire 2040 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire Aggressive Profile Fund (Service Class): Long-term growth of capital; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire Conservative Profile Fund (Service Class): Current income; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire Moderate Profile Fund (Service Class): Growth and income; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire Moderately Aggressive Profile Fund (Service Class): Growth and income; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) *Funds offered in a fund of funds structure may have higher expenses than funds that invest directly in debt or equity securities. MFS (Reg. TM) Variable Insurance TrustSM, advised by Massachusetts Financial Services Company o Core Equity Series (Service Class): Capital appreciation. This fund is not offered in contracts issued on or after June 6, 2005. o Growth Series (Service Class): Capital appreciation. o Total Return Series (Service Class): Total return. o Utilities Series (Service Class): Total return. Neuberger Berman Advisers Management Trust, advised by Neuberger Berman Management, Inc., and subadvised by Neuberger Berman, LLC. o Mid-Cap Growth Portfolio (I Class): Capital appreciation. o Regency Portfolio (I Class): Long-term growth. PIMCO Variable Insurance Trust, advised by PIMCO o PIMCO VIT Commodity Real Return Strategy Portfolio (Advisor Class): Maximum real return. This fund will be available on or about June 30, 2009. Consult your financial advisor. Putnam Variable Trust, advised by Putnam Investment Management, LLC o Global Health Care Fund (Class IB): Capital appreciation. (formerly Health Sciences Fund) This fund is not offered in contracts issued on or after May 24, 2004. o Growth & Income Fund (Class IB): Capital growth and current income. This fund is not offered in contracts issued on or after May 24, 2004. Fund Shares We will purchase shares of the funds at net asset value and direct them to the appropriate subaccounts of the VAA. We will redeem sufficient shares of the appropriate funds to pay annuity payouts, death benefits, surrender/withdrawal proceeds or for other purposes described in the contract. If you want to transfer all or part of your investment from one subaccount to another, we may redeem shares held in the first and purchase shares of the other. Redeemed shares are retired, but they may be reissued later. Shares of the funds are not sold directly to the general public. They are sold to us, and may be sold to other insurance companies, for investment of the assets of the subaccounts established by those insurance companies to fund variable annuity and variable life insurance contracts. When a fund sells any of its shares both to variable annuity and to variable life insurance separate accounts, it is said to engage in mixed funding. When a fund sells any of its shares to separate accounts of unaffiliated life insurance companies, it is said to engage in shared funding. 18 The funds currently engage in mixed and shared funding. Therefore, due to differences in redemption rates or tax treatment, or other considerations, the interest of various contractowners participating in a fund could conflict. Each of the fund's Board of Directors will monitor for the existence of any material conflicts, and determine what action, if any, should be taken. The funds do not foresee any disadvantage to contractowners arising out of mixed or shared funding. If such a conflict were to occur, one of the separate accounts might withdraw its investment in a fund. This might force a fund to sell portfolio securities at disadvantageous prices. See the prospectuses for the funds. Reinvestment of Dividends and Capital Gain Distributions All dividends and capital gain distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to contractowners as additional units, but are reflected as changes in unit values. Addition, Deletion or Substitution of Investments We reserve the right, within the law, to make certain changes to the structure and operation of the VAA at our discretion and without your consent. We may add, delete, or substitute funds for all contractowners or only for certain classes of contractowners. New or substitute funds may have different fees and expenses, and may only be offered to certain classes of contractowners. Substitutions may be made with respect to existing investments or the investment of future purchase payments, or both. We may close subaccounts to allocations of purchase payments or contract value, or both, at any time in our sole discretion. The funds, which sell their shares to the subaccounts pursuant to participation agreements, also may terminate these agreements and discontinue offering their shares to the subaccounts. Substitutions might also occur if shares of a fund should no longer be available, or if investment in any fund's shares should become inappropriate, in the judgment of our management, for the purposes of the contract, or for any other reason in our sole discretion and, if required, after approval from the SEC. We also may: o remove, combine, or add subaccounts and make the new subaccounts available to you at our discretion; o transfer assets supporting the contracts from one subaccount to another or from the VAA to another separate account; o combine the VAA with other separate accounts and/or create new separate accounts; o deregister the VAA under the 1940 Act; and o operate the VAA as a management investment company under the 1940 Act or as any other form permitted by law. We may modify the provisions of the contracts to reflect changes to the subaccounts and the VAA and to comply with applicable law. We will not make any changes without any necessary approval by the SEC. We will also provide you written notice. Charges and Other Deductions We will deduct the charges described below to cover our costs and expenses, services provided and risks assumed under the contracts. We incur certain costs and expenses for the distribution and administration of the contracts and for providing the benefits payable thereunder. Our administrative services include: o processing applications for and issuing the contracts; o processing purchases and redemptions of fund shares as required (including dollar cost averaging, cross-reinvestment, portfolio rebalancing, and automatic withdrawal services - See Additional Services and the SAI for more information on these programs); o maintaining records; o administering annuity payouts; o furnishing accounting and valuation services (including the calculation and monitoring of daily subaccount values); o reconciling and depositing cash receipts; o providing contract confirmations; o providing toll-free inquiry services; and o furnishing telephone and electronic fund transfer services. The risks we assume include: o the risk that annuitants receiving annuity payouts under contracts live longer than we assumed when we calculated our guaranteed rates (these rates are incorporated in the contract and cannot be changed); o the risk that death benefits paid will exceed the actual contract value; o the risk that more owners than expected will qualify for waivers of the surrender charge; 19 o the risk that lifetime payments to individuals from Lincoln Smart Security (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage will exceed the contract value; o the risk that, if the i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit or 4LATER (Reg. TM) Guaranteed Income Benefit is in effect, the required income payments will exceed the account value; and o the risk that our costs in providing the services will exceed our revenues from contract charges (which we cannot change). The amount of a charge may not necessarily correspond to the costs associated with providing the services or benefits indicated by the description of the charge. For example, the contingent deferred sales charge collected may not fully cover all of the sales and distribution expenses actually incurred by us. Any remaining expenses will be paid from our general account which may consist, among other things, of proceeds derived from mortality and expense risk charges deducted from the account. A portion of the mortality and expense risk and administrative charge and a portion of the surrender charges are assessed to fully or partially recoup bonus credits paid into the contract by us when purchase payments are made. We may profit from one or more of the fees and charges deducted under the contract. We may use these profits for any corporate purpose, including financing the distribution of the contracts. Deductions from the VAA We apply to the average daily net asset value of the subaccounts a charge which is equal to an annual rate of:
With Enhanced Guarantee of Guaranteed Minimum Principal Death Death Benefit (EGMDB) Benefit (GOP) ----------------------- ---------------- o Mortality and expense risk charge 1.45% 1.35% o Administrative charge 0.15% 0.15% ---- ---- o Total annual charge for each subaccount 1.60% 1.50%
Surrender Charge A surrender charge applies (except as described below) to surrenders and withdrawals of purchase payments that have been invested for the periods indicated as follows:
Number of contract anniversaries since purchase payment was invested ----------------------------------------------- 0 1 2 3 4 5 6 7 8 9+ Surrender charge as a percentage of th8.50% 8.50% 8% 7% 6% 5% 4% 3% 2% 0% surrendered or withdrawn purchase payments
A surrender charge does not apply to: o A surrender or withdrawal of a purchase payment beyond the ninth anniversary since the purchase payment was invested; o Withdrawals of contract value during a contract year to the extent that the total contract value withdrawn during the current contract year does not exceed the free amount which is equal to the greater of 10% of the current contract value or 10% of the total purchase payments (this does not apply upon surrender of the contract); o When the surviving spouse assumes ownership of the contract as a result of the death of the original owner (however, surrender charge schedule of the original contract will continue to apply to the spouses's contract); o A surrender of the contract as a result of the death of the contractowner, joint owner or annuitant; o Purchase payments when used in the calculation of the initial periodic income payment and the initial Account Value under the i4LIFE (Reg. TM) Advantage option or the contract value applied to calculate the benefit amount under any annuity payout option made available by us; o Regular income payments made under i4LIFE (Reg. TM) Advantage, including any payments to provide the 4LATER or i4LIFE Guaranteed Income Benefits, or periodic payments made under any annuity payout option made available by us; o A surrender or withdrawal of any purchase payments, if such purchase payments were received by us more than 12 months prior to the onset of a permanent and total disability of the contractowner as defined in Section 22(e)(3) of the tax code and the disability occurred after the effective date of the contract and before the 65th birthday of the contractowner; o A surrender or withdrawal of any purchase payments, if such purchase payments were received by us more than 12 months prior to the admittance of the contractowner to an accredited nursing home or equivalent health care facility, where the admittance into such facility occurs after the effective date of the contract and the owner has been confined for at least 90 consecutive days; 20 o A surrender or withdrawal of any purchase payments, if such purchase payments were received by us more than 12 months prior to the diagnosis date of a terminal illness that is after the date of the contract and results in a life expectancy of less than one year as determined by a qualified professional medical practitioner; o A surrender or annuitization of bonus credits and persistency credits; o Withdrawals up to the Maximum Annual Withdrawal amount under the Lincoln SmartSecurity (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage, subject to certain conditions. For purposes of calculating the surrender charge on withdrawals, we assume that: The free amount will be withdrawn from purchase payments on a "first in-first out (FIFO)" basis. Prior to the ninth anniversary of the contract, any amount withdrawn above the free amount during a contract year will be withdrawn in the following order: 1. from purchase payments (on a FIFO basis) until exhausted; then 2. from earnings until exhausted; then 3. from bonus credits. On or after the ninth anniversary of the contract, any amount withdrawn above the free amount during a contract year will be withdrawn in the following order: 1. from purchase payments (on a FIFO basis)to which a surrender charge no longer applies until exhausted; then 2. from earnings and persistency credits until exhausted; then 3. from bonus credits attributable to purchase payments to which a surrender charge no longer applies until exhausted; then 4. from purchase payments (on a FIFO basis) to which a surrender charge still applies until exhausted; then 5. from bonus credits attributable to purchase payments to which a surrender charge still applies. We apply the surrender charge as a percentage of purchase payments, which means that you would pay the same surrender charge at the time of surrender regardless of whether your contract value has increased or decreased. The surrender charge is calculated separately for each purchase payment. The surrender charges associated with surrender or withdrawal are paid to us to compensate us for the loss we experience on contract distribution costs when contractowners surrender or withdraw before distribution costs have been recovered. If the contractowner is a corporation or other non-individual (non-natural person), the annuitant or joint annuitant will be considered the contractowner or joint owner for purposes of determining when a surrender charge does not apply. Account Fee During the accumulation period, we will deduct $30 from the contract value on each contract anniversary to compensate us for the administrative services provided to you; this $30 account fee will also be deducted from the contract value upon surrender. This fee will be waived after the fifteenth contract year. The account fee will be waived for any contract with a contract value that is equal to or greater than $50,000 on the contract anniversary. We do not assess the account fee on contracts issued prior to October 1, 2003. Transfer Fee We reserve the right to charge a $25 fee for the 13th and each additional transfer during any contract year, excluding automatic dollar cost averaging, portfolio rebalancing and cross-reinvestment transfers. The transfer charge will not be imposed on the first 12 transfers during the contract year. Rider Charges A fee or expense may also be deducted in connection with any benefits added to the contract by rider or endorsement. Lincoln Lifetime IncomeSM Advantage Charge. While this Rider is in effect, there is a charge for the Lincoln Lifetime IncomeSM Advantage, if elected. The Rider charge is currently equal to an annual rate of 0.90% of the Guaranteed Amount (0.225% quarterly) for the Lincoln Lifetime IncomeSM Advantage. For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.75% to 0.90% upon the earlier of (a) the next Automatic Annual Step-up of the Guaranteed Amount or (b) the next Benefit Year anniversary if cumulative purchase payments received after the first Benefit Year anniversary equal or exceed $100,000. See The Contracts - Lincoln Lifetime IncomeSM Advantage - Guaranteed Amount for a description of the calculation of the Guaranteed Amount. The charge is applied to the Guaranteed Amount as increased for subsequent purchase payments and bonus credits, Automatic Annual Step-ups, 5% Enhancements, and the 200% Step-up and decreased for withdrawals. We will deduct the cost of this Rider from the contract value on a quarterly basis, with the first deduction occurring on the valuation date on or next following the three-month anniversary of the effective date of the Rider. This deduction will be made in proportion to the value in each subaccount of the 21 contract on the valuation date the Rider charge is assessed. The amount we deduct will increase or decrease as the Guaranteed Amount increases or decreases, because the charge is based on the Guaranteed Amount. Refer to the Lincoln Lifetime IncomeSM Advantage Guaranteed Amount section for a discussion and example of the impact of the changes to the Guaranteed Amount. The annual Rider percentage charge may increase each time the Guaranteed Amount increases as a result of the Automatic Annual Step-up, but the charge will never exceed the guaranteed maximum annual percentage charge of 1.50% of the Guaranteed Amount. Therefore, your percentage charge for this Rider could increase every Benefit Year anniversary. If your percentage charge is increased, you may opt out of the Automatic Annual Step-up by giving us notice within 30 days after the Benefit Year anniversary if you do not want your percentage charge to change. This opt out will only apply for this particular Automatic Annual Step-up and is not available if additional purchase payments would cause your charge to increase (see below). You will need to notify us each time the percentage charge increases if you do not want the Automatic Annual Step-up. An increase in the Guaranteed Amount as a result of the 5% Enhancement or 200% Step-up will not cause an increase in the annual Rider percentage charge but will increase the dollar amount of charge. Once cumulative additional purchase payments into your annuity contract after the first Benefit Year exceed $100,000, any additional purchase payment will potentially cause the charge for your Rider to change to the current charge for new purchases in effect on the next Benefit Year anniversary, but the charge will never exceed the guaranteed maximum annual charge. The new charge will become effective on the Benefit Year anniversary. The Rider charge will be discontinued upon termination of the Rider. The pro-rata amount of the Rider charge will be deducted upon termination of the Rider (except for death) or surrender of the contract. If the Guaranteed Amount is reduced to zero while the contractowner is receiving a lifetime Maximum Annual Withdrawal, no rider charge will be deducted. Lincoln SmartSecurity (Reg. TM) Advantage Charge. While this Rider is in effect, there is a charge for the Lincoln SmartSecurity (Reg. TM) Advantage, if elected. The Rider charge is currently equal to an annual rate of: 1) 0.65% of the Guaranteed Amount (0.1625% quarterly) for the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option (for Riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.45% to 0.65% upon the next election of a step-up of the Guaranteed Amount); or 2) 0.65% of the Guaranteed Amount (0.1625% quarterly) for the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up, Single Life option (and also the prior version of Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up); or 3) 0.80% of the Guaranteed Amount (0.2000% quarterly) for the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up, Joint Life option. See The Contracts - Lincoln SmartSecurity (Reg. TM) Advantage - Guaranteed Amount for a description of the calculation of the Guaranteed Amount. If you purchase this Rider in the future, the percentage charge will be the current charge in effect at the time of purchase. As of January 16, 2009, the Lincoln SmartSecurity (Reg. TM)Advantage - 5 Year Step-up option is no longer available for purchase. The charge is applied to the Guaranteed Amount as adjusted. We will deduct the cost of this Rider from the contract value on a quarterly basis, with the first deduction occurring on the valuation date on or next following the three-month anniversary of the effective date of the Rider. This deduction will be made in proportion to the value in each subaccount on the valuation date the Rider charge is assessed. The amount we deduct will increase or decrease as the Guaranteed Amount increases or decreases, because the charge is based on the Guaranteed Amount. Because bonus credits increase the Guaranteed Amount, bonus credits also increase the amount we deduct for the cost of the Rider. Refer to the Lincoln SmartSecurity (Reg. TM) Advantage, Guaranteed Amount section, for a discussion and example of the impact of changes to the Guaranteed Amount. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the annual Rider percentage charge will not change upon each automatic step-up of the Guaranteed Amount for the 10-year period. If you elect to step-up the Guaranteed Amount for another step-up period (including if we administer the step-up election for you or if you make a change from a Joint Life to a Single Life option after a death or divorce), a pro-rata deduction of the Rider charge based on the Guaranteed Amount immediately prior to the step-up will be made on the valuation date of the step-up. This deduction covers the cost of the Rider from the time of the previous deduction to the date of the step-up. After a contractowner's step-up, we will deduct the Rider charge for the stepped-up Guaranteed Amount on a quarterly basis, beginning on the valuation date on or next following the three-month anniversary of the step-up. At the time of the elected step-up, the Rider percentage charge will change to the current charge in effect at that time (if the current charge has changed), but it will never exceed the guaranteed maximum annual percentage charge of 0.95% of the Guaranteed Amount for the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option or 1.50% of the Guaranteed Amount for the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option. If you never elect to step-up your Guaranteed Amount, your Rider percentage charge will never change, although the amount we deduct will change as the Guaranteed Amount changes. The Rider charge will be discontinued upon the earlier of the annuity commencement date, election of 22 i4LIFE (Reg. TM) Advantage or termination of the Rider. The pro-rata amount of the Rider charge will be deducted upon termination of the Rider or surrender of the contract. Rider Charge Waiver. For the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option, after the later of the fifth anniversary of the effective date of the Rider or the fifth anniversary of the most recent step-up of the Guaranteed Amount, the Rider charge may be waived. For the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, no Rider charge waiver is available with the Single Life and Joint Life options. The earlier version of the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option has a waiver charge provision which may occur after the fifth Benefit Year anniversary following the last automatic step-up opportunity. Whenever the above conditions are met, on each valuation date the Rider charge is to be deducted, if the total withdrawals from the contract have been less than or equal to 10% of the sum of: (1) the Guaranteed Amount on the effective date of this Rider or on the most recent step-up date; and (2) purchase payments (and bonus credits) made after the step-up, then the quarterly Rider charge will be waived. If the withdrawals have been more than 10%, then the Rider charge will not be waived. 4LATER (Reg. TM) Advantage Charge. Prior to the periodic income commencement date (which is defined as the valuation date the initial regular income payment under i4LIFE (Reg. TM) Advantage is determined), the annual 4LATER (Reg. TM) charge is currently 0.65% of the Income Base. For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.50% to 0.65% upon the next election to reset the Income Base. The Income Base (an amount equal to the initial purchase payment and any bonus credit or contract value at the time of election), as adjusted, is a value that will be used to calculate the 4LATER (Reg. TM) Guaranteed Income Benefit. An amount equal to the quarterly 4LATER (Reg. TM) Rider charge multiplied by the Income Base will be deducted from the subaccounts on every third month anniversary of the later of the 4LATER (Reg. TM) Rider Effective Date or the most recent reset of the Income Base. This deduction will be made in proportion to the value in each subaccount on the valuation date the 4LATER (Reg. TM) Rider charge is assessed. The amount we deduct will increase as the Income Base increases, because the charge is based on the Income Base. As described in more detail below, the only time the Income Base will change is when there are additional purchase payments, withdrawals, automatic enhancements at the end of the 3-year waiting periods or in the event of a Reset to the current Account Value. If you purchase 4LATER (Reg. TM) in the future, the percentage charge will be the charge in effect at the time you elect 4LATER (Reg. TM). Upon a reset of the Income Base, a pro-rata deduction of the 4LATER (Reg. TM) Rider charge based on the Income Base immediately prior to the reset will be made on the valuation date of the reset. This deduction covers the cost of the 4LATER (Reg. TM) Rider from the time of the previous deduction to the date of the reset. After the reset, we will deduct the 4LATER (Reg. TM) Rider charge for the reset Income Base on a quarterly basis, beginning on the valuation date on or next following the three month anniversary of the reset. At the time of the reset, the annual charge will be the current charge in effect for new purchases of 4LATER (Reg. TM) at the time of reset, not to exceed the guaranteed maximum charge of 1.50% of the Income Base. If you never elect to reset your Income Base, your 4LATER (Reg. TM) Rider percentage charge will never change, although the amount we deduct will change as your Income Base changes. Prior to the periodic income commencement date, a pro-rata amount of the 4LATER (Reg. TM) Rider charge will be deducted upon termination of the 4LATER (Reg. TM) Rider for any reason other than death. On the periodic income commencement date, a pro-rata deduction of the 4LATER (Reg. TM) Rider charge will be made to cover the cost of 4LATER (Reg. TM) since the previous deduction. i4LIFE (Reg. TM) Advantage Charge . i4LIFE (Reg. TM) Advantage is subject to a charge (imposed during the i4LIFE (Reg. TM) Advantage payout phase), computed daily of the Account Value. The annual rate of the i4LIFE (Reg. TM) Advantage charge is: 1.85% for the i4LIFE (Reg. TM) Advantage Account Value death benefit; 1.90% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit and 2.05% for the i4LIFE (Reg. TM) Advantage EGMDB. This charge consists of a mortality and expense risk and administrative charge (charges for the Guaranteed Income Benefit are not included and are listed below). Otherwise, i4LIFE (Reg. TM) Advantage and the charge will begin on the periodic income commencement date which is the valuation date on which the regular income payment is determined. After the Access Period ends, the charge will be the same rate as the cost of the i4LIFE (Reg. TM) Advantage Account Value death benefit. i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Charge. The Guaranteed Income Benefit which is purchased with i4LIFE (Reg. TM) Advantage is subject to a current annual charge of 0.50% of the Account Value, which is added to the i4LIFE (Reg. TM) Advantage charge for a total current percentage charge of the Account Value, computed daily as follows: 2.35% for the i4LIFE (Reg. TM) Advantage Account Value death benefit; 2.40% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit; and 2.55% for the i4LIFE (Reg. TM) Advantage EGMDB. The Guaranteed Income Benefit percentage charge will not change unless you elect an additional step-up period during which the Guaranteed Income Benefit is stepped-up to 75% of the current regular income payment (described later in the i4LIFE (Reg. TM) Advantage section of this prospectus). At the time you elect a new step-up period, the percentage charge will change to the current charge in effect at that time (if the current charge has changed) up to the guaranteed maximum annual charge of 1.50% of the Account Value. If we automatically administer the step-up period election for you and your percentage charge is increased, you may ask us to reverse the step-up period election by giving us notice within 30 days after the date on which the step-up period election occurred. If we receive this notice, we will decrease the percentage charge to the amounts they were before the step-up period election occurred. Increased fees collected during the 30 day period will be refunded into your contract. You will have no more step-ups unless you notify us that you wish to start a new step-up period (described later in the i4LIFE (Reg. TM) Advantage section of this prospectus). 23 After the periodic income commencement date, if the Guaranteed Income Benefit is terminated, the Guaranteed Income Benefit annual charge will also terminate. 4LATER (Reg. TM) Guaranteed Income Benefit Charge . The 4LATER (Reg. TM) Guaranteed Income Benefit which is purchased with i4LIFE (Reg. TM) Advantage is subject to a current annual charge of 0.65% of the Account Value, which is added to the i4LIFE (Reg. TM) Advantage charge for a total current percentage charge of the Account Value, computed daily as follows: 2.50% for the i4LIFE (Reg. TM) Account Value death benefit; 2.55% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit; and 2.70% for the EGMDB. (For riders purchased before January 20, 2009, the current annual percentage charge is 0.50%, but will increase to 0.65% upon the next election to reset the Income Base.) These charges apply only during the i4LIFE (Reg. TM) Advantage payout phase. On and after the periodic income commencement date, the 4LATER (Reg. TM) Guaranteed Income Benefit charge will be added to the i4LIFE (Reg. TM) charge as a daily percentage of average account value. This is a change to the calculation of the 4LATER (Reg. TM) charge because after the periodic income commencement date, when the 4LATER (Reg. TM) Guaranteed Income Benefit is established, the Income Base is no longer applicable. The percentage 4LATER (Reg. TM) charge is the same immediately before and after the periodic income commencement date; however, the charge is multiplied by the Income Base (on a quarterly basis) prior to the periodic income commencement date and then multiplied by the average daily account value after the periodic income commencement date. After the periodic income commencement date, the 4LATER (Reg. TM) Guaranteed Income Benefit percentage charge will not change unless the contractowner elects additional 15 year step-up periods during which the 4LATER (Reg. TM) Guaranteed Income Benefit (described later) is stepped-up to 75% of the current regular income payment. At the time you elect a new 15 year period, the 4LATER (Reg. TM) Guaranteed Income Benefit percentage charge will change to the current charge in effect at that time (if the current charge has changed) up to the guaranteed maximum annual charge of 1.50% of Account Value. After the periodic income commencement date, if the 4LATER (Reg. TM) Guaranteed Income Benefit is terminated, the 4LATER (Reg. TM) Guaranteed Income Benefit annual charge will also terminate. Guaranteed Income Benefit Charge for Lincoln Lifetime IncomeSM Advantage purchasers. For purchasers of Lincoln Lifetime IncomeSM Advantage who terminate their rider and purchase i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit, the Guaranteed Income Benefit which is purchased with i4LIFE (Reg. TM) Advantage is subject to a current annual charge of 0.50% of the Account Value, which is added to the i4LIFE (Reg. TM)Advantage charge for a total current percentage charge of the Account Value, computed daily as follows: 2.35% for the i4LIFE (Reg. TM) Advantage Account Value death benefit; 2.40% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit; and 2.55% for the i4LIFE (Reg. TM) Advantage EGMDB. Purchasers of Lincoln Lifetime IncomeSM Advantage are guaranteed that in the future the guaranteed maximum charge for the Guaranteed Income Benefit will be the guaranteed maximum charge then in effect at the time that they purchase the Lincoln Lifetime IncomeSM Advantage. The Guaranteed Income Benefit percentage charge will not change unless you elect an additional step-up period during which the Guaranteed Income Benefit is stepped-up to 75% of the current regular income payment (described later). At the time you elect a new step-up period, the percentage charge will change to the current charge in effect at that time (if the current charge has changed) up to the guaranteed maximum annual charge of 1.50% of the Account Value. If we automatically administer the step-up period election for you and your percentage charge is increased, you may ask us to reverse the step-up period election by giving us notice within 30 days after the date on which the step-up period election occurred. If we receive this notice, we will decrease the percentage charge to the amounts they were before the step-up period election occurred. Increased fees collected during the 30-day period will be refunded into your contract. You will have no more step-ups unless you notify us that you wish to start a new step-up period (described later in the i4LIFE (Reg. TM) Advantage section of this prospectus). After the periodic income commencement date, if the Guaranteed Income Benefit is terminated, the Guaranteed Income Benefit annual charge will also terminate. Deductions for Premium Taxes Any premium tax or other tax levied by any governmental entity as a result of the existence of the contracts or the VAA will be deducted from the contract value when incurred, or at another time of our choosing. The applicable premium tax rates that states and other governmental entities impose on the purchase of an annuity are subject to change by legislation, by administrative interpretation or by judicial action. These premium taxes generally depend upon the law of your state of residence. The tax ranges from zero to 3.5%. Currently, there is no premium tax levied for New York residents. Other Charges and Deductions The surrender, withdrawal or transfer of value from a fixed account guaranteed period may be subject to the interest adjustment if applicable. See Fixed Side of the Contract. The mortality and expense risk and administrative charge of 1.40% of the contract value will be assessed on all variable annuity payouts (except for the i4LIFE (Reg. TM) Advantage, which has a different charge), including options that may be offered that do not have a life 24 contingency and therefore no mortality risk. This charge covers the expense risk and administrative services listed previously in this prospectus. The expense risk is the risk that our costs in providing the services will exceed our revenues from contract charges. There are additional deductions from and expenses paid out of the assets of the underlying funds that are more fully described in the prospectuses for the funds. Among these deductions and expenses are 12b-1 fees which reimburse us or an affiliate for certain expenses incurred in connection with certain administrative and distribution support services provided to the funds. Additional Information The charges described previously may be reduced or eliminated for any particular contract. However, these reductions may be available only to the extent that we anticipate lower distribution and/or administrative expenses, or that we perform fewer sales or administrative services than those originally contemplated in establishing the level of those charges, or when required by law. Lower distribution and administrative expenses may be the result of economies associated with: o the use of mass enrollment procedures, o the performance of administrative or sales functions by the employer, o the use by an employer of automated techniques in submitting deposits or information related to deposits on behalf of its employees, or o any other circumstances which reduce distribution or administrative expenses. The exact amount of charges and fees applicable to a particular contract will be stated in that contract. The Contracts Purchase of Contracts If you wish to purchase a contract, you must apply for it through a sales representative authorized by us. Certain broker-dealers may not offer all of the features discussed in this prospectus. The completed application is sent to us and we decide whether to accept or reject it. If the application is accepted, a contract is prepared and executed by our legally authorized officers. The contract is then sent to you through your sales representative. See Distribution of the Contracts. When a completed application and all other information necessary for processing a purchase order is received at our Servicing office, an initial purchase payment and its corresponding bonus credits will be priced no later than two business days after we receive the order. If you submit your application and/or initial purchase payment to your agent, we will not begin processing your purchase order until we receive the application and initial purchase payment from your agent's broker-dealer. While attempting to finish an incomplete application, we may hold the initial purchase payment for no more than five business days unless we receive your consent to our retaining the payment until the application is completed. If the incomplete application cannot be completed within those five days and we have not received your consent, you will be informed of the reasons, and the purchase payment will be returned immediately. Once the application is complete, we will allocate your initial purchase payment and its corresponding bonus credits within two business days. Who Can Invest To apply for a contract, you must be of legal age in a state where the contracts may be lawfully sold and also be eligible to participate in any of the qualified and nonqualified plans for which the contracts are designed. At the time of issue, the contractowner, joint owner and annuitant must be under age 86. Certain death benefit options may not be available at all ages. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license, photo i.d. or other identifying documents. In accordance with money laundering laws and federal economic sanction policy, the Company may be required in a given instance to reject a purchase payment and/or freeze a contractowner's account. This means we could refuse to honor requests for transfers, withdrawals, surrenders or death benefits. Once frozen, monies would be moved from the VAA to a segregated interest-bearing account maintained for the contractowner, and held in that account until instructions are received from the appropriate regulator. If you are purchasing the contract through a tax-favored arrangement, including traditional IRAs and Roth IRAs, you should consider carefully the costs and benefits of the contract (including annuity income benefits) before purchasing the contract, since the tax-favored arrangement itself provides tax-deferred growth. Replacement of Existing Insurance Careful consideration should be given prior to surrendering or withdrawing money from an existing insurance contract to purchase the contract described in this prospectus. Surrender charges may be imposed on your existing contract and/or a new surrender 25 charge period may be imposed with the purchase of, or transfer into, this contract. An investment representative or tax adviser should be consulted prior to making an exchange. Cash surrenders from an existing contract may be subject to tax and tax penalties. Purchase Payments Purchase payments are payable to us at a frequency and in an amount selected by you in the application. The minimum initial purchase payment is $10,000. The minimum annual amount for additional purchase payments is $300. The minimum payment to the contract at any one time must be at least $100 ($25 if transmitted electronically). If a minimum purchase payment is not submitted, we will contact you to see if additional money will be sent, or if we should return the purchase payment to you. Purchase payments in total may not exceed $2 million without our approval. If you stop making purchase payments, the contract will remain in force as a paid-up contract. However, we may terminate the contract as allowed by New York's non-forfeiture law for individual deferred annuities. Purchase payments may be made or, if stopped, resumed at any time until the annuity commencement date, the surrender of the contract, or the death of the contractowner, whichever comes first. Upon advance written notice, we reserve the right to limit purchase payments made to the contract. Bonus Credits For each purchase payment made into the contract, we will credit the contract with a bonus credit. The amount of the bonus credit will be added to the value of the contract at the same time and allocated in the same percentage as the purchase payment. The amount of the bonus credit is calculated as a percentage of the purchase payment made. The amount of any bonus credit applied to the contract will be noted on the confirmation sent after each purchase payment. The bonus credit percentage is based on the owner's cumulative purchase payments at the time each purchase payment is made according to the following scale:
Cumulative Purchase Payments Bonus Credit % ------------------------------ --------------- Less than $100,000 . 3.0% $100,000-$999,999 . 4.0% $1,000,000 or greater . 5.0%
Your cumulative purchase payments at the time of a purchase payment are equal to the sum of (1) all prior purchase payments made to your contract; plus (2) the current purchase payment made to your contract; minus (3) all prior withdrawals of purchase payments from your contract. Tax qualified annuity contracts (including IRAs) cannot be used when determining the amount of the owner's investment. Inclusion of qualified contracts could result in loss of the tax qualified status or tax penalties. It is your responsibility to provide us with contract values for only nonqualified contracts. During the first contract year if you make any purchase payment(s) after the initial purchase payment ("subsequent purchase payment"), we may add a bonus credit ("additional bonus credit") to the contract that is in addition to any bonus credit that was previously added to the contract and the bonus credit that is added due to the subsequent purchase payment. The additional bonus credit will be added to the contract if the subsequent purchase payment increases the owner's investment to a dollar level that qualifies for a higher bonus credit percentage than the bonus credit percentage that any prior purchase payments qualified for. The additional bonus credit will be added to your contract at the time the subsequent purchase payment is made. The bonus credit percentage for the additional bonus credit will be the difference between the higher bonus credit percentage that the subsequent purchase payment qualifies for and the bonus credit percentage that the prior purchase payments qualified for. We will then multiply the sum of all prior first year purchase payments by this bonus credit percentage to determine the amount of the additional bonus credit. You may receive more than one additional bonus credit during the first contract year as we will add an additional bonus credit anytime a subsequent purchase payment increases the amount of the total purchase payments to an amount that qualifies for a higher bonus credit percentage. We offer a variety of variable annuity contracts. The amount of the bonus credit may be more than offset by higher surrender charges associated with the bonus credit. Similar products that do not offer bonus credits and have lower fees and charges may provide larger cash surrender values than this contract, depending on the level of the bonus credits in this contract and the performance of the owner's chosen subaccounts. We encourage you to talk with your financial adviser and determine which annuity contract is most appropriate for you. Persistency Credits Contractowners will receive a persistency credit on a quarterly basis after the fourteenth contract anniversary. The amount of the persistency credit is calculated by multiplying the contract value, less any purchase payments that have not been invested in the contract for at least fourteen years, by 0.05%. This persistency credit will be allocated to the variable subaccounts and the fixed subaccounts in proportion to the contract value in each variable subaccount and fixed subaccount at the time the persistency credit is paid into the contract. The amount of any persistency credit received will be noted on your quarterly statement. Confirmation statements for each individual transaction will not be issued. There is no additional charge to receive this persistency credit, and in no case will the persistency credit be less than zero. 26 Valuation Date Accumulation and annuity units will be valued once daily at the close of trading (normally, 4:00 p.m., New York time) on each day the New York Stock Exchange is open (valuation date). On any date other than a valuation date, the accumulation unit value and the annuity unit value will not change. Allocation of Purchase Payments Purchase payments allocated to the variable account are placed into the VAA's subaccounts, according to your instructions. You may also allocate purchase payments in the fixed account, if available. Corresponding bonus credits will be allocated to the subaccount(s) and or the fixed side of the contract in the same proportion in which you allocated purchase payments. The minimum amount of any purchase payment which can be put into any one subaccount is $20. The minimum amount of any purchase payment which can be put into a fixed account guaranteed period is $2,000, subject to state approval. If we receive your purchase payment from you or your broker-dealer in good order at our Servicing office prior to 4:00 p.m., New York time, we will use the accumulation unit value computed on that valuation date when processing your purchase payment. If we receive your purchase payment at or after 4:00 p.m., New York time, we will use the accumulation unit value computed on the next valuation date. If you submit your purchase payment to your representative, we will generally not begin processing the purchase payment until we receive it from your representative's broker-dealer. If your broker-dealer submits your purchase payment to us through the Depository Trust and Clearing Corporation (DTCC) or, pursuant to terms agreeable to us, uses a proprietary order placement system to submit your purchase payment to us, and your purchase payment was placed with your broker-dealer prior to 4:00 p.m., New York time, then we will use the accumulation unit value computed on that valuation date when processing your purchase payment. If your purchase payment was placed with your broker-dealer at or after 4:00 p.m. New York time, then we will use the accumulation unit value computed on the next valuation date. The number of accumulation units determined in this way is not impacted by any subsequent change in the value of an accumulation unit. However, the dollar value of an accumulation unit will vary depending not only upon how well the underlying fund's investments perform, but also upon the expenses of the VAA and the underlying funds. Valuation of Accumulation Units Purchase payments and bonus credits allocated to the VAA are converted into accumulation units. This is done by dividing the amount allocated by the value of an accumulation unit for the valuation period during which the purchase payments and bonus credits are allocated to the VAA. The accumulation unit value for each subaccount was or will be established at the inception of the subaccount. It may increase or decrease from valuation period to valuation period. Accumulation unit values are affected by investment performance of the funds, fund expenses, and the contract charges. The accumulation unit value for a subaccount for a later valuation period is determined as follows: 1. The total value of the fund shares held in the subaccount is calculated by multiplying the number of fund shares owned by the subaccount at the beginning of the valuation period by the net asset value per share of the fund at the end of the valuation period, and adding any dividend or other distribution of the fund if an ex-dividend date occurs during the valuation period; minus 2. The liabilities of the subaccount at the end of the valuation period; these liabilities include daily charges imposed on the subaccount, and may include a charge or credit with respect to any taxes paid or reserved for by us that we determine result from the operations of the VAA; and 3. The result is divided by the number of subaccount units outstanding at the beginning of the valuation period. The daily charges imposed on a subaccount for any valuation period are equal to the daily mortality and expense risk charge and the daily administrative charge multiplied by the number of calendar days in the valuation period. Contracts with different features have different daily charges, and therefore, will have different corresponding accumulation unit values on any given day. In certain circumstances, and when permitted by law, it may be prudent for us to use a different standard industry method for this calculation, called the Net Investment Factor method. We will achieve substantially the same result using either method. Transfers On or Before the Annuity Commencement Date After the first 30 days from the effective date of your contract, you may transfer all or a portion of your investment from one subaccount to another. A transfer involves the surrender of accumulation units in one subaccount and the purchase of accumulation units in the other subaccount. A transfer will be done using the respective accumulation unit values determined at the end of the valuation date on which the transfer request is received. Currently, there is no charge to you for a transfer. However, we reserve the right to impose a $25 fee for transfers after the first 12 times during a contract year. Transfers are limited to twelve (12) (within and/or between the variable and fixed subaccounts) per contract year unless otherwise authorized by Lincoln New York. Lincoln New York reserves the right to require a 30 day minimum time period between each transfer. Transfers made as a part of an automatic transfer program will not be counted against these twelve transfers. 27 The minimum amount which may be transferred between subaccounts is $300 (or the entire amount in the subaccount, if less than $300). If the transfer from a subaccount would leave you with less than $300 in the subaccount, we may transfer the total balance of the subaccount. A transfer request may be made to our Servicing office using written, telephone, fax, or electronic instructions, if the appropriate authorization is on file with us. Our address, telephone number, and Internet address are on the first page of this prospectus. In order to prevent unauthorized or fraudulent transfers, we may require certain identifying information before we will act upon instructions. We may also assign the contractowner a Personal Identification Number (PIN) to serve as identification. We will not be liable for following instructions we reasonably believe are genuine. Telephone requests will be recorded and written confirmation of all transfer requests will be mailed to the contractowner on the next valuation date. Please note that the telephone and/or electronic devices may not always be available. Any telephone or electronic device, whether it is yours, your service provider's, or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request by writing to our Servicing office. Requests for transfers will be processed on the valuation date that they are received when they are received at our Servicing office before the end of the valuation date (normally 4:00 p.m. New York time). If we receive a transfer request at or after 4:00p.m., New York time, we will process the request using the accumulation unit value computed on the next valuation date. If your contract offers a fixed account, you may also transfer all or any part of the contract value from the subaccount(s) to the fixed side of the contract, except during periods when (if permitted by your contract) we have discontinued accepting transfers into the fixed side of the contract. The minimum amount which can be transferred to a fixed account is $2,000 or the total amount in the subaccount if less than $2,000. However, if a transfer from a subaccount would leave you with less than $300 in the subaccount, we may transfer the total amount to the fixed side of the contract. You may also transfer part of the contract value from a fixed account to the various subaccount(s) subject to the following restrictions: o the sum of the percentages of fixed value transferred is limited to 25% of the value of that fixed account in any twelve month period; and o the minimum amount which can be transferred is $300 or the amount in the fixed account. Transfers of all or a portion of a fixed account (other than automatic transfer programs and i4LIFE (Reg. TM) Advantage transfers) may be subject to interest adjustments, if applicable. Transfers may be delayed as permitted by the 1940 Act. See Delay of Payments. Market Timing Frequent, large, or short-term transfers among subaccounts and the fixed account, such as those associated with "market timing" transactions, can affect the funds and their investment returns. Such transfers may dilute the value of the fund shares, interfere with the efficient management of the fund's portfolio, and increase brokerage and administrative costs of the funds. As an effort to protect our contractowners and the funds from potentially harmful trading activity, we utilize certain market timing policies and procedures (the "Market Timing Procedures"). Our Market Timing Procedures are designed to detect and prevent such transfer activity among the subaccounts and the fixed account that may affect other contractowners or fund shareholders. In addition, the funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the funds describe any such policies and procedures, which may be more or less restrictive than the frequent trading policies and procedures of other funds and the Market Timing Procedures we have adopted to discourage frequent transfers among subaccounts. While we reserve the right to enforce these policies and procedures, contractowners and other persons with interests under the contracts should be aware that we may not have the contractual authority or the operational capacity to apply the frequent trading policies and procedures of the funds. However, under SEC rules, we are required to: (1) enter into a written agreement with each fund or its principal underwriter that obligates us to provide to the fund promptly upon request certain information about the trading activity of individual contractowners, and (2) execute instructions from the fund to restrict or prohibit further purchases or transfers by specific contractowners who violate the excessive trading policies established by the fund. You should be aware that the purchase and redemption orders received by the funds generally are "omnibus" orders from intermediaries such as retirement plans or separate accounts funding variable insurance contracts. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and/or individual owners of variable insurance contracts. The omnibus nature of these orders may limit the funds' ability to apply their respective disruptive trading policies and procedures. We cannot guarantee that the funds (and thus our contractowners) will not be harmed by transfer activity relating to the retirement 28 plans and/or other insurance companies that may invest in the funds. In addition, if a fund believes that an omnibus order we submit may reflect one or more transfer requests from policy owners engaged in disruptive trading activity, the fund may reject the entire omnibus order. Our Market Timing Procedures detect potential "market timers" by examining the number of transfers made by contractowners within given periods of time. In addition, managers of the funds might contact us if they believe or suspect that there is market timing. If requested by a fund company, we may vary our Market Timing Procedures from subaccount to subaccount to comply with specific fund policies and procedures. We may increase our monitoring of contractowners who we have previously identified as market timers. When applying the parameters used to detect market timers, we will consider multiple contracts owned by the same contractowner if that contractowner has been identified as a market timer. For each contractowner, we will investigate the transfer patterns that meet the parameters being used to detect potential market timers. We will also investigate any patterns of trading behavior identified by the funds that may not have been captured by our Market Timing Procedures. Once a contractowner has been identified as a "market timer" under our Market Timing Procedures, we will notify the contractowner in writing that future transfers (among the subaccounts and/or the fixed account) will be temporarily permitted to be made only by original signature sent to us by U.S. mail, standard delivery for the remainder of the contract year (or calendar year if the contract is an individual contract that was sold in connection with an employer sponsored plan). Overnight delivery or electronic instructions (which may include telephone, facsimile, or Internet instructions) submitted during this period will not be accepted. If overnight delivery or electronic instructions are inadvertently accepted from a contractowner that has been identified as a market timer, upon discovery, we will reverse the transaction within 1 or 2 business days. We will impose this "original signature" restriction on that contractowner even if we cannot identify, in the particular circumstances, any harmful effect from that contractowner's particular transfers. Contractowners seeking to engage in frequent, large, or short-term transfer activity may deploy a variety of strategies to avoid detection. Our ability to detect such transfer activity may be limited by operational systems and technological limitations. The identification of contractowners determined to be engaged in such transfer activity that may adversely affect other contractowners or fund shareholders involves judgments that are inherently subjective. We cannot guarantee that our Market Timing Procedures will detect every potential market timer. If we are unable to detect market timers, you may experience dilution in the value of your fund shares and increased brokerage and administrative costs in the funds. This may result in lower long-term returns for your investments. Our Market Timing Procedures are applied consistently to all contractowners. An exception for any contractowner will be made only in the event we are required to do so by a court of law. In addition, certain funds available as investment options in your contract may also be available as investment options for owners of other, older life insurance policies issued by us. Some of these older life insurance policies do not provide a contractual basis for us to restrict or refuse transfers which are suspected to be market timing activity. In addition, because other insurance companies and/or retirement plans may invest in the funds, we cannot guarantee that the funds will not suffer harm from frequent, large, or short-term transfer activity among subaccounts and the fixed accounts of variable contracts issued by other insurance companies or among investment options available to retirement plan participants. In our sole discretion, we may revise our Market Timing Procedures at any time without prior notice as necessary to better detect and deter frequent, large, or short-term transfer activity to comply with state or federal regulatory requirements, and/or to impose additional or alternate restrictions on market timers (such as dollar or percentage limits on transfers). If we modify our Market Timing Procedures, they will be applied uniformly to all contractowners or as applicable to all contractowners investing in underlying funds. We also reserve the right to implement and administer redemption fees imposed by one or more of the funds in the future. Some of the funds have reserved the right to temporarily or permanently refuse payments or transfer requests from us if, in the judgment of the fund's investment adviser, the fund would be unable to invest effectively in accordance with its investment objective or policies, or would otherwise potentially be adversely affected. To the extent permitted by applicable law, we reserve the right to defer or reject a transfer request at any time that we are unable to purchase or redeem shares of any of the funds available through the VAA, including any refusal or restriction on purchases or redemptions of the fund shares as a result of the funds' own policies and procedures on market timing activities. If a fund refuses to accept a transfer request we have already processed, we will reverse the transaction within 1 or 2 business days. We will notify you in writing if we have reversed, restricted or refused any of your transfer requests. Some funds also may impose redemption fees on short-term trading (i.e., redemptions of mutual fund shares within a certain number of business days after purchase). We reserve the right to administer and collect any such redemption fees on behalf of the funds. You should read the prospectuses of the funds for more details on their redemption fees and their ability to refuse or restrict purchases or redemptions of their shares. Transfers After the Annuity Commencement Date You may transfer all or a portion of your investment in one subaccount to another subaccount or to the fixed side of the contract, as permitted under your contract. Those transfers will be limited to three times per contract year. You may also transfer from a variable annuity payment to a fixed annuity payment. You may not transfer from a fixed annuity payment to a variable annuity payment. 29 If you select i4LIFE (Reg. TM) Advantage your transfer rights and restrictions for the variable subaccounts and the fixed account during the Access Period are the same as stated in the section of this prospectus called Transfers On or Before the Annuity Commencement Date. During the i4LIFE (Reg. TM) Advantage Lifetime Income Period, you are subject to the rights set forth in the prior paragraph. Ownership The owner on the date of issue will be the person or entity designated in the contract specifications. If no owner is designated, the annuitant(s) will be the owner. The owner may name a joint owner. As contractowner, you have all rights under the contract. According to New York law, the assets of the VAA are held for the exclusive benefit of all contractowners and their designated beneficiaries; and the assets of the VAA are not chargeable with liabilities arising from any other business that we may conduct. Qualified contracts may not be assigned or transferred except as permitted by applicable law and upon written notification to us. Assignments may have an adverse impact on any death benefits or living benefits in this product. We assume no responsibility for the validity or effect of any assignment. Consult your tax adviser about the tax consequences of an assignment. Joint Ownership If a contract has joint owners, the joint owners shall be treated as having equal undivided interests in the contract. Either owner, independently of the other, may exercise any ownership rights in this contract. Not more than two owners (an owner and joint owner) may be named and contingent owners are not permitted. Annuitant The following rules apply prior to the annuity commencement date. You may name only one annuitant [unless you are a tax-exempt entity, then you can name two joint annuitants]. You (if the contractowner is a natural person) have the right to change the annuitant at any time by notifying us of the change. The new annuitant must be under age 86 as of the effective date of the change. This change may cause a reduction in the death benefit on the death of the annuitant. See The Contracts - Death Benefit. A contingent annuitant may be named or changed by notifying us in writing. Contingent annuitants are not allowed on contracts owned by non-natural owners. On or after the annuity commencement date, the annuitant or joint annuitants may not be changed and contingent annuitant designations are no longer applicable. Surrenders and Withdrawals Before the annuity commencement date, we will allow the surrender of the contract or a withdrawal of the contract value upon your written request on an approved Lincoln distribution request form (available from the Servicing office), subject to the rules discussed below. Surrender or withdrawal rights after the annuity commencement date depend on the annuity payout option selected. The amount available upon surrender/withdrawal is the contract value less any applicable charges, fees, and taxes at the end of the valuation period during which the written request for surrender/withdrawal is received at the Servicing office. If we receive a surrender or withdrawal request at or after 4:00 p.m., New York time, we will process the request using the accumulation unit value computed on the next valuation date. The minimum amount which can be withdrawn is $300. Unless a request for withdrawal specifies otherwise, withdrawals will be made from all subaccounts within the VAA and from the fixed account in the same proportion that the amount of withdrawal bears to the total contract value. Surrenders and withdrawals from the fixed account may be subject to the interest adjustment. See Fixed Side of the Contract. Unless prohibited, surrender/withdrawal payments will be mailed within seven days after we receive a valid written request at the Servicing office. The payment may be postponed as permitted by the 1940 Act. If you request a lump sum surrender and your surrender value is over $10,000, your money will be placed into a SecureLine (Reg. TM) account in your name. You are the owner of the account, and are the only one authorized to transfer proceeds from the account. You may choose to leave the proceeds in this account, or you may begin writing checks immediately. The SecureLine (Reg. TM) account is a special service that we offer in which your surrender proceeds are placed into an interest-bearing account. Instead of mailing you a check, we will send a checkbook so that you will have access to the account simply by writing a check for all or any part of the proceeds. The SecureLine (Reg. TM) account is part of our general account. It is not a bank account and it is not insured by the FDIC or any other government agency. As part of our general account, it is subject to the claims of our creditors. We receive a benefit from all amounts left in the SecureLine (Reg. TM) account. You may request that surrender proceeds be paid directly to you instead of deposited in a SecureLine (Reg. TM) account. There are charges associated with surrender of a contract or withdrawal of contract value. You may specify whether these charges are deducted from the amount you request to be withdrawn or from the remaining contract value. If the charges are deducted from the remaining contract value, the amount of the total withdrawal will increase according to the impact of the applicable surrender charge percentage; consequently, the dollar amount of the surrender charge associated with the withdrawal will also increase. In other words, the dollar amount deducted to cover the surrender charge is also subject to a surrender charge. The tax consequences of a surrender/withdrawal are discussed later in this booklet. See Federal Tax Matters - Taxation of Withdrawals and Surrenders. 30 Additional Services These are the additional services available to you under your contract: dollar-cost averaging (DCA), automatic withdrawal service (AWS), cross-reinvestment service and portfolio rebalancing. Currently, there is no charge for these services. However, we reserve the right to impose one. In order to take advantage of one of these services, you will need to complete the appropriate election form that is available from our Servicing office. For further detailed information on these services, please see Additional Services in the SAI. Dollar-cost averaging allows you to transfer amounts from the DCA fixed account, if available, or certain variable subaccounts into the variable subaccounts on a monthly basis or in accordance with other terms we make available. We reserve the right to discontinue or modify this program at any time. DCA does not assure a profit or protect against loss. The automatic withdrawal service (AWS) provides for an automatic periodic withdrawal of your contract value. The cross-reinvestment service allows you to automatically transfer the account value in a designated variable subaccount that exceeds a baseline amount to another specific variable subaccount at specific intervals. Portfolio rebalancing is an option that restores to a pre-determined level the percentage of contract value allocated to each variable account subaccount. The rebalancing may take place monthly, quarterly, semi-annually or annually. Only one of the three additional services (DCA, cross reinvestment and portfolio rebalancing) may be used at one time. For example, you cannot have DCA and cross reinvestment running simultaneously. Asset Allocation Models Your registered representative may discuss asset allocation models with you to assist you in deciding how to allocate your purchase payments among the various subaccounts and/or the fixed account. The models listed below were designed and prepared by the Company, in consultation with SSgA Funds Management, Inc., for use by Lincoln Financial Distributors, Inc., (LFD) the principal underwriter of the contracts. LFD provides models to broker dealers who may offer the models to their own clients. The models do not constitute investment advice and you should consult with your broker dealer representative to determine whether you should utilize a model or which model is suitable for you based upon your goals, risk tolerance and time horizon. Each model invests different percentages of contract value in some or all of the LVIP subaccounts currently available within your annuity contract. If you select an asset allocation model, 100% of your contract value (and any additional purchase payments you make) will be allocated among certain subaccounts in accordance with the model's asset allocation strategy. You may not make transfers among the subaccounts. We will deduct any withdrawals you make from the subaccounts in the asset allocation model on a pro rata basis. You may only choose one asset allocation model at a time, though you may change to a different asset allocation model available in the contract at any time. Each of the asset allocation models seeks to meet its investment objective while avoiding excessive risk. The models also strive to achieve diversification among asset classes in order to help reduce volatility and boost returns over the long-term. There can be no assurance, however, that any of the asset allocation models will achieve its investment objective. If you are seeking a more aggressive strategy, these models are probably not appropriate for you. The asset allocation models are intended to provide a diversified investment portfolio by combining different asset classes to help it reach its stated investment goal. While diversification may help reduce overall risk, it does not eliminate the risk of losses and it does not protect against losses in a declining market. In order to maintain the model's specified subaccount allocation percentages, you agree to be automatically enrolled in and you thereby authorize us to automatically rebalance your contract value on a quarterly basis based upon your allocation instructions in effect at the time of the rebalancing. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive an individual confirmation after each allocation. We reserve the right to change the rebalancing frequency at any time, in our sole discretion, but will not make changes more than once per calendar year. You will be notified at least 30 days prior to the date of any change in frequency. The models are static asset allocation models. This means that that they have fixed allocations made up of underlying funds that are offered within your contract and the percentage allocations will not change over time. Once you have selected an asset allocation model, we will not make any changes to the fund allocations within the model except for the rebalancing described above. If you desire to change your contract value or purchase payment allocation or percentages to reflect a revised or different model, you must submit new allocation instructions to us. You may terminate a model at any time. There is no charge from Lincoln for participating in a model. The election of certain Living Benefit riders may require that you allocate purchase payments in accordance with Investment Requirements that may be satisfied by choosing one of the asset allocation models. Different requirements and/or restrictions may apply under the individual rider. See The Contracts - Investment Requirements. At this time, the available models are as follows: 31 o The Lincoln SSgA Conservative Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 40% in three equity subaccounts and 60% in one fixed income subaccount. This model seeks a high level of current income with some consideration given to growth of capital. The model utilizes index funds exclusively. o The Lincoln SSgA Moderate Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 60% in three equity subaccounts and 40% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with an emphasis on growth of capital. The model utilizes index funds exclusively. o The Lincoln SSgA Moderately Aggressive Equity Index Model (formerly known as the Lincoln SSgA Moderately Aggressive Index Model) is composed of specified underlying subaccounts representing a target allocation of approximately 80% in three equity subaccounts and 20% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes index funds exclusively. (Not available to contracts issued on or after June 30, 2009) o The Lincoln SSgA Moderately Aggressive Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 70% in three equity subaccounts and 30% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes index funds exclusively. (Available on or after June 30, 2009) o The Lincoln SSgA Aggressive Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 90% in three equity subaccounts and 10% in one fixed income subaccount. This model seeks long term growth of capital. The model utilizes index funds exclusively. o The Lincoln SSgA Structured Conservative Model is composed of specified underlying subaccounts representing a target allocation of approximately 40% in seven equity subaccounts and 60% in one fixed income subaccount. This model seeks a high level of current income with some consideration given to growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. o The Lincoln SSgA Structured Moderate Model is composed of specified underlying subaccounts representing a target allocation of approximately 60% in seven equity subaccounts and 40% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with an emphasis on growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. o The Lincoln SSgA Structured Moderately Aggressive Equity Model (formerly known as the Lincoln SSgA Structured Moderately Aggressive Model) is composed of specified underlying subaccounts representing a target allocation of approximately 80% in seven equity subaccounts and 20% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. (Not available to contracts issued on or after June 30, 2009) o The Lincoln SSgA Structured Moderately Aggressive Model is composed of specified underlying subaccounts representing a target allocation of approximately 70% in seven equity subaccounts and 30% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. (Available on or after June 30, 2009) o The Lincoln SSgA Structured Aggressive Model is composed of specified underlying subaccounts representing a target allocation of approximately 90% in seven equity subaccounts and 10% in one fixed income subaccount. This model seeks long term growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. Your registered representative will have more information on the specific investments of each model. Franklin Templeton Founding Investment Strategy: Through the Franklin Templeton Founding Investment Strategy you may allocate purchase payments and/or contract values to three underlying funds as listed below. This is not an asset allocation model. If you choose to follow this strategy you will invest 100% of your contract value according to the strategy. You may invest in any of the three funds without adopting the strategy. Upon selection of this program you agree to be automatically enrolled in portfolio rebalancing and authorize us to automatically rebalance your contract value on a quarterly basis in accordance with the strategy. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive an individual confirmation after each allocation. You may terminate the strategy at any time and reallocate your contract value to other investment options. We reserve the right to change the rebalancing frequency at any time, in our sole discretion, but will not make changes more than once per calendar year. You will be notified at least 30 days prior to the date of any change in frequency. 32 o FTVIPT Franklin Income Securities 34% of contract value o FTVIPT Mutual Shares Securities 33% of contract value o LVIP Templeton Growth Fund 33% of contract value
Death Benefit The chart below provides a brief overview of how the death benefit proceeds will be distributed, if death occurs prior to i4LIFE (Reg. TM) Advantage elections or to the annuity commencement date. Refer to your contract for the specific provisions applicable upon death.
UPON DEATH OF: AND... contractowner There is a surviving joint owner contractowner There is no surviving joint owner contractowner There is no surviving joint owner and the beneficiary predeceases the contractowner annuitant The contractowner is living annuitant The contractowner is living annuitant** The contractowner is a trust or other non-natural person UPON DEATH OF: AND... DEATH BENEFIT PROCEEDS PASS TO: contractowner The annuitant is living or deceased joint owner contractowner The annuitant is living or deceased designated beneficiary contractowner The annuitant is living or deceased contractowner's estate annuitant There is no contingent annuitant The youngest contractowner becomes the contingent annuitant and the contract continues. The contractowner may waive* this continuation and receive the death benefit proceeds. annuitant The contingent annuitant is living contingent annuitant becomes the annuitant and the contract continues annuitant** No contingent annuitant allowed designated beneficiary with non-natural contractowner
* Notification from the contractowner to select the death benefit proceeds must be received within 75 days of the death of the annuitant. ** Death of annuitant is treated like death of the contractowner. If the contractowner (or a joint owner) or annuitant dies prior to the annuity commencement date, a death benefit may be payable. You can choose the death benefit. Only one death benefit may be in effect at any one time and this election terminates if you elect i4LIFE (Reg. TM) Advantage or any annuitization option. Generally, the more expensive the death benefit the greater the protection. You should consider the following provisions carefully when designating the beneficiary, annuitant, any contingent annuitant and any joint owner, as well as before changing any of these parties. The identity of these parties under the contract may significantly affect the amount and timing of the death benefit or other amount paid upon a contractowner's or annuitant's death. You may designate a beneficiary during your lifetime and change the beneficiary by filing a written request with our Servicing office. Each change of beneficiary revokes any previous designation. We reserve the right to request that you send us the contract for endorsement of a change of beneficiary. Upon the death of the contractowner, a death benefit will be paid to the beneficiary. Upon the death of a joint owner, the death benefit will be paid to the surviving joint owner. If the contractowner is a corporation or other non-individual (non-natural person), the death of the annuitant will be treated as death of the contractowner. If an annuitant who is not the contractowner or joint owner dies, then the contingent annuitant, if named, becomes the annuitant and no death benefit is payable on the death of the annuitant. If no contingent annuitant is named, the contractowner (or younger of joint owners) becomes the annuitant. Alternatively, a death benefit may be paid to the contractowner (and joint owner, if applicable, in equal shares). Notification of the election of this death benefit must be received by us within 75 days of the death of the annuitant. The contract terminates when any death benefit is paid due to the death of the annuitant. Only the contract value as of the valuation date we approve the payment of the death claim is available as a death benefit if a contractowner, joint owner or annuitant was added or changed subsequent to the effective date of this contract unless the change occurred because of the death of a prior contractowner, joint owner or annuitant. If your contract value equals zero, no death benefit will be paid. 33 Guarantee of Principal Death Benefit. If you do not select a death benefit, the Guarantee of Principal Death Benefit will apply to your contract. If the Guarantee of Principal Death Benefit is in effect, the death benefit will be equal to the greater of: o The current contract value as of the valuation date we approve the payment of the claim; or o The sum of all purchase payments decreased by withdrawals in the same proportion that withdrawals reduced the contract value (withdrawals less than or equal to the Maximum Annual Withdrawal amount under the Lincoln Lifetime IncomeSM Advantage rider may reduce the sum of all purchase payments amount on a dollar for dollar basis. See The Contracts - Lincoln Lifetime IncomeSM Advantage). In a declining market, withdrawals deducted in the same proportion that withdrawals reduce the contract value may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for any applicable charges associated with those withdrawals (surrender charges for example) and premium taxes, if any. Enhanced Guaranteed Minimum Death Benefit (EGMDB). If the Enhanced Guaranteed Minimum Death Benefit (EGMDB) is in effect, the death benefit paid will be the greatest of: o the contract value as of the valuation date the death benefit is approved by us for payment; o the sum of all purchase payments decreased by withdrawals in the same proportion that withdrawals reduced the contract value (withdrawals less than or equal to the Maximum Annual Withdrawal amount under the Lincoln Lifetime IncomeSM Advantage rider may reduce the sum of all purchase payments amount on a dollar for dollar basis. See The Contracts - Lincoln Lifetime IncomeSM Advantage); or o the highest contract value which the contract attains on any contract anniversary (including the inception date) (determined before the allocation of any purchase payments on that contract anniversary) prior to the 81st birthday of the deceased and prior to the death of the contractowner, joint owner or annuitant for whom the death claim is approved for payment. The highest contract value is increased by purchase payments and bonus credits and is decreased by withdrawals subsequent to that anniversary date in the same proportion that withdrawals reduced the contract value. In a declining market, withdrawals deducted in the same proportion that withdrawals reduce the contract value may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for applicable charges and premium taxes, if any. The EGMDB is not available under contracts issued to a contractowner, or joint owner or annuitant, who is age 80 or older at the time of issuance. For contracts purchased after October 1, 2003, the contractowner may discontinue the EGMDB at any time by completing the Enhanced Guaranteed Minimum Death Benefit Discontinuance form and sending it to our Servicing office. The benefit will be discontinued as of the valuation date we receive the request, and the Guarantee of Principal Death Benefit will apply. We will deduct the charge for the Guarantee of Principal Death Benefit as of that date. See Charges and Other Deductions. General Death Benefit Information Only one of these death benefit elections may be in effect at any one time and these elections terminate if you elect i4LIFE (Reg. TM) Advantage. If there are joint owners, upon the death of the first contractowner, we will pay a death benefit to the surviving joint owner. The surviving joint owner will be treated as the primary, designated beneficiary. Any other beneficiary designation on record at the time of death will be treated as a contingent beneficiary. If the surviving joint owner is the spouse of the deceased joint owner, he/she may continue the contract as sole contractowner. Upon the death of the spouse who continues the contract, we will pay a death benefit to the designated beneficiary(s). If the beneficiary is the spouse of the contractowner, then the spouse may elect to continue the contract as the new contractowner. Should the surviving spouse elect to continue the contract, a portion of the death benefit may be credited to the contract. Any portion of the death benefit that would have been payable (if the contract had not been continued) that exceeds the current contract value on the date the surviving spouse elects to continue will be added to the contract value. If the contract is continued in this way, the death benefit in effect at the time the beneficiary elected to continue the contract will remain as the death benefit. The value of the death benefit will be determined as of the valuation date we approve the payment of the claim. Approval of payment will occur upon our receipt of all the following: 1. proof (e.g. an original certified death certificate), or any other proof of death satisfactory to us, of the death; 2. written authorization for payment; and 3. all required claim forms, fully completed (including selection of a settlement option). 34 Notwithstanding any provision of this contract to the contrary, the payment of death benefits provided under this contract must be made in compliance with Code Section 72(s) or 401(a)(9) as applicable, as amended from time to time. Death benefits may be taxable. See Federal Tax Matters. Unless otherwise provided in the beneficiary designation, one of the following procedures will take place on the death of a beneficiary: o If any beneficiary dies before the contractowner, that beneficiary's interest will go to any other beneficiaries named, according to their respective interests; and/or o If no beneficiary survives the contractowner, the proceeds will be paid to the contractowner's estate. If the beneficiary is a minor, court documents appointing the guardian/custodian may be required. Unless the contractowner has already selected a settlement option, the beneficiary may choose the method of payment of the death benefit. The death benefit payable to the beneficiary or joint owner must be distributed within five years of the contractowner's date of death unless the beneficiary begins receiving within one year of the contractowner's death the distribution in the form of a life annuity or an annuity for a designated period not extending beyond the beneficiary's life expectancy. Upon the death of the annuitant, Federal tax law requires that an annuity election be made no later than 60 days after we have approved the death claim for payment. If the death benefit becomes payable, the recipient may elect to receive payment either in the form of a lump sum settlement or an annuity payout. If a lump sum settlement is elected, the proceeds will be mailed within seven days of approval by us of the claim subject to the laws, regulations and tax code governing payment of death benefits. This payment may be postponed as permitted by the Investment Company Act of 1940. In the case of a death of one of the parties to the annuity contract, if the recipient of the death benefit has elected a lump sum settlement and the contract value is over $10,000, the proceeds will be placed into the interest-bearing account in the recipient's name as the owner of the account. The SecureLine (Reg. TM) account allows the recipient additional time to decide how to manage death benefit proceeds with the balance earning interest from the day the account is opened. SecureLine (Reg. TM) is not a method of deferring taxation. The SecureLine (Reg. TM) account is a special service that we offer in which the death benefit proceeds are placed into an interest-bearing account. Instead of mailing you (or the recipient of the death proceeds) a check, we will send a checkbook so that you (or the death proceeds recipient) will have access to the account simply by writing a check for all or any part of the proceeds. The SecureLine (Reg. TM) account is part of our general account. It is not a bank account and it is not insured by the FDIC or any other government agency. As part of our general account, it is subject to the claims of our creditors. We receive a benefit from all amounts left in the SecureLine (Reg. TM) account. The recipient of death benefit proceeds may request to receive the proceeds in the form of a check rather than a deposit into the SecureLine (Reg. TM) account. Investment Requirements Prior to January 20, 2009. Contractowners who purchased the Lincoln Lifetime Income (Reg. TM) Advantage Rider from December 15, 2008 through January 19, 2009 will be subject to Investment Requirements as set forth in your contract. As of January 20, 2009 and prior to June 30, 2009. Contractowners who have elected the Lincoln Lifetime Income (Reg. TM) Advantage Rider or the Guaranteed Income Benefit (version 3) under i4Life (Reg. TM) Advantage from January 20, 2009 through June 29, 2009 will be subject to the following Investment Requirements on the investments in their contracts. We have divided the subaccounts of your contract into two groups. We will specify the minimum or maximum percentages of your contract value (includes Account Value if i4LIFE (Reg. TM) Advantage is in effect) that must be in each group at the time you purchase the rider. In addition, you may allocate your contract value and purchase payments in accordance with certain asset allocation models. If you terminate an asset allocation model, you must follow the Investment Requirements applicable to your rider. Some investment options are not available to you if you purchase certain riders. The Investment Requirements may not be consistent with an aggressive investment strategy. You should consult with your registered representative to determine if the Investment Requirements are consistent with your investment objectives. You can select the percentages of contract value to allocate to individual subaccounts within each group, but the total investment for all subaccounts in a group must comply with the specified minimum or maximum percentages for that group. In accordance with these Investment Requirements, you agree to be automatically enrolled in the portfolio rebalancing option under your contract and thereby authorize us to automatically rebalance your contract value on a periodic basis. On each quarterly anniversary of the effective date of the Rider, we will rebalance your contract value, on a pro-rata basis, based on your allocation instructions in effect at the time of the rebalancing. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive an individual confirmation after each reallocation. At this time, the subaccount groups are as follows: 35 Group 1 Group 2 Investments must be at least 30% of contract value Investments cannot exceed 70% of contract value or Account Value ----------------------------------------------------------------- or Account Value ---------------------------------------------------- 1. American Century VP Inflation Protection Fund All other funds except as described below. 2. LVIP Delaware Bond Fund 3. Delaware VIP Limited-Term Diversified Income Series 4. Delaware VIP Diversified Income Series 5. FTVIPT Templeton Global Bond Securities Fund 6. LVIP SSgA Bond Index Fund 7. LVIP Global Income Fund
To satisfy the Investment Requirements, you may allocate 100% of your contract value among the MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, the FTVIPT Franklin Income Securities Fund, or the LVIP Wilshire Profile Funds that are available in your contract except not more than 70% can be allocated to the LVIP Wilshire Aggressive Profile Fund, LVIP Wilshire 2030 Profile Fund and LVIP Wilshire 2040 Profile Fund. If you allocate less than 100% of your contract value to or among MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, the FTVIPT Franklin Income Securities Fund, or the available LVIP Wilshire Profile Funds, then these funds will be considered as part of Group 2 above and you will be subject to Group 2 restrictions. The DWS Alternative Asset Allocation Plus VIP Portfolio, the PIMCO VIT Commodity Real Return Strategy Portfolio, the LVIP SSgA Emerging Markets 100 Fund, the AllianceBernstein VPS Global Thematic Growth Portfolio, the Delaware VIP REIT Series and the Delaware VIP Emerging Markets Series are not available with these riders. The fixed account is only available for dollar cost averaging. To satisfy the Investment Requirements, contract value can be allocated in accordance with certain asset allocation models, made available to you by your broker dealer. 100% of the contract value can be allocated to one of the following models: Lincoln SSgA Structured Conservative Model, Lincoln SSgA Structured Moderate Model, Lincoln SSgA Structured Moderately Aggressive Model, Lincoln SSgA Conservative Index Model, Lincoln SSgA Moderate Index Model, and Lincoln SSgA Moderately Aggressive Index Model. You may choose one asset allocation model at a time, though you may change to a different asset allocation model in your contract that meets the Investment Requirements or reallocate your contract value among the Group 1 or 2 subaccounts. Beginning June 30, 2009. Contractowners who have elected the Lincoln Lifetime Income (Reg. TM) Advantage Rider, the Guaranteed Income Benefit (version 2 or version 3) under i4Life (Reg. TM) Advantage, Lincoln SmartSecurity (Reg. TM) Advantage, or 4Later (Reg. TM) Advantage as of June 30, 2009 will be subject to the following Investment Requirements on the investments in their contracts. We have divided the subaccounts of your contract into three groups. We will specify the minimum or maximum percentages of your contract value (includes Account Value if i4LIFE (Reg. TM) Advantage is in effect) that must be in each group at the time you purchase the rider. In addition, you may allocate your contract value and purchase payments in accordance with certain asset allocation models. If you terminate an asset allocation model, you must follow the Investment Requirements applicable to your rider. Some investment options are not available to you if you purchase certain riders. The Investment Requirements may not be consistent with an aggressive investment strategy. You should consult with your registered representative to determine if the Investment Requirements are consistent with your investment objectives. You can select the percentages of contract value to allocate to individual funds within each group, but the total investment for all funds in a group must comply with the specified minimum or maximum percentages for that group. In accordance with these Investment Requirements, you agree to be automatically enrolled in the portfolio rebalancing option under your contract and thereby authorize us to automatically rebalance your contract value on a periodic basis. On each quarterly anniversary of the effective date of the Rider, we will rebalance your contract value, on a pro-rata basis, based on your allocation instructions in effect at the time of the rebalancing. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive an individual confirmation after each reallocation. At this time, the subaccount groups are as follows: Group 1 Group 2 Investments must be at least 30% of contract value Investments cannot exceed 70% of contract value or Account Value ----------------------------------------------------------------- or Account Value ---------------------------------------------------- 1. American Century VP Inflation Protection Fund All other funds except as described below. 2. LVIP Delaware Bond Fund 3. Delaware VIP Limited-Term Diversified Income Series 4. Delaware VIP Diversified Income Series
36 5. FTVIPT Templeton Global Bond Securities Fund 6. LVIP SSgA Bond Index Fund 7. LVIP Global Income Fund
Group 3 Investments cannot exceed 10% of contract value or Account Value --------------------------------------------------- 1. AllianceBernstein VPS Global Thematic Growth Portfolio 2. Delaware VIP Emerging Markets Series 3. Delaware VIP REIT Series 4. LVIP SSgA Emerging Markets 100 Fund 5. LVIP Cohen & Steers Global Real Estate Fund 6. MFS VIT Utilities Series
To satisfy the Investment Requirements, you may allocate 100% of your contract value among the MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, or the LVIP Wilshire Profile Funds that are available in your contract except not more than 70% can be allocated to the LVIP Wilshire Aggressive Profile Fund, LVIP Wilshire 2030 Profile Fund and LVIP Wilshire 2040 Profile Fund. If you allocate less than 100% of your contract value to or among MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, or the available LVIP Wilshire Profile Funds, then these funds will be considered as part of Group 2 above and you will be subject to Group 2 restrictions. The DWS Alternative Asset Allocation Plus VIP Portfolio and the PIMCO VIT Commodity Real Return Strategy Portfolio are not available with these riders, The fixed account is only available for dollar cost averaging. To satisfy the Investment Requirements, contract value can be allocated in accordance with certain asset allocation models, made available to you by your broker dealer. 100% of the contract value can be allocated to one of the following models: Lincoln SSgA Structured Conservative Model, Lincoln SSgA Structured Moderate Model, Lincoln SSgA Structured Moderately Aggressive Model, Lincoln SSgA Conservative Index Model, Lincoln SSgA Moderate Index Model, and Lincoln SSgA Moderately Aggressive Index Model. You may choose one asset allocation model at a time, though you may change to a different asset allocation model in your contract that meets the Investment Requirements or reallocate your contract value among the Group 1, 2 or 3 subaccounts. Living Benefit Riders The optional Living Benefit Riders offered under this variable annuity contract - Lincoln Lifetime IncomeSM Advantage, Lincoln SmartSecurity (Reg. TM) Advantage, i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit and 4LATER (Reg. TM) Advantage - are described in the following sections. The riders offer either a minimum withdrawal benefit (Lincoln Lifetime IncomeSM Advantage and Lincoln SmartSecurity (Reg. TM) Advantage) or a minimum annuity payout (i4LIFE (Reg. TM) Advantage and 4LATER (Reg. TM) Advantage). You may not elect more than one Living Benefit rider at a time. Upon election of a Living Benefit rider, you will be subject to Investment Requirements. The overview chart provided with this prospectus provides a brief description and comparison of each Living Benefit rider. Terms and conditions may change after the contract is purchased. Lincoln Lifetime IncomeSM Advantage The Lincoln Lifetime IncomeSM Advantage is a Rider that is available for purchase with your variable annuity contract if the purchase payment or contract value (if purchased after the contract is issued) is at least $25,000 and you are age 60 or older. This Rider provides minimum, guaranteed, periodic withdrawals for your life as contract owner/annuitant regardless of the investment performance of the contract, provided that certain conditions are met. A minimum guaranteed amount (Guaranteed Amount) is used to calculate the periodic withdrawals from your contract but, is not available as a separate benefit upon death or surrender. The Guaranteed Amount is equal to the initial purchase payment plus the amount of any bonus credit applicable to that purchase payment (or contract value if elected after contract issue) increased by subsequent purchase payments, any bonus credits, Automatic Annual Step-ups, 5% Enhancements and the Step-up to 200% of the initial Guaranteed Amount and decreased by withdrawals in accordance with the provisions set forth below. No additional purchase payments are allowed if the contract value decreases to zero for any reason. This Rider provides annual withdrawals of 5% of the initial Guaranteed Amount called Maximum Annual Withdrawal amounts. You may receive Maximum Annual Withdrawal amounts for your lifetime. Withdrawals in excess of the Maximum Annual Withdrawal amount may significantly reduce your Maximum Annual Withdrawal amount. Withdrawals will also negatively impact the availability of the 5% Enhancement and the 200% Step-up. These options are discussed below in detail. By purchasing the Lincoln Lifetime IncomeSM Advantage Rider, you will be limited in how you can invest in the subaccounts in your contract. In addition, the fixed account is not available except for use with dollar cost averaging. See The Contracts - Investment Requirements. 37 Lincoln New York offers other optional riders available for purchase with its variable annuity contracts. These riders provide different methods to take income from your contract value and may provide certain guarantees. These riders are fully discussed in this prospectus. There are differences between the riders in the features provided as well as the charge structure. In addition, the purchase of one rider may impact the availability of another rider. Information about the relationship between Lincoln Lifetime IncomeSM Advantage and these other riders is included later in this prospectus. Not all riders will be available at all times. We have designed the rider to protect you from outliving your contract value. If the rider terminates or you die before your contract value is reduced to zero, neither you nor your estate will receive any lifetime withdrawals from us under the rider. We limit your withdrawals to the Maximum Annual Withdrawal amount and impose Investment Requirements in order to minimize the risk that your contract value will be reduced to zero before your death. Accordingly, a significant risk against which the rider protects, i.e., that your contract value will be reduced to zero (due to poor market performance or charges) while you are still alive, may be minimal. If the Rider is elected at contract issue, then the Rider will be effective on the contract's effective date. If the Rider is elected after the contract is issued (by sending a written request to our Servicing Office), the Rider will be effective on the next valuation date following approval by us. You may not simultaneously elect Lincoln Lifetime IncomeSM Advantage with any other living benefit rider. Benefit Year. The Benefit Year is the 12-month period starting with the effective date of the Rider and starting with each anniversary of the Rider effective date after that. Guaranteed Amount. The Guaranteed Amount is a value used to calculate your withdrawal benefit under this Rider. The Guaranteed Amount is not available to you as a lump sum withdrawal or a death benefit. The initial Guaranteed Amount varies based on when you elect the Rider. If you elect the Rider at the time you purchase the contract, the initial Guaranteed Amount will equal your initial purchase payment plus the amount of any bonus credit. If you elect the Rider after we issue the contract, the initial Guaranteed Amount will equal the contract value on the effective date of the Rider. The maximum Guaranteed Amount is $10,000,000. This maximum takes into consideration the total Guaranteed Amounts from all Lincoln New York contracts (or contracts issued by our affiliates) in which you are the covered life under either the Lincoln Lifetime IncomeSM Advantage or Lincoln SmartSecurity (Reg. TM) Advantage. Additional purchase payments and any bonus credits automatically increase the Guaranteed Amount by the amount of the purchase payment and any bonus credit (not to exceed the maximum Guaranteed Amount); for example, a $10,000 additional purchase payment, which receives a 3% bonus credit, will increase the Guaranteed Amount by $10,300. After the first anniversary of the Rider effective date, each time a purchase payment is made after the cumulative purchase payments equal or exceed $100,000, the charge for your Rider may change on the next Benefit Year anniversary. The charge will be the current charge in effect on that next Benefit Year Anniversary, for new purchases of the Rider. The charge will never exceed the guaranteed maximum annual charge. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. Additional purchase payments will not be allowed if the contract value decreases to zero for any reason including market loss. The following example demonstrates the impact of additional purchase payments on the Lincoln Lifetime IncomeSM Advantage charge: Initial purchase payment $100,000 Additional purchase payment in Year 2 $ 95,000 No change to charge Additional purchase payment in Year 3 $ 75,000 Charge will be the current charge Additional purchase payment in Year 4 $ 25,000 Charge will be the current charge
Each withdrawal reduces the Guaranteed Amount as discussed below. Since the charge for the Rider is based on the Guaranteed Amount, the cost of the Rider increases when additional purchase payments, and applicable bonus credits, Automatic Annual Step-ups, 5% Enhancements and the 200% Step-up are made, and the cost decreases as withdrawals are made because these transactions all adjust the Guaranteed Amount. In addition, the percentage charge may change when cumulative purchase payments exceed $100,000 and also when Automatic Annual Step-ups occur as discussed below. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. 5% Enhancement to the Guaranteed Amount. On each Benefit Year anniversary, the Guaranteed Amount, minus purchase payments and any applicable bonus credits received in that year, will be increased by 5% if the contract owner/annuitant is under age 86 and the Rider is within the 10 year period described below. Additional purchase payments and any bonus credits must be invested in the contract at least one Benefit Year before the 5% Enhancement will be made on the portion of the Guaranteed Amount equal to that purchase payment (and bonus credit). Any purchase payments and bonus credits made within the first 90 days after the effective date of the Rider will be included in the Guaranteed Amount for purposes of receiving the 5% Enhancement on the first Benefit Year anniversary. Note: The 5% Enhancement is not available in any year there is a withdrawal from contract value including a Maximum Annual Withdrawal Amount. A 5% Enhancement will occur in subsequent years after a withdrawal only under certain conditions. If you are eligible (as defined below) for the 5% Enhancement in the next year, the Enhancement will not occur until the Benefit Year anniversary of that year. The following is an example of the impact of the 5% Enhancement on the Guaranteed Amount: 38 Initial purchase payment = $100,000; Bonus Credit of 4% = $4,000; Guaranteed Amount = $104,000 Additional purchase payment on day 30 = $15,000; Bonus Credit of 4% = $600; Guaranteed Amount = $119,600 Additional purchase payment on day 95 = $10,000; Bonus Credit of 4% = $400; Guaranteed Amount = $130,000 On the first Benefit Year Anniversary, the Guaranteed Amount will never be less than $135,980 ($119,600 times 1.05% = $125,580 plus $10,400). The $10,000 purchase payment and $400 bonus credit on day 95 is not eligible for the 5% Enhancement until the 2nd Benefit Year Anniversary. The 5% Enhancement will be in effect for 10 years from the effective date of the Rider. The 5% Enhancement will cease upon the death of the contractowner/annuitant or when the contractowner/annuitant reaches age 86. A new 10-year period will begin each time an Automatic Annual Step-up to the contract value occurs as described below. As explained below, the 5% Enhancement and Automatic Annual Step-up will not occur in the same year. If the Automatic Annual Step-up provides a greater increase to the Guaranteed Amount, you will not receive the 5% Enhancement. The 5% Enhancement cannot increase the Guaranteed Amount above the maximum Guaranteed Amount of $10,000,000. For riders purchased prior to January 20, 2009, the 5% Enhancement will be in effect for 15 years from the effective date of the Rider, and a new 15-year period will begin following each Automatic Annual Step-up. The 5% Enhancement will not occur on any Benefit Year anniversary in which there is a withdrawal, including a Maximum Annual Withdrawal amount, from the contract during that Benefit Year. The 5% Enhancement will occur on the following Benefit Year anniversary if no other withdrawals are made from the contract and the Rider is within the 10-year period. An example of the impact of a withdrawal on the 5% Enhancement is included in the Withdrawals section below. If your Guaranteed Amount is increased by the 5% Enhancement on the Benefit Year anniversary, your percentage charge for the Rider will not change. However, the amount you pay for the Rider will increase since the charge for the Rider is based on the Guaranteed Amount. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. Automatic Annual Step-ups of the Guaranteed Amount. The Guaranteed Amount will automatically step-up to the contract value on each Benefit Year anniversary if: a. the contractowner/annuitant is still living and under age 86; and b. the contract value on that Benefit Year anniversary is greater than the Guaranteed Amount after the 5% Enhancement (if any) or 200% Step-up (if any, as described below). Each time the Guaranteed Amount is stepped up to the current contract value as described above, your percentage charge for the Rider will be the current charge for the Rider, not to exceed the guaranteed maximum charge. Therefore, your percentage charge for this Rider could increase every Benefit Year anniversary. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. If your percentage rider charge is increased upon an Automatic Annual Step-up, you may opt out of the Automatic Annual Step-up by giving us notice within 30 days after the Benefit Year anniversary if you do not want your percentage charge for the Rider to change. This opt out will only apply for this particular Automatic Annual Step-up. You will need to notify us each time the percentage charge increases if you do not want the Step-up. If you decline the Automatic Annual Step-up, you will receive the 200% Step-up (if you are eligible as described below) or the 5% Enhancement (if you are eligible as specified above); however, a new 10-year period for 5% Enhancements will not begin. You may not decline the Automatic Annual Step-up, if applicable, if your additional purchase payments would cause your charge to increase. See the earlier Guaranteed Amount section. Following is an example of how the Automatic Annual Step-ups and the 5% Enhancement will work (assuming no withdrawals or additional purchase payments):
Potential for Length of 5% Guaranteed Charge to Enhancement Contract Value Amount Change Period ---------------- ------------ --------------- ------------- Initial Purchase Payment $50,000 + 3% bonus credit . $51,500 $51,500 No 10 1st Benefit Year Anniversary........................... $54,000 $54,075 No 9 2nd Benefit Year Anniversary........................... $53,900 $56,779 No 8 3rd Benefit Year Anniversary........................... $57,000 $59,618 No 7 4th Benefit Year Anniversary........................... $64,000 $64,000 Yes 10
On the 1st Benefit Year anniversary, the 5% Enhancement increased the Guaranteed Amount to $54,075 since the increase in the contract value ($2,500) is less than the 5% Enhancement amount of $2,575 (5% of $51,500). On the 2nd Benefit Year anniversary, the 5% Enhancement provided a larger increase (5% of $54,075 = $2,704). On the 3rd Benefit Year anniversary, the 5% Enhancement provided a larger increase (5% of $56,779 = $2,839). On the 4th Benefit Year anniversary, the Automatic Annual Step-up to the contract value was greater than the 5% Enhancement amount of $2,981 (5% of $59,618). 39 An Automatic Annual Step-up cannot increase the Guaranteed Amount beyond the maximum Guaranteed Amount of $10,000,000. Step-up to 200% of the initial Guaranteed Amount. On the later of the 10th Benefit Year anniversary or the Benefit Year anniversary after you reach age 75, we will step-up your Guaranteed Amount to 200% of your initial Guaranteed Amount (plus any purchase payments, including bonus credits, made within 90 days of rider election), less any withdrawals, if this would increase your Guaranteed Amount to an amount higher than that provided by the 5% Enhancement or the Automatic Annual Step-up for that year, if applicable. (You will not also receive the 5% Enhancement or Automatic Annual Step-up if the 200% Step-up applies.) (The 200% Step-up will occur on the 10th Benefit Year anniversary if you purchased the rider prior to May 1, 2009.) This Step-up will not occur if: 1) An Excess Withdrawal (defined below) has occurred; or 2) Cumulative withdrawals totaling more than 10% of the initial Guaranteed Amount (plus purchase payments and applicable bonus credits within 90 days of rider election) have been made (even if these withdrawals were within the Maximum Annual Withdrawal amount). For example, assume the initial Guaranteed Amount is $208,000. A $10,400 Maximum Annual Withdrawal was made at age 69 and at age 70. If one more $10,400 Maximum Annual Withdrawal was made at age 71, the Step-up would not be available since withdrawals cannot exceed $20,800 (10% of $208,000). This Step-up is only available one time and it will not occur if, on the applicable Benefit Year anniversary, your Guaranteed Amount exceeds 200% of your initial Guaranteed Amount (plus purchase payments and applicable bonus credits within 90 days of rider election). Required minimum distributions (RMDs) from qualified contracts may adversely impact this benefit because you may have to withdraw more than 10% of your initial Guaranteed Amount. See the terms governing RMDs in the Maximum Annual Withdrawal Amounts section below. This Step-up will not cause a change to the percentage charge for your rider. However, the amount you pay for the rider will increase since the charge is based on the Guaranteed Amount. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. The following example demonstrates the impact of this Step-up on the Guaranteed Amount: Initial purchase payment at age 65 = $200,000; Bonus Credit of $8,000; Guaranteed Amount =$208,000; Maximum Annual Withdrawal amount = $10,400. After 10 years, at age 75, the Guaranteed Amount is $283,232 (after applicable 5% Enhancements and two $10,400 Maximum Annual Withdrawal Amounts) and the contract value is $250,000. Since the Guaranteed Amount is less than $374,400 ($208,000 initial Guaranteed Amount reduced by the two $10,400 withdrawals times 200%), the Guaranteed Amount is increased to $374,400. The 200% Step-up cannot increase the Guaranteed Amount beyond the Maximum Guaranteed Amount of $10,000,000. Maximum Annual Withdrawal Amount. You may make periodic withdrawals up to the Maximum Annual Withdrawal amount each Benefit Year for your lifetime as long as your Maximum Annual Withdrawal amount is greater than zero. On the effective date of the Rider, the Maximum Annual Withdrawal amount is equal to 5% of the initial Guaranteed Amount. If you do not withdraw the entire Maximum Annual Withdrawal amount during a Benefit Year, there is no carryover of the extra amount into the next Benefit Year. If your contract value is reduced to zero because of market performance, withdrawals equal to the Maximum Annual Withdrawal amount will continue automatically for your life under the Maximum Annual Withdrawal Amount Annuity Payment Option (discussed later). You may not withdraw the remaining Guaranteed Amount in a lump sum. Note: if any withdrawal is made, the 5% Enhancement is not available during that Benefit Year and the Lincoln Lifetime IncomeSM Advantage Plus is not available (see below). Withdrawals may also negatively impact the 200% Step-up (see above). The tax consequences of withdrawals are discussed in Federal Tax Matters section of this prospectus. All withdrawals you make, whether or not within the Maximum Annual Withdrawal amount, will decrease your contract value. The Maximum Annual Withdrawal amount is increased by 5% of any additional purchase payments and bonus credits. For example, if the Maximum Annual Withdrawal amount of $2,575 (5% of $51,500 Guaranteed Amount) is in effect and an additional purchase payment of $10,000 is made (which receives a 3% bonus credit), the new Maximum Annual Withdrawal amount is $3,090 ($2,575 + 5% of $10,300). 5% Enhancements, Automatic Annual Step-ups and the 200% Step-up will cause a recalculation of the eligible Maximum Annual Withdrawal amount to the greater of: a. the Maximum Annual Withdrawal amount immediately prior to the 5% Enhancement, Automatic Annual Step-up or 200% Step-up; or b. 5% of the Guaranteed Amount on the Benefit Year anniversary. 40 See the chart below for examples of the recalculation. The Maximum Annual Withdrawal amount from both Lincoln Lifetime IncomeSM Advantage and Lincoln SmartSecurity (Reg. TM) Advantage under all Lincoln New York contracts (or contracts issued by our affiliates) applicable to you can never exceed 5% of the maximum Guaranteed Amount. Withdrawals. If the cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) are within the Maximum Annual Withdrawal amount, then: 1. the withdrawal will reduce the Guaranteed Amount by the amount of the withdrawal on a dollar-for-dollar basis, and 2. the Maximum Annual Withdrawal amount will remain the same. The following example illustrates the impact of Maximum Annual Withdrawals on the Guaranteed Amount and the recalculation of the Maximum Annual Withdrawal amount (assuming no additional purchase payments):
Guaranteed Maximum Annual Contract Value Amount Withdrawal Amount ---------------- ------------ ------------------ Initial Purchase Payment $50,000 + 3% bonus credit . $51,500 $51,500 $2,575 1st Benefit Year Anniversary........................... $54,000 $54,000 $2,700 2nd Benefit Year Anniversary........................... $51,000 $51,300 $2,700 3rd Benefit Year Anniversary........................... $57,000 $57,000 $2,850 4th Benefit Year Anniversary........................... $64,000 $64,000 $3,200
The initial Maximum Annual Withdrawal amount is equal to 5% of the Guaranteed Amount. Since withdrawals occurred each year (even withdrawals within the Maximum Annual Withdrawal amount), the 5% Enhancement of the Guaranteed Amount was not available. However, each year the Automatic Annual Step-up occurred (1st, 3rd and 4th anniversaries), the Maximum Annual Withdrawal amount was recalculated to 5% of the current Guaranteed Amount. Withdrawals within the Maximum Annual Withdrawal amount are not subject to surrender charges. Withdrawals from Individual Retirement Annuity contracts will be treated as within the Maximum Annual Withdrawal amount (even if they exceed the 5% Maximum Annual Withdrawal amount) only if the withdrawals are taken in systematic monthly or quarterly installments of the amount needed to satisfy the RMD rules under Internal Revenue Code Section 401(a)(9). In addition, in order for this exception for RMDs to apply, the following must occur: 1. Lincoln's monthly or quarterly automatic withdrawal service is used to calculate and pay the RMD; 2. The RMD calculation must be based only on the value in this contract; and 3. No withdrawals other than RMDs are made within that Benefit Year (except as described in next paragraph). If your RMD withdrawals during a Benefit Year are less than the Maximum Annual Withdrawal amount, an additional amount up to the Maximum Annual Withdrawal Amount may be withdrawn and will not be subject to surrender charges. If a withdrawal, other than an RMD is made during the Benefit Year, then all amounts withdrawn in excess of the Maximum Annual Withdrawal amount, including amounts attributed to RMDs, will be treated as Excess Withdrawals (see below). Distributions from qualified contracts are generally taxed as ordinary income. In nonqualified contracts, withdrawals of contract value that exceed purchase payments are taxed as ordinary income. See Federal Tax Matters. Excess Withdrawals. Excess Withdrawals are the cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) that exceed the Maximum Annual Withdrawal amount. When Excess Withdrawals occur: 1. The Guaranteed Amount is reduced by the same proportion that the Excess Withdrawal reduces the contract value. This means that the reduction in the Guaranteed Amount could be more than a dollar-for-dollar reduction. 2. The Maximum Annual Withdrawal amount will be immediately recalculated to 5% of the new (reduced) Guaranteed Amount (after the pro rata reduction for the Excess Withdrawal); and 3. The 200% Step-up will never occur. The following example demonstrates the impact of an Excess Withdrawal on the Guaranteed Amount and the Maximum Annual Withdrawal amount. A $12,000 withdrawal caused a $15,102 reduction in the Guaranteed Amount. Prior to Excess Withdrawal: Contract Value = $60,000 Guaranteed Amount = $85,000 Maximum Annual Withdrawal amount = $5,200 (5% of the initial Guaranteed Amount of $104,000) After a $12,000 Withdrawal ($5,200 is within the Maximum Annual Withdrawal amount, $6,800 is the Excess Withdrawal): 41 The contract value and Guaranteed Amount are reduced dollar for dollar for the Maximum Annual Withdrawal amount of $5,200: Contract Value = $54,800 Guaranteed Amount = $79,800 The contract value is reduced by the $6,800 Excess Withdrawal and the Guaranteed Amount is reduced by 12.41%, the same proportion that the Excess Withdrawal reduced the $54,800 contract value ($6,800 - $54,800) Contract value = $48,000 Guaranteed Amount = $69,898 ($79,800 X 12.41% = $9,902; $79,800 - $9,902 = $69,898) Maximum Annual Withdrawal amount = $3,494.89 (5% of $69,898) In a declining market, withdrawals that exceed the Maximum Annual Withdrawal amount may substantially deplete or eliminate your Guaranteed Amount and reduce or deplete your Maximum Annual Withdrawal amount. The portion of Excess Withdrawals attributed to purchase payments (and not bonus credits) will be subject to surrender charges unless one of the waiver of surrender charge provisions set forth in your prospectus is applicable. Continuing with the prior example of the $12,000 withdrawal: the $5,200 Maximum Annual Withdrawal amount is not subject to surrender charges; the $6,800 Excess Withdrawal may be subject to surrender charges. See Charges and Other Deductions - Surrender Charges. Withdrawals attributed to bonus credits are not subject to surrender charges. Maximum Annual Withdrawal Amount Annuity Payout Option. If you are required to annuitize your Maximum Annual Withdrawal Amount, because you have reached the Maturity Date of the Contract, the Maximum Annual Withdrawal Amount Annuity Payout Option is available. The Maximum Annual Withdrawal Amount Annuity Payment Option is a fixed annuitization in which the contractowner will receive annual annuity payments equal to the Maximum Annual Withdrawal amount for life (this option is different from other annuity payment options discussed in your prospectus, including i4LIFE (Reg. TM) Advantage, which are based on your contract value). Payment frequencies other than annual may be available. You will have no other contract features other than the right to receive annuity payments equal to the Maximum Annual Withdrawal amount for your life. If the contract value is zero and you have a remaining Maximum Annual Withdrawal amount, you will receive the Maximum Annual Withdrawal Amount Annuity Payment Option. If you are receiving the Maximum Annual Withdrawal Amount Annuity Payout Option, your beneficiary may be eligible for a final payment upon your death. To be eligible the death benefit option in effect immediately prior to the Maximum Annual Withdrawal Amount Annuity Payout Option must not be the Account Value Death Benefit. The final payment is equal to the sum of all purchase payments, decreased by withdrawals in the same proportion as the withdrawals reduce the contract value; withdrawals less than or equal to the Maximum Annual Withdrawal amount and payments under the Maximum Annual Withdrawal Annuity Payout Option will reduce the sum of the purchase payments dollar for dollar. If your death benefit option in effect immediately prior to the Maximum Annual Withdrawal Amount Annuity Payout Option provided for deduction for withdrawals on a dollar for dollar basis, then any withdrawals that occurred prior to the election of the Lincoln Lifetime Income (Reg. TM) Advantage will reduce the sum of all purchase payments on a dollar for dollar basis. Death Prior to the Annuity Commencement Date. The Lincoln Lifetime IncomeSM Advantage has no provision for a payout of the Guaranteed Amount or any other death benefit upon death of the contractowners or annuitant. At the time of death, if the contract value equals zero, no death benefit options (as described in the Death Benefit section of this prospectus) will be in effect. Election of the Lincoln Lifetime IncomeSM Advantage does not impact the death benefit options available for purchase with your annuity contract except as described below in Impact to Withdrawal Calculations of Death Benefits before the Annuity Commencement Date. All death benefit payments must be made in compliance with Internal Revenue Code Sections 72(s) or 401(a)(9) as applicable as amended from time to time. See The Contracts - Death Benefit. Upon the death of the contractowner/annuitant, the Lincoln Lifetime IncomeSM Advantage will end and no further Maximum Annual Withdrawal amounts are available (even if there was a Guaranteed Amount in effect at the time of the death). If the beneficiary elects to continue the contract after the death of the contractowner/annuitant (through a separate provision of the contract), the beneficiary may purchase a new Lincoln Lifetime IncomeSM Advantage Rider if available under the terms and charge in effect at the time of the new purchase. There is no carryover of the Guaranteed Amount. General Provisions. Termination. After the seventh anniversary of the effective date of the Rider, the contractowner may terminate the Rider by notifying us in writing. Lincoln Lifetime IncomeSM Advantage will automatically terminate: o on the annuity commencement date (except payments under the Maximum Annual Withdrawal Amount Annuity Payment Option will continue if applicable); 42 o if the contractowner or annuitant is changed including any sale or assignment of the contract or any pledge of the contract as collateral; o on the date the contractowner is changed pursuant to an enforceable divorce agreement or decree; o upon the death of the contractowner/annuitant; o when the Maximum Annual Withdrawal amount is reduced to zero; or o upon termination of the underlying annuity contract. The termination will not result in any increase in contract value equal to the Guaranteed Amount. Upon effective termination of this Rider, the benefits and charges within this Rider will terminate. If you terminate the Rider, you must wait one year before you can re-elect any Lincoln Lifetime IncomeSM Advantage, Lincoln SmartSecurity (Reg. TM) Advantage, 4LATER (Reg. TM) Advantage or any other living benefits we may offer in the future. Compare to Lincoln SmartSecurity (Reg. TM) Advantage. If a contractowner is interested in purchasing a rider that provides guaranteed minimum withdrawals, the following factors should be considered when comparing Lincoln Lifetime IncomeSM Advantage and the Lincoln SmartSecurity (Reg. TM) Advantage (discussed in your prospectus) (only one of these riders can be added to a contract at any one time): the Lincoln Lifetime IncomeSM Advantage has the opportunity to provide a higher Guaranteed Amount because of the 5% Enhancement, Automatic Annual Step-up or 200% Step-up. However, the percentage charge for the Lincoln Lifetime IncomeSM Advantage is higher for the Single Life and has the potential to increase on every Benefit Year Anniversary if the increase in contract value exceeds the 5% Enhancement. There is no Joint Life option for Lincoln Lifetime IncomeSM Advantage. Another factor to consider is that immediate withdrawals from your contract, under the Lincoln Lifetime IncomeSM Advantage, will adversely impact the 5% Enhancement and 200% Step-up. The Lincoln SmartSecurity (Reg. TM) Advantage provides that Maximum Annual Withdrawal amounts can continue to a beneficiary to the extent of any remaining Guaranteed Amount while the Lincoln Lifetime IncomeSM Advantage does not offer this feature. The Investment Requirements and Termination provisions are different between these two riders. i4LIFE (Reg. TM) Advantage Option. i4LIFE (Reg. TM) Advantage is an income program, available for purchase at an additional charge, that provides periodic variable income payments for life, the ability to make withdrawals during a defined period of time (the Access Period) and a death benefit during the Access Period. A minimum payout floor, called the Guaranteed Income Benefit, is also available for purchase at the time you elect i4LIFE (Reg. TM) Advantage. Depending on a person's age and the selected length of the Access Period, i4LIFE (Reg. TM) Advantage may provide a higher payout than the Maximum Annual Withdrawal amounts under Lincoln Lifetime IncomeSM Advantage. You cannot have both i4LIFE (Reg. TM)Advantage and Lincoln Lifetime IncomeSM Advantage in effect on your contract at the same time. Contractowners with an active Lincoln Lifetime IncomeSM Advantage may decide to drop Lincoln Lifetime IncomeSM Advantage and purchase i4LIFE (Reg. TM)Advantage if i4LIFE (Reg. TM) Advantage will provide a higher payout amount. If this decision is made, the contractowner can use any remaining Lincoln Lifetime IncomeSM Advantage Guaranteed Amount to establish the Guaranteed Income Benefit under the i4LIFE (Reg. TM) Advantage. Owners of the Lincoln Lifetime IncomeSM Advantage rider are guaranteed the ability to purchase i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit in the future even if it is no longer generally available for purchase. Owners of Lincoln LIfetime IncomeSM Advantage are also guaranteed that the annuity factors that are used to calculate the initial Guaranteed Income Benefit under i4LIFE (Reg. TM) Advantage will be the annuity factors in effect as of the day they purchased Lincoln Lifetime IncomeSM Advantage. In addition, owners of Lincoln Lifetime IncomeSM Advantage may in the future purchase the Guaranteed Income Benefit at or below the guaranteed maximum charge that is in effect on the date that they purchase Lincoln Lifetime IncomeSM Advantage. i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit must be elected before the Annuity Commencement Date and by age 90 for nonqualified contracts or age 85 for qualified contracts. See i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit sections of your prospectus. The charges for these benefits will be the current charge for new purchasers in effect for the i4LIFE (Reg. TM) Advantage and the current Guaranteed Income Benefit charge in effect for prior purchasers of Lincoln Lifetime IncomeSM Advantage at the time of election of these benefits. If you use your Lincoln Lifetime IncomeSM Advantage Guaranteed Amount to establish the Guaranteed Income Benefit, you must keep i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit in effect for at least 3 years. Below is an example of how the Guaranteed Amount from the Lincoln Lifetime IncomeSM Advantage is used to establish the Guaranteed Income Benefit with i4LIFE (Reg. TM)Advantage. Prior to i4LIFE (Reg. TM)Advantage election: Contract Value = $100,000 Guaranteed Amount = $100,000 After i4LIFE (Reg. TM)Advantage election: Regular Income Payment = $6,700 per year = Contract Value divided by the i4LIFE (Reg. TM) Advantage annuity factor Guaranteed Income Benefit = $5,020 per year = Guaranteed Amount divided by Guaranteed Income Benefit Table factor applicable to owners of the Lincoln Lifetime IncomeSM Advantage rider. 43 Impact to Withdrawal Calculations of Death Benefits before the Annuity Commencement Date. The death benefit calculation for certain death benefit options in effect prior to the annuity commencement date may change for contractowners with an active Lincoln Lifetime IncomeSM Advantage. Certain death benefit options provide that all withdrawals reduce the death benefit in the same proportion that the withdrawals reduce the contract value. If you elect the Lincoln Lifetime IncomeSM Advantage, withdrawals less than or equal to the Maximum Annual Withdrawal amount will reduce the sum of all purchase payments option of the death benefit on a dollar for dollar basis. This applies to the Guarantee of Principal Death Benefit, and only the sum of all purchase payments alternative of the Enhanced Guaranteed Minimum Death Benefit, whichever is in effect. See Death Benefits in this prospectus. Any Excess Withdrawals will reduce the sum of all purchase payments in the same proportion that the withdrawals reduced the contract value under any death benefit option in which proportionate withdrawals are in effect. This change has no impact on death benefit options in which all withdrawals reduce the death benefit calculation on a dollar for dollar basis. The terms of your contract will describe which method is in effect for your contract. The following example demonstrates how a withdrawal will reduce the death benefit if both the Enhanced Guaranteed Minimum Death Benefit (EGMDB) and the Lincoln Lifetime IncomeSM Advantage are in effect when the contractowner dies. Note that this calculation applies only to the sum of all purchase payments calculation and not for purposes of reducing the highest anniversary contract value under the EGMDB: Contract value before withdrawal $80,000 Maximum Annual Withdrawal Amount $ 5,000 Enhanced Guaranteed Minimum Death Benefit (EGMDB) values before withdrawal is the greatest of a), b), or c) described in detail in the EGMDB section of this prospectus: a) Contract value $80,000 b) Sum of purchase payments $100,000 c) Highest anniversary contract value $150,000 Withdrawal of $9,000 will impact the death benefit calculations as follows: a) $80,000 - $9,000 = $71,000 (Reduction $9,000) b) $100,000 - $5,000 = $95,000 (dollar for dollar reduction of Maximum Annual Withdrawal amount) $95,000 - $5,067 = $89,933 [$95,000 times ($4,000/$75,000) = $5,067] Pro rata reduction of Excess Withdrawal. Total reduction = $10,067. c) $150,000 - $16,875 = $133,125 [$150,000 times $9,000/$80,000 = $16,875] The entire $9,000 withdrawal reduces the death benefit option pro rata. Total reduction = $16,875. Item c) provides the largest death benefit of $133,125. Availability. The Lincoln Lifetime IncomeSM Advantage is available for purchase with nonqualified and qualified (IRAs and Roth IRAs) annuity contracts. The contractowner/annuitant must be at least age 60 and under age 86 at the time this Rider is elected. You cannot elect the Rider on or after the purchase of i4LIFE (Reg. TM) Advantage or on or after the Annuity Commencement Date and must wait at least 12 months after terminating 4LATER (Reg. TM) Advantage, Lincoln SmartSecurity (Reg. TM) Advantage or any other living benefits we may offer in the future. If you decide to drop a rider to add Lincoln Lifetime IncomeSM Advantage your Guaranteed Amount will equal the current contract value on the effective date of the change. Before you make this change, you should consider that no guarantees or fee waiver provisions carry over from the previous rider. The Lincoln Lifetime IncomeSM Advantage terminates after the death of a covered life and the Guaranteed Amount is not available to a beneficiary. You will be subject to additional Investment Requirements. See the comparison to Lincoln SmartSecurity (Reg. TM) Advantage for other factors to consider before making a change. There is no guarantee that the Lincoln Lifetime IncomeSM Advantage will be available for new purchasers in the future as we reserve the right to discontinue this benefit at any time. The availability of this Rider will depend upon your state's approval of this Rider. In addition, certain features of the Rider may not be available in some states. Check with your investment representative regarding availability. Lincoln SmartSecurity (Reg. TM) Advantage The Lincoln SmartSecurity (Reg. TM) Advantage is a Rider that is available for purchase with your variable annuity contract. This benefit provides a minimum guaranteed amount (Guaranteed Amount) that you will be able to withdraw, in installments, from your contract. The Guaranteed Amount is equal to the initial purchase payment plus the amount of any bonus credit applicable to that purchase payment (or contract value if elected after contract issue) adjusted for subsequent purchase payments, any bonus credits, step-ups and withdrawals in accordance with the provisions set forth below. There are two different options that step-up the Guaranteed Amount to a higher level (the contract value at the time of the step-up): Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up or 44 Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up The Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option is no longer available for purchase after January 16, 2009. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up, the contractowner has the option to step-up the Guaranteed Amount after five years. With the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the Guaranteed Amount will automatically step-up to the contract value, if higher, on each Benefit Year anniversary through the 10th anniversary. With the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up, the contractowner can also initiate additional ten-year periods of automatic step-ups. You may access this Guaranteed Amount through periodic withdrawals which are based on a percentage of the Guaranteed Amount. With the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up Single Life or Joint Life options, you also have the option to receive periodic withdrawals for your lifetime or for the lifetimes of you and your spouse (when available in your state). These options are discussed below in detail. By purchasing this Rider, you will be limited in how much you can invest in certain subaccounts. See The Contracts - Investment Requirements. We offer other optional riders available for purchase with its variable annuity contracts. These riders, which are fully discussed in this prospectus, provide different methods to take income from your contract value and may provide certain guarantees. There are differences between the riders in the features provided as well as the charge structure. In addition, the purchase of one rider may impact the availability of another rider. In particular, before you elect the Lincoln SmartSecurity (Reg. TM) Advantage, you may want to compare it to Lincoln Lifetime IncomeSM Advantage, which provides minimum guaranteed, periodic withdrawals for life. See The Contracts - Lincoln Lifetime IncomeSM Advantage - Compare to Lincoln SmartSecurity (Reg. TM) Advantage. If the benefit is elected at contract issue, then the Rider will be effective on the contract's effective date. If the benefit is elected after the contract is issued (by sending a written request to our Servicing office), the Rider will be effective on the next valuation date following approval by us. Benefit Year. The Benefit Year is the 12-month period starting with the effective date of the Rider and starting with each anniversary of the Rider effective date after that. If the contractowner elects to step-up the Guaranteed Amount (this does not include automatic annual step-ups within a ten-year period), the Benefit Year will begin on the effective date of the step-up and each anniversary of the effective date of the step-up after that. The step-up will be effective on the next valuation date after notice of the step-up is approved by us. Guaranteed Amount. The Guaranteed Amount is a value used to calculate your withdrawal benefit under this Rider. The Guaranteed Amount is not available to you as a lump sum withdrawal or a death benefit. The initial Guaranteed Amount varies based on when and how you elect the benefit. If you elect the benefit at the time you purchase the contract, the Guaranteed Amount will equal your initial purchase payment plus the amount of any bonus credit. If you elect the benefit after we issue the contract, the Guaranteed Amount will equal the contract value on the effective date of the Rider. The maximum Guaranteed Amount is $5,000,000 under Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option and $10,000,000 for Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option. This maximum takes into consideration the combined Guaranteed Amounts of all Lincoln New York contracts (or contracts issued by our affiliates) owned by you (or on which you or your spouse if joint owner are the annuitant) under either the Lincoln SmartSecurity (Reg. TM) Advantage or the Lincoln Lifetime IncomeSM Advantage. Additional purchase payments and bonus credits automatically increase the Guaranteed Amount by the amount of the purchase payment and bonus credit (not to exceed the maximum); for example, a $10,000 additional purchase payment, which receives a 3% bonus credit will increase the Guaranteed Amount by $10,300. For the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option we may restrict purchase payments to your annuity contract in the future. We will notify you if we restrict additional purchase payments. For the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, we will allow purchase payments into your annuity contract after the first anniversary of the Rider effective date if the cumulative additional purchase payments exceed $100,000 only with prior Servicing Office approval. Additional purchase payments will not be allowed if the contract value is zero. Each withdrawal reduces the Guaranteed Amount as discussed below. Since the charge for the Rider is based on the Guaranteed Amount, the cost of the Rider increases when additional purchase payments and step-ups are made and any bonus credits are received, and the cost decreases as withdrawals are made because these transactions all adjust the Guaranteed Amount. Step-ups of the Guaranteed Amount. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the Guaranteed Amount will automatically step-up to the contract value on each Benefit Year anniversary up to and including the tenth Benefit Year if: a. the contractowner or joint owner is still living; and b. the contract value as of the valuation date, after the deduction of any withdrawals (including any surrender charges and other deductions), the Rider charge and account fee plus any purchase payments and any bonus credits made on that date is greater than the Guaranteed Amount immediately preceding the valuation date. 45 After the tenth Benefit Year anniversary, you may initiate another ten-year period of automatic step-ups by electing (in writing) to step-up the Guaranteed Amount to the greater of the Contract Value or the current Guaranteed Amount if: a. each contractowner and annuitant is under age 81; and b. the contractowner or joint owner is still living. If you choose, we will administer this election for you automatically, so that a new ten-year period of step-ups will begin at the end of each prior ten-year step-up period. Following is an example of how the step-ups work in the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, (assuming no withdrawals or additional purchase payments):
Contract Value Guaranteed Amount ---------------- ------------------ o Initial Purchase Payment $50,000 (3% bonus credit) $51,500 $51,500 o 1st Benefit Year Anniversary $54,000 $54,000 o 2nd Benefit Year Anniversary $53,900 $54,000 o 3rd Benefit Year Anniversary $57,000 $57,000
Annual step-ups, if the conditions are met, will continue until (and including) the 10th Benefit Year Anniversary. If you had elected to have the next ten-year period of step-ups begin automatically after the prior ten-year period, annual step-ups, if conditions are met, will continue beginning on the 11th Benefit Year Anniversary. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option, after the fifth anniversary of the Rider, you may elect (in writing) to step-up the Guaranteed Amount to an amount equal to the contract value on the effective date of the step-up. Additional step-ups are permitted, but you must wait at least 5 years between each step-up. Under both the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up and the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up options, contractowner elected step-ups (other than automatic step-ups) will be effective on the next valuation date after we receive your request and a new Benefit Year will begin. Purchase payments, any bonus credits and withdrawals made after a step-up adjust the Guaranteed Amount. In the future, we may limit your right to step-up the Guaranteed Amount to your Benefit Year anniversary dates. All step-ups are subject to the maximum Guaranteed Amount. A contractowner elected step-up (including contractowner step-ups that we administer for you to begin a new ten-year step-up period) may cause a change in the percentage charge for this benefit. There is no change in the percentage charge when automatic, annual step-ups occur during a ten-year period. See Rider Charges - Lincoln SmartSecurity (Reg. TM) Advantage Charge. Withdrawals. You will have access to your Guaranteed Amount through periodic withdrawals up to the Maximum Annual Withdrawal amount each Benefit Year until the Guaranteed Amount equals zero. On the effective date of the Rider, the Maximum Annual Withdrawal amount is: o 7% of the Guaranteed Amount under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option and o 5% of the Guaranteed Amount under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option. If you do not withdraw the entire Maximum Annual Withdrawal amount during a Benefit Year, there is no carryover of the extra amount into the next Benefit Year. The Maximum Annual Withdrawal amount is increased by 7% or 5% (depending on your option) of any additional purchase payments and any bonus credits. For example, if the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option with a Maximum Annual Withdrawal amount of $2,575 (5% of $51,500 Guaranteed Amount) is in effect and an additional purchase payment of $10,000 is made (which receives a 3% bonus credit), the new Maximum Annual Withdrawal amount is $3,090 ($2,575 + 5% of $10,300). Step-ups of the Guaranteed Amount (both automatic step-ups and step-ups elected by you) will step-up the Maximum Annual Withdrawal amount to the greater of: a. the Maximum Annual Withdrawal amount immediately prior to the step-up; or b. 7% or 5% (depending on your option) of the new (stepped-up) Guaranteed Amount. If the cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) are within the Maximum Annual Withdrawal amount, then: 1. the withdrawal will reduce the Guaranteed Amount by the amount of the withdrawal on a dollar-for-dollar basis, and 2. the Maximum Annual Withdrawal amount will remain the same. Withdrawals within the Maximum Annual Withdrawal amount are not subject to surrender charges or the interest adjustment on the amount withdrawn from the fixed account, if applicable. See The Contracts - Fixed Side of the Contract. If the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option is in effect, withdrawals from IRA contracts will be treated as within the Maximum Annual Withdrawal amount (even if they exceed the 5% Maximum Annual Withdrawal amount) only if the withdrawals 46 are taken in the form of systematic monthly or quarterly installments, as calculated by Lincoln, of the amount needed to satisfy the required minimum distribution rules under Internal Revenue Code Section 401(a)(9) for this contract value. Distributions from qualified contracts are generally taxed as ordinary income. In nonqualified contracts, withdrawals of contract value that exceed purchase payments are taxed as ordinary income. See Federal Tax Matters. When cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) exceed the Maximum Annual Withdrawal amount: 1. The Guaranteed Amount is reduced to the lesser of: o the contract value immediately following the withdrawal, or o the Guaranteed Amount immediately prior to the withdrawal, less the amount of the withdrawal. 2. The Maximum Annual Withdrawal amount will be the least of: o the Maximum Annual Withdrawal amount immediately prior to the withdrawal; or o the greater of: o 7% or 5% (depending on your option) of the reduced Guaranteed Amount immediately following the withdrawal (as specified above when withdrawals exceed the Maximum Annual Withdrawal amount); or o 7% or 5% (depending on your option) of the contract value immediately following the withdrawal; or o the new Guaranteed Amount. The following example of the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option,demonstrates the impact of a withdrawal in excess of the Maximum Annual Withdrawal amount on the Guaranteed Amount and the Maximum Annual Withdrawal amount. A $7,000 withdrawal caused a $29,400 reduction in the Guaranteed Amount. Prior to Excess Withdrawal: Contract Value = $60,000 Guaranteed Amount = $82,400 Maximum Annual Withdrawal = $5,200 (5% of the initial Guaranteed Amount of $104,000) Initial Guaranteed Amount of $104,000 equals $100,000 purchase payment and 4% bonus credit After a $7,000 Withdrawal: Contract Value = $53,000 Guaranteed Amount = $53,000 Maximum Annual Withdrawal = $2,650 The Guaranteed Amount was reduced to the lesser of the contract value immediately following the withdrawal ($53,000) or the Guaranteed Amount immediately prior to the withdrawal, less the amount of the withdrawal ($82,400 - $7,000 = $75,400). The Maximum Annual Withdrawal amount was reduced to the least of: 1) Maximum Annual Withdrawal amount prior to the withdrawal ($5,150); or 2) The greater of 5% of the new Guaranteed Amount ($2,650) or 5% of the contract value following the withdrawal ($2,650); or 3) The new Guaranteed Amount ($53,000). The least of these three items is $2,650. In a declining market, withdrawals that exceed the Maximum Annual Withdrawal amount may substantially deplete or eliminate your Guaranteed Amount and reduce your Maximum Annual Withdrawal amount. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option for IRA contracts, the annual amount available for withdrawal within the Maximum Annual Withdrawal amount may not be sufficient to satisfy your required minimum distributions under the Internal Revenue Code. This is particularly true for individuals over age 84. Therefore, you may have to make withdrawals that exceed the Maximum Annual Withdrawal amount. Withdrawals over the Maximum Annual Withdrawal amount may quickly and substantially decrease your Guaranteed Amount and Maximum Annual Withdrawal amount, especially in a declining market. You should consult your tax advisor to determine if there are ways to limit the risks associated with these withdrawals. Such methods may involve the timing of withdrawals or foregoing step-ups of the Guaranteed Amount. Withdrawals in excess of the Maximum Annual Withdrawal amount will be subject to surrender charges and an interest adjustment on the amount withdrawn from the fixed account. Refer to the Statement of Additional Information for an example of the interest adjustment calculation. Lifetime Withdrawals. (Available only with the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up Single or Joint Life options and not the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option or the prior version of the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option). Payment of the Maximum Annual Withdrawal amount will be guaranteed for your (contractowner) lifetime (if you purchase the Single Life option) or for the lifetimes of you (contractowner) and your spouse (if the Joint Life option is purchased), as long as: 47 1) No withdrawals are made before you (and your spouse if a Joint Life) are age 65; and 2) An excess withdrawal (described above) has not reduced the Maximum Annual Withdrawal amount to zero. If the lifetime withdrawal is not in effect, the Maximum Annual Withdrawal amount will last only until the Guaranteed Amount equals zero. If any withdrawal is made prior to the time you (or both spouses) are age 65, the Maximum Annual Withdrawal amount will not last for the lifetime(s), except in the two situations described below: 1) If a step-up of the Guaranteed Amount after age 65 causes the Maximum Annual Withdrawal amount to equal or increase from the immediately prior Maximum Annual Withdrawal amount. This typically occurs if the contract value equals or exceeds the highest, prior Guaranteed Amount. If this happens, the new Maximum Annual Withdrawal amount will automatically be available for the specified lifetime(s); or 2) The contractowner makes a one-time election to reset the Maximum Annual Withdrawal amount to 5% of the current Guaranteed Amount. This reset will occur on the first valuation date following the Benefit Year anniversary and will be based on the Guaranteed Amount as of that valuation date. This will reduce your Maximum Annual Withdrawal amount. A contractowner would only choose this if the above situation did not occur. To reset the Maximum Annual Withdrawal amount, the following must occur: a. the contractowner (and spouse if applicable) is age 65; b. the contract is currently within a ten-year automatic step-up period described above (or else a contractowner submits a step-up request to start a new ten-year automatic step-up period) (the contractowner must be eligible to elect a step-up i.e. all contractowners and the annuitant must be alive and under age 81); and c. you have submitted this request to us in writing at least 30 days prior to the end of the Benefit Year. As an example of these two situations, if you purchased an annuity with the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up with $100,000 (and received a bonus credit of 4%), your initial Guaranteed Amount is $104,000 and your initial Maximum Annual Withdrawal amount is $5,200. If you make a $5,000 withdrawal at age 62, your Guaranteed Amount will decrease to $99,000. Since you did not satisfy the age 65 requirement, you do not have a lifetime Maximum Annual Withdrawal amount. If a step-up of the Guaranteed Amount after age 65 (either automatic or owner-elected) causes the Guaranteed Amount to equal or exceed $104,000, then the Maximum Annual Withdrawal amount of $5,200 (or greater) will become a lifetime payout. This is the first situation described above. However, if the Guaranteed Amount has not been reset to equal or exceed the highest prior Guaranteed Amount, then you can choose the second situation described above if you are age 65 and the contract is within a ten-year automatic step-up period. This will reset the Maximum Annual Withdrawal amount to 5% of the current Guaranteed Amount, 5% of $99,000 is $4,950. This is your new Maximum Annual Withdrawal amount which can be paid for your lifetime unless excess withdrawals are made. The tax consequences of withdrawals and annuity payments are discussed in Federal Tax Matters. All withdrawals you make, whether or not within the Maximum Annual Withdrawal amount, will decrease your contract value. If the contract is surrendered, the contractowner will receive the contract value (less any applicable charges, fees, and taxes) and not the Guaranteed Amount. If your contract value is reduced to zero because of market performance, withdrawals equal to the Maximum Annual Withdrawal amount will continue for the life of you (and your spouse if applicable) if the lifetime withdrawals are in effect. If not, the Maximum Annual Withdrawal amount will continue until the Guaranteed Amount equals zero. You may not withdraw the remaining Guaranteed Amount in a lump sum. Guaranteed Amount Annuity Payout Option. If you desire to annuitize your Guaranteed Amount, the Guaranteed Amount Annuity Payout Option is available. The Guaranteed Amount Annuity Payment Option is a fixed annuitization in which the contractowner (and spouse if applicable) will receive the Guaranteed Amount in annual annuity payments equal to the current 7% or 5% (depending on your option) Maximum Annual Withdrawal amount, including the lifetime Maximum Annual Withdrawals if in effect (this option is different from other annuity payment options discussed in your prospectus, including i4LIFE (Reg. TM) Advantage, which are based on your contract value). Payment frequencies other than annual may be available. Payments will continue until the Guaranteed Amount equals zero (or until death if the lifetime Maximum Annual Withdrawal is in effect) and your contract terminates. This may result in a partial, final payment. You would consider this option only if your contract value is less than the Guaranteed Amount (and you don't believe the contract value will ever exceed the Guaranteed Amount) and you do not wish to keep your annuity contract in force other than to pay out the Guaranteed Amount. You will have no other contract features other than the right to receive annuity payments equal to the Maximum Annual Withdrawal amount until the Guaranteed Amount equals zero (or until death if the lifetime Maximum Annual Withdrawal is in effect). If the contract value is zero and you have a remaining Guaranteed Amount, you may not withdraw the remaining Guaranteed Amount in a lump sum, but must elect the Guaranteed Amount Annuity Payment Option. Death Prior to the Annuity Commencement Date. There is no provision for a lump sum payout of the Guaranteed Amount upon death of the contractowners or annuitant. At the time of death, if the contract value equals zero, no death benefit will be paid other than any applicable Maximum Annual Withdrawal amounts. All death benefit payments must be made in compliance with Internal Revenue Code Sections 72(s) or 401(a)(9) as applicable as amended from time to time. See The Contracts - Death Benefit. 48 Upon the death of the Single Life under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the lifetime payout of the Maximum Annual Withdrawal amount, if in effect, will end. If the contract is continued as discussed below, the Maximum Annual Withdrawal amount will continue until the Guaranteed Amount, if any, is zero. In the alternative, the surviving spouse can choose to become the new Single Life, if the surviving spouse is under age 81. This will cause a reset of the Guaranteed Amount and the Maximum Annual Withdrawal amount. The new Guaranteed Amount will equal the contract value on the date of the reset and the new Maximum Annual Withdrawal amount will be 5% of the new Guaranteed Amount. This also starts a new 10 year period of automatic step-ups. At this time, the charge for the Rider will become the current charge in effect for new purchases of the Single Life option. The surviving spouse will need to be 65 before taking withdrawals to qualify for a lifetime payout. In deciding whether to make this change, the surviving spouse should consider: 1) the change a reset would cause to the Guaranteed Amount and the Maximum Annual Withdrawal amount ; 2) whether it is important to have Maximum Annual Withdrawal amounts for life versus the remainder of the prior Guaranteed Amount and 3) the cost of the Single Life option. Upon the first death under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up-Joint Life option, the lifetime payout of the Maximum Annual Withdrawal amount, if in effect, will continue for the life of the surviving spouse. Upon the death of the surviving spouse, the lifetime payout of the Maximum Annual Withdrawal amount will end. However, if the spouse's beneficiary elects to take the annuity death benefit in installments, the Maximum Annual Withdrawal amount will continue until the Guaranteed Amount, if any, is zero (see below for a non-spouse beneficiary). As an alternative, after the first death, the surviving spouse may choose to change from the Joint Life option to the Single Life option, if the surviving spouse is under age 81. This will cause a reset of the Guaranteed Amount and the Maximum Annual Withdrawal amount. The new Guaranteed Amount will equal the contract value on the date of the reset and the new Maximum Annual Withdrawal amount will be 5% of the new Guaranteed Amount. This also starts a new 10 year period of automatic step-ups. At this time, the charge for the Rider will become the current charge in effect for new purchases of the Single Life option. In deciding whether to make this change, the surviving spouse should consider: 1) if the reset will cause the Guaranteed Amount and the Maximum Annual Withdrawal amount to decrease and 2) if the cost of the Single Life option is less than the cost of the Joint Life option. If the surviving spouse of the deceased contractowner continues the contract, the remaining automatic step-ups under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, will apply to the spouse as the new contractowner. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option, the new contractowner is eligible to elect to step-up the Guaranteed Amount prior to the next available step-up date; however, all other conditions for the step-up apply and any subsequent step-up by the new contractowner must meet all conditions for a step-up. If a non-spouse beneficiary elects to receive the death benefit in installments (thereby keeping the contract in force), the beneficiary may continue the Lincoln SmartSecurity (Reg. TM) Advantage if desired. Automatic step-ups under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option will not continue and elective step-ups of the Guaranteed Amount under both options will not be permitted. In the event the contract value declines below the Guaranteed Amount (as adjusted for withdrawals of death benefit payments), the beneficiary is assured of receiving payments equal to the Guaranteed Amount (as adjusted). Deductions for the Rider charge will continue on a quarterly basis and will be charged against the remaining Guaranteed Amount. Note: there are instances where the required installments of the death benefit, in order to be in compliance with the Internal Revenue Code as noted above, may exceed the Maximum Annual Withdrawal amount, thereby reducing the benefit of this Rider. If there are multiple beneficiaries, each beneficiary will be entitled to continue a share of the Lincoln SmartSecurity (Reg. TM) Advantage equal to his or her share of the death benefit. Impact of Divorce on Joint Life Option. In the event of a divorce, the contractowner may change from a Joint Life Option to a Single Life Option (if the contractowner is under age 81) at the current Rider charge for new sales of the Single Life Option. At the time of the change, the Guaranteed Amount will be reset to the current contract value and the Maximum Annual Withdrawal amount will equal 5% of this new Guaranteed Amount. After a divorce, the contractowner may keep the Joint Life Option to have the opportunity to receive lifetime payouts for the lives of the contractowner and a new spouse. This is only available if no withdrawals were made from the contract after the effective date of the Rider up to and including the date the new spouse is added to the Rider. Termination. After the later of the fifth anniversary of the effective date of the Rider or the fifth anniversary of the most recent contractowner-elected step-up, including any step-up we administered for you, of the Guaranteed Amount, the contractowner may terminate the Rider by notifying us in writing. Lincoln SmartSecurity (Reg. TM) Advantage will automatically terminate: o on the annuity commencement date (except payments under the Guaranteed Amount Annuity Payment Option will continue if applicable); o upon the election of i4LIFE (Reg. TM) Advantage; o if the contractowner or annuitant is changed (except if the surviving spouse assumes ownership of the contract upon death of the contractowner) including any sale or assignment of the contract or any pledge of the contract as collateral; o upon the last payment of the Guaranteed Amount unless the lifetime Maximum Annual Withdrawal is in effect; o when a withdrawal in excess of the Maximum Annual Withdrawal amount reduces the Guaranteed Amount to zero; or o Upon termination of the underlying annuity contract. 49 The termination will not result in any increase in contract value equal to the Guaranteed Amount. Upon effective termination of this Rider, the benefits and charges within this Rider will terminate. If you terminate the Rider, you must wait one year before you can re-elect any Lincoln SmartSecurity (Reg. TM) Advantage or 4LATER (Reg. TM) Advantage options. i4LIFE (Reg. TM) Advantage Option. Contractowners with an active Lincoln SmartSecurity (Reg. TM) Advantage who decide to terminate the Lincoln SmartSecurity (Reg. TM) Advantage rider and purchase i4LIFE (Reg. TM) Advantage can use any remaining Guaranteed Amount to establish the Guaranteed Income Benefit under the i4LIFE (Reg. TM) Advantage terms and charge in effect at the time of the i4LIFE (Reg. TM) Advantage election. Contractowners may consider this if i4LIFE (Reg. TM) Advantage will provide a higher payout amount. There are many factors to consider when making this decision, including the cost of the riders, the payout amounts and applicable guarantees. You should discuss this decision with your registered representative. See i4LIFE (Reg. TM) Advantage. Availability. The Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option is available for purchase with nonqualified and qualified (IRAs and Roth IRAs) annuity contracts. All contractowners and the annuitant of the contracts with the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option must be under age 81 at the time this Rider is elected. You cannot elect the Rider on or after the purchase of i4LIFE (Reg. TM) Advantage or 4LATER (Reg. TM) Advantage or on or after the Annuity Commencement Date. The Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elecive Step-up option is no longer available for purchase. There is no guarantee that the Lincoln SmartSecurity (Reg. TM) Advantage will be available for new purchasers in the future as we reserve the right to discontinue this benefit at any time. This Rider is available for contracts issued after October 1, 2003. Check with your investment representative regarding availability. i4LIFE (Reg. TM) Advantage i4LIFE (Reg. TM) Advantage (the Variable Annuity Payout Option Rider in your contract) is an optional annuity payout rider you may purchase at an additional cost and is separate and distinct from other annuity payout options offered under your contract and described later in this prospectus. You may also purchase either the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit or the 4LATER Guaranteed Income Benefit (described below) for an additional charge. See Charges and Other Deductions - i4LIFE (Reg. TM) Advantage Charges. i4LIFE (Reg. TM) Advantage is a payout option that provides you with variable, periodic regular income payments for life. These payouts are made during an Access Period, where you have access to the Account Value. After the Access Period ends, payouts continue for the rest of your life, during the Lifetime Income Period. i4LIFE (Reg. TM) Advantage is different from other annuity payout options provided by Lincoln because with i4LIFE (Reg. TM) Advantage, you have the ability to make additional withdrawals or surrender the contract during the Access Period. You may also purchase the Guaranteed Income Benefit which provides a minimum payout floor for your regular income payments. The initial regular income payment is calculated from the Account Value on the periodic income commencement date, a date no more than 14 days prior to the date you select to begin receiving the regular income payments. This option is available on non-qualified annuities, IRAs and Roth IRAs (check with your registered representative regarding availability with SEP markets). This option is subject to a charge (imposed only during the i4LIFE (Reg. TM) Advantage payout phase) computed daily on the average account value. See Charges and Other Deductions - i4LIFE (Reg. TM) Advantage Charges. i4LIFE (Reg. TM) Advantage is available for contracts with a contract value of at least $50,000 and may be elected after the effective date of the contract and before an annuity payout option is elected by sending a written request to our Servicing Office. If you purchased 4LATER (Reg. TM) Advantage, you must wait at least one year before you can purchase i4LIFE (Reg. TM) Advantage. When you elect i4LIFE (Reg. TM) Advantage, you must choose the annuitant, secondary life, if applicable, and make several choices about your regular income payments. The annuitant and secondary life may not be changed after i4LIFE (Reg. TM) Advantage is elected. For qualified contracts, the secondary life must be the spouse. See i4LIFE (Reg. TM) Advantage Death Benefits regarding the impact of a change to the annuitant prior to the i4LIFE (Reg. TM) Advantage election. i4LIFE (Reg. TM) Advantage for IRA annuity contracts is only available if the annuitant and secondary life are age 591/2 or older at the time the option is elected. Additional limitations on issue ages and features may be necessary to comply with the IRC provisions for required minimum distributions. Additional purchase payments may be made during the Access Period for an IRA annuity contract, unless the 4LATERSM Advantage Guaranteed Income Benefit or i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit has been elected. Additional purchase payments will not be accepted once i4LIFE (Reg. TM) Advantage becomes effective for a non-qualified annuity contract. If i4LIFE (Reg. TM) Advantage is selected, the applicable transfer provisions among subaccounts and the fixed account will continue to be those specified in your annuity contract for transfers on or before the annuity commencement date. However, once i4LIFE (Reg. TM) Advantage begins, any automatic withdrawal service will terminate. See The Contracts - Transfers on or Before the Annuity Commencement Date. When you elect i4LIFE (Reg. TM) Advantage you must select a death benefit option. Once i4LIFE (Reg. TM) Advantage begins, any prior death benefit election will terminate and the i4LIFE (Reg. TM) Advantage death benefit will be in effect. The amount paid under the new death benefit may be less than the amount that would have been paid under the death benefit provided before i4LIFE (Reg. TM) Advantage began. See The Contracts - i4LIFE (Reg. TM) Advantage Death Benefits. 50 Access Period. At the time you elect i4LIFE (Reg. TM) Advantage, you also select the Access Period, which begins on the periodic income commencement date. The Access Period is a defined period of time during which we pay variable, periodic regular income payments and provide a death benefit, and during which you may surrender the contract and make withdrawals from your Account Value (defined below). At the end of the Access Period, the remaining Account Value is used to make regular income payments for the rest of your life (or the Secondary Life if applicable) and you will no longer be able to make withdrawals or surrenders or receive a death benefit. If your Account Value is reduced to zero because of withdrawals or market loss, your Access Period ends. We will establish the minimum (currently 5 years) and maximum (currently to age 115 for non-qualified contracts; to age 100 for qualified contracts) Access Periods at the time you elect i4LIFE (Reg. TM) Advantage. Generally, shorter Access Periods will produce a higher initial regular income payment than longer Access Periods. At any time during the Access Period, and subject to the rules in effect at that time, you may extend or shorten the Access Period by sending us notice. Additional restrictions may apply if you are under age 591/2 when you request a change to the Access Period. Currently, if you extend the Access Period, it must be extended at least 5 years. If you change the Access Period, subsequent regular income payments will be adjusted accordingly, and the Account Value remaining at the end of the new Access Period will be applied to continue regular income payments for your life. Additional limitations on issue ages and features may be necessary to comply with the IRC provisions for required minimum distributions. We may reduce or terminate the Access Period for IRA i4LIFE (Reg. TM) Advantage contracts in order to keep the regular income payments in compliance with IRC provisions for required minimum distributions. The minimum Access Period requirements for Guaranteed Income Benefits are longer than the requirements for i4LIFE (Reg. TM) Advantage without a Guaranteed Income Benefit. Shortening the Access Period will terminate the Guaranteed Income Benefit. See The Contracts - Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage. Account Value. The initial Account Value is the contract value on the valuation date i4LIFE (Reg. TM) Advantage is effective, less any applicable premium taxes. During the Access Period, the Account Value will be increased/decreased by any investment gains/losses including interest credited on the fixed account, and will be reduced by regular income payments made and Guaranteed Income Benefit payments and any withdrawals taken. After the Access Period ends, the remaining Account Value will be applied to continue regular income payments for your life and the Account Value will be reduced to zero. Regular income payments during the Access Period. i4LIFE (Reg. TM) Advantage provides for variable, periodic regular income payments for as long as an annuitant (or secondary life, if applicable) is living and access to your Account Value during the Access Period. When you elect i4LIFE (Reg. TM) Advantage, you will have to choose the date you will receive the initial regular income payment, the frequency of the payments (monthly, quarterly, semi-annually or annually), how often the payment is recalculated, the length of the Access Period and the assumed investment return. These choices will influence the amount of your regular income payments. Regular income payments must begin within one year of the date you elect i4LIFE (Reg. TM) Advantage. If you do not choose a payment frequency, the default is a monthly frequency. In most states, you may also elect to have regular income payments from non-qualified contracts recalculated only once each year rather than recalculated at the time of each payment. This results in level regular income payments between recalculation dates. Qualified contracts are only recalculated once per year, at the beginning of each calendar year. You also choose the assumed investment return. Return rates of 3%, 4%, or 5% may be available. The higher the assumed investment return you choose, the higher your initial regular income payment will be and the higher the return must be to increase subsequent regular income payments. You also choose the length of the Access Period. At this time, changes can only be made on periodic income commencement date anniversaries. Regular income payments are not subject to any surrender charges or applicable interest adjustments. See Charges and Other Deductions. For information regarding income tax consequences of regular income payments, see Federal Tax Matters. The amount of the initial regular income payment is determined on the periodic income commencement date by dividing the contract value (or purchase payment if elected at contract issue), less applicable premium taxes by 1000 and multiplying the result by an annuity factor. The annuity factor is based upon: o the age and sex of the annuitant and secondary life, if applicable; o the length of the Access Period selected; o the frequency of the regular income payments; o the assumed investment return you selected; and o the Individual Annuity Mortality table specified in your contract. The annuity factor used to determine the regular income payments reflects the fact that, during the Access Period, you have the ability to withdraw the entire Account Value and that a death benefit of the entire Account Value will be paid to your beneficiary upon your death. These benefits during the Access Period result in a slightly lower regular income payment, during both the Access Period and the Lifetime Income Period, than would be payable if this access was not permitted and no lump-sum death benefit of the full Account Value was payable. The annuity factor also reflects the requirement that there be sufficient Account Value at the end of the Access Period to continue your regular income payments for the remainder of your life (and/or the secondary life if applicable), during the Lifetime Income Period, with no further access or death benefit. The Account Value will vary with the actual net investment return of the subaccounts selected and the interest credited on the fixed account, which then determines the subsequent regular income payments during the Access Period. Each subsequent regular income 51 payment (unless the levelized option is selected) is determined by dividing the Account Value on the applicable valuation date by 1000 and multiplying this result by an annuity factor revised to reflect the declining length of the Access Period. As a result of this calculation, the actual net returns in the Account Value are measured against the assumed investment return to determine subsequent regular income payments. If the actual net investment return (annualized) for the contract exceeds the assumed investment return, the regular income payment will increase at a rate approximately equal to the amount of such excess. Conversely, if the actual net investment return for the contract is less than the assumed investment return, the regular income payment will decrease. For example, if net investment return is 3% higher (annualized) than the assumed investment return, the regular income payment for the next year will increase by approximately 3%. Conversely, if actual net investment return is 3% lower than the assumed investment return, the regular income payment will decrease by approximately 3%. Withdrawals made during the Access Period will also reduce the Account Value that is available for regular income payments, and subsequent regular income payments will be reduced in the same proportion that withdrawals reduce the Account Value. For a joint life option, if either the annuitant or secondary life dies during the Access Period, regular income payments will be recalculated using a revised annuity factor based on the single surviving life, if doing so provides a higher regular income payment. For nonqualified contracts, if the annuitant (and secondary life if applicable) dies during the Access Period, the Guaranteed Income Benefit (if any) will terminate and the annuity factor will be revised for a non-life contingent regular income payment and regular income payments will continue until the Account Value is fully paid out and the Access Period ends. For qualified contracts, if the annuitant (and secondary life) dies during the Access Period, i4LIFE (Reg. TM) Advantage (and the Guaranteed Income Benefit if applicable) will terminate. Regular income payments during the Lifetime Income Period. The Lifetime Income Period begins at the end of the Access Period if either the annuitant or secondary life is living. Your earlier elections regarding the frequency of regular income payments, assumed investment return and the frequency of the recalculation do not change. The initial regular income payment during the Lifetime Income Period is determined by dividing the Account Value on the last valuation date of the Access Period by 1000 and multiplying the result by an annuity factor revised to reflect that the Access Period has ended. The annuity factor is based upon: o the age the age and sex of the annuitant and secondary life (if living); o the frequency of the regular income payments; o the assumed investment return you selected; and o the Individual Annuity Mortality table specified in your contract. The impact of the length of the Access Period and any withdrawals made during the Access Period will continue to be reflected in the regular income payments during the Lifetime Income Period. To determine subsequent regular income payments, the contract is credited with a fixed number of annuity units equal to the initial regular income payment (during the Lifetime Income Period) divided by the annuity unit value (by subaccount). Subsequent regular income payments are determined by multiplying the number of annuity units per subaccount by the annuity unit value. Your regular income payments will vary based on the value of your annuity units. If your regular income payments are adjusted on an annual basis, the total of the annual payment is transferred to Lincoln New York's general account to be paid out based on the payment mode you selected. Your payment(s) will not be affected by market performance during that year. Your regular income payment(s) for the following year will be recalculated at the beginning of the following year based on the current value of the annuity units. Regular income payments will continue for as long as the annuitant or secondary life, if applicable, is living, and will continue to be adjusted for investment performance of the subaccounts your annuity units are invested in (and the fixed account if applicable). Regular income payments vary with investment performance. During the lifetime income period, there is no longer an Account Value; therefore, no withdrawals are available and no death benefit is payable. In addition, transfers are not allowed from a fixed annuity payment to a variable annuity payment. i4LIFE (Reg. TM) Advantage Death Benefits i4LIFE (Reg. TM) Advantage Account Value Death Benefit. The i4LIFE (Reg. TM) Advantage Account Value death benefit is available during the Access Period. This death benefit is equal to the Account Value as of the valuation date on which we approve the payment of the death claim. You may not change this death benefit once it is elected. i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit. The i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit is in effect during the Access Period and will be equal to the greater of: o the Account Value as of the valuation date we approve the payment of the claim; or o the sum of all purchase payments, less the sum of regular income payments and other withdrawals where: o regular income payments, including withdrawals to provide the Guaranteed Income Benefits, reduce the death benefit by the dollar amount of the payment; and o all other withdrawals, if any, reduce the death benefit in the same proportion that withdrawals reduce the contract value or Account Value. 52 References to purchase payments and withdrawals include purchase payments and withdrawals made prior to the election of i4LIFE (Reg. TM) Advantage if your contract was in force with the Guarantee of Principal or greater death benefit option prior to that election. In a declining market, withdrawals which are deducted in the same proportion that withdrawals reduce the contract or Account Value, may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for applicable charges and premium taxes, if any. The following example demonstrates the impact of a proportionate withdrawal on your death benefit: o i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit $200,000 o Total i4LIFE (Reg. TM) Regular Income payments $ 25,000 o Additional Withdrawal $15,000 ($15,000/$150,000=10% withdrawal) o Account Value at the time of Additional Withdrawal $150,000
i4LIFE (Reg. TM)Death Benefit Value after regular income payment = $200,000 - $25,000 = $175,000 Death Benefit Value after additional withdrawal = $175,000 - $17,500 = $157,500 Reduction in Death Benefit Value for Withdrawal = $175,000 X 10% = $17,500 The regular income payments reduce the death benefit by $25,000 and the additional withdrawal causes a 10% reduction in the death benefit, the same percentage that the withdrawal reduced the Account Value. During the Access Period, contracts with the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit may elect to change to the i4LIFE (Reg. TM) Advantage Account Value death benefit. We will effect the change in death benefit on the valuation date we receive a completed election form at our Servicing Office, and we will begin deducting the lower i4LIFE (Reg. TM) Advantage charge at that time. Once the change is effective, you may not elect to return to the i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit. i4LIFE (Reg. TM) Advantage EGMDB. The i4LIFE (Reg. TM) Advantage EGMDB is available during the Access Period. This benefit is the greatest of: o the Account Value as of the valuation date on which we approve the payment of the claim; or o the sum of all purchase payments, less the sum of regular income payments and other withdrawals where: o regular income payments, including withdrawals to provide the Guaranteed Income Benefit, reduce the death benefit by the dollar amount of the payment or in the same proportion that regular income payments reduce the Account Value, depending on the terms of your contract; and o all other withdrawals, if any, reduce the death benefit in the same proportion that withdrawals reduce the contract value or Account Value. References to purchase payments and withdrawals include purchase payments and withdrawals made prior to the election of i4LIFE (Reg. TM) Advantage if your contract was in force with the Guarantee of Principal or greater death benefit option prior to that election; or o the highest Account Value or contract value on any contract anniversary date (including the inception date of the contract) after the EGMDB is effective (determined before the allocation of any purchase payments on that contract anniversary) prior to the 81st birthday of the deceased and prior to the date of death. The highest Account Value or contract value is increased by purchase payments and bonus credits and is decreased by regular income payments, including withdrawals to provide the Guaranteed Income Benefits and all other withdrawals subsequent to the anniversary date on which the highest Account Value or contract value is obtained. Regular income payments and withdrawals are deducted in the same proportion that regular income payments and withdrawals reduce the contract value or Account Value. When determining the highest anniversary value, if you elected the EGMDB (or more expensive death benefit option) prior to electing i4LIFE (Reg. TM) Advantage and this death benefit was in effect when you purchased i4LIFE (Reg. TM) Advantage, we will look at the contract value before i4LIFE (Reg. TM) Advantage and the Account Value after the i4LIFE (Reg. TM) Advantage election to determine the highest anniversary value. In a declining market, withdrawals which are deducted in the same proportion that withdrawals reduce the Account Value, may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for applicable charges and premium taxes, if any. Contracts with the i4LIFE (Reg. TM) Advantage EGMDB may elect to change to the i4LIFE (Reg. TM) Advantage Account Value death benefit. We will effect the change in death benefit on the valuation date we receive a completed election form at our Servicing office, and we will begin deducting the lower i4LIFE (Reg. TM) Advantage charge at that time. Once the change is effective, you may not elect to return to the i4LIFE (Reg. TM) Advantage EGMDB. General Death Benefit Provisions. For all death benefit options, following the Access Period, there is no death benefit. The death benefits also terminate when the Account Value equals zero, because the Access Period terminates. If there is a change in the contractowner, joint owner or annuitant during the life of the contract, for any reason other than death, the only death benefit payable for the new person will be the i4LIFE (Reg. TM) Advantage Account Value death benefit. 53 For non-qualified contracts, upon the death of the contractowner, joint owner or annuitant, the contractowner (or beneficiary) may elect to terminate the contract and receive full payment of the death benefit or may elect to continue the contract and receive regular income payments. Upon the death of the secondary life, who is not also an owner, only the surrender value is paid. If you are the owner of an IRA annuity contract, and there is no secondary life, and you die during the Access Period, the i4LIFE (Reg. TM) Advantage will terminate. A spouse beneficiary may start a new i4LIFE (Reg. TM) Advantage program. The value of the death benefit will be determined as of the valuation date we approve the payment of the claim. Approval of payment will occur upon our receipt of all the following: 1. proof (e.g. an original certified death certificate), or any other proof of death satisfactory to us; and 2. written authorization for payment; and 3. all required claim forms, fully completed (including selection of a settlement option). Notwithstanding any provision of this contract to the contrary, the payment of death benefits provided under this contract must be made in compliance with Code Section 72(s) or 401(a)(9) as applicable, as amended from time to time. Death benefits may be taxable. See Federal Tax Matters. Upon notification to us of the death, regular income payments may be suspended until the death claim is approved. Upon approval, a lump sum payment for the value of any suspended payments will be made as of the date the death claim is approved, and regular income payments will continue, if applicable. The excess, if any, of the death benefit over the Account Value will be credited into the contract at that time. If a lump sum settlement is elected, the proceeds will be mailed within seven days of approval by us of the claim subject to the laws, regulations and tax code governing payment of death benefits. This payment may be postponed as permitted by the Investment Company Act of 1940. Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage A Guaranteed Income Benefit is available for purchase when you elect i4LIFE (Reg. TM) Advantage which ensures that your regular income payments will never be less than a minimum payout floor, regardless of the actual investment performance of your contract. See Charges and Other Deductions for a discussion of the Guaranteed Income Benefit charges. As discussed below, certain features of the Guaranteed Income Benefit may be impacted if you purchased Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage (withdrawal benefit riders) prior to electing i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit (annuity payout rider). Refer to the 4LATER (Reg. TM)Advantage section of this prospectus for a discussion of the 4LATER (Reg. TM) Guaranteed Income Benefit. Once the Guaranteed Income Benefit is elected, additional purchase payments cannot be made to the contract. Election of this rider will limit how much you can invest in certain subaccounts. See the Contracts - Investment Requirements. There is no guarantee that the i4LIFE (Reg. TM) Guaranteed Income Benefit option will be available to elect in the future, as we reserve the right to discontinue this option for new elections at any time. In addition, we may make different versions of the Guaranteed Income Benefit available to new purchasers or may create different versions for use with various Living Benefit riders. However, a contractowner with the Lincoln Lifetime IncomeSM Advantage who decides to drop Lincoln Lifetime IncomeSM Advantage to purchase i4LIFE (Reg. TM) Advantage will be guaranteed the right to purchase the Guaranteed Income Benefit under the terms set forth in the Lincoln Lifetime IncomeSM Advantage rider. i4LIFE (Reg. TM) Guaranteed Income Benefit, if available, is purchased when you elect i4LIFE (Reg. TM) Advantage or anytime during the Access Period, subject to terms and conditions at that time. If you intend to use the Guaranteed Amount from either the Lincoln SmartSecurity (Reg. TM) Advantage or the Lincoln Lifetime IncomeSM Advantage riders to establish the Guaranteed Income Benefit, you must elect the Guaranteed Income Benefit at the time you elect i4LIFE (Reg. TM) Advantage. The Guaranteed Income Benefit is initially equal to 75% of the regular income payment (which is based on your Account Value as defined in the i4LIFE (Reg. TM) Advantage rider section) in effect at the time the Guaranteed Income Benefit is elected. Contractowners who purchased the Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage can use the remaining Guaranteed Amount (if greater than the contract value) at the time the Guaranteed Income Benefit is determined, to increase the Guaranteed Income Benefit. The Guaranteed Income Benefit will be increased by the ratio of the remaining Guaranteed Amount to the contract value at the time the initial i4LIFE (Reg. TM) Advantage payment is calculated. In other words, the Guaranteed Income Benefit will equal 75% of the initial regular income payment times the remaining Guaranteed Amount divided by the contract value, if the Guaranteed Amount is greater than the contract value. If the amount of your i4LIFE (Reg. TM) Advantage regular income payment has fallen below the Guaranteed Income Benefit, because of poor investment results, a payment equal to the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit is the minimum payment you will receive. If the Guaranteed Income Benefit is paid, it will be paid with the same frequency as your regular income payment. If your regular income 54 payment is less than the Guaranteed Income Benefit, we will reduce the Account Value by the regular income payment plus an additional amount equal to the difference between your regular income payment and the Guaranteed Income Benefit (In other words, Guaranteed Income Benefit payments reduce the Account Value by the entire amount of the Guaranteed Income Benefit payment.) (Regular income payments also reduce the Account Value). This withdrawal will be made from the variable subaccounts and the fixed account on a pro-rata basis according to your investment allocations. If your Account Value reaches zero as a result of withdrawals to provide the Guaranteed Income Benefit, we will continue to pay you an amount equal to the Guaranteed Income Benefit. If your Account Value reaches zero, your Access Period will end and your Lifetime Income Period will begin. Additional amounts withdrawn from the Account Value to provide the Guaranteed Income Benefit may terminate your Access Period earlier than originally scheduled, and will reduce your death benefit. If your Account Value equals zero, no death benefit will be paid. See i4LIFE (Reg. TM) Advantage Death Benefits. After the Access Period ends, we will continue to pay the Guaranteed Income Benefit for as long as the annuitant (or the secondary life, if applicable) is living. If the market performance in your contract is sufficient to provide regular income payments at a level that exceeds the Guaranteed Income Benefit, the Guaranteed Income Benefit will never come into effect. The following example illustrates how poor investment performance, which results in a Guaranteed Income Benefit payment, affects the i4LIFE (Reg. TM) Account Value: o i4LIFE (Reg. TM) Account Value before market decline $135,000 o i4LIFE (Reg. TM) Account Value after market decline $100,000 o Guaranteed Income Benefit $ 810 o Regular Income Payment after market decline $ 769 o Account Value after market decline and Guaranteed $ 99,190 Income Benefit payment
The contractowner receives an amount equal to the Guaranteed Income Benefit. The entire amount of the Guaranteed Income Benefit is deducted from the Account Value. If you purchased the Guaranteed Income Benefit (version 3) on or after January 20, 2009, the Guaranteed Income Benefit will automatically step-up every year to 75% of the current regular income payment, if that result is greater than the immediately prior Guaranteed Income Benefit. If you purchased the Guaranteed Income Benefit (version 2) prior to January 20, 2009, the Guaranteed Income Benefit will automatically step-up every three years on the periodic income commencement date anniversary to 75% of the current regular income payment, if the result is greater than the immediately prior Guaranteed Income Benefit. The step-up will occur on every periodic income commencement date anniversary during either a 5-year step-up period (version 3) or every third periodic income commencement date anniversary for a 15 year step-up period (version 2). At the end of a step-up period, you may elect a new step-up period by submitting a written request to the Servicing office. If you prefer, when you start the Guaranteed Income Benefit, you can request that we administer this election for you. Step-ups for qualified contracts, including IRAs, will occur on a calendar year basis. At the time of a reset of the step-up period the i4LIFE (Reg. TM) Guaranteed Income Benefit percentage charge may increase subject to the maximum guaranteed charge of 1.50%. This means that your charge may change every five years for version 3 of the Guaranteed Income Benefit or every 15 years for version 2 of the Guaranteed Income Benefit. If we automatically administer a new step-up period for you and if your percentage charge is increased, you may ask us to reverse the step-up by giving us notice within 30 days after the periodic income commencement anniversary. If we receive this notice, we will decrease the percentage charge to the amounts they were before the step-up occurred. Increased fees collected during the 30 day period will be refunded into your contract. You will have no more step-ups unless you notify us that you wish to start a new step-up period. i4LIFE (Reg. TM) Advantage charges are in addition to the Guaranteed Income Benefit Charges. If you have an older version of the Guaranteed Income Benefit (Version 1), your Guaranteed Income Benefit will not step-up on an anniversary, but will remain level. This version is no longer available for sale. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit is reduced by withdrawals (other than regular income payments) in the same proportion that the withdrawals reduce the Account Value. See below in General i4LIFE (Reg. TM) Provisions for an example. Impacts to i4LIFE (Reg. TM) Advantage Regular Income Payments. When you select the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, certain restrictions will apply to your contract: o A 4% assumed investment return (AIR) will be used to calculate the regular income payments. o The minimum Access Period required for this benefit is the longer of 15 years or the difference between your age (nearest birthday) and age 85. We may change this Access Period requirement prior to election of the Guaranteed Income Benefit. o The maximum Access Period available for this benefit is to age 115 for non-qualified contracts; to age 100 for qualified contracts. 55 If you have elected i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit and the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit on or after October 6, 2008, the minimum Access Period required for this benefit is the longer of 20 years or the difference between your age (nearest birthday) and age 90. If you choose to lengthen your Access Period, (which must be increased by a minimum of 5 years) thereby reducing your regular income payment, your i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will also be reduced. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will be reduced in proportion to the reduction in the regular income payment. If you choose to shorten your Access Period, the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will terminate. Refer to the Example in the 4LATER (Reg. TM) Guaranteed Income Benefit section. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will terminate due to any of the following events: o the death of the annuitant (or the later of the death of the annuitant or secondary life if a joint payout was elected); or o a contractowner requested decrease in the Access Period or a change to the regular income payment frequency; or o upon written notice to us; or o assignment of the contract. A termination due to a decrease in the Access Period, a change in the regular income payment frequency, or upon written notice from the contractowner will be effective as of the valuation date on the next periodic income commencement date anniversary. Termination will be only for the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit and not the i4LIFE (Reg. TM)Advantage election, unless otherwise specified. If you used your Lincoln Lifetime IncomeSM Advantage Guaranteed Amount to establish the Guaranteed Income Benefit, you must keep i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit in effect for at least 3 years. If you terminate the i4LIFE (Reg. TM)Advantage Guaranteed Income Benefit you may be able to re-elect it, if available, after one year. The election will be treated as a new purchase, subject to the terms and charges in effect at the time of election and the i4LIFE (Reg. TM) Advantage regular income payments will be recalculated. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will be based on the Account Value at the time of the election. General i4LIFE (Reg. TM) Provisions Withdrawals. You may request a withdrawal at any time prior to or during the Access Period. We reduce the Account Value by the amount of the withdrawal, and all subsequent regular income payments and Guaranteed Income Benefit payments, if applicable, will be reduced proportionately. Withdrawals may have tax consequences. See Federal Tax Matters. Withdrawals are subject to any applicable surrender charges except when amounts may be withdrawn free of surrender charges. See Charges and Other Deductions. The interest adjustment may apply. The following example demonstrates the impact of a withdrawal on the regular income payments and the Guaranteed Income Benefit payments: o i4LIFE (Reg. TM) Regular Income Payment before Withdrawal $ 1,200 o Guaranteed Income Benefit before Withdrawal $ 900 o Account Value at time of Additional Withdrawal $150,000 o Additional Withdrawal $ 15,000 (a 10% withdrawal)
Reduction in i4LIFE (Reg. TM) Regular Income payment for Withdrawal = $1,200 X 10 % = $120 i4LIFE (Reg. TM) Regular Income payment after Withdrawal = $1,200 - $120 = $1,080 Reduction in Guaranteed Income Benefit for Withdrawal = $900 X 10% = $90 Guaranteed Income Benefit after Withdrawal = $900 - $90 = $810 Surrender. At any time prior to or during the Access Period, you may surrender the contract by withdrawing the surrender value. If the contract is surrendered, the contract terminates and no further regular income payments will be made. Withdrawals are subject to any applicable surrender charges except when amounts may be withdrawn free of surrender charges. See Charges and Other Deductions. The interest adjustment may apply. Termination. For IRA annuity contracts, you may terminate i4LIFE (Reg. TM) Advantage prior to the end of the Access Period by notifying us in writing. The termination will be effective on the next valuation date after we receive the notice and your contract will return to the accumulation phase. Your i4LIFE (Reg. TM) Advantage death benefit will terminate and you will have the Guarantee of Principal death benefit. Upon termination, we will stop assessing the charge for i4LIFE (Reg. TM) Advantage and begin assessing the mortality and expense risk charge and administrative charge associated with the new death benefit option. Your contract value upon termination will be equal to the Account Value on the valuation date we terminate i4LIFE (Reg. TM) Advantage. For non-qualified contracts, you may not terminate i4LIFE (Reg. TM) Advantage once you have elected it. 4LATER (Reg. TM) Advantage 4LATER (Reg. TM) Advantage is a rider that is available to protect against market loss by providing you with a method to receive a minimum payout from your annuity. The rider provides an Income Base (described below) prior to the time you begin taking payouts from your 56 annuity. If you elect 4LATER (Reg. TM) Advantage, you must elect i4LIFE (Reg. TM) with the 4LATER (Reg. TM) Guaranteed Income Benefit to receive a benefit from 4LATER (Reg. TM) Advantage. Election of these riders will limit how much you can invest in certain subaccounts. See The Contracts-Investment Requirements. See Charges and Other Deductions for a discussion of the 4LATER (Reg. TM) Advantage charge. 4LATER (Reg. TM) Advantage Before Payouts Begin The following discussion applies to 4LATER (Reg. TM) Advantage during the accumulation phase of your annuity, referred to as 4LATER (Reg. TM). This is prior to the time any payouts begin under i4LIFE (Reg. TM) Advantage with the 4LATER (Reg. TM) Guaranteed Income Benefit. Income Base. The Income Base is a value established when you purchase 4LATER (Reg. TM) and will only be used to calculate the minimum payouts available under your contract at a later date. The Income Base is not available for withdrawals or as a death benefit. If you elect 4LATER (Reg. TM) at the time you purchase the contract, the Income Base initially equals the purchase payments and any bonus credits. If you elect 4LATER (Reg. TM) after we issue the contract, the Income Base will initially equal the contract value on the 4LATER (Reg. TM) Effective Date. Additional purchase payments automatically increase the Income Base by the amount of the purchase payments and any bonus credits. Additional purchase payments will not be allowed if the contract value is zero. Each withdrawal reduces the Income Base in the same proportion as the amount withdrawn reduces the contract value on the valuation date of the withdrawal. As described below, during the accumulation phase, the Income Base will be automatically enhanced by 15% (adjusted for additional purchase payments and withdrawals as described in the Future Income Base section below) at the end of each Waiting Period. In addition, after the Initial Waiting Period, you may elect to reset your Income Base to the current contract value if your contract value has grown beyond the 15% enhancement. You may elect this reset on your own or you may choose to have Lincoln New York automatically reset the Income Base for you at the end of each Waiting Period. These reset options are discussed below. Then, when you are ready to elect i4LIFE (Reg. TM) Advantage and establish the 4LATER (Reg. TM) Guaranteed Income Benefit, the Income Base (if higher than the contract value) is used in the 4LATER (Reg. TM) Advantage Guaranteed Income Benefit calculation. Waiting Period. The Waiting Period is each consecutive 3-year period which begins on the 4LATER (Reg. TM) Effective Date, or on the date of any reset of the Income Base to the contract value. At the end of each completed Waiting Period, the Income Base is increased by 15% (as adjusted for purchase payments, corresponding bonus credits, and withdrawals) to equal the Future Income Base as discussed below. The Waiting Period is also the amount of time that must pass before the Income Base can be reset to the current contract value. A new Waiting Period begins after each reset and must be completed before the next 15% enhancement or another reset occurs. Future Income Base. 4LATER (Reg. TM) provides a 15% automatic enhancement to the Income Base after a 3-year Waiting Period. This enhancement will continue every 3 years until i4LIFE (Reg. TM) Advantage is elected, you terminate 4LATER (Reg. TM) or you reach the Maximum Income Base. See Maximum Income Base. During the Waiting Period, the Future Income Base is established to provide the value of this 15% enhancement on the Income Base. After each 3-year Waiting Period is satisfied, the Income Base is increased to equal the value of the Future Income Base. The 4LATER (Reg. TM) charge will then be assessed on this newly adjusted Income Base, but the percentage charge will not change. Any purchase payment made after the 4LATER (Reg. TM) Effective Date, but within 90 days of the contract effective date, will increase the Future Income Base by the amount of the purchase payment and corresponding bonus credit, plus 15% of that purchase payment and bonus credit. Example: Initial Purchase Payment and corresponding bonus credit $104,000 Purchase Payment and corresponding bonus credit 60 $ 10,400 -------- days later Income Base $114,400 Future Income Base (during the 1st Waiting Period) $131,560 ($114,400 x 115%) Income Base (after 1st Waiting Period) $131,560 New Future Income Base (during 2nd Waiting Period) $151,294 ($131,560 x 115%)
Any purchase payments made after the 4LATER (Reg. TM) Effective Date and more than 90 days after the contract effective date will increase the Future Income Base by the amount of the purchase payment and corresponding bonus credit plus 15% of that purchase payment and corresponding bonus credit on a pro-rata basis for the number of full years remaining in the current Waiting Period. 57 Example: Income Base $104,000 Purchase Payment and corresponding bonus credit in $ 10,400 Year 2 New Income Base $114,400 -------- Future Income Base (during 1st Waiting Period-Year 2) $130,520 ($104,000 x 115%) + ($10,400 x 100%) + (10,400 x 15% x 1/3) Income Base (after 1st Waiting Period) $130,520 New Future Income Base (during 2nd Waiting Period) $150,098 (130,520 x 115%)
Withdrawals reduce the Future Income Base in the same proportion as the amount withdrawn reduces the contract value on the valuation date of the withdrawal. During any subsequent Waiting Periods, if you elect to reset the Income Base to the contract value, the Future Income Base will equal 115% of the contract value on the date of the reset and a new Waiting Period will begin. See Resets of the Income Base to the current contract value below. In all situations, the Future Income Base is subject to the Maximum Income Base described below. The Future Income Base is never available to the contractowner to establish a 4LATER (Reg. TM) Advantage Guaranteed Income Benefit, but is the value the Income Base will become at the end of the Waiting Period. Maximum Income Base. The Maximum Income Base is equal to 200% of the Income Base on the 4LATER (Reg. TM) Effective Date. The Maximum Income Base will be increased by 200% of any additional purchase payments and corresponding bonus credits. In all circumstances, the Maximum Income Base can never exceed $10,000,000. This maximum takes into consideration the combined Income Bases for all Lincoln Life contracts (or contracts issued by our affiliates) owned by you or on which you are the annuitant. After a reset to the current contract value, the Maximum Income Base will equal 200% of the contract value on the valuation date of the reset not to exceed $10,000,000. Each withdrawal will reduce the Maximum Income Base in the same proportion as the amount withdrawn reduces the contract value on the valuation date of the withdrawal. Example: Income Base $104,000 Maximum Income Base $208,000 Purchase Payment and $ 10,400 Increase to Maximum Income Base $ 20,800 corresponding bonus credit in Year 2 New Income Base $114,400 New Maximum Income Base $228,800 Future Income Base after Purchase $130,520 Maximum Income Base $228,800 Payment Income Base (after 1st Waiting $130,520 Period) Future Income Base (during 2nd $150,098 Maximum Income Base $228,800 Waiting Period) Contract Value in Year 4 $112,000 Withdrawal of 10% $ 11,200 After Withdrawal (10% adjustment) ----------------------------------------- Contract Value $100,800 Income Base $117,468 Future Income Base $135,088 Maximum Income Base $205,920
Resets of the Income Base to the current contract value ("Resets"). You may elect to reset the Income Base to the current contract value at any time after the initial Waiting Period following: (a) the 4LATER (Reg. TM) Effective Date or (b) any prior reset of the Income Base. Resets are subject to a maximum of $10,000,000 and the annuitant must be under age 81. You might consider resetting the Income Base if your contract value has increased above the Income Base (including the 15% automatic Enhancements) and you want to lock-in this increased amount to use when setting the Guaranteed Income Benefit. If the Income Base is reset to the contract value, the 15% automatic Enhancement will not apply until the end of the next Waiting Period. This reset may be elected by sending a written request to our Servicing Office or by specifying at the time of purchase that you would like us to administer this reset election for you. If you want us to administer this reset for you, at the end of each 3-year Waiting 58 Period, if the contract value is higher than the Income Base (after the Income Base has been reset to the Future Income Base), we will implement this election and the Income Base will be equal to the contract value on that date. We will notify you that a reset has occurred. This will continue until you elect i4LIFE (Reg. TM) Advantage, the annuitant reaches age 81, or you reach the Maximum Income Base. If we administer this reset election for you, you have 30 days after the election to notify us if you wish to reverse this election and have your Income Base increased to the Future Income Base instead. You may wish to reverse this election if you are not interested in the increased charge. If the contract value is less than the Income Base on any reset date, we will not administer this reset. We will not attempt to administer another reset until the end of the next 3-year Waiting Period; however, you have the option to request a reset during this period by sending a written request to our Servicing Office. At the time of each reset (whether you elect the reset or we administer the reset for you), the annual charge will change to the current charge in effect at the time of the reset, not to exceed the guaranteed maximum charge. At the time of reset, a new Waiting Period will begin. Subsequent resets may be elected at the end of each new Waiting Period. The reset will be effective on the next valuation date after notice of the reset is approved by us. We reserve the right to restrict resets to Benefit Year anniversaries. The Benefit Year is the 12-month period starting with the 4LATER (Reg. TM) Effective Date and starting with each anniversary of the 4LATER (Reg. TM) Effective Date after that. If the contractowner elects to reset the Income Base, the Benefit Year will begin on the effective date of the reset and each anniversary of the effective date of the reset after that. Eligibility. To purchase 4LATER (Reg. TM) Advantage, the annuitant must be age 80 or younger. If you plan to elect i4LIFE (Reg. TM) Advantage within three years of the issue date of 4LATER (Reg. TM) Advantage, you will not receive the benefit of the Future Income Base. 4LATER (Reg. TM) Rider Effective Date. If 4LATER (Reg. TM) is elected at contract issue, then it will be effective on the contract's effective date. If 4LATER (Reg. TM) is elected after the contract is issued (by sending a written request to our Servicing Office), then it will be effective on the next valuation date following approval by us. 4LATER (Reg. TM) Guaranteed Income Benefit When you are ready to elect i4LIFE (Reg. TM) Advantage regular income payments, the greater of the Income Base accumulated under 4LATER (Reg. TM) or the contract value will be used to calculate the 4LATER (Reg. TM) Guaranteed Income Benefit. The 4LATER (Reg. TM) Guaranteed Income Benefit is a minimum payout floor for your i4LIFE (Reg. TM) Advantage regular income payments. The Guaranteed Income Benefit will be determined by dividing the greater of the Income Base or contract value (or Guaranteed Amount if applicable) on the periodic income commencement date, by 1000 and multiplying the result by the rate per $1000 from the Guaranteed Income Benefit Table in your 4LATER (Reg. TM) Rider. If the contract value is used to establish the 4LATER (Reg. TM) Guaranteed Income Benefit, this rate provides a Guaranteed Income Benefit not less than 75% of the initial i4LIFE (Reg. TM) Advantage regular income payment (which is also based on the contract value). If the Income Base is used to establish the Guaranteed Income Benefit (because it is larger than the contract value), the resulting Guaranteed Income Benefit will be more than 75% of the initial i4LIFE (Reg. TM) Advantage regular income payment. If the amount of your i4LIFE (Reg. TM) Advantage regular income payment (which is based on your i4LIFE (Reg. TM) Advantage Account Value) has fallen below the 4LATER (Reg. TM) Guaranteed Income Benefit, because of poor investment results, a payment equal to the 4LATER (Reg. TM) Guaranteed Income Benefit is the minimum payment you will receive. If the 4LATER (Reg. TM) Guaranteed Income Benefit is paid, it will be paid with the same frequency as your i4LIFE (Reg. TM) Advantage regular income payment. If your regular income payment is less than the 4LATER (Reg. TM) Guaranteed Income Benefit, we will reduce your i4LIFE (Reg. TM) Advantage Account Value by the regular income payment plus an additional amount equal to the difference between your regular income payment and the 4LATER (Reg. TM) Guaranteed Income Benefit. This withdrawal from your Account Value will be made from the subaccounts and the fixed account on a pro-rata basis according to your investment allocations. The following example illustrates how poor investment performance, which results in a Guaranteed Income Benefit payment, affects the i4LIFE (Reg. TM) Account Value: o i4LIFE (Reg. TM) Account Value before market decline $135,000 o i4LIFE (Reg. TM) Account Value after market decline $100,000 o Guaranteed Income Benefit $ 810 o Regular Income Payment after market decline $ 769 o Account Value after market decline and Guaranteed $ 99,190 Income Benefit payment
If your Account Value reaches zero as a result of withdrawals to provide the 4LATER (Reg. TM) Guaranteed Income Benefit, we will continue to pay you an amount equal to the 4LATER (Reg. TM) Guaranteed Income Benefit. When your Account Value reaches zero, your i4LIFE (Reg. TM) Advantage Access Period will end and the i4LIFE (Reg. TM) Advantage Lifetime Income Period will begin. Additional amounts withdrawn from the Account Value to provide the 4LATER (Reg. TM) Guaranteed Income Benefit may 59 terminate your Access Period earlier than originally scheduled and will reduce your death benefit. See i4LIFE (Reg. TM) Advantage Death Benefits. After the Access Period ends, we will continue to pay the 4LATER (Reg. TM) Guaranteed Income Benefit for as long as the annuitant (or the secondary life, if applicable) is living (i.e., the i4LIFE (Reg. TM) Advantage Lifetime Income Period). If your Account Value equals zero, no death benefit will be paid. If the market performance in your contract is sufficient to provide regular income payments at a level that exceeds the 4LATER (Reg. TM) Guaranteed Income Benefit, the 4LATER (Reg. TM) Guaranteed Income Benefit will never come into effect. The 4LATER (Reg. TM) Advantage Guaranteed Income Benefit will automatically step-up every three years to 75% of the then current regular income payment, if that result is greater than the immediately prior 4LATER (Reg. TM) Guaranteed Income Benefit. The step-up will occur on every third periodic income commencement date anniversary for 15 years. At the end of a 15-year step-up period, the contractowner may elect a new 15-year step-up period by submitting a written request to the Servicing Office. If you prefer, when you start the Guaranteed Income Benefit, you can request that Lincoln New York administer this election for you. At the time of a reset of the 15 year period, the charge for the 4LATER (Reg. TM) Guaranteed Income Benefit will become the current charge up to the guaranteed maximum charge of 1.50% (i4LIFE (Reg. TM) Advantage charges are in addition to the Guaranteed Income Benefit charge). After we administer this election, you have 30 days to notify us if you wish to reverse the election (because you do not wish to incur the additional cost). If we receive this notice, we will decrease the percentage charge to the amounts they were before the election of the step-up period occurred. Increased fees collected during the 30-day period will be refunded into your contract. Additional purchase payments cannot be made to your contract after the periodic income commencement date. The 4LATER (Reg. TM) Guaranteed Income Benefit is reduced by withdrawals (other than regular income payments) in the same proportion that the withdrawals reduce the Account Value. You may want to discuss the impact of additional withdrawals with your financial adviser. Impacts to i4LIFE (Reg. TM) Advantage Regular Income Payments. At the time you elect i4LIFE (Reg. TM) Advantage, you also select the Access Period. See i4LIFE (Reg. TM) Advantage - Access Period. Generally, shorter Access Periods will produce a higher initial i4LIFE (Reg. TM) Advantage regular income payment and higher Guaranteed Income Benefit payments than longer Access Periods. The minimum Access Period required with the 4LATER (Reg. TM) Guaranteed Income Benefit is currently the longer of 15 years or the difference between your current age (nearest birthday) and age 85. We reserve the right to increase this minimum prior to the election of 4LATER (Reg. TM) Advantage, subject to the terms in your Rider. (Note: i4LIFE (Reg. TM) Advantage may allow a shorter Access Period if a Guaranteed Income Benefit is not provided.) If you choose to lengthen your Access Period at a later date, thereby recalculating and reducing your regular income payment, your 4LATER (Reg. TM) Guaranteed Income Benefit will also be recalculated and reduced. The 4LATER (Reg. TM) Guaranteed Income Benefit will be adjusted in proportion to the reduction in the regular income payment. If you choose to shorten your Access Period, the 4LATER (Reg. TM) Rider will terminate. When you make your 4LATER (Reg. TM) Guaranteed Income Benefit and i4LIFE (Reg. TM) Advantage elections, you must also choose an assumed investment return of 4% to calculate your i4LIFE (Reg. TM) Advantage regular income payments. Once you have elected 4LATER (Reg. TM), the assumed investment return rate will not change; however, we may change the required assumed investment return rate in the future for new purchasers only. The following is an example of what happens when you extend the Access Period: Assume: i4LIFE (Reg. TM) Advantage remaining Access Period = 10 years Current i4LIFE (Reg. TM) Advantage regular income payment = $6375 Current 4LATER (Reg. TM) Guaranteed Income Benefit = $5692 Extend Access Period 5 years: i4LIFE (Reg. TM) Advantage regular income payment after extension = $5355 Percentage change in i4LIFE (Reg. TM) Advantage regular income payment = $5355 - $6375 = 84% New 4LATER (Reg. TM) Guaranteed Income Benefit = $5692 x 84% = $4781 General Provisions of 4LATER (Reg. TM) Advantage Termination. After the later of the third anniversary of the 4LATER (Reg. TM) Rider Effective Date or the most recent Reset, the 4LATER (Reg. TM) Rider may be terminated upon written notice to us. Prior to the periodic income commencement date, 4LATER (Reg. TM) will automatically terminate upon any of the following events: o termination of the contract to which the 4LATER (Reg. TM) Rider is attached; o the change of or the death of the annuitant (except if the surviving spouse assumes ownership of the contract and the role of the annuitant upon death of the contractowner); or o the change of contractowner (except if the surviving spouse assumes ownership of the contract and the role of annuitant upon the death of the contractowner), including the assignment of the contract. After the periodic income commencement date, the 4LATER (Reg. TM) Rider will terminate due to any of the following events: 60 o the death of the annuitant (or for nonqualified contracts,, the later of the death of the annuitant or secondary life if a joint payout was elected); or o a contractowner requested decrease in the Access Period or a change to the regular income payment frequency. A termination due to a decrease in the Access Period, a change in the regular income payment frequency, or upon written notice from the contractowner will be effective as of the valuation date on the next periodic income commencement date anniversary. Termination will be only for the 4LATER (Reg. TM) Guaranteed Income Benefit and not the i4LIFE (Reg. TM) Advantage election, unless otherwise specified. If you terminate 4LATER (Reg. TM) prior to the periodic income commencement date, you must wait one year before you can re-elect 4LATER (Reg. TM) or purchase the Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage. If you terminate the 4LATER (Reg. TM) Rider on or after the periodic income commencement date, you cannot re-elect it. You may be able to elect the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, if available, after one year. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will be based on the Account Value at the time of the election. The election of one of these benefits, if available, will be treated as a new purchase, subject to the terms and charges in effect at the time of election. Availability. The availability of 4LATER (Reg. TM) will depend upon your state's approval of the 4LATER (Reg. TM) Rider. Check with your registered representative regarding availability. You cannot elect 4LATER (Reg. TM) after an annuity payout option or i4LIFE (Reg. TM) Advantage has been elected, and it cannot be elected on contracts that currently have Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage. Contractowners who drop Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage and elect 4LATER (Reg. TM) will not carry their Guaranteed Amount over into the new 4LATER (Reg. TM). The 4LATER (Reg. TM) Income Base will be established based on the contractowner's contract value on the Effective Date of 4LATER (Reg. TM). Contractowners who drop Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage will have to wait one year before they can elect 4LATER (Reg. TM). See The Contracts - Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage. Annuity Payouts When you apply for a contract, you may select any annuity commencement date permitted by law, which is usually on or before the annuitant's 90th birthday. Your broker-dealer may recommend that you annuitize at an earlier age. As an alternative, contractowners with Lincoln SmartSecurity (Reg. TM) Advantage may elect to annuitize their Guaranteed Amount under the Guaranteed Amount Annuity Payout Option. Contractowners with Lincoln Lifetime IncomeSM Advantage may elect the Maximum Annual Withdrawal Amount Annuity Payout option. The contract provides optional forms of payouts of annuities (annuity options), each of which is payable on a variable basis, a fixed basis or a combination of both as you specify. The contract provides that all or part of the contract value may be used to purchase an annuity payout option. You may elect annuity payouts in monthly, quarterly, semiannual or annual installments. If the payouts from any subaccount would be or become less than $50, we have the right to reduce their frequency until the payouts are at least $50 each. Following are explanations of the annuity options available. Annuity Options The annuity options outlined below do not apply to contractowners who have elected i4LIFE (Reg. TM) Advantage, the Maximum Annual Withdrawal Amount Annuity Payout option or the Guaranteed Amount Annuity Payout option. Life Annuity. This option offers a periodic payout during the lifetime of the annuitant and ends with the last payout before the death of the annuitant. This option offers the highest periodic payout since there is no guarantee of a minimum number of payouts or provision for a death benefit for beneficiaries. However, there is the risk under this option that the recipient would receive no payouts if the annuitant dies before the date set for the first payout; only one payout if death occurs before the second scheduled payout, and so on. Life Annuity with Payouts Guaranteed for Designated Period. This option guarantees periodic payouts during a designated period, usually 10 or 20 years, and then continues throughout the lifetime of the annuitant. The designated period is selected by the contractowner. Joint Life Annuity. This option offers a periodic payout during the joint lifetime of the annuitant and a designated joint annuitant. The payouts continue during the lifetime of the survivor. However, under a joint life annuity, if both annuitants die before the date set for the first payout, no payouts will be made. Only one payment would be made if both deaths occur before the second scheduled payout, and so on. Joint Life Annuity with Guaranteed Period. This option guarantees periodic payouts during a designated period, usually 10 or 20 years, and continues during the joint lifetime of the annuitant and a designated joint annuitant. The payouts continue during the lifetime of the survivor. The designated period is selected by the contractowner. 61 Joint Life and Two Thirds to Survivor Annuity. This option provides a periodic payout during the joint lifetime of the annuitant and a designated joint annuitant. When one of the joint annuitants dies, the survivor receives two thirds of the periodic payout made when both were alive. Joint Life and Two-Thirds Survivor Annuity with Guaranteed Period. This option provides a periodic payout during the joint lifetime of the annuitant and a joint annuitant. When one of the joint annuitants dies, the survivor receives two-thirds of the periodic payout made when both were alive. This option further provides that should one or both of the annuitants die during the elected guaranteed period, usually 10 or 20 years, full benefit payment will continue for the rest of the guaranteed period. Unit Refund Life Annuity. This option offers a periodic payout during the lifetime of the annuitant with the guarantee that upon death a payout will be made of the value of the number of annuity units (see Variable Annuity Payouts) equal to the excess, if any, of: o the total amount applied under this option divided by the annuity unit value for the date payouts begin, minus o the annuity units represented by each payout to the annuitant multiplied by the number of payouts paid before death. The value of the number of annuity units is computed on the date the death claim is approved for payment by the Servicing office. Life Annuity with Cash Refund. Fixed annuity benefit payments that will be made for the lifetime of the annuitant with the guarantee that upon death, should (a) the total dollar amount applied to purchase this option be 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. Under the annuity options listed above, you may not make withdrawals. Other options, with or without withdrawal features, may be made available by us. You may pre-select an annuity payout option as a method of paying the death benefit to a beneficiary. If you do, the beneficiary cannot change this payout option. You may change or revoke in writing to our Servicing office, any such selection, unless such selection was made irrevocable. If you have not already chosen an annuity payout option, the beneficiary may choose any annuity payout option. At death, options are only available to the extent they are consistent with the requirements of the contract as well as Sections 72(s) and 401(a)(9) of the tax code, if applicable. General Information Any previously selected death benefit in effect before the annuity commencement date will no longer be available on and after the annuity commencement date. You may change the annuity commencement date, change the annuity option or change the allocation of the investment among subaccounts up to 30 days before the scheduled annuity commencement date, upon written notice to the Servicing office. You must give us at least 30 days notice before the date on which you want payouts to begin. Annuity payouts cannot commence within twelve months of the effective date of the contract. Unless you select another option, the contract automatically provides for a life annuity with annuity payouts guaranteed for 10 years (on a fixed, variable or combination fixed and variable basis, in proportion to the account allocations at the time of annuitization) except when a joint life payout is required by law. Under any option providing for guaranteed period payouts, the number of payouts which remain unpaid at the date of the annuitant's death (or surviving annuitant's death in case of joint life annuity) will be paid to you or your beneficiary as payouts become due after we are in receipt of: o proof, satisfactory to us, of the death; o written authorization for payment; and o all claim forms, fully completed. Variable Annuity Payouts Variable annuity payouts will be determined using: o The contract value on the annuity commencement date, less applicable premium taxes; o The annuity tables contained in the contract; o The annuity option selected; and o The investment performance of the fund(s) selected. To determine the amount of payouts, we make this calculation: 1. Determine the dollar amount of the first periodic payout; then 2. Credit the contract with a fixed number of annuity units equal to the first periodic payout divided by the annuity unit value; and 3. Calculate the value of the annuity units each period thereafter. Annuity payouts assume an investment return of 3%, 4% or 5% per year, as applied to the applicable mortality table. Some of these assumed interest rates may not be available in your state; therefore, please check with your investment representative. You may choose your assumed interest rate at the time you elect a variable annuity payout on the administrative form provided by us. The 62 higher the assumed interest rate you choose, the higher your initial annuity payment will be. The amount of each payout after the initial payout will depend upon how the underlying fund(s) perform, relative to the assumed rate. If the actual net investment rate (annualized) exceeds the assumed rate, the payment will increase at a rate proportional to the amount of such excess. Conversely, if the actual rate is less than the assumed rate, annuity payments will decrease. The higher the assumed interest rate, the less likely future annuity payments are to increase, or the payments will increase more slowly than if a lower assumed rate was used. There is a more complete explanation of this calculation in the SAI. Fixed Side of the Contract Purchase payments, bonus credits, persistency credits and contract value allocated to the fixed side of the contract become part of our general account, and do not participate in the investment experience of the VAA. The general account is subject to regulation and supervision by the New York Insurance Department as well as the insurance laws and regulations of the jurisdictions in which the contracts are distributed. In reliance on certain exemptions, exclusions and rules, we have not registered interests in the general account as a security under the Securities Act of 1933 and have not registered the general account as an investment company under the 1940 Act. Accordingly, neither the general account nor any interests in it are regulated under the 1933 Act or the 1940 Act. We have been advised that the staff of the SEC has not made a review of the disclosures which are included in this prospectus which relate to our general account and to the fixed account under the contract. These disclosures, however, may be subject to certain provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. This prospectus is generally intended to serve as a disclosure document only for aspects of the contract involving the VAA, and therefore contains only selected information regarding the fixed side of the contract. Complete details regarding the fixed side of the contract are in the contract. We guarantee an effective interest rate of not less than 1.50% per year on amounts held in a fixed account. Your contract may not offer a fixed account or if permitted by your contract, we may discontinue accepting purchase payments or transfers into the fixed side of the contract at any time. ANY INTEREST IN EXCESS OF 1.50% (OR THE GUARANTEED MINIMUM INTEREST RATE STATED IN YOUR CONTRACT) WILL BE DECLARED IN ADVANCE AT OUR SOLE DISCRETION. CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF THE MINIMUM INTEREST RATE WILL BE DECLARED. Guaranteed Periods The portion of the fixed account which accepts allocations for a guaranteed period at a guaranteed interest rate is called a fixed subaccount. There is a fixed subaccount for each particular guaranteed period. You may allocate purchase payments to one or more fixed subaccounts with guaranteed periods of 1 to 10 years. We may add guaranteed periods or discontinue accepting purchase payments into one or more guaranteed periods at any time. The minimum amount of any purchase payment that can be allocated to a fixed subaccount is $2,000. Each purchase payment and its corresponding bonus credits allocated to a fixed subaccount will start its own guaranteed period and will earn a guaranteed interest rate. The duration of the guaranteed period affects the guaranteed interest rate of the fixed subaccount. A fixed subaccount guarantee period ends on the date after the number of calendar years in the fixed subaccount's guaranteed period. Interest will be credited daily at a guaranteed rate that is equal to the effective annual rate determined on the first day of the fixed subaccount guaranteed period. Amounts surrendered, transferred or withdrawn from a fixed subaccount prior to the end of the guaranteed period will be subject to the interest adjustment if applicable. Each guaranteed period purchase payment and its corresponding bonus credits will be treated separately for purposes of determining any applicable interest adjustment. Any amount withdrawn from a fixed subaccount may be subject to any applicable surrender charges, account fees and premium taxes. We will notify the contractowner in writing at least 45 but not more than 75 days prior to the expiration date for any guaranteed period amount. A new fixed subaccount guaranteed period of the same duration as the previous fixed subaccount guaranteed period will begin automatically at the end of the previous guaranteed period, unless we receive, prior to the end of a guaranteed period, a written election by the contractowner. The written election may request the transfer of the guaranteed period amount to a different fixed subaccount or to a variable subaccount from among those being offered by us. Transfers of any guaranteed period amount which become effective upon the date of expiration of the applicable guaranteed period are not subject to the limitation of twelve transfers per contract year or the additional fixed account transfer restrictions. Small Contract Surrenders We may surrender your contract, in accordance with the laws of your state if: o your contract value drops below certain state specified minimum amounts ($2,000 or less) for any reason, including if your contract value decreases due to the performance of the subaccounts you selected; o no purchase payments have been received for three (3) full, consecutive contract years; and o the paid up annuity benefit at maturity would be less than $20.00 per month (these requirements may differ in some states). 63 At least 60 days before we surrender your contract, we will send you a letter at your last address we have on file, to inform you that your contract will be surrendered. You will have the opportunity to make additional purchase payments to bring your contract value above the minimum level to avoid surrender. If we surrender your contract, we will not assess any surrender charge. Delay of Payments Contract proceeds from the VAA will be paid within seven days, except: o when the NYSE is closed (other than weekends and holidays); o times when market trading is restricted or the SEC declares an emergency, and we cannot value units or the funds cannot redeem shares; or o when the SEC so orders to protect contractowners. Payment of contract proceeds from the fixed account may be delayed for up to six months. Due to federal laws designed to counter terrorism and prevent money laundering by criminals, we may be required to reject a purchase payment and/or deny payment of a request for transfers, withdrawals, surrenders, or death benefits, until instructions are received from the appropriate regulator. We also may be required to provide additional information about a contractowner's account to government regulators. Reinvestment Privilege You may elect to make a reinvestment purchase with any part of the proceeds of a surrender/withdrawal, (including previously credited bonus credits), and we will recredit that portion of the surrender/withdrawal charges attributable to the amount returned. This election must be made by your written authorization to us on an approved Lincoln reinvestment form and received in our Servicing office within 30 days of the date of the surrender/withdrawal, and the repurchase must be of a contract covered by this prospectus. In the case of a qualified retirement plan, a representation must be made that the proceeds being used to make the purchase have retained their tax-favored status under an arrangement for which the contracts offered by this prospectus are designed. The number of accumulation units which will be credited when the proceeds are reinvested will be based on the value of the accumulation unit(s) on the next valuation date. This computation will occur following receipt of the proceeds and request for reinvestment at the Servicing office. You may utilize the reinvestment privilege only once. No bonus credits will apply when a reinvestment purchase occurs. For tax reporting purposes, we will treat a surrender/withdrawal and a subsequent reinvestment purchase as separate transactions (and a Form 1099 may be issued, if applicable). You should consult a tax adviser before you request a surrender/withdrawal or subsequent reinvestment purchase. Amendment of Contract We reserve the right to amend the contract to meet the requirements of the 1940 Act or other applicable federal or state laws or regulations. You will be notified in writing of any changes, modifications or waivers. Any changes are subject to prior approval of your state's insurance department (if required). Distribution of the Contracts Lincoln Financial Distributors ("LFD") serves as Principal Underwriter of this contract. LFD is affiliated with Lincoln New York and is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934 and is a member of FINRA. The Principal Underwriter has entered into selling agreements with Lincoln Financial Advisors ("LFA"), also an affiliate of ours. The Principal Underwriter has also entered into selling agreements with broker-dealers that are unaffiliated with us ("Selling Firms"). While the Principal Underwriter has the legal authority to make payments to broker-dealers which have entered into selling agreements, we will make such payments on behalf of the Principal Underwriter in compliance with appropriate regulations. We also pay on behalf of LFD certain of its operating expenses related to the distribution of this and other of our contracts. The following paragraphs describe how payments are made by us and the Principal Underwriter to various parties. Compensation Paid to LFA. The maximum commission the Principal Underwriter pays to LFA is 6.50% of purchase payments. LFA may elect to receive a lower commission when a purchase payment is made along with an earlier quarterly payment based on contract value for so long as the contract remains in effect. Upon annuitization, the maximum commission the Principal Underwriter pays to LFA is 7.00% of annuitized value and/or ongoing annual compensation of up to 1.00% of annuity value or statutory reserves. Lincoln New York also pays for the operating and other expenses of LFA, including the following sales expenses: sales representative training allowances; compensation and bonuses for LFA's management team; advertising expenses; and all other expenses of distributing the contracts. LFA pays its sales representatives a portion of the commissions received for their sales of contracts. LFA sales representatives and their managers are also eligible for various cash benefits, such as bonuses, insurance benefits and financing arrangements, and non-cash compensation items that we may provide jointly with LFA. Non-cash compensation items may include conferences, seminars, trips, entertainment, merchandise and other similar items. In addition, LFA sales representatives who meet 64 certain productivity, persistency and length of service standards and/or their managers may be eligible for additional compensation. Sales of the contracts may help LFA sales representatives and/or their managers qualify for such benefits. LFA sales representatives and their managers may receive other payments from us for services that do not directly involve the sale of the contracts, including payments made for the recruitment and training of personnel, production of promotional literature and similar services. Compensation Paid to Unaffiliated Selling Firms. The Principal Underwriter pays commissions to all Selling Firms. The maximum commission the Principal Underwriter pays to Selling Firms, other than LFA, is 6.50% of purchase payments. Some Selling Firms may elect to receive a lower commission when a purchase payment is made along with an earlier quarterly payment based on contract value for so long as the contract remains in effect. Upon annuitization, the maximum commission the Principal Underwriter pays to Selling Firms is 6.50% of annuitized value and/or ongoing annual compensation of up to 1.00% of annuity value or statutory reserves. LFD also acts as wholesaler of the contracts and performs certain marketing and other functions in support of the distribution and servicing of the contracts. LFD may pay certain Selling Firms or their affiliates additional amounts for, among other things: (1) "preferred product" treatment of the contracts in their marketing programs, which may include marketing services and increased access to sales representatives; (2) sales promotions relating to the contracts; (3) costs associated with sales conferences and educational seminars for their sales representatives; (4) other sales expenses incurred by them; (5) and inclusion in the financial products the Selling Firm offers. Lincoln New York may provide loans to broker-dealers or their affiliates to help finance marketing and distribution of the contracts, and those loans may be forgiven if aggregate sales goals are met. In addition, we may provide staffing or other administrative support and services to broker-dealers who distribute the contracts. LFD, as wholesaler, may make bonus payments to certain Selling Firms based on aggregate sales of our variable insurance contracts (including the contracts) or persistency standards. These additional payments are not offered to all Selling Firms, and the terms of any particular agreement governing the payments may vary among Selling Firms. These additional types of compensation are not offered to all Selling Firms. The terms of any particular agreement governing compensation may vary among Selling Firms and the amounts may be significant. The prospect of receiving, or the receipt of, additional compensation may provide Selling Firms and/or their registered representatives with an incentive to favor sales of the contracts over other variable annuity contracts (or other investments) with respect to which a Selling Firm does not receive additional compensation, or lower levels of additional compensation. You may wish to take such payment arrangements into account when considering and evaluating any recommendation relating to the contracts. Additional information relating to compensation paid in 2008 is contained in the Statement of Additional Information (SAI). Compensation Paid to Other Parties. Depending on the particular selling arrangements, there may be others whom LFD compensates for the distribution activities. For example, LFD may compensate certain "wholesalers", who control access to certain selling offices, for access to those offices or for referrals, and that compensation may be separate from the compensation paid for sales of the contracts. LFD may compensate marketing organizations, associations, brokers or consultants which provide marketing assistance and other services to broker-dealers who distribute the contracts, and which may be affiliated with those broker-dealers. A marketing expense allowance is paid to American Funds Distributors (AFD) in consideration of the marketing assistance AFD provides to LFD. This allowance, which ranges from 0.10% to 0.16% is based on the amount of purchase payments initially allocated to the American Funds Insurance Series underlying the variable annuity. Commissions and other incentives or payments described above are not charged directly to contract owners or the Separate Account. All compensation is paid from our resources, which include fees and charges imposed on your contract. Contractowner Questions The obligations to purchasers under the contracts are those of Lincoln New York. This prospectus provides a general description of the contract. Questions about your contract should be directed to us at 1-888-868-2583. Federal Tax Matters Introduction The Federal income tax treatment of the contract 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 contract. This discussion also does not address other Federal tax consequences (including consequences of sales to foreign individuals or entities), or state or local tax consequences, associated with the contract. As a result, you should always consult a tax adviser about the application of tax rules to your individual situation. 65 Nonqualified Annuities This part of the discussion describes some of the Federal income tax rules applicable to nonqualified annuities. A nonqualified annuity is a contract not issued in connection with a qualified retirement plan, such as an IRA or a section 403(b) plan, receiving special tax treatment under the tax code. We may not offer nonqualified annuities for all of our annuity products. Tax Deferral On Earnings The Federal income tax law generally does not tax any increase in your contract value until you receive a contract distribution. However, for this general rule to apply, certain requirements must be satisfied: o An individual must own the contract (or the tax law must treat the contract as owned by an individual). o The investments of the VAA must be "adequately diversified" in accordance with IRS regulations. o Your right to choose particular investments for a contract must be limited. o The annuity commencement date must not occur near the end of the annuitant's life expectancy. Contracts Not Owned By An Individual If a contract is owned by an entity (rather than an individual) the tax code generally does not treat it as an annuity contract for Federal income tax purposes. This means that the entity owning the contract pays tax currently on the excess of the contract value over the purchase payments for the contract. Examples of contracts where the owner pays current tax on the contract's earnings, bonus credits and persistency credits, if applicable, are contracts issued to a corporation or a trust. Some exceptions to the rule are: o Contracts in which the named owner is a trust or other entity that holds the contract as an agent for an individual; however, this exception does not apply in the case of any employer that owns a contract to provide deferred compensation for its employees; o Immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase and substantially equal periodic payments are made, not less frequently than annually, during the annuity payout period; o Contracts acquired by an estate of a decedent; o Certain qualified contracts; o Contracts purchased by employers upon the termination of certain qualified plans; and o Certain contracts used in connection with structured settlement agreements. Investments In The VAA Must Be Diversified For a contract to be treated as an annuity for Federal income tax purposes, the investments of the VAA must be "adequately diversified." IRS regulations define standards for determining whether the investments of the VAA are adequately diversified. If the VAA 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 purchase payments. Although we do not control the investments of the underlying investment options, we expect that the underlying investment options will comply with the IRS regulations so that the VAA will be considered "adequately diversified." Restrictions Federal income tax law limits your right to choose particular investments for the contract. 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 VAA and thus subject to current taxation on the income, bonus credits, persistency credits and gains, if applicable, 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 contracts. We reserve the right to modify the contract without your consent to try to prevent the tax law from considering you as the owner of the assets of the VAA. Loss Of Interest Deduction After June 8, 1997, if a contract is issued to a taxpayer that is not an individual, or if a contract is held for the benefit of an entity, the entity will lose a portion of its deduction for otherwise deductible interest expenses. Age At Which Annuity Payouts Begin Federal income tax rules do not expressly identify a particular age by which annuity payouts must begin. However, those rules do require that an annuity contract provide for amortization, through annuity payouts, of the contract's purchase payments, bonus credits, persistency credits and earnings. If annuity payouts under the contract begin or are scheduled to begin on a date past the annuitant's 85th birthday, it is possible that the tax law will not treat the contract as an annuity for Federal income tax purposes. In that event, you would be currently taxed on the excess of the contract value over the purchase payments of the contract. Tax Treatment Of Payments We make no guarantees regarding the tax treatment of any contract or of any transaction involving a contract. However, the rest of this discussion assumes that your contract will be treated as an annuity for Federal income tax purposes and that the tax law will not tax any increase in your contract value until there is a distribution from your contract. 66 Taxation Of Withdrawals And Surrenders You will pay tax on withdrawals to the extent your contract value exceeds your purchase payments in the contract. This income (and all other income from your contract) is considered ordinary income (and does not receive capital gains treatment and is not qualified dividend income). A higher rate of tax is paid on ordinary income than on capital gains. You will pay tax on a surrender to the extent the amount you receive exceeds your purchase payments. In certain circumstances, your purchase payments are reduced by amounts received from your contract that were not included in income. Surrender and reinstatement of your contract will generally be taxed as a withdrawal. If your contract has Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage, and if your Guaranteed Amount immediately before a withdrawal exceeds your contract value, the tax law could require that an additional amount be included in income. Please consult your tax adviser. Taxation Of Regular Income Payments The tax code imposes tax on a portion of each annuity payout (at ordinary income tax rates) and treats a portion as a nontaxable return of your purchase payments in the contract. We will notify you annually of the taxable amount of your annuity payout. Once you have recovered the total amount of the purchase payment in the contract, you will pay tax on the full amount of your annuity payouts. If annuity payouts end because of the annuitant's death and before the total amount in the contract has been distributed, the amount not received will generally be deductible. If withdrawals, other than regular income payments, are taken from i4LIFE (Reg. TM) Advantage during the access period, they are taxed subject to an exclusion ratio that is determined based on the amount of the payment. Taxation Of Death Benefits We may distribute amounts from your contract because of the death of a contractowner or an annuitant. The tax treatment of these amounts depends on whether you or the annuitant dies before or after the annuity commencement date. Death prior to the annuity commencement date: o If the beneficiary receives death benefits under an annuity payout option, they are taxed in the same manner as annuity payouts. o If the beneficiary does not receive death benefits under an annuity payout option, they are taxed in the same manner as a withdrawal. Death after the annuity commencement date: o If death benefits are received in accordance with the existing annuity payout option, they are excludible from income if they do not exceed the purchase payments not yet distributed from the contract. All annuity payouts in excess of the purchase payments not previously received are includible in income. o If death benefits are received in a lump sum, the tax law imposes tax on the amount of death benefits which exceeds the amount of purchase payments not previously received. Penalty Taxes Payable On Withdrawals, Surrenders, Or Annuity Payouts The tax code may impose a 10% penalty tax on any distribution from your contract 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, surrenders, or annuity payouts that: o you receive on or after you reach 591/2, o you receive because you became disabled (as defined in the tax law), o you receive from an immediate annuity, o a beneficiary receives on or after your death, or o you receive as a series of substantially equal periodic payments based on your life or life expectancy (non-natural owners holding as agent for an individual do not qualify). Special Rules If You Own More Than One Annuity Contract In certain circumstances, you must combine some or all of the nonqualified annuity contracts you own in order to determine the amount of an annuity payout, a surrender, or a withdrawal that you must include in income. For example, if you purchase two or more deferred annuity contracts from the same life insurance company (or its affiliates) during any calendar year, the tax code treats all such contracts as one contract. Treating two or more contracts as one contract could affect the amount of a surrender, a withdrawal or an annuity payout that you must include in income and the amount that might be subject to the penalty tax described previously. Loans and Assignments Except for certain qualified contracts, the tax code treats any amount received as a loan under your contract, and any assignment or pledge (or agreement to assign or pledge) of any portion of your contract value, as a withdrawal of such amount or portion. Gifting A Contract 67 If you transfer ownership of your contract, other than to your spouse (or to your former spouse incident to divorce), and receive a payment less than your contract's value, you will pay tax on your contract value to the extent it exceeds your purchase payments not previously received. The new owner's purchase payments in the contract would then be increased to reflect the amount included in income. Charges for Additional Benefits Your contract automatically includes a basic death benefit and may include other optional riders. Certain enhancements to the basic death benefit may also be available to you. The cost of the basic death benefit and any additional benefit are deducted from your contract. It is possible that the tax law may treat all or a portion of the death benefit charge and charges for other optional riders, if any, as a contract withdrawal. Qualified Retirement Plans We also designed the contracts for use in connection with certain types of retirement plans that receive favorable treatment under the tax code. Contracts issued to or in connection with a qualified retirement plan are called "qualified contracts." We issue contracts for use with various types of qualified plans. The Federal income tax rules applicable to those plans are complex and varied. As a result, this prospectus does not attempt to provide more than general information about the use of the contract with the various types of qualified plans. Persons planning to use the contract in connection with a qualified plan should obtain advice from a competent tax adviser. Types of Qualified Contracts and Terms of Contracts Qualified plans include the following: o Individual Retirement Accounts and Annuities ("Traditional IRAs") o Roth IRAs o Traditional IRA that is part of a Simplified Employee Pension Plan ("SEP") o SIMPLE 401(k) plans (Savings Incentive Matched Plan for Employees) o 401(a) plans (qualified corporate employee pension and profit-sharing plans) o 403(a) plans (qualified annuity plans) o 403(b) plans (public school system and tax-exempt organization annuity plans) o H.R. 10 or Keogh Plans (self-employed individual plans) o 457(b) plans (deferred compensation plans for state and local governments and tax-exempt organizations) o Roth 403(b) plans We do not offer certain types of qualified plans for all of our annuity products. Check with your representative concerning qualified plan availability for this product. We will amend contracts to be used with a qualified plan as generally necessary to conform to the tax law requirements for the type of plan. However, the rights of a person to any qualified plan benefits may be subject to the plan's terms and conditions, regardless of the contract's terms and conditions. In addition, we are not bound by the terms and conditions of qualified plans to the extent such terms and conditions contradict the contract, unless we consent. Pursuant to new tax regulations, starting September 24, 2007, the contract is not available for purchase under a 403(b) plan and since July 31, 2008, we do not accept additional premiums or transfers to existing 403(b) contracts. Also, we now are generally required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders, loans or transfers you request comply with applicable tax requirements and to decline requests that are not in compliance. We will defer processing payments you request until all information required under the tax law has been received. By requesting a surrender, loan or transfer, you consent to the sharing of confidential information about you, your contract, and transactions under the contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers. Tax Treatment of Qualified Contracts The Federal income tax rules applicable to qualified plans and qualified contracts vary with the type of plan and contract. For example: o Federal tax rules limit the amount of purchase payments that can be made, and the tax deduction or exclusion that may be allowed for the purchase payments. These limits vary depending on the type of qualified plan and the plan participant's specific circumstances, e.g., the participant's compensation. o Minimum annual distributions are required under most qualified plans once you reach a certain age, typically age 701/2, as described below. o Loans are allowed under certain types of qualified plans, but Federal income tax rules prohibit loans under other types of qualified plans. For example, Federal income tax rules permit loans under some section 403(b) plans, but prohibit loans under Traditional and Roth IRAs. If allowed, loans are subject to a variety of limitations, including restrictions as to the loan amount, the loan's duration, the rate of interest, and the manner of repayment. Your contract or plan may not permit loans. 68 Tax Treatment of Payments The Federal income tax rules generally include distributions from a qualified contract in the participant's income as ordinary income. These taxable distributions will include purchase payments that were deductible or excludible from income. Thus, under many qualified contracts, the total amount received is included in income since a deduction or exclusion from income was taken for purchase payments. There are exceptions. For example, you do not include amounts received from a Roth IRA in income if certain conditions are satisfied. Required Minimum Distributions Under most qualified plans, you must begin receiving payments from the contract in certain minimum amounts by the later of age 701/2 or retirement. You are required to take distributions from your traditional IRAs beginning in the year you reach age 701/2. If you own a Roth IRA, you are not required to receive minimum distributions from your Roth IRA during your life. Failure to comply with the minimum distribution rules applicable to certain qualified plans, such as Traditional IRAs, will result in the imposition of an excise tax. This excise tax equals 50% of the amount by which a minimum required distribution exceeds the actual distribution from the qualified plan. The IRS has issued new regulations concerning required minimum distributions. The regulations may impact the distribution method you have chosen and the amount of your distributions. Under new regulations, the presence of an enhanced death benefit, or other benefit which could provide additional value to your contract, may require you to take additional distributions. An enhanced death benefit is any death benefit that has the potential to pay more than the contract value or a return of purchase payments. Annuity contracts inside Custodial or Trusteed IRAs will also be subject to these regulations. Please contact your tax adviser regarding any tax ramifications. Congress enacted The Worker, Retiree, and Employer recovery Act of 2008 (the Act) in December, 2008. The Act includes a number of relief provisions, including the suspension of the RMD requirement for IRAs and certain qualified plans in 2009. You should consult your tax advisor to determine whether the RMD relief applies to your annuity contract. If your RMD is currently paid automatically each year, Lincoln will not make any changes to your payments for 2009 unless you specifically request that a change be made. Federal Penalty Taxes Payable on Distributions The tax code may impose a 10% penalty tax on a distribution from a qualified contract that must be included in income. The tax code does not impose the penalty tax if one of several exceptions applies. The exceptions vary depending on the type of qualified contract you purchase. For example, in the case of an IRA, exceptions provide that the penalty tax does not apply to a withdrawal, surrender, or annuity payout: o received on or after the annuitant reaches 591/2, o received on or after the annuitant's death or because of the annuitant's disability (as defined in the tax law), o received as a series of substantially equal periodic payments based on the annuitant's life (or life expectancy), or o received as reimbursement for certain amounts paid for medical care. These exceptions, as well as certain others not described here, generally apply to taxable distributions from other qualified plans. However, the specific requirements of the exception may vary. Transfers and Direct Rollovers As a result of Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), you may be able to move funds between different types of qualified plans, such as 403(b) and 457(b) governmental plans, by means of a rollover or transfer. You may be able to rollover or transfer amounts between qualified plans and traditional IRAs. These rules do not apply to Roth IRAs and 457(b) non-governmental tax-exempt plans. The Pension Plan Act permits direct conversions from certain qualified, 403(b) or 457(b) plans to Roth IRAs (effective for distributions after 2007). There are special rules that apply to rollovers, direct rollovers and transfers (including rollovers or transfers of after-tax amounts). If the applicable rules are not followed, you may incur adverse Federal income tax consequences, including paying taxes which you might not otherwise have had to pay. Before we send a rollover distribution, we will provide a notice explaining tax withholding requirements (see Federal Income Tax Withholding). We are not required to send you such notice for your IRA. You should always consult your tax adviser before you move or attempt to move any funds. Pursuant to IRS regulations, IRAs may not invest in life insurance contracts. We do not believe that these regulations prohibit the death benefit from being provided under the contract when we issue the contract as a Traditional or Roth IRA. However, the law is unclear and it is possible that the presence of the death benefit under a contract issued as a Traditional or Roth IRA could result in increased taxes to you. Certain death benefit options may not be available for all of our products. 69 Federal Income Tax Withholding We will withhold and remit to the IRS a part of the taxable portion of each distribution made under a contract unless you notify us prior to the distribution that tax is not to be withheld. In certain circumstances, Federal income tax rules may require us to withhold tax. At the time a withdrawal, surrender, or annuity payout is requested, we will give you an explanation of the withholding requirements. Certain payments from your contract may be considered eligible rollover distributions (even if such payments are not being rolled over). Such distributions may be subject to special tax withholding requirements. The Federal income tax withholding rules require that we withhold 20% of the eligible rollover distribution from the payment amount, unless you elect to have the amount directly transferred to certain qualified plans or contracts. The IRS requires that tax be withheld, even if you have requested otherwise. Such tax withholding requirements are generally applicable to 401(a), 403(a) or (b), HR 10, and 457(b) governmental plans and contracts used in connection with these types of plans. Our Tax Status Under existing Federal income tax laws, we do not pay tax on investment income and realized capital gains of the VAA. We do not expect that we will incur any Federal income tax liability on the income and gains earned by the VAA. However, the Company does expect, to the extent permitted under Federal tax law, to claim the benefit of the foreign tax credit as the owner of the assets of the VAA. Therefore, we 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 VAA, we may impose a charge against the VAA to pay the taxes. Changes in the Law The above discussion is based on the tax 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. Additional Information Voting Rights As required by law, we will vote the fund shares held in the VAA at meetings of the shareholders of the funds. The voting will be done according to the instructions of contractowners who have interests in any subaccounts which invest in classes of the funds. If the 1940 Act or any regulation under it should be amended or if present interpretations should change, and if as a result we determine that we are permitted to vote the fund shares in our own right, we may elect to do so. The number of votes which you have the right to cast will be determined by applying your percentage interest in a subaccount to the total number of votes attributable to the subaccount. In determining the number of votes, fractional shares will be recognized. Each underlying fund is subject to the laws of the state in which it is organized concerning, among other things, the matters which are subject to a shareholder vote, the number of shares which must be present in person or by proxy at a meeting of shareholders (a "quorum"), and the percentage of such shares present in person or by proxy which must vote in favor of matters presented. Because shares of the underlying fund held in the VAA are owned by us, and because under the 1940 Act we will vote all such shares in the same proportion as the voting instruction which we receive, it is important that each contractowner provide their voting instructions to us. Even though contractowners may choose not to provide voting instruction, the shares of a fund to which such contractowners would have been entitled to provide voting instruction will, subject to fair representation requirements, be voted by us in the same proportion as the voting instruction which we actually receive. As a result, the instruction of a small number of contractowners could determine the outcome of matters subject to shareholder vote. All shares voted by us will be counted when the underlying fund determines whether any requirement for a minimum number of shares be present at such a meeting to satisfy a quorum requirement has been met. Voting instructions to abstain on any item to be voted on will be applied on a pro-rata basis to reduce the number of votes eligible to be cast. Whenever a shareholders meeting is called, we will provide or make available to each person having a voting interest in a subaccount proxy voting material, reports and other materials relating to the funds. Since the funds engage in shared funding, other persons or entities besides Lincoln New York may vote fund shares. See Investments of the Variable Annuity Account - Fund Shares. Return Privilege Within the free-look period after you receive the contract, you may cancel it for any reason by delivering or mailing it postage prepaid, to the Servicing office at PO Box 7866, 1300 S. Clinton Street, Fort Wayne, IN 46802-7866. A contract canceled under this provision will be void. Except as explained in the following paragraph, we will return the contract value as of the valuation date on which we receive the cancellation request, plus any premium taxes plus mortality and expense risk charges and administrative charges proportionately attributable to the bonus credits, less any bonus credits paid into the contract by us. In addition, if the contract value on the date of cancellation is less than the sum of purchase payments minus withdrawals, we will also return both the investment loss and 70 fund management fees, each in an amount that is proportionately attributable to the bonus credits. No surrender charges or interest adjustment will apply. A purchaser who participates in the VAA is subject to the risk of a market loss on the contract value, excluding the bonus credits during the free-look period. IRA purchasers will receive the greater of purchase payments or contract value as of the valuation day on which we receive the cancellation request. State Regulation As a life insurance company organized and operated under New York law, we are subject to provisions governing life insurers and to regulation by the New York Superintendent of Insurance. Our books and accounts are subject to review and examination by the New York Insurance Department at all times. A full examination of our operations is conducted by that Department at least every five years. Records and Reports As presently required by the 1940 Act and applicable regulations, we are responsible for maintaining all records and accounts relating to the VAA. We have entered into an agreement with The Bank of New York Mellon, One Mellon Bank Center, 500 Grant Street, Pittsburgh, Pennsylvania, 15258, to provide accounting services to the VAA. We will mail to you, at your last known address of record at the Servicing office, at least semi-annually after the first contract year, reports containing information required by that Act or any other applicable law or regulation. Administrative services necessary for the operations of the VAA and the contracts are currently provided by Lincoln Life. However, neither the assets of Lincoln Life nor the assets of LNC support the obligation of Lincoln New York under the contracts. Other Information A Registration Statement has been filed with the SEC, under the Securities Act of 1933 as amended, for the contracts being offered here. This prospectus does not contain all the information in the Registration Statement, its amendments and exhibits. Please refer to the Registration Statement for further information about the VAA, Lincoln New York and the contracts offered. Statements in this prospectus about the content of contracts and other legal instruments are summaries. For the complete text of those contracts and instruments, please refer to those documents as filed with the SEC. You may elect to receive your prospectus, prospectus supplements, quarterly statements, and annual and semiannual reports electronically over the Internet, if you have an e-mail account and access to an Internet browser. Once you select eDelivery, via the Internet Service Center, all documents available in electronic format will no longer be sent to you in hard copy. You will receive an e-mail notification when the documents become available online. It is your responsibility to provide us with your current e-mail address. You can resume paper mailings at any time without cost, by updating your profile at the Internet Service Center, or contacting us. To learn more about this service, please log on to www.LincolnFinancial.com, select service centers and continue on through the Internet Service Center. Legal Proceedings In the ordinary course of its business, Lincoln New York, the VAA, and the principal underwriter may become or are involved in various pending or threatened legal proceedings, including purported class actions, arising from the conduct of business. In some instances, these proceedings include claims for unspecified or substantial punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief. After consultation with legal counsel and a review of available facts, it is management's opinion that these proceedings, after consideration of any reserves and rights to indemnification, ultimately will be resolved without materially affecting the financial position of Lincoln New York, the VAA, or the principal underwriter. 71 Contents of the Statement of Additional Information (SAI) for Lincoln New York Account N for Variable Annuities
Item Special Terms Services Principal Underwriter Purchase of Securities Being Offered Interest Adjustment Example Annuity Payouts Examples of Regular Income Payment Calculations Determination of Accumulation and Annuity Unit Value Capital Markets Advertising & Ratings Additional Services Other Information Financial Statements
For a free copy of the SAI complete the form below. Statement of Additional Information Request Card Lincoln ChoicePlus II Bonus Lincoln New York Account N for Variable Annuities . Please send me a free copy of the current Statement of Additional Information for Lincoln New York Account N for Variable Annuities. (Please Print) Name: ------------------------------------------------------------------------- Address: ---------------------------------------------------------------------- City --------------------------------------------------- State --------- Zip --------- Mail to Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne, Indiana 46801-7866. 72 (This page intentionally left blank) 73 Appendix A - Condensed Financial Information Accumulation Unit Values The following information relates to accumulation unit values and accumulation units for funds in the periods ended December 31. It should be read along with the VAA's financial statement and notes which are included in the SAI.
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) AIM V.I. Capital Appreciation 2006 . 15.915 15.673 1* N/A N/A N/A 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ -- --- AIM V.I. Core Equity 2006 . 14.391 15.517 1* N/A N/A N/A 2007 . 15.517 16.473 1* N/A N/A N/A 2008 . 16.473 11.294 1* N/A N/A N/A --------- ------ ------ --- ------ -- --- AIM V.I. International Growth Fund 2002 . 10.479 10.532 2 2003 . 10.532 13.331 2 N/A N/A N/A 2004 . 13.331 16.229 1 N/A N/A N/A 2005 . 16.229 18.799 1 N/A N/A N/A 2006 . 18.799 23.659 1 N/A N/A N/A 2007 . 23.659 26.647 1* N/A N/A N/A 2008 . 26.647 15.591 1* N/A N/A N/A --------- ------ ------ --- ------ -- --- AllianceBernstein VPS Global Technology 2002 . N/A N/A N/A 2003 . N/A N/A N/A N/A N/A N/A 2004 . N/A N/A N/A 12.050 13.455 1* 2005 . 16.102 16.425 1 N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A 2007 . 18.576 20.677 1 N/A N/A N/A 2008 . 20.677 10.690 1* N/A N/A N/A --------- ------ ------ --- ------ ------ --- AllianceBernstein VPS Growth and Income 2002 . N/A N/A N/A 2003 . 11.371 13.936 24 N/A N/A N/A 2004 . 13.936 15.253 48 12.018 13.167 7 2005 . 15.253 15.701 54 13.167 13.568 15 2006 . 15.701 18.076 52 13.568 15.636 16 2007 . 18.076 18.654 44 15.636 16.151 13 2008 . 18.654 10.887 35 16.151 9.436 12 --------- ------ ------ --- ------ ------ --- AllianceBernstein VPS International Value 2006 . 10.915 11.846 3 N/A N/A N/A 2007 . 11.846 12.309 15 13.107 12.329 1* 2008 . 12.309 5.659 16 12.329 5.674 1* --------- ------ ------ --- ------ ------ --- AllianceBernstein VPS Large Cap Growth 2002 . N/A N/A N/A 2003 . 10.400 12.023 2 N/A N/A N/A 2004 . 12.023 12.819 2 N/A N/A N/A 2005 . 12.819 14.488 2 N/A N/A N/A 2006 . 14.488 14.167 2 N/A N/A N/A 2007 . 14.167 15.840 1 N/A N/A N/A 2008 . 15.840 9.381 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- AllianceBernstein VPS Small/Mid Cap Value 2002 . 11.583 11.570 2 2003 . 11.570 16.043 8 N/A N/A N/A 2004 . 16.043 18.800 10 13.131 15.403 1 2005 . 18.800 19.729 9 15.403 16.180 2 2006 . 19.729 22.173 7 16.180 18.202 1 2007 . 22.173 22.154 6 18.202 18.205 1 2008 . 22.154 14.008 5 18.205 11.523 1 --------- ------ ------ --- ------ ------ ---
A-1
with EGMDB with GOP ------------------------------------------- ---------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of ----------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- -------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) American Century Investments VP Inflation Protection Fund 2004 . 9.906 10.408 40 10.000 10.413 1 2005 . 10.408 10.402 78 10.413 10.418 5 2006 . 10.402 10.398 84 10.418 10.425 4 2007 . 10.398 11.206 55 10.425 11.246 4 2008 . 11.206 10.852 34 11.246 10.901 5 --------- ------ ------ -- ------ ------ - American Funds Global Growth 2004 . 10.215 11.270 4 N/A N/A N/A 2005 . 11.270 12.652 42 11.276 12.672 2 2006 . 12.652 14.994 54 12.672 15.033 2 2007 . 14.994 16.948 49 15.033 17.009 2 2008 . 16.948 10.276 22 17.009 10.323 2 --------- ------ ------ -- ------ ------ --- American Funds Global Small Capitalization Fund 2002 . 10.744 10.573 4 2003 . 10.573 15.976 8 N/A N/A N/A 2004 . 15.976 19.006 16 N/A N/A N/A 2005 . 19.006 23.446 29 16.837 20.792 1 2006 . 23.446 28.624 27 20.792 25.409 2 2007 . 28.624 34.206 23 25.409 30.394 2 2008 . 34.206 15.645 15 30.394 13.916 2 --------- ------ ------ -- ------ ------ --- American Funds Growth Fund 2002 . 11.198 10.630 32 2003 . 10.630 14.312 142 N/A N/A N/A 2004 . 14.312 15.845 248 12.322 13.655 15 2005 . 15.845 18.118 335 13.655 15.630 48 2006 . 18.118 19.653 359 15.630 16.971 51 2007 . 19.653 21.729 329 16.971 18.782 56 2008 . 21.729 11.981 284 18.782 10.367 51 --------- ------ ------ --- ------ ------ --- American Funds Growth-Income Fund 2002 . 11.021 10.876 13 2003 . 10.876 14.174 150 N/A N/A N/A 2004 . 14.174 15.396 255 12.296 13.370 15 2005 . 15.396 16.035 310 13.370 13.939 46 2006 . 16.035 18.180 320 13.939 15.819 46 2007 . 18.180 18.794 302 15.819 16.370 43 2008 . 18.794 11.495 256 16.370 10.022 38 --------- ------ ------ --- ------ ------ --- American Funds International Fund 2002 . 10.961 10.890 1 2003 . 10.890 14.452 27 N/A N/A N/A 2004 . 14.452 16.971 74 13.203 15.519 1 2005 . 16.971 20.293 87 15.519 18.576 11 2006 . 20.293 23.761 92 18.576 21.772 11 2007 . 23.761 28.066 89 21.772 25.742 9 2008 . 28.066 15.985 72 25.742 14.676 8 --------- ------ ------ --- ------ ------ --- Delaware VIP Capital Reserves 2005 . 9.894 9.925 1 N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A 2007 . N/A N/A N/A N/A N/A N/A 2008 . 10.600 10.221 8 10.268 10.256 3 --------- ------ ------ --- ------ ------ --- Delaware VIP Diversified Income Series 2004 . 10.040 10.875 15 10.000 10.882 1 2005 . 10.875 10.639 67 10.882 10.657 17 2006 . 10.639 11.263 45 10.657 11.293 19 2007 . 11.263 11.906 46 11.293 11.949 19 2008 . 11.906 11.143 33 11.949 11.195 17 --------- ------ ------ --- ------ ------ --- Delaware VIP Emerging Markets Series 2004 . 10.482 13.568 7 10.838 13.576 1 2005 . 13.568 16.973 23 13.576 17.000 13 2006 . 16.973 21.182 33 17.000 21.237 14 2007 . 21.182 28.873 28 21.237 28.977 13 2008 . 28.873 13.729 25 28.977 13.792 11 --------- ------ ------ --- ------ ------ ---
A-2
with EGMDB with GOP ---------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value ----------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- -------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Delaware VIP High Yield Series 2002 . 10.638 11.104 7 2003 . 11.104 14.055 25 N/A N/A N/A 2004 . 14.055 15.771 42 11.078 12.443 7 2005 . 15.771 16.040 41 12.443 12.668 12 2006 . 16.040 17.710 50 12.668 14.001 12 2007 . 17.710 17.873 42 14.001 14.144 9 2008 . 17.873 13.292 32 14.144 10.530 9 --------- ------ ------ -- ------ ------ --- Delaware VIP REIT Series 2002 . 10.462 10.725 7 2003 . 10.725 14.115 44 N/A N/A N/A 2004 . 14.115 18.209 80 12.197 15.751 4 2005 . 18.209 19.149 70 15.751 16.581 16 2006 . 19.149 24.937 76 16.581 21.614 15 2007 . 24.937 21.061 60 21.614 18.273 15 2008 . 21.061 13.413 52 18.273 11.649 13 --------- ------ ------ -- ------ ------ --- Delaware VIP Small Cap Value Series 2002 . 10.886 10.685 1* 2003 . 10.685 14.897 14 N/A N/A N/A 2004 . 14.897 17.762 23 13.168 15.716 3 2005 . 17.762 19.080 33 15.716 16.899 21 2006 . 19.080 21.760 49 16.899 19.292 22 2007 . 21.760 19.950 43 19.292 17.705 23 2008 . 19.950 13.730 41 17.705 12.197 22 --------- ------ ------ -- ------ ------ --- Delaware VIP Trend Series 2002 . 11.277 11.023 2 2003 . 11.023 14.623 7 N/A N/A N/A 2004 . 14.623 16.163 19 12.550 13.886 1 2005 . 16.163 16.800 23 13.886 14.447 1 2006 . 16.800 17.746 22 14.447 15.276 1 2007 . 17.746 19.291 19 15.276 16.623 1 2008 . 19.291 10.088 15 16.623 8.701 1 --------- ------ ------ -- ------ ------ --- Delaware VIP US Growth Series 2002 . N/A N/A N/A 2003 . 10.880 12.353 6 N/A N/A N/A 2004 . 12.353 12.524 17 11.469 11.640 3 2005 . 12.524 14.102 16 11.640 13.120 6 2006 . 14.102 14.164 16 13.120 13.191 6 2007 . 14.164 15.664 15 13.191 14.602 8 2008 . 15.664 8.808 13 14.602 8.220 8 --------- ------ ------ --- ------ ------ --- Delaware VIP Value Series 2002 . 10.872 10.681 1* 2003 . 10.681 13.466 12 N/A N/A N/A 2004 . 13.466 15.185 14 12.049 13.601 2 2005 . 15.185 15.810 31 13.601 14.174 8 2006 . 15.810 19.261 56 14.174 17.286 15 2007 . 19.261 18.387 53 17.286 16.518 24 2008 . 18.387 12.021 53 16.518 10.810 20 --------- ------ ------ --- ------ ------ --- DWS VIP Equity 500 Index 2002 . 10.751 10.456 1* 2003 . 10.456 13.188 6 N/A N/A N/A 2004 . 13.188 14.353 34 11.752 13.143 1* 2005 . 14.353 14.786 60 13.143 13.552 3 2006 . 14.786 16.810 62 13.552 15.423 5 2007 . 16.810 17.419 58 15.423 15.998 5 2008 . 17.419 10.774 53 15.998 9.904 5 --------- ------ ------ --- ------ ------ ---
A-3
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) DWS VIP Small Cap Index 2002 . N/A N/A N/A 2003 . 11.920 15.958 1 N/A N/A N/A 2004 . 15.958 18.494 5 12.924 15.736 3 2005 . 18.494 18.976 8 15.736 16.163 7 2006 . 18.976 21.941 8 16.163 18.707 7 2007 . 21.941 21.183 8 18.707 18.079 7 2008 . 21.183 13.733 8 18.079 11.732 5 --------- ------ ------ --- ------ ------ --- Fidelity VIP Contrafund Portfolio 2002 . 10.025 9.977 1* 2003 . 9.977 12.587 37 N/A N/A N/A 2004 . 12.587 14.266 71 12.404 13.909 8 2005 . 14.266 16.378 135 13.909 15.985 15 2006 . 16.378 17.961 183 15.985 17.547 17 2007 . 17.961 20.734 179 17.547 20.276 21 2008 . 20.734 11.694 152 20.276 11.447 17 --------- ------ ------ --- ------ ------ --- Fidelity VIP Equity-Income Portfolio 2002 . N/A N/A N/A 2003 . 11.143 13.787 12 N/A N/A N/A 2004 . 13.787 15.092 28 12.404 13.591 1* 2005 . 15.092 15.679 36 13.591 14.135 3 2006 . 15.679 18.506 39 14.135 16.699 4 2007 . 18.506 18.444 40 16.699 16.660 5 2008 . 18.444 10.380 39 16.660 9.385 5 --------- ------ ------ --- ------ ------ --- Fidelity VIP Growth Portfolio 2002 . N/A N/A N/A 2003 . 9.374 13.422 2 N/A N/A N/A 2004 . 13.422 13.622 6 12.402 12.488 6 2005 . 13.622 14.143 13 12.488 12.979 12 2006 . 14.143 14.833 13 12.979 13.626 13 2007 . 14.833 18.490 10 13.626 17.002 17 2008 . 18.490 9.588 10 17.002 8.825 17 --------- ------ ------ --- ------ ------ --- Fidelity VIP Mid Cap 2005 . 11.036 11.568 26 10.203 11.574 29 2006 . 11.568 12.796 46 11.574 12.816 33 2007 . 12.796 14.524 55 12.816 14.562 34 2008 . 14.524 8.632 52 14.562 8.663 28 --------- ------ ------ --- ------ ------ --- Fidelity VIP Overseas Portfolio 2002 . N/A N/A N/A 2003 . 11.674 14.620 4 N/A N/A N/A 2004 . 14.620 16.303 13 14.193 15.844 1 2005 . 16.303 19.058 14 15.844 18.539 10 2006 . 19.058 22.089 13 18.539 21.509 11 2007 . 22.089 25.445 12 21.509 24.802 11 2008 . 25.445 14.033 10 24.802 13.692 10 --------- ------ ------ --- ------ ------ --- FTVIPT Franklin Income Securities 2006 . 10.461 11.225 9 N/A N/A N/A 2007 . 11.225 11.462 54 11.350 11.481 1* 2008 . 11.462 7.935 17 11.481 7.956 1* --------- ------ ------ --- ------ ------ --- FTVIPT Franklin Small-Mid Cap Growth Securities Fund 2002 . 11.848 11.538 1* 2003 . 11.538 15.584 12 N/A N/A N/A 2004 . 15.584 17.097 16 N/A N/A N/A 2005 . 17.097 17.631 17 14.227 14.686 8 2006 . 17.631 18.860 13 14.686 15.725 8 2007 . 18.860 20.647 22 15.725 17.232 8 2008 . 20.647 11.684 13 17.232 9.762 8 --------- ------ ------ --- ------ ------ --- FTVIPT Mutual Shares Securities 2006 . 10.859 11.270 13 N/A N/A N/A 2007 . 11.270 11.479 26 12.346 11.497 1* 2008 . 11.479 7.104 28 11.497 7.123 1* --------- ------ ------ --- ------ ------ ---
A-4
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) FTVIPT Templeton Global Income Securities 2005 . N/A N/A N/A 9.975 9.881 4 2006 . 10.964 10.960 2 9.881 10.977 5 2007 . 10.960 11.973 9 10.977 12.004 5 2008 . 11.973 12.514 10 12.004 12.559 5 --------- ------ ------ --- ------ ------ - FTVIPT Templeton Growth Securities Fund 2002 . 10.813 10.594 1* 2003 . 10.594 13.777 18 N/A N/A N/A 2004 . 13.777 15.731 31 N/A N/A N/A 2005 . 15.731 16.853 31 14.509 15.560 1 2006 . 16.853 20.203 28 15.560 18.671 1 2007 . 20.203 20.349 22 18.671 18.825 1* 2008 . 20.349 11.550 16 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Janus Aspen Balanced Portfolio 2002 . N/A N/A N/A 2003 . 9.863 11.338 15 N/A N/A N/A 2004 . 11.338 12.084 31 10.850 11.575 1 2005 . 12.084 12.803 15 11.575 12.276 2 2006 . 12.803 13.912 12 12.276 13.352 2 2007 . 13.912 15.100 9 13.352 14.507 2 2008 . 15.100 12.473 9 14.507 11.996 2 --------- ------ ------ --- ------ ------ --- Janus Aspen Mid Cap Growth Portfolio 2002 . N/A N/A N/A 2003 . 9.924 13.567 2 N/A N/A N/A 2004 . 13.567 16.086 5 12.600 14.725 3 2005 . 16.086 17.734 2 14.725 16.250 4 2006 . 17.734 19.775 4 16.250 18.138 2 2007 . 19.775 23.692 4 18.138 21.753 2 2008 . 23.692 13.090 4 21.753 12.031 2 --------- ------ ------ --- ------ ------ --- Janus Aspen Worldwide Growth Portfolio 2002 . N/A N/A N/A 2003 . 10.212 12.557 1* N/A N/A N/A 2004 . 12.557 12.917 1* 11.847 12.577 1* 2005 . 12.917 13.421 1* 12.577 13.079 1* 2006 . 13.421 15.577 1* 13.079 15.196 1* 2007 . 15.577 16.766 1* 15.196 16.371 1* 2008 . 16.766 9.106 1* 16.371 8.901 1 --------- ------ ------ --- ------ ------ --- Lincoln VIP Baron Growth Opportunities(4) 2006 . N/A N/A N/A N/A N/A N/A 2007 . 11.133 10.809 3 11.405 10.826 1* 2008 . 10.809 6.474 3 10.826 6.491 1* --------- ------ ------ --- ------ ------ --- Lincoln VIP Capital Growth 2007 . 10.758 10.704 12 N/A N/A N/A 2008 . 10.704 6.138 12 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Cohen & Steers Global Real Estate 2007 . N/A N/A N/A N/A N/A N/A 2008 . 8.200 4.678 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Columbia Value Opportunities 2007 . 9.592 9.359 1* N/A N/A N/A 2008 . 9.359 6.067 1* N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Core Fund(1) 2005 . N/A N/A N/A 10.080 10.254 1 2006 . N/A N/A N/A 10.254 11.481 1 --------- ------ ------ --- ------ ------ ---
A-5
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Lincoln VIP Delaware Bond 2002 . 10.063 10.303 93 2003 . 10.303 10.878 313 N/A N/A N/A 2004 . 10.878 11.273 424 10.361 10.411 15 2005 . 11.273 11.386 430 10.411 10.527 36 2006 . 11.386 11.734 448 10.527 10.859 45 2007 . 11.734 12.177 384 10.859 11.280 55 2008 . 12.177 11.633 229 11.280 10.787 40 --------- ------ ------ --- ------ ------ --- Lincoln VIP Delaware Growth and Income 2005 . N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A 2007 . 12.315 11.912 1 N/A N/A N/A 2008 . 11.912 7.503 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Delaware Social Awareness 2002 . N/A N/A N/A 2003 . 12.083 13.630 14 N/A N/A N/A 2004 . 13.630 15.118 31 12.331 13.645 3 2005 . 15.118 16.667 35 13.645 15.059 4 2006 . 16.667 18.422 30 15.059 16.660 4 2007 . 18.422 18.667 28 16.660 16.899 4 2008 . 18.667 12.049 24 16.899 10.919 5 --------- ------ ------ --- ------ ------ --- Lincoln VIP Delaware Special Opportunities 2007 . N/A N/A N/A N/A N/A N/A 2008 . 8.182 5.681 2 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP FI Equity-Income 2005 . N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Growth Fund(2) 2005 . N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Growth Opportunities(3) 2005 . N/A N/A N/A N/A N/A N/A 2006 . 13.325 12.375 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Janus Capital Appreciation 2002 . 11.087 10.161 2 2003 . 10.161 13.246 6 N/A N/A N/A 2004 . 13.246 13.724 18 11.788 12.672 5 2005 . 13.724 14.074 2 12.672 13.008 5 2006 . 14.074 15.190 2 13.008 14.053 4 2007 . 15.190 18.001 2 14.053 16.670 1 2008 . 18.001 10.483 1 16.670 9.718 2 --------- ------ ------ --- ------ ------ --- Lincoln VIP Marsico International Growth 2007 . 10.920 11.149 1 N/A N/A N/A 2008 . 11.149 5.588 10 9.898 5.597 1* --------- ------ ------ --- ------ ------ --- Lincoln VIP MFS Value 2007 . 9.405 9.710 3 N/A N/A N/A 2008 . 9.710 6.454 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Mid-Cap Value 2007 . 8.411 8.638 2 N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Mondrian International Value 2002 . N/A N/A N/A 2003 . 10.154 14.665 5 N/A N/A N/A 2004 . 14.665 17.454 19 13.033 15.679 3 2005 . 17.454 19.331 62 15.679 17.383 10 2006 . 19.331 24.733 71 17.383 22.262 15 2007 . 24.733 27.137 64 22.262 24.450 17 2008 . 27.137 16.917 61 24.450 15.257 13 --------- ------ ------ --- ------ ------ ---
A-6
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Lincoln VIP Money Market Fund 2002 . 9.997 9.990 15 2003 . 9.990 9.899 76 N/A N/A N/A 2004 . 9.899 9.827 81 9.926 9.882 10 2005 . 9.827 9.941 84 9.882 10.006 13 2006 . 9.941 10.241 47 10.006 10.318 16 2007 . 10.241 10.579 49 10.318 10.670 20 2008 . 10.579 10.655 364 10.670 10.757 41 --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA Bond Index 2008 . 9.828 10.459 4 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA Developed International 150 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA Emerging Markets 100 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA International Index 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA Large Cap 100 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA S&P 500 Index 2007 . N/A N/A N/A 11.475 11.363 1 2008 . 10.738 6.989 3 11.363 7.013 1 --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA Small Cap Index 2007 . N/A N/A N/A N/A N/A N/A 2008 . 8.778 5.929 6 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP SSgA Small/Mid Cap 200 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP T. Rowe Price Growth Stock 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP T. Rowe Price Structured Mid-Cap Growth 2002 . N/A N/A N/A 2003 . 12.757 13.541 1 N/A N/A N/A 2004 . 13.541 15.147 1 N/A N/A N/A 2005 . 15.147 16.369 2 13.826 14.956 1* 2006 . 16.369 17.603 2 14.956 16.099 1* 2007 . 17.603 19.678 3 16.099 18.014 1* 2008 . 19.678 11.081 3 18.014 10.154 1* --------- ------ ------ --- ------ ------ --- Lincoln VIP Templeton Growth 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Turner Mid-Cap Growth 2007 . 10.632 10.949 1 N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP UBS Global Asset Allocation 2002 . N/A N/A N/A 2003 . N/A N/A N/A N/A N/A N/A 2004 . 12.476 13.726 2 12.324 12.719 1 2005 . 13.726 14.427 4 12.719 13.382 2 2006 . 14.427 16.258 3 13.382 15.095 2 2007 . 16.258 17.020 3 15.095 15.818 2 2008 . 17.020 11.185 3 15.818 10.406 2 --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2010 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2020 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ ---
A-7
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Lincoln VIP Wilshire 2030 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ -- --- ------ -- Lincoln VIP Wilshire 2040 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ -- --- ------ -- Lincoln VIP Wilshire Aggressive Profile 2005 . 10.198 10.885 2 N/A N/A N/A 2006 . 10.885 12.453 2 N/A N/A N/A 2007 . 12.453 13.572 2 N/A N/A N/A 2008 . 13.572 7.931 2 N/A N/A N/A --------- ------ ------ --- ------ -- Lincoln VIP Wilshire Conservative Profile 2005 . N/A N/A N/A N/A N/A N/A 2006 . 10.302 11.007 1* N/A N/A N/A 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ -- Lincoln VIP Wilshire Moderate Profile 2005 . 10.468 10.472 4 10.219 10.478 13 2006 . 10.472 11.519 17 10.478 11.537 13 2007 . 11.519 12.356 17 11.537 12.388 13 2008 . 12.356 8.900 18 12.388 8.932 13 --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Moderately Aggressive Profile 2005 . 10.656 10.649 4 N/A N/A N/A 2006 . 10.649 11.932 4 N/A N/A N/A 2007 . 11.932 12.863 8 N/A N/A N/A 2008 . 12.863 8.408 8 N/A N/A N/A --------- ------ ------ --- ------ ------ --- MFS VIT Core Equity 2002 . N/A N/A N/A 2003 . 12.219 13.326 2 N/A N/A N/A 2004 . 13.326 14.699 3 N/A N/A N/A 2005 . 14.699 14.678 3 N/A N/A N/A 2006 . 14.678 16.396 3 N/A N/A N/A 2007 . 16.396 17.890 3 N/A N/A N/A 2008 . 17.890 10.682 3 N/A N/A N/A --------- ------ ------ --- ------ ------ --- MFS VIT Growth Series 2002 . 10.710 10.198 1* 2003 . 10.198 13.041 7 N/A N/A N/A 2004 . 13.041 14.466 5 11.916 13.173 1 2005 . 14.466 15.507 17 13.173 14.135 1 2006 . 15.507 16.422 17 14.135 14.984 1 2007 . 16.422 19.535 7 14.984 17.842 1 2008 . 19.535 12.006 7 17.842 10.977 1 --------- ------ ------ --- ------ ------ --- MFS VIT Total Return Series 2002 . 10.594 10.399 1 2003 . 10.399 11.872 73 N/A N/A N/A 2004 . 11.872 12.972 88 11.101 12.142 7 2005 . 12.972 13.098 128 12.142 12.272 15 2006 . 13.098 14.388 113 12.272 13.494 13 2007 . 14.388 14.717 108 13.494 13.817 15 2008 . 14.717 11.250 76 13.817 10.573 14 --------- ------ ------ --- ------ ------ --- MFS VIT Utilities Series 2002 . 10.967 11.381 7 2003 . 11.381 15.184 14 N/A N/A N/A 2004 . 15.184 19.404 9 11.939 15.271 7 2005 . 19.404 22.260 14 15.271 17.537 9 2006 . 22.260 28.689 15 17.537 22.625 9 2007 . 28.689 36.015 18 22.625 28.430 6 2008 . 36.015 22.042 13 28.430 17.418 6 --------- ------ ------ --- ------ ------ ---
A-8
with EGMDB with GOP ------------------------------------------- ---------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of ----------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- -------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Neuberger Berman AMT Mid-Cap Growth Portfolio 2002 . 10.257 9.949 1 2003 . 9.949 12.540 24 N/A N/A N/A 2004 . 12.540 14.354 37 12.151 13.922 1 2005 . 14.354 16.067 42 13.922 15.599 1 2006 . 16.067 18.135 38 15.599 17.625 1 2007 . 18.135 21.868 30 17.625 21.274 1 2008 . 21.868 12.187 23 21.274 11.868 1 --------- ------ ------ -- ------ ------ --- Neuberger Berman AMT Regency Portfolio 2002 . N/A N/A N/A 2003 . 10.131 13.980 3 N/A N/A N/A 2004 . 13.980 16.834 19 12.811 15.443 2 2005 . 16.834 18.555 26 15.443 17.038 4 2006 . 18.555 20.300 21 17.038 18.659 4 2007 . 20.300 20.637 17 18.659 18.988 4 2008 . 20.637 11.003 15 18.988 10.134 4 --------- ------ ------ --- ------ ------ --- Putnam VT Growth and Income Fund 2002 . N/A N/A N/A 2003 . 9.641 13.542 4 N/A N/A N/A 2004 . 13.542 14.808 4 N/A N/A N/A 2005 . 14.808 15.335 5 N/A N/A N/A 2006 . 15.335 17.492 5 N/A N/A N/A 2007 . 17.492 16.175 4 N/A N/A N/A 2008 . 16.175 9.758 4 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Putnam VT Health Sciences Fund 2002 . N/A N/A N/A 2003 . 10.812 11.331 1 N/A N/A N/A 2004 . 11.331 11.946 1* 11.302 11.598 1* 2005 . 11.946 13.308 1* 11.598 12.934 1* 2006 . 13.308 13.462 1 12.934 13.096 1* 2007 . 13.462 13.169 1 13.096 12.825 1* 2008 . 13.169 10.747 1 12.825 10.476 1* --------- ------ ------ --- ------ ------ ---
* All numbers less than 500 were rounded up to one. (1) Effective April 30, 2007, the Lincoln Core Fund was reorganized into the LVIP S&P 500 Index Fund, a series of Lincoln Variable Insurance Products Trust. (2) Effective April 30, 2007, the Lincoln Growth Fund, was reorganized into the LVIP Janus Capital Appreciation Fund, a series of Lincoln Variable Insurance Products Trust. (3) Effective June 11, 2007, the Lincoln Growth Opportunities Fund was reorganized into the LVIP Baron Growth Opportunities Fund, a series of Lincoln Variable Insurance Products Trust. (4)Effective June 5, 2007, the Baron Capital Asset Fund, a series of Baron Capital Funds Trust, was reorganized into the LVIP Baron Growth Opportunities Fund, a series of Lincoln Variable Insurance Products Trust. The values in the table for periods prior to the date of the reorganization reflect investments in the Baron Capital Asset Fund. A-9 [THIS PAGE INTENTIONALLY LEFT BLANK] OVERVIEW OF LIVING BENEFIT RIDERS We offer a number of optional living benefit riders that, for an additional fee, offer certain guarantees, if certain conditions are met. These living benefit riders are described briefly below. Please see the more detailed description in the prospectus discussion for each rider, as well as the Charges and Other Deductions section of the prospectus, for important information on the costs, restrictions, and availability of each rider. Please consult your registered representative as to whether any living benefit rider is appropriate for you based on factors such as your investment objectives, risk tolerance, liquidity needs, and time horizon. Not all riders or features are available in all states. Prior versions of these riders may have different features.
------------------------------------------------------------------------------------------------------------------------ LINCOLN SMARTSECURITY(R) LINCOLN SMARTSECURITY(R) LINCOLN LIFETIME INCOME(SM) ADVANTAGE 5-YR. ELECTIVE ADVANTAGE 1-YR. AUTOMATIC ADVANTAGE (WITH OR WITHOUT STEP-UP STEP-UP LINCOLN LIFETIME INCOME(SM) (PRIOR VERSIONS MAY VARY) ADVANTAGE PLUS) ------------------------------------------------------------------------------------------------------------------------ 1. Overview Designed to guarantee that Designed to guarantee that Designed to guarantee that at least the entire amount if you make your first if you make your first of your purchase payments withdrawal on or after the withdrawal on or after the will be returned to you date you reach age 65, you date you reach age 59 1/2 (age through periodic are guaranteed income for 65 under Joint Life), you withdrawals, regardless of your life (and your are guaranteed income for the investment performance spouse's, under Joint Life your life (and your of the contract. (no version), spouse's, under Joint Life longer available for even after the entire version). purchase on or after amount of purchase payments January 16, 2009) has been returned to you LINCOLN LIFETIME INCOME(SM) through periodic Advantage Plus is designed withdrawals. If lifetime to guarantee that contract withdrawals are not in value will not be less than effect, you may make the initial purchase periodic withdrawals of the payment (or contract value Guaranteed Amount. on rider date) at the end of a 7-year period if you make no withdrawals and cancel the LINCOLN LIFETIME INCOME(SM) Advantage at that time. ------------------------------------------------------------------------------------------------------------------------ 2. Current Fee 0.65% of Guaranteed Amount 0.65% (Single Life) or 0.90% of Guaranteed Amount 0.80% (Joint Life) of (1.05% with LINCOLN Guaranteed Amount LIFETIME INCOME(SM) Advantage Plus) ------------------------------------------------------------------------------------------------------------------------- 3. Guaranteed 0.95% of Guaranteed Amount 1.50% of Guaranteed Amount 1.50% of Guaranteed Amount Maximum Fee -------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------ I4LIFE(R) ADVANTAGE 4LATER(R) ADVANTAGE 1) 4LATER(R) ADVANTAGE GUARANTEED INCOME BENEFIT 2) I4LIFE(R) ADVANTAGE GUARANTEED INCOME BENEFIT (VERSION 3) (PRIOR VERSIONS MAY VARY) 3) GUARANTEED INCOME BENEFIT FOR PURCHASERS OF LINCOLN LIFETIME INCOME(SM) ADVANTAGE ------------------------------------------------------------------------------------------------------------------------ 1. Overview Designed to provide an Designed to guarantee today Designed to use the Income income program that a future minimum payout Base established under combines variable lifetime floor for i4LIFE(R) Advantage 4LATER(R) Advantage (if income payments and a death regular income payments, 4LATER(R) Advantage benefit with the ability to regardless of investment Guaranteed Income Benefit make withdrawals during a performance, by providing is elected) or the Account defined period. an Income Base during the Value* established under accumulation period that i4LIFE(R) Advantage (if can be used to establish in i4LIFE(R) Advantage the future a Guaranteed Guaranteed Income Benefit Income Benefit with i4LIFE(R) is elected) or the Advantage. Guaranteed Amount under LINCOLN LIFETIME INCOME(SM) Advantage (for prior purchasers of LINCOLN LIFETIME INCOME(SM) ) to provide a minimum payout floor for i4LIFE(R) Advantage regular income payments, regardless of investment performance. * Can instead use the remaining Guaranteed Amount under LINCOLN SMARTSECURITY(R) Advantage ------------------------------------------------------------------------------------------------------------------------ 2. Current Fee Varies based on product and 0.65% of Income Base 1) 0.65% added to the i4LIFE(R) death benefit option Advantage charge (assessed as a % of (4LATER(R) Advantage account value, and only Guaranteed Income Benefit) during annuity payout 2) 0.50% added to the i4LIFE(R) phase) Advantage charge (i4LIFE(R) Advantage Guaranteed Income Benefit) (assessed as a % of account value, and only during annuity payout phase ------------------------------------------------------------------------------------------------------------------------ 3. Guaranteed Same as current fee 1.50% of Income Base 1.50% added to the i4LIFE(R) Maximum Fee Advantage charge (assessed as a % of account value, and only during annuity payout phase) ------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------ LINCOLN SMARTSECURITY(R) LINCOLN SMARTSECURITY(R) LINCOLN LIFETIME INCOME(SM) ADVANTAGE 5-YR. ELECTIVE ADVANTAGE 1-YR. AUTOMATIC ADVANTAGE (WITH OR WITHOUT STEP-UP STEP-UP LINCOLN LIFETIME INCOME(SM) (PRIOR VERSIONS MAY VARY) ADVANTAGE PLUS) ------------------------------------------------------------------------------------------------------------------------ 4. Withdrawals Yes - 7% annually Yes - 5% annually Yes - 5% annually Permitted Withdrawals negate LINCOLN LIFETIME INCOME(SM) Advantage Plus ------------------------------------------------------------------------------------------------------------------------ 5. Payments No Yes (if conditions are met) Yes (if conditions are met) for Life ------------------------------------------------------------------------------------------------------------------------ 6. Potential Purchase Payments Purchase Payments Purchase Payments Increases to Optional 5-Year Step-Ups Automatic Annual Step-Ups 5% Enhancements Guaranteed Amount, (if conditions are met) (if conditions are met) Automatic Annual Step-Ups Income Base, or 200% Step-Up Guaranteed Income (if conditions are met) Benefit (as applicable) ------------------------------------------------------------------------------------------------------------------------ 7. Investment Option 3 (different Option 3 (different Option 3 (different Requirements Investment Requirements may Investment Requirements may Investment Requirements may apply depending upon date apply depending upon date apply depending upon date of purchase. See of purchase. See of purchase. See Investment Requirements Investment Requirements Investment Requirements section of prospectus for section of prospectus for section of prospectus for more details) more details) more details) ------------------------------------------------------------------------------------------------------------------------ 8. Ability to Yes Yes, after the first rider Yes-may impact the charge Make Additional anniversary, if cumulative Purchase payments are over $100,000 Payments if Contract and prior Home Office Value is greater than approval is provided zero ------------------------------------------------------------------------------------------------------------------------ 9. Spousal Yes Yes No Continuation ------------------------------------------------------------------------------------------------------------------------ 10. Ability to Yes, after 5 years Yes, after 5 years Yes, after 7 Years Cancel Rider following the later of following the later of rider effective date or rider effective date or contractowner-elected step- contractowner-elected step- up up ------------------------------------------------------------------------------------------------------------------------ 11. Nursing No No Yes Home Benefit ------------------------------------------------------------------------------------------------------------------------ 12. May Elect No No No Other Living Benefit Riders ------------------------------------------------------------------------------------------------------------------------
I4LIFE(R) ADVANTAGE 4LATER(R) ADVANTAGE 1) 4LATER(R) ADVANTAGE GUARANTEED INCOME BENEFIT 2) I4LIFE(R) ADVANTAGE GUARANTEED INCOME BENEFIT (VERSION 3) (PRIOR VERSIONS MAY VARY) 3) GUARANTEED INCOME BENEFIT FOR PURCHASERS OF LINCOLN LIFETIME INCOME(SM) ADVANTAGE ------------------------------------------------------------------------------------------------------------------------ 4. Withdrawals Yes, during Access Period Yes, only after you elect No Permitted i4LIFE(R) Advantage ------------------------------------------------------------------------------------------------------------------------ 5. Payments Yes (if conditions are met) If elect i4LIFE(R)Advantage Yes (if conditions are met) for Life ------------------------------------------------------------------------------------------------------------------------ 6. Potential N/A Purchase Payments Automatic Annual Step-Ups Increases to 15% Enhancements (every 3 Prior versions will have Guaranteed Amount, years) different Step-Up Income Base, or provisions Guaranteed Income Resets to contract value Benefit (as applicable) (if conditions are met) (if conditions are met) ------------------------------------------------------------------------------------------------------------------------ 7. Investment None Option 3 (different Option 3 (different Requirements Investment Requirements may Investment Requirements may apply depending upon date apply depending upon date of purchase. See of purchase. See Investment Requirements Investment Requirements section of prospectus for section of prospectus for more details) more details) ------------------------------------------------------------------------------------------------------------------------ 8. Ability to No (non-qualified Yes No Make Additional contracts) Purchase Payments if Yes, during Access Period, Contract Value unless 4LATER(R) Advantage is greater than Guaranteed Income Benefit zero or i4LIFE(R) Advantage Guaranteed Income Benefit has been elected (qualified contracts) ------------------------------------------------------------------------------------------------------------------------ 9. Spousal No Yes (prior to Periodic No Continuation Income Commencement Date) ------------------------------------------------------------------------------------------------------------------------ 10. Ability to No (non-qualified Yes, after 3 years Yes, after 3 years Cancel Rider contracts) following the later of following the later of rider effective date or rider effective date or Yes, at any time most recent Reset most recent Reset (if (qualified contracts) 4LATER(R) Advantage Guaranteed Income Benefit is elected or purchasers of LINCOLN LIFETIME INCOME(SM) Advantage elect the Guaranteed Income Benefit) Yes, at any time (if i4LIFE(R) Advantage Guaranteed Income Benefit is elected) ------------------------------------------------------------------------------------------------------------------------ 11. Nursing No No No Home Benefit ------------------------------------------------------------------------------------------------------------------------ 12. May Elect Limited to Guaranteed No (prior to Periodic Limited to i4LIFE(R) Other Living Benefit Income Benefit Income Commencement Date) Advantage Riders ------------------------------------------------------------------------------------------------------------------------
LINCOLN LIFE VARIABLE ANNUITY CONTRACTS ELIGIBLE FOR INCLUSION IN OWNER'S INVESTMENT The American Legacy Lincoln ChoicePlus American Legacy II Lincoln ChoicePlus Access American Legacy III Lincoln ChoicePlus Bonus American Legacy III C Share Lincoln ChoicePlus II American Legacy III Plus Lincoln ChoicePlus II Access American Legacy III View Lincoln ChoicePlus II Bonus American Legacy Shareholder's Advantage Lincoln ChoicePlus II Advance American Legacy Design Lincoln ChoicePlus Assurance (A Share) Lincoln ChoicePlus Assurance (A Class) Multi-Fund(R) Lincoln ChoicePlus Assurance (B Share) Multi-Fund(R) 5 Lincoln ChoicePlus Assurance (B Class) Lincoln ChoicePlus Assurance (C Share) Lincoln ChoicePlus Assurance (L Share) Lincoln ChoicePlus Assurance (Bonus) Lincoln ChoicePlus Design
SAI 1 Lincoln ChoicePlus II Bonus Lincoln New York Account N for Variable Annuities (Registrant) Lincoln Life & Annuity Company of New York (Depositor) Statement of Additional Information (SAI) This SAI should be read in conjunction with the Lincoln ChoicePlus II Bonus prospectus of Lincoln New York Account N for Variable Annuities dated May 1, 2009. You may obtain a copy of the Lincoln ChoicePlus II Bonus prospectus on request and without charge. Please write Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne, IN 46802-7866, or call 1-888-868-2583. Table of Contents
Item Page Special Terms B-2 Services B-2 Principal Underwriter B-2 Purchase of Securities Being Offered B-2 Interest Adjustment Example B-2 Annuity Payouts B-4 Examples of Regular Income Payment Calculations B-5
Item Page Determination of Accumulation and Annuity Unit Value B-5 Capital Markets B-5 Advertising & Ratings B-6 More About the S&P 500 Index B-6 Additional Services B-6 Other Information B-7 Financial Statements B-7
This SAI is not a prospectus. The date of this SAI is May 1, 2009. Special Terms The special terms used in this SAI are the ones defined in the Prospectus. Services Independent Registered Public Accounting Firm The financial statements of the VAA and the financial statements of Lincoln New York appearing in this SAI and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, Two Commerce Square, 2001 Market Street, Suite 4000, Philadelphia, Pennsylvania 19103, as set forth in their reports, also appearing in this SAI and in the Registration Statement. The financial statements audited by Ernst & Young LLP have been included herein in reliance on their reports given on their authority as experts in accounting and auditing. Keeper of Records All accounts, books, records and other documents which are required to be maintained for the VAA are maintained by us or by third parties responsible to Lincoln Life. We have entered into an agreement with The Bank of New York Mellon, One Mellon Bank Center, 500 Grant Street, Pittsburgh, Pennsylvania, 15258, to provide accounting services to the VAA. No separate charge against the assets of the VAA is made by us for this service. Administrative services necessary for the operations of the VAA and the contracts are currently provided by Lincoln Life. However, neither the assets of Lincoln Life nor the assets of LNC support the obligation of Lincoln New York under the contracts. Principal Underwriter Lincoln Financial Distributors, Inc., ("LFD"), an affiliate of Lincoln New York, serves as principal underwriter (the "Principal Underwriter") for the contracts, as described in the prospectus. The Principal Underwriter offers the contracts to the public on a continuous basis and anticipates continuing to offer the contracts, but reserves the right to discontinue the offering. The Principal Underwriter offers the contracts through sales representatives who are also associated with Lincoln Financial Advisors Corporation ("LFA"), our affiliate and the principal underwriter for certain other contracts issued by the Principal Underwriter. The Principal Underwriter also may enter into selling agreements with other broker-dealers ("Selling Firms") for the sale of the contracts. Sales representatives of Selling Firms are appointed as our insurance agents. LFA (prior to May 1, 2007) and LFD (on and after May 1, 2007), acting as the Principal Underwriter paid $8,920,347, $11,095,671, and $9,599,993 to LFA and Selling Firms in 2006, 2007, and 2008, respectively, as sales compensation with respect to the contracts. The Principal Underwriter retained no underwriting commissions for the sale of the contracts. Purchase of Securities Being Offered The variable annuity contracts are offered to the public through licensed insurance agents who specialize in selling our products; through independent insurance brokers; and through certain securities brokers/dealers selected by us whose personnel are legally authorized to sell annuity products. There are no special purchase plans for any class of prospective buyers. However, under certain limited circumstances described in the prospectus under the section Charges and Other Deductions, any applicable account fee and/or surrender charge may be reduced or waived. Both before and after the annuity commencement date, there are exchange privileges between subaccounts, and from the VAA to the general account (if available) subject to restrictions set out in the prospectus. See The Contracts, in the prospectus. No exchanges are permitted between the VAA and other separate accounts. The offering of the contracts is continuous. Interest Adjustment Example Note: This example is intended to show how the interest adjustment calculation impacts the surrender value of a representative contract. The surrender charges, annual account fee, adjustment factor, and guaranteed minimum interest rate values shown here are generally different from those that apply to specific contracts, particularly those contracts that deduct an initial sales load or pay a bonus on deposits. Calculations of the interest adjustment in your contract, if applicable, will be based on the factors applicable to your contract. The interest adjustment may be referred to as a market value adjustment in your contract. B-2 SAMPLE CALCULATIONS FOR MALE 35 ISSUE CASH SURRENDER VALUES Single Premium.................. $50,000 Premium taxes................... None Withdrawals..................... None Guaranteed Period............... 5 years Guaranteed Interest Rate........ 3.50% Annuity Date.................... Age 70 Index Rate A.................... 3.50% Index Rate B.................... 4.00% End of contract year 1 3.50% End of contract year 2 3.00% End of contract year 3 2.00% End of contract year 4 Percentage adjustment to B...... 0.50%
Interest Adjustment Formula (1 + Index A)n ------------------------------ -1 n = Remaining Guaranteed Period (1 + Index B + % Adjustment)n
SURRENDER VALUE CALCULATION
(3) (1) (2) Adjusted (4) (5) (6) (7) Annuity 1 + Interest Annuity Minimum Greater of Surrender Surrender Contract Year Value Adjustment Formula Value Value (3) & (4) Charge Value --------------- --------- -------------------- ---------- --------- ------------ ----------- ---------- 1............ $51,710 0.962268 $49,759 $50,710 $50,710 $4,250 $46,460 2............ $53,480 0.985646 $52,712 $51,431 $52,712 $4,250 $48,462 3............ $55,312 1.000000 $55,312 $52,162 $55,312 $4,000 $51,312 4............ $57,208 1.009756 $57,766 $52,905 $57,766 $3,500 $54,266 5............ $59,170 N/A $59,170 $53,658 $59,170 $3,000 $56,170
ANNUITY VALUE CALCULATION
BOY* Annual EOY** Annuity Guaranteed Account Annuity Contract Year Value Interest Rate Fee Value ------------------ --------- --------------- --------- ---------- 1...............$50,000 x 1.035 - $40 = $51,710 2...............$51,710 x 1.035 - $40 = $53,480 3...............$53,480 x 1.035 - $40 = $55,312 4...............$55,312 x 1.035 - $40 = $57,208 5...............$57,208 x 1.035 - $40 = $59,170
SURRENDER CHARGE CALCULATION
Surrender Charge Surrender Contract Year Factor Deposit Charge ------------------ ---------- --------- ---------- 1............... 8.5% x $50,000 = $4,250 2............... 8.5% x $50,000 = $4,250 3............... 8.0% x $50,000 = $4,000 4............... 7.0% x $50,000 = $3,500 5............... 6.0% x $50,000 = $3,000
B-3 1 + INTEREST ADJUSTMENT FORMULA CALCULATION
Contract Year Index A Index B Adj Index B N Result ---------------- --------- --------- ------------- ----- --------- 1............. 3.50% 4.00% 4.50% 4 0.962268 2............. 3.50% 3.50% 4.00% 3 0.985646 3............. 3.50% 3.00% 3.50% 2 1.000000 4............. 3.50% 2.00% 2.50% 1 1.009756 5............. 3.50% N/A N/A N/A N/A
MINIMUM VALUE CALCULATION
Minimum Annual Guaranteed Account Minimum Contract Year Interest Rate Fee Value ------------------ --------------- --------- ---------- 1...............$50,000 x 1.015 - $40 = $50,710 2...............$50,710 x 1.015 - $40 = $51,431 3...............$51,431 x 1.015 - $40 = $52,162 4...............$52,162 x 1.015 - $40 = $52,905 5...............$52,905 x 1.015 - $40 = $53,658
* BOY = beginning of year ** EOY = end of year Annuity Payouts Variable Annuity Payouts Variable annuity payouts will be determined on the basis of: o the dollar value of the contract on the annuity commencement date less any applicable premium tax (and less any surrender charges on purchase payments in the contract for less than 12 months if bonus credits applied to the purchase payments); o the annuity tables contained in the contract; o the type of annuity option selected; and o the investment results of the fund(s) selected. In order to determine the amount of variable annuity payouts, we make the following calculation: o first, we determine the dollar amount of the first payout; o second, we credit the contract with a fixed number of annuity units based on the amount of the first payout; and o third, we calculate the value of the annuity units each period thereafter. These steps are explained below. The dollar amount of the first periodic variable annuity payout is determined by applying the total value of the accumulation units credited under the contract valued as of the annuity commencement date (less any premium taxes) to the annuity tables contained in the contract. The first variable annuity payout will be paid 14 days after the annuity commencement date. This day of the month will become the day on which all future annuity payouts will be paid. Amounts shown in the tables are based on the 1983 Table "a" Individual Annuity Mortality Tables modified, with an assumed investment return at the rate of 3%, 4% or 5% per annum, depending on the terms of your contract. The first annuity payout is determined by multiplying the benefit per $1,000 of value shown in the contract tables by the number of thousands of dollars of value accumulated under the contract. These annuity tables vary according to the form of annuity selected and the age of the annuitant at the annuity commencement date. The assumed interest rate is the measuring point for subsequent annuity payouts. If the actual net investment rate (annualized) exceeds the assumed interest rate, the payout will increase at a rate equal to the amount of such excess. Conversely, if the actual rate is less than the assumed interest rate, annuity payouts will decrease. If the assumed rate of interest were to be increased, annuity payouts would start at a higher level but would decrease more rapidly or increase more slowly. We may use sex-distinct annuity tables in contracts that are not associated with employer sponsored plans and where not prohibited by law. At an annuity commencement date, the contract is credited with annuity units for each subaccount on which variable annuity payouts are based. The number of annuity units to be credited is determined by dividing the amount of the first periodic payout by the value of an annuity unit in each subaccount selected. Although the number of annuity units is fixed by this process, the value of such units will vary with the value of the underlying fund. The amount of the second and subsequent periodic payouts is determined by multiplying B-4 the contractowner's fixed number of annuity units in each subaccount by the appropriate annuity unit value for the valuation date ending 14 days prior to the date that payout is due. The value of each subaccount's annuity unit will be set initially at $1.00. The annuity unit value for each subaccount at the end of any valuation date is determined by multiplying the subaccount annuity unit value for the immediately preceding valuation date by the product of: o The net investment factor of the subaccount for the valuation period for which the annuity unit value is being determined, and o A factor to neutralize the assumed investment return in the annuity table. The value of the annuity units is determined as of a valuation date 14 days prior to the payment date in order to permit calculation of amounts of annuity payouts and mailing of checks in advance of their due dates. Such checks will normally be issued and mailed at least three days before the due date. Proof of Age, Sex and Survival We may require proof of age, sex, or survival of any payee upon whose age, sex, or survival payments depend. Examples of Regular Income Payment Calculations These examples will illustrate the impact of the length of the access period and the impact of a withdrawal on the regular income payments. These examples assume that the investment return is the same as the assumed investment return (AIR) to make the regular income payment calculations simpler to understand. The regular income payments will vary based on the investment performance of the underlying funds. Annuitant............................ Male, Age 65 Secondary Life....................... Female, Age 63 Purchase Payment..................... $200,000.00 Regular Income Payment Frequency..... Annual AIR.................................. 4.0% Hypothetical Investment Return....... 4.0% 15-year Access Period 30-Year Access Period Regular Income Payment............... $ 10,795.64 $9,974.48
A 10% withdrawal from the account value will reduce the regular income payments by 10% to $9,716.07 with the 15-year access period and $8,977.03 with the 30-year access period. At the end of the 15-year access period, the remaining account value of $135,374.66 (assuming no withdrawals) will be used to continue the $10,795.64 regular income payment during the lifetime income period for the lives of the annuitant and secondary life. At the end of the 30-year access period, the remaining account value of $66,884.77 (assuming no withdrawals) will be used to continue the $9,974.48 regular income payment during the lifetime income period for the lives of the annuitant and secondary life. (Note: the regular income payments during the lifetime income period will vary with the investment performance of the underlying funds). Determination of Accumulation and Annuity Unit Value A description of the days on which accumulation and annuity units will be valued is given in the prospectus. The New York Stock Exchange's (NYSE) most recent announcement (which is subject to change) states that it will be closed on weekends and on these holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. If any of these holidays occurs on a weekend day, the Exchange may also be closed on the business day occurring just before or just after the holiday. It may also be closed on other days. Since the portfolios of some of the fund and series will consist of securities primarily listed on foreign exchanges or otherwise traded outside the United States, those securities may be traded (and the net asset value of those fund and series and of the variable account could therefore be significantly affected) on days when the investor has no access to those funds and series. Capital Markets Beginning in 2008 and continuing as of the date of this prospectus, the capital and credit markets have experienced an unusually high degree of volatility. As a result, the market for fixed income securities has experienced illiquidity, increased price volatility, credit downgrade events and increased expected probability of default. Securities that are less liquid are more difficult to value and may be B-5 hard to sell, if desired. During this time period, domestic and international equity markets have also been experiencing heightened volatility and turmoil, with issuers (such as our company) that have exposure to the real estate, mortgage and credit markets particularly affected. In any particular year, our capital may increase or decrease depending on a variety of factors - the amount of our statutory income or losses (which itself is sensitive to equity market and credit market conditions), the amount of additional capital we must hold to support business growth, changes in reserving requirements, our inability to secure capital market solutions to provide reserve relief, such as issuing letters of credit to support captive reinsurance structures, changes in equity market levels, the value of certain fixed-income and equity securities in our investment portfolio and changes in interest rates. Advertising & Ratings We may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Lincoln Life or the policies. Furthermore, we may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. Nationally recognized rating agencies rate the financial strength of our Company. The ratings do not imply approval of the product and do not refer to the performance of the product, or to the VAA, including underlying investment options. Ratings are not recommendations to buy our products. Each of the rating agencies reviews its ratings periodically. Accordingly, all ratings are subject to revision or withdrawal at any time by the rating agencies, and therefore, no assurance can be given that these ratings will be maintained. In late September and early October of 2008, A.M. Best Company, Fitch, Moody's and Standard & Poor's each revised their outlook for the U.S. life insurance sector from stable to negative. Our financial strength ratings, which are intended to measure our ability to meet contract holder obligations, are an important factor affecting public confidence in most of our products and, as a result, our competitiveness. A downgrade of our financial strength rating could affect our competitive position in the insurance industry by making it more difficult for us to market our products as potential customers may select companies with higher financial strength ratings and by leading to increased withdrawals by current customers seeking companies with higher financial strength ratings. More About the S&P 500 Index Investors look to indexes as a standard of market performance. Indexes are groups of stocks or bonds selected to represent an entire market. The S&P 500 Index is a widely used measure of large US company stock performance. It consists of the common stocks of 500 major corporations selected according to size, frequency and ease by which their stocks trade, and range and diversity of the American economy. The LVIP SSgA S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation or warranty, express or implied, to the owners of the fund or any member of the public regarding the advisability of investing in securities generally or in the fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the fund. S&P has no obligation to take the needs of the fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the fund or the timing of the issuance or sale of the fund or in the determination or calculation of the equation by which the fund is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the fund. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND OR ITS SHAREHOLDERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. Additional Services Dollar Cost Averaging (DCA) - You may systematically transfer, on a monthly basis or in accordance with other terms we make available, amounts from certain subaccounts, or the fixed side (if available) of the contract into the subaccounts or in accordance with other terms we make available. You may elect to participate in the DCA program at the time of application or at anytime before the annuity commencement date by completing an election form available from us. The minimum amount to be dollar cost averaged is $2,000 over any period between six and 60 months. Once elected, the program will remain in effect until the earlier of: o the annuity commencement date; B-6 o the value of the amount being DCA'd is depleted; or o you cancel the program by written request or by telephone if we have your telephone authorization on file. We reserve the right to restrict access to this program at any time. A transfer made as part of this program is not considered a transfer for purposes of limiting the number of transfers that may be made, or assessing any charges or interest adjustment which may apply to transfers. Upon receipt of an additional purchase payment allocated to the DCA fixed account, the existing program duration will be extended to reflect the end date of the new DCA program. However, the existing interest crediting rate will not be extended. The existing interest crediting rate will expire at its originally scheduled expiration date and the value remaining in the DCA account from the original amount as well as any additional purchase payments will be credited with interest at the standard DCA rate at the time. We reserve the right to discontinue this program at any time. DCA does not assure a profit or protect against loss. Automatic Withdrawal Service (AWS) - AWS provides an automatic, periodic withdrawal of contract value to you. AWS may take place on either a monthly, quarterly, semi-annual or annual basis, as selected by the contractowner. You may elect to participate in AWS at the time of application or at any time before the annuity commencement date by sending a written request to us. The minimum contract value required to establish AWS is $10,000. You may cancel or make changes to your AWS program at any time by sending a written request to us. If telephone authorization has been elected, certain changes may be made by telephone. Notwithstanding the requirements of the program, any withdrawal must be permitted under Section 401(a)(9) of the IRC for qualified plans or permitted under Section 72 of the IRC for non-qualified contracts. To the extent that withdrawals under AWS do not qualify for an exemption from the contingent deferred sales charge, we will assess any applicable surrender charges on those withdrawals. See Contingent deferred sales charges. Cross Reinvestment Program/Earnings Sweep Program - Under this option, account value in a designated variable subaccount of the contract that exceeds a certain baseline amount is automatically transferred to another specific variable subaccount(s) of the contract at specific intervals. You may elect to participate in the cross reinvestment program at the time of application or at any time before the annuity commencement date by sending a written request to us or by telephone if we have your telephone authorization on file. You designate the holding account, the receiving account(s), and the baseline amount. Cross reinvestment will continue until we receive authorization to terminate the program. The minimum holding account value required to establish cross-reinvestment is $10,000. A transfer under this program is not considered a transfer for purposes of limiting the number of transfers that may be made. We reserve the right to discontinue this service at any time. Portfolio Rebalancing - Portfolio rebalancing is an option, which, if elected by the contractowner, restores to a pre-determined level the percentage of the contract value, allocated to each variable subaccount. This pre-determined level will be the allocation initially selected when the contract was purchased, unless subsequently changed. The portfolio rebalancing allocation may be changed at any time by submitting a written request to us. If portfolio rebalancing is elected, all purchase payments allocated to the variable subaccounts must be subject to portfolio rebalancing. Portfolio rebalancing may take place on either a monthly, quarterly, semi-annual or annual basis, as selected by the contractowner. Once the portfolio rebalancing option is activated, any variable subaccount transfers executed outside of the portfolio rebalancing program will terminate the portfolio rebalancing program. Any subsequent purchase payment or withdrawal that modifies the account balance within each variable subaccount may also cause termination of the portfolio rebalancing program. Any such termination will be confirmed to the contractowner. The contractowner may terminate the portfolio rebalancing program or re-enroll at any time by sending a written request to us. If telephone authorization has been elected, the contractowner may make these elections by phone. The portfolio rebalancing program is not available following the annuity commencement date. Other Information Due to differences in redemption rates, tax treatment or other considerations, the interests of contractowners under the variable life accounts could conflict with those of contractowners under the VAA. In those cases, where assets from variable life and variable annuity separate accounts are invested in the same fund(s) (i.e., where mixed funding occurs), the Boards of Directors of the fund involved will monitor for any material conflicts and determine what action, if any, should be taken. If it becomes necessary for any separate account to replace shares of any fund with another investment, that fund may have to liquidate securities on a disadvantageous basis. Refer to the prospectus for each fund for more information about mixed funding. Financial Statements The December 31, 2008 financial statements of the VAA and the December 31, 2008 financial statements of Lincoln New York appear on the following pages. B-7 PROSPECTUS 2 Lincoln ChoicePlus AssuranceSM (Bonus) Lincoln New York Account N for Variable Annuities Individual Variable Annuity Contracts Home Office: Lincoln Life & Annuity Company of New York 100 Madison Street, Suite 1860 Syracuse, NY 13202 www.LincolnFinancial.com Servicing Office: Lincoln Life & Annuity Company of New York PO Box 7866 Fort Wayne, IN 46802-7866 1-888-868-2583 This prospectus describes an individual flexible premium deferred variable annuity contract that is issued by Lincoln Life & Annuity Company of New York. This prospectus is primarily for use with nonqualified plans and qualified retirement plans under Sections 408 (IRAs) and 408A (Roth IRAs) of the tax code. Generally, you do not pay federal income tax on the contract's growth until it is paid out. Qualified retirement plans already provide for tax deferral. Therefore, there should be reasons other than tax deferral for acquiring the contract within a qualified plan. The contract is designed to accumulate contract value and to provide retirement income that you cannot outlive or for an agreed upon time. These benefits may be a variable or fixed amount, if available, or a combination of both. If you die before the annuity commencement date, we will pay your beneficiary a death benefit. In the alternative, you generally may choose to receive a death benefit upon the death of the annuitant. The minimum initial purchase payment for the contract is $10,000. Additional purchase payments may be made to the contract and must be at least $100 per payment ($25 if transmitted electronically), and at least $300 annually. Except as noted below, you choose whether your contract value accumulates on a variable or a fixed (guaranteed) basis or both. Your contract may not offer a fixed account or if permitted by your contract, we may discontinue accepting purchase payments or transfers into the fixed side of the contract at any time. If your purchase payments, bonus credits and persistency credits are in the fixed account, we guarantee your principal and a minimum interest rate. For the life of your contract or during certain periods, we may impose restrictions on the fixed account. For contracts issued after September 30, 2003, the only fixed account available is for dollar cost averaging purposes. We do offer variable annuity contracts that have lower fees. Expenses for contracts offering a bonus or persistency credit may be higher. Because of this, the amount of the bonus or persistency credits may, over time, be offset by additional fees and charges. You should carefully consider whether or not this contract is the best product for you. All purchase payments, bonus credits and persistency credits for benefits on a variable basis will be placed in Lincoln New York Account N for Variable Annuities (variable annuity account [VAA]). The VAA is a segregated investment account of Lincoln New York. You take all the investment risk on the contract value and the retirement income for amounts placed into one or more of the contract's variable options. If the subaccounts you select make money, your contract value goes up; if they lose money, it goes down. How much it goes up or down depends on the performance of the subaccounts you select. We do not guarantee how any of the variable options or their funds will perform. Also, neither the U.S. Government nor any federal agency insures or guarantees your investment in the contract. The contracts are not bank deposits and are not endorsed by any bank or government agency. The available funds are listed below: AIM Variable Insurance Funds (Series II): AIM V.I. Capital Appreciation Fund* AIM V.I. Core Equity Fund* AIM V.I. International Growth Fund* AllianceBernstein Variable Products Series Fund (Class B): AllianceBernstein VPS Global Thematic Growth Portfolio (formerly AllianceBernstein VPS Global Technology Portfolio) AllianceBernstein VPS Growth and Income Portfolio AllianceBernstein VPS International Value Portfolio AllianceBernstein VPS Large Cap Growth Portfolio* AllianceBernstein VPS Small/Mid Cap Value Portfolio American Century Investments Variable Products (Class II): American Century Investments VP Inflation Protection Fund American Funds Insurance SeriesSM (Class 2): American Funds Global Growth Fund American Funds Global Small Capitalization Fund American Funds Growth Fund American Funds Growth-Income Fund American Funds International Fund BlackRock Variable Series Funds, Inc. (Class III) BlackRock Global Allocation V.I. Fund* 1 Delaware VIP Trust (Service Class): Delaware VIP Diversified Income Series Delaware VIP Emerging Markets Series Delaware VIP High Yield Series Delaware VIP Limited-Term Diversified Income Series (formerly Delaware VIP Capital Reserves Series) Delaware VIP REIT Series* Delaware VIP Small Cap Value Series Delaware VIP Trend Series Delaware VIP U.S. Growth Series Delaware VIP Value Series DWS Investments VIT Funds (Class B): DWS Equity 500 Index VIP* DWS Small Cap Index VIP* DWS Variable Series II (Class B): DWS Alternative Asset Allocation Plus VIP Portfolio* Fidelity (Reg. TM) Variable Insurance Products (Service Class 2): Fidelity (Reg. TM) VIP Contrafund Portfolio Fidelity (Reg. TM) VIP Equity-Income Portfolio* Fidelity (Reg. TM) VIP Growth Portfolio Fidelity (Reg. TM) VIP Mid Cap Portfolio Fidelity (Reg. TM) VIP Overseas Portfolio Franklin Templeton Variable Insurance Products Trust (Class 2): FTVIPT Franklin Income Securities Fund FTVIPT Franklin Small-Mid Cap Growth Securities Fund FTVIPT Mutual Shares Securities Fund FTVIPT Templeton Global Bond Securities Fund* (formerly FTVIPT Templeton Global Income Securities Fund) FTVIPT Templeton Growth Securities Fund* Janus Aspen Series (Service Class): Janus Aspen Balanced Portfolio* Janus Aspen Enterprise Portfolio* (formerly Janus Aspen Mid Cap Growth Portfolio) Janus Aspen Worldwide Portfolio* (formerly Janus Aspen Worldwide Growth Portfolio) Lincoln Variable Insurance Products Trust (Service Class): LVIP Baron Growth Opportunities Fund LVIP Capital Growth Fund LVIP Cohen & Steers Global Real Estate Fund LVIP Columbia Value Opportunities Fund LVIP Delaware Bond Fund LVIP Delaware Foundation Aggressive Allocation Fund* LVIP Delaware Growth and Income Fund LVIP Delaware Social Awareness Fund LVIP Delaware Special Opportunities Fund LVIP FI Equity-Income Fund* LVIP Global Income Fund* LVIP Janus Capital Appreciation Fund LVIP Marsico International Growth Fund LVIP MFS Value Fund LVIP Mid-Cap Value Fund LVIP Mondrian International Value Fund LVIP Money Market Fund LVIP SSgA Bond Index Fund LVIP SSgA Developed International 150 Fund LVIP SSgA Emerging Markets 100 Fund LVIP SSgA International Index Fund LVIP SSgA Large Cap 100 Fund LVIP SSgA Small/Mid Cap 200 Fund LVIP SSgA S&P 500 Index Fund** LVIP SSgA Small-Cap Index Fund LVIP T. Rowe Price Growth Stock Fund LVIP T. Rowe Price Structured Mid-Cap Growth Fund LVIP Templeton Growth Fund LVIP Turner Mid-Cap Growth Fund LVIP UBS Global Asset Allocation Fund* LVIP Wilshire 2010 Profile Fund* LVIP Wilshire 2020 Profile Fund* LVIP Wilshire 2030 Profile Fund* LVIP Wilshire 2040 Profile Fund* LVIP Wilshire Aggressive Profile Fund LVIP Wilshire Conservative Profile Fund LVIP Wilshire Moderate Profile Fund LVIP Wilshire Moderately Aggressive Profile Fund MFS (Reg. TM) Variable Insurance TrustSM (Service Class): MFS (Reg. TM) VIT Core Equity Series* MFS (Reg. TM) VIT Growth Series* MFS (Reg. TM) VIT Total Return Series MFS (Reg. TM) VIT Utilities Series Neuberger Berman Advisers Management Trust (I Class): Neuberger Berman AMT Mid-Cap Growth Portfolio* Neuberger Berman AMT Regency Portfolio* PIMCO Variable Insurance Trust (Advisor Class) PIMCO VIT Commodity Real Return Strategy Portfolio* Putnam Variable Trust (Class IB): Putnam VT Global Health Care Fund* (formerly Putnam VT Health Sciences Fund) Putnam VT Growth & Income Fund* * Not all funds are available in all contracts. Refer to Description of Funds for specific information regarding the availability of funds. **"S&P 500" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by Lincoln Variable Insurance Products Trust and its affiliates. The product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of purchasing the product. (Please see the Statement of Additional Information which sets forth additional disclaimers and limitations of liability on behalf of S&P.) This prospectus gives you information about the contracts that you should know before you decide to buy a contract and make purchase payments. You should also review the prospectuses for the funds that accompany this prospectus, and keep all prospectuses for future reference. Neither the SEC nor any state securities commission has approved this contract or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense. More information about the contracts is in the current Statement of Additional Information (SAI), dated the same date as this prospectus. The SAI is incorporated by reference into this prospectus and is legally part of this prospectus. For a free copy of the SAI, write: Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne, IN 46802-7866, or call 1-888-868-2583. The SAI and other 2 information about Lincoln New York and the VAA are also available on the SEC's website (http://www.sec.gov). There is a table of contents for the SAI on the last page of this prospectus. May 1, 2009 3 Table of Contents
Item Page Special Terms 5 Expense Tables 7 Summary of Common Questions 16 Lincoln Life & Annuity Company of New York 19 Variable Annuity Account (VAA) 19 Investments of the Variable Annuity Account 20 Charges and Other Deductions 25 The Contracts 31 Purchase Payments 32 Bonus Credits 32 Persistency Credits 33 Transfers On or Before the Annuity Commencement Date 34 Surrenders and Withdrawals 36 Death Benefit 39 Investment Requirements 41 Living Benefit Riders 43 Lincoln Lifetime IncomeSM Advantage 44 Lincoln SmartSecurity (Reg. TM) Advantage 51 i4LIFE (Reg. TM) Advantage 56 Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage 60 4LATER (Reg. TM) Advantage 63 Annuity Payouts 67 Fixed Side of the Contract 69 Distribution of the Contracts 71 Federal Tax Matters 72 Additional Information 76 Voting Rights 76 Return Privilege 77 Other Information 77 Legal Proceedings 78 Contents of the Statement of Additional Information (SAI) for Lincoln New York Account N for Variable Annuities 79 Appendix A - Condensed Financial Information A-1 Appendix B - Condensed Financial Information B-1
4 Special Terms In this prospectus, the following terms have the indicated meanings: 4LATER (Reg. TM) Advantage or 4LATER (Reg. TM) - An option that provides an Income Base during the accumulation period, which can be used to establish a Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage in the future. Account or variable annuity account (VAA) - The segregated investment account, Account N, into which we set aside and invest the assets for the variable side of the contract offered in this prospectus. Account Value - Under i4LIFE (Reg. TM) Advantage, the initial Account Value is the contract value on the valuation date that i4LIFE (Reg. TM) Advantage is effective, less any applicable premium taxes. During the Access Period, the Account Value equals the initial Account Value plus investment gains minus losses, regular income payments, Guaranteed Income Benefit payments, and withdrawals. Accumulation unit - A measure used to calculate contract value for the variable side of the contract before the annuity commencement date and to calculate the i4LIFE (Reg. TM) Advantage Account Value during the Access Period. Annuitant - The person upon whose life the annuity benefit payments are based, and upon whose life a death benefit may be paid. Annuity commencement date - The valuation date when funds are withdrawn or converted into annuity units or fixed dollar payout for payment of retirement income benefits under the annuity payout option you select. Annuity payout - An amount paid at regular intervals after the annuity commencement date under one of several options available to the annuitant and/or any other payee. This amount may be paid on a variable or fixed basis, or a combination of both. Annuity unit - A measure used to calculate the amount of annuity payouts for the variable side of the contract after the annuity commencement date. See Annuity Payouts. Beneficiary - The person you choose to receive any death benefit paid if you die before the annuity commencement date. Bonus credit - The additional amount credited to the contract for each purchase payment. Contractowner (you, your, owner) - The person who can exercise the rights within the contract (decides on investment allocations, transfers, payout option, designates the beneficiary, etc.). Usually, but not always, the contractowner is the annuitant. Contract value (may be referenced to as account value in marketing materials) - At a given time before the annuity commencement date, the total value of all accumulation units for a contract plus the value of the fixed side of the contract, if any. Contract year - Each one-year period starting with the effective date of the contract and starting with each contract anniversary after that. Death benefit - Before the annuity commencement date, the amount payable to your designated beneficiary if the contractowner dies or, if selected, to the contractowner if the annuitant dies. See The Contracts - Death Benefit for a description of the various death benefit options. Good Order - The actual receipt at our Servicing Office of the requested transaction in writing or by other means we accept, along with all information and supporting legal documentation necessary to effect the transaction. The forms we provide will identify the necessary documentation. We may, in our sole discretion, determine whether any particular transaction request is in good order, and we reserve the right to change or waive any good order requirements at any time. Guaranteed Income Benefit - An option that provides a guaranteed minimum payout floor for the i4LIFE (Reg. TM) Advantage regular income payments. The calculation of the Guaranteed Income Benefit or the features applicable to the Guaranteed Income Benefit may vary based on the rider provisions applicable to certain contractowners. i4LIFE (Reg. TM) Advantage - An income program which combines periodic variable lifetime income payments with the ability to make withdrawals during a defined period. Lincoln SmartSecurity (Reg. TM) Advantage - Provides minimum guaranteed periodic withdrawals (for life, if the 1 Year Automatic Step-Up option is chosen), regardless of the investment performance of the contract and provided certain conditions are met, that may increase due to subsequent purchase payments and step-ups. Lincoln New York (we, us, our) - Lincoln Life & Annuity Company of New York (LNY) Lincoln Lifetime IncomeSM Advantage - Provides minimum guaranteed lifetime periodic withdrawals that may increase. Living Benefit - A general reference to certain riders that may be available for purchase that provide some type of a minimum guarantee while you are alive. If you select a Living Benefit rider, excess withdrawals may have adverse effects on the benefit, and you may be subject to Investment Requirements. These riders are the Lincoln Smart Security (Reg. TM) Advantage, Lincoln Lifetime Income AdvantageSM, 4LATER (Reg. TM) Advantage and i4LIFE (Reg. TM) Advantage (with or without the Guaranteed Income Benefit). 5 Persistency credit - The additional amount credited to the contract after the fourteenth contract anniversary. Purchase payments - Amounts paid into the contract other than bonus credits and persistency credits. Subaccount - The portion of the VAA that reflects investments in accumulation and annuity units of a class of a particular fund available under the contracts. There is a separate subaccount which corresponds to each class of a fund. Valuation date - Each day the New York Stock Exchange (NYSE) is open for trading. Valuation period - The period starting at the close of trading (currently 4:00 p.m. New York time) on each day that the NYSE is open for trading (valuation date) and ending at the close of such trading on the next valuation date. 6 Expense Tables The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the contract. The first table describes the fees and expenses that you will pay at the time that you buy the contract, surrender the contract, or transfer contract value between investment options and/or the fixed account. State premium taxes may also be deducted. Contractowner Transaction Expenses: o Surrender charge (as a percentage of purchase payments surrendered/withdrawn): 8.5%* o Transfer charge: $ 25**
* The surrender charge percentage is reduced over time. The later the redemption occurs, the lower the surrender charge with respect to that surrender or withdrawal. We may waive this charge in certain situations. See Charges and Other Deductions-Surrender Charge. **The transfer charge will not be imposed on the first 12 transfers during a contract year. We reserve the right to charge a $25 fee for the 13th and each additional transfer during any contract year, excluding automatic dollar cost averaging, portfolio rebalancing and cross reinvestment transfers. We may apply an interest adjustment to amounts being withdrawn, surrendered or transferred from a guaranteed period account only (except for dollar cost averaging, portfolio rebalancing, cross-reinvestment, withdrawals up to the Maximum Annual Withdrawal amount under the Lincoln SmartSecurity (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage and regular income payments under i4LIFE (Reg. TM) Advantage). See Fixed Side of the Contract. The next table describes the fees and expenses that you will pay periodically during the time that you own the contract, not including fund fees and expenses. Annual Account Fee: $30* Separate Account Annual Expenses (as a percentage of average daily net assets in the subaccounts):
With Enhanced Guarantee of Guaranteed Minimum Principal Death Death Benefit (EGMDB) Benefit (GOP) Account Value Death Benefit ----------------------- ---------------- ---------------------------- o Mortality and expense risk charge 1.70% 1.45% 1.40% o Administrative charge 0.10% 0.10% 0.10% ---- ---- ---- o Total annual charge for each subaccount** 1.80% 1.55% 1.50%
* The account fee will be waived if your contract value is $100,000 or more at the end of any particular year. The account fee will be waived after the fifteenth contract year. **For contracts purchased before July 22, 2005, the total annual charges are as follows: EGMDB 1.60%; Guarantee of Principal 1.50%; Account Value N/A. In the event of a subsequent death benefit change, the charge will be based on the charges in effect at the time the contract was purchased. Optional Rider Charges: Lincoln Lifetime IncomeSM Advantage:
Lincoln Lifetime IncomeSM Advantage -------------------------- o Guaranteed maximum annual percentage charge* 1.50% o Current annual percentage charge* ** 0.90%
*The annual percentage charge is assessed against the Guaranteed Amount (initial purchase payment and any bonus credit or contract value at the time of election) as increased for subsequent purchase payments, any bonus credits, Automatic Annual Step-ups, 5% Enhancements, and the 200% Step-up and decreased for withdrawals. These changes to the Guaranteed Amount are discussed below. This charge is deducted from the contract value on a quarterly basis. See Charges and Other Deductions for further information. **For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.75% to 0.90% upon the earlier of (a) the next Automatic Annual Step-up of the Guaranteed Amount or (b) the Benefit Year anniversary if cumulative purchase payments received after the first Benefit Year anniversary equal or exceed $100,000. 7 Lincoln SmartSecurity (Reg. TM) Advantage:
Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-Up option+ ** --------------------------------- o Guaranteed maximum annual percentage charge* 0.95% o Current annual percentage charge* 0.65% Lincoln SmartSecurity (Reg. TM) Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Advantage - 1 Year Automatic Step-Up option Step-Up option - Single Life (and prior version) - Joint Life ----------------------------------- -------------------------------- o 1.50% 1.50% o 0.65% 0.80%
*The annual percentage charge is assessed against the Guaranteed Amount (initial purchase payment and any bonus credit or contract value at the time of election) as increased for subsequent purchase payments, any bonus credits, and step-ups and decreased for withdrawals. This charge is deducted from the contract value on a quarterly basis. See Charges and Other Deductions for further information. **For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.45% to 0.65% upon the next election of a step-up of the Guaranteed Amount. +As of January 16, 2009, the Lincoln SmartSecurity (Reg. TM)Advantage - 5 Year Elective Step-up option is no longer available for purchase. 4LATER (Reg. TM) Advantage: o Guaranteed maximum annual percentage charge* 1.50% o Current annual percentage charge* ** 0.65%
*The annual percentage charge for the 4LATER (Reg. TM) Advantage is multiplied by the Income Base (initial purchase payment or contract value at the time of election) as increased for subsequent purchase payments, bonus credits, automatic 15% Enhancements, and Resets and decreased for withdrawals. The 4LATER (Reg. TM) Advantage charge is deducted from the subaccounts on a quarterly basis. **For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.50% to 0.65% upon the next election to reset the Income Base. The next table describes charges that apply only when i4LIFE (Reg. TM) Advantage is in effect. The charge for any Guaranteed Income Benefit, if elected, is added to the i4LIFE (Reg. TM) Advantage charge and the total is deducted from your average daily account value. i4LIFE (Reg. TM) Advantage Payout Phase (On and After the Periodic Income Commencement Date): i4LIFE (Reg. TM) Advantage (as a daily percentage of average account value):
Enhanced Guaranteed Guarantee of Minimum Death Principal Death Benefit (EGMDB) Benefit Account Value Death Benefit --------------------- ---------------- ---------------------------- o Annual charge* 2.20% 1.95% 1.90%
*During the Lifetime Income Period, the charge will be the same rate as the i4LIFE (Reg. TM) Advantage Account Value Death Benefit. Optional Rider Charges : i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (as a daily percentage of average account value): o Guaranteed maximum annual percentage charge 1.50%** o Current annual percentage charge 0.50%*
4LATER (Reg. TM) Advantage Guaranteed Income Benefit (as a daily percentage of average account value): o Guaranteed maximum annual percentage charge 1.50% o Current annual percentage charge 0.65%* ***
For example, if you purchase the i4LIFE (Reg. TM) Advantage EGMDB for 2.20% with the 4LATER (Reg. TM) Advantage Guaranteed Income Benefit at a maximum charge of 1.50%, your total annual charge is 3.70% (as a daily percentage of average account value). *The percentage charge will change to the current charge in effect upon election of a new step-up period, not to exceed the guaranteed maximum charge. **Purchasers of Lincoln Lifetime IncomeSM Advantage are guaranteed the ability in the future to purchase i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit may purchase the Guaranteed Income Benefit at or below the guaranteed maximum charge that is in effect on the date that they purchase the Lincoln Lifetime IncomeSM Advantage. ***For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.50% to 0.65% upon the next election to reset the Income Base. The next table describes the separate account annual expenses (as a percentage of average daily net assets in the subaccounts) you pay on and after the Annuity Commencement Date: o Mortality and expense risk charge and Administrative charge 1.40%
8 The next item shows the minimum and maximum total annual operating expenses charged by the funds that you may pay periodically during the time that you own the contract. The expenses are for the year ended December 31, 2008. More detail concerning each fund's fees and expenses is contained in the prospectus for each fund.
Maximum Minimum --------- -------- Total Annual Fund Operating Expenses (expenses that are deducted from fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses): 4.15% 0.53% Net Total Annual Fund Operating Expenses (after contractual waivers/reimbursements*): 1.81% 0.53%
* 38 of the funds have entered into contractual waiver or reimbursement arrangements that may reduce fund management and other fees and/or expenses during the period of the arrangement. These arrangements vary in length, but no arrangement will terminate before April 30, 2010. 9 The following table shows the expenses charged by each fund for the year ended December 31, 2008: (as a percentage of each fund's average net assets):
Management Other Fees 12b-1 Fees Expenses (before (before (before any any any waivers/ waivers/ waivers/ reimburse- reimburse- reimburse- ments) + ments) + ments) + AIM V.I. Capital Appreciation Fund (Series II)(2)(3)(4) 0.61 % 0.25 % 0.30 % AIM V.I. Core Equity Fund (Series II)(2)(3)(4)(5) 0.61 0.25 0.29 AIM V.I. International Growth Fund (Series II)(2)(3)(4)(5) 0.71 0.25 0.35 AllianceBernstein VPS Global Thematic Growth Portfolio (Class B) 0.75 0.25 0.18 AllianceBernstein VPS Growth and Income Portfolio (Class B) 0.55 0.25 0.07 AllianceBernstein VPS International Value Portfolio (Class B) 0.74 0.25 0.07 AllianceBernstein VPS Large Cap Growth Portfolio (Class B) 0.75 0.25 0.09 AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class B) 0.75 0.25 0.11 American Century VP Inflation Protection Fund (Class II)(6)(7) 0.48 0.25 0.01 American Funds Global Growth Fund (Class 2)(1) 0.53 0.25 0.02 American Funds Global Small Capitalization Fund (Class 2)(1) 0.71 0.25 0.03 American Funds Growth Fund (Class 2)(1) 0.32 0.25 0.01 American Funds Growth-Income Fund (Class 2)(1) 0.27 0.25 0.01 American Funds International Fund (Class 2)(1) 0.49 0.25 0.03 BlackRock Global Allocation V.I. Fund (Class III) 0.65 0.25 0.13 Delaware VIP Diversified Income Series (Service Class)(8) 0.62 0.30 0.11 Delaware VIP Emerging Markets Series (Service Class)(8) 1.24 0.30 0.17 Delaware VIP High Yield Series (Service Class)(8) 0.65 0.30 0.12 Delaware VIP Limited-Term Diversified Income Series (Service Class)(8) 0.50 0.30 0.17 Delaware VIP REIT Series (Service Class)(8) 0.75 0.30 0.12 Delaware VIP Small Cap Value Series (Service Class)(8) 0.73 0.30 0.12 Delaware VIP Trend Series (Service Class)(8 0.75 0.30 0.12 Delaware VIP U.S. Growth Series (Service Class)(8 0.65 0.30 0.11 Delaware VIP Value Series (Service Class)(8) 0.65 0.30 0.11 DWS Alternative Asset Allocation Plus VIP Portfolio (Class B)(9)(10)(11)(12)(13) 0.20 0.25 0.33 DWS Equity 500 Index VIP (Class B)(14)(15) 0.20 0.25 0.13 DWS Small Cap Index VIP (Class B)(14) 0.35 0.25 0.19 Fidelity (Reg. TM) VIP Contrafund Portfolio (Service Class 2)(16) 0.56 0.25 0.10 Fidelity VIP Equity-Income Portfolio (Service Class 2) 0.46 0.25 0.11 Fidelity (Reg. TM) VIP Growth Portfolio (Service Class 2)(17) 0.56 0.25 0.12 Fidelity (Reg. TM) VIP Mid Cap Portfolio (Service Class 2)(18) 0.56 0.25 0.12 Fidelity (Reg. TM) VIP Overseas Portfolio (Service Class 2)(19) 0.71 0.25 0.16 FTVIPT Franklin Income Securities Fund (Class 2)(20) 0.45 0.25 0.02 FTVIPT Franklin Small-Mid Cap Growth Securities Fund (Class 2)(21) 0.50 0.25 0.28 FTVIPT Mutual Shares Securities Fund (Class 2) 0.60 0.25 0.13 FTVIPT Templeton Global Bond Securities Fund (Class 2)(22) 0.47 0.25 0.11 FTVIPT Templeton Growth Securities Fund (Class 2)(20) 0.74 0.25 0.04 Janus Aspen Balanced Portfolio (Service Class)(23)(24)(25)(26) 0.55 0.25 0.02 Total Expenses Total (after Expenses Total Contractu (before Contractual ua Acquired any waivers/ waivers/ Fund waivers/ reimburse- reimburse Fees and reimburse- ments e- Expenses = ments) (if any) ments) AIM V.I. Capital Appreciation Fund (Series II)(2)(3)(4) 0.01 % 1.17 % AIM V.I. Core Equity Fund (Series II)(2)(3)(4)(5) 0.01 1.16 -0.01 % 1.15 % AIM V.I. International Growth Fund (Series II)(2)(3)(4)(5) 0.02 1.33 -0.01 1.32 AllianceBernstein VPS Global Thematic Growth Portfolio (Class B) 0.00 1.18 AllianceBernstein VPS Growth and Income Portfolio (Class B) 0.00 0.87 AllianceBernstein VPS International Value Portfolio (Class B) 0.00 1.06 AllianceBernstein VPS Large Cap Growth Portfolio (Class B) 0.00 1.09 AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class B) 0.00 1.11 American Century VP Inflation Protection Fund (Class II)(6)(7) 0.00 0.74 American Funds Global Growth Fund (Class 2)(1) 0.00 0.80 American Funds Global Small Capitalization Fund (Class 2)(1) 0.00 0.99 American Funds Growth Fund (Class 2)(1) 0.00 0.58 American Funds Growth-Income Fund (Class 2)(1) 0.00 0.53 American Funds International Fund (Class 2)(1) 0.00 0.77 BlackRock Global Allocation V.I. Fund (Class III) 0.00 1.03 Delaware VIP Diversified Income Series (Service Class)(8) 0.00 1.03 -0.05 0.98 Delaware VIP Emerging Markets Series (Service Class)(8) 0.00 1.71 -0.05 1.66 Delaware VIP High Yield Series (Service Class)(8) 0.00 1.07 -0.05 1.02 Delaware VIP Limited-Term Diversified Income Series (Service Class)(8) 0.00 0.97 -0.05 0.92 Delaware VIP REIT Series (Service Class)(8) 0.00 1.17 -0.05 1.12 Delaware VIP Small Cap Value Series (Service Class)(8) 0.00 1.15 -0.05 1.10 Delaware VIP Trend Series (Service Class)(8 0.00 1.17 -0.05 1.12 Delaware VIP U.S. Growth Series (Service Class)(8 0.00 1.06 -0.05 1.01 Delaware VIP Value Series (Service Class)(8) 0.00 1.06 -0.05 1.01 DWS Alternative Asset Allocation Plus VIP Portfolio (Class B)(9)(10)(11)(12)(13) 1.35 2.13 -0.32 1.81 DWS Equity 500 Index VIP (Class B)(14)(15) 0.00 0.58 DWS Small Cap Index VIP (Class B)(14) 0.00 0.79 Fidelity (Reg. TM) VIP Contrafund Portfolio (Service Class 2)(16) 0.00 0.91 Fidelity VIP Equity-Income Portfolio (Service Class 2) 0.00 0.82 Fidelity (Reg. TM) VIP Growth Portfolio (Service Class 2)(17) 0.00 0.93 Fidelity (Reg. TM) VIP Mid Cap Portfolio (Service Class 2)(18) 0.00 0.93 Fidelity (Reg. TM) VIP Overseas Portfolio (Service Class 2)(19) 0.00 1.12 FTVIPT Franklin Income Securities Fund (Class 2)(20) 0.00 0.72 FTVIPT Franklin Small-Mid Cap Growth Securities Fund (Class 2)(21) 0.02 1.05 -0.02 1.03 FTVIPT Mutual Shares Securities Fund (Class 2) 0.00 0.98 FTVIPT Templeton Global Bond Securities Fund (Class 2)(22) 0.00 0.83 FTVIPT Templeton Growth Securities Fund (Class 2)(20) 0.00 1.03 Janus Aspen Balanced Portfolio (Service Class)(23)(24)(25)(26) 0.00 0.82
10
Management Other Fees 12b-1 Fees Expenses (before (before (before any any any waivers/ waivers/ waivers/ reimburse- reimburse- reimburse- ments) + ments) + ments) + Janus Aspen Enterprise Portfolio (Service Class)(23)(24)(25)(26)(27) 0.64 % 0.25 % 0.03 % Janus Aspen Worldwide Portfolio (Service Class)(23)(24)(25)(26)(28)(29) 0.50 0.25 0.03 LVIP Baron Growth Opportunities Fund (Service Class)(30) 1.00 0.25 0.09 LVIP Capital Growth Fund (Service Class)(31) 0.72 0.25 0.09 LVIP Cohen & Steers Global Real Estate Fund (Service Class)(32)(33) 0.95 0.25 0.18 LVIP Columbia Value Opportunities Fund (Service Class)(34) 1.05 0.25 0.20 LVIP Delaware Bond Fund (Service Class) 0.33 0.35 0.07 LVIP Delaware Foundation Aggressive Allocation Fund (Service Class)(78)(79) 0.75 0.25 0.11 LVIP Delaware Growth and Income Fund (Service Class) 0.34 0.35 0.07 LVIP Delaware Social Awareness Fund (Service Class) 0.37 0.35 0.07 LVIP Delaware Special Opportunities Fund (Service Class) 0.40 0.35 0.07 LVIP FI Equity-Income Fund (Service Class)(35) 0.75 0.25 0.07 LVIP Global Income Fund (Service Class)(36)(37) 0.65 0.25 0.19 LVIP Janus Capital Appreciation Fund (Service Class)(38) 0.75 0.25 0.10 LVIP Marsico International Growth Fund (Service Class)(39) 0.92 0.25 0.13 LVIP MFS Value Fund (Service Class)(40) 0.66 0.25 0.08 LVIP Mid-Cap Value Fund (Service Class)(41) 0.89 0.25 0.10 LVIP Mondrian International Value Fund (Service Class) 0.70 0.25 0.10 LVIP Money Market Fund (Service Class)(42) 0.35 0.25 0.08 LVIP SSgA Bond Index Fund (Service Class)(43)(44) 0.40 0.25 0.13 LVIP SSgA Developed International 150 Fund (Service Class)(45)(46) 0.75 0.25 2.04 LVIP SSgA Emerging Markets 100 Fund (Service Class)(47)(48) 1.09 0.25 2.81 LVIP SSgA International Index Fund (Service Class)(44)(49) 0.40 0.25 1.18 LVIP SSgA Large Cap 100 Fund (Service Class)(50)(51) 0.52 0.25 0.43 LVIP SSgA Small/Mid Cap 200 Fund (Service Class)(53)(54)(55) 0.69 0.25 0.66 LVIP SSgA S&P 500 Index Fund (Service Class)(52) 0.24 0.25 0.09 LVIP SSgA Small-Cap Index Fund (Service Class)(56) 0.32 0.25 0.15 LVIP T. Rowe Price Growth Stock Fund (Service Class)(57) 0.73 0.25 0.09 LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Service Class) 0.74 0.25 0.10 LVIP Templeton Growth Fund (Service Class)(58) 0.74 0.25 0.08 LVIP Turner Mid-Cap Growth Fund (Service Class)(59)(60) 0.89 0.25 0.18 LVIP UBS Global Asset Allocation Fund (Service Class)(61) 0.74 0.25 0.11 LVIP Wilshire 2010 Profile Fund (Service Class)(62)(63)(64) 0.25 0.25 0.60 LVIP Wilshire 2020 Profile Fund (Service Class)(62)(63)(64) 0.25 0.25 0.31 LVIP Wilshire 2030 Profile Fund (Service Class)(62)(63)(64) 0.25 0.25 0.45 LVIP Wilshire 2040 Profile Fund (Service Class)(62)(63)(64) 0.25 0.25 0.76 LVIP Wilshire Aggressive Profile Fund (Service Class)(62)(63)(65) 0.25 0.25 0.08 LVIP Wilshire Conservative Profile Fund (Service Class)(62)(63)(65) 0.25 0.25 0.05 LVIP Wilshire Moderate Profile Fund (Service Class)(62)(63)(65) 0.25 0.25 0.03 Total Expenses Total (after Expenses Total Contractu (before Contractual ua Acquired any waivers/ waivers/ Fund waivers/ reimburse- reimburse Fees and reimburse- ments e- Expenses = ments) (if any) ments) Janus Aspen Enterprise Portfolio (Service Class)(23)(24)(25)(26)(27) 0.00 % 0.92 % Janus Aspen Worldwide Portfolio (Service Class)(23)(24)(25)(26)(28)(29) 0.00 0.78 LVIP Baron Growth Opportunities Fund (Service Class)(30) 0.00 1.34 -0.05 % 1.29 % LVIP Capital Growth Fund (Service Class)(31) 0.00 1.06 -0.03 1.03 LVIP Cohen & Steers Global Real Estate Fund (Service Class)(32)(33) 0.00 1.38 -0.22 1.16 LVIP Columbia Value Opportunities Fund (Service Class)(34) 0.00 1.50 LVIP Delaware Bond Fund (Service Class) 0.00 0.75 LVIP Delaware Foundation Aggressive Allocation Fund (Service Class)(78)(79) 0.03 1.14 -0.13 1.01 LVIP Delaware Growth and Income Fund (Service Class) 0.00 0.76 LVIP Delaware Social Awareness Fund (Service Class) 0.00 0.79 LVIP Delaware Special Opportunities Fund (Service Class) 0.00 0.82 LVIP FI Equity-Income Fund (Service Class)(35) 0.00 1.07 -0.05 1.02 LVIP Global Income Fund (Service Class)(36)(37) 0.00 1.09 -0.09 1.00 LVIP Janus Capital Appreciation Fund (Service Class)(38) 0.00 1.10 -0.07 1.03 LVIP Marsico International Growth Fund (Service Class)(39) 0.00 1.30 -0.01 1.29 LVIP MFS Value Fund (Service Class)(40) 0.00 0.99 LVIP Mid-Cap Value Fund (Service Class)(41) 0.00 1.24 LVIP Mondrian International Value Fund (Service Class) 0.00 1.05 LVIP Money Market Fund (Service Class)(42) 0.00 0.68 LVIP SSgA Bond Index Fund (Service Class)(43)(44) 0.00 0.78 -0.10 0.68 LVIP SSgA Developed International 150 Fund (Service Class)(45)(46) 0.00 3.04 -2.28 0.76 LVIP SSgA Emerging Markets 100 Fund (Service Class)(47)(48) 0.00 4.15 -3.20 0.95 LVIP SSgA International Index Fund (Service Class)(44)(49) 0.00 1.83 -1.13 0.70 LVIP SSgA Large Cap 100 Fund (Service Class)(50)(51) 0.00 1.20 -0.49 0.71 LVIP SSgA Small/Mid Cap 200 Fund (Service Class)(53)(54)(55) 0.02 1.62 -0.89 0.73 LVIP SSgA S&P 500 Index Fund (Service Class)(52) 0.00 0.58 LVIP SSgA Small-Cap Index Fund (Service Class)(56) 0.00 0.72 LVIP T. Rowe Price Growth Stock Fund (Service Class)(57) 0.00 1.07 LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Service Class) 0.00 1.09 LVIP Templeton Growth Fund (Service Class)(58) 0.00 1.07 LVIP Turner Mid-Cap Growth Fund (Service Class)(59)(60) 0.00 1.32 -0.09 1.23 LVIP UBS Global Asset Allocation Fund (Service Class)(61) 0.03 1.13 LVIP Wilshire 2010 Profile Fund (Service Class)(62)(63)(64) 0.51 1.61 -0.65 0.96 LVIP Wilshire 2020 Profile Fund (Service Class)(62)(63)(64) 0.52 1.33 -0.36 0.97 LVIP Wilshire 2030 Profile Fund (Service Class)(62)(63)(64) 0.53 1.48 -0.50 0.98 LVIP Wilshire 2040 Profile Fund (Service Class)(62)(63)(64) 0.54 1.80 -0.81 0.99 LVIP Wilshire Aggressive Profile Fund (Service Class)(62)(63)(65) 0.87 1.45 -0.13 1.32 LVIP Wilshire Conservative Profile Fund (Service Class)(62)(63)(65) 0.72 1.27 -0.10 1.17 LVIP Wilshire Moderate Profile Fund (Service Class)(62)(63)(65) 0.78 1.31 -0.08 1.23
11
Management Other Fees 12b-1 Fees Expenses (before (before (before any any any waivers/ waivers/ waivers/ reimburse- reimburse- reimburse- ments) + ments) + ments) + LVIP Wilshire Moderately Aggressive Profile Fund (Service Class)(62)(63)(65) 0.25 % 0.25 % 0.03 % MFS (Reg. TM) VIT Core Equity Series (Service Class)(66)(67)(68) 0.75 0.25 0.20 MFS (Reg. TM) VIT Growth Series (Service Class)(66)(68) 0.75 0.25 0.08 MFS (Reg. TM) VIT Total Return Series (Service Class)(66)(68) 0.74 0.25 0.07 MFS (Reg. TM) VIT Utilities Series (Service Class)(66)(68) 0.72 0.25 0.09 Neuberger Berman AMT Mid-Cap Growth Portfolio (I Class)(69) 0.83 0.00 0.09 Neuberger Berman AMT Regency Portfolio (I Class)(69) 0.85 0.00 0.12 PIMCO VIT Commodity Real Return Strategy Portfolio (Advisor Class)(70)(71)(72)(73)(74) 0.74 0.25 0.17 Putnam VT Global Health Care Fund (Class 1B)(75)(76) 0.70 0.25 0.16 Putnam VT Growth & Income Fund (Class 1B)(77) 0.53 0.25 0.07 Total Expenses Total (after Expenses Total Contractu (before Contractual ua Acquired any waivers/ waivers/ Fund waivers/ reimburse- reimburse Fees and reimburse- ments e- Expenses = ments) (if any) ments) LVIP Wilshire Moderately Aggressive Profile Fund (Service Class)(62)(63)(65) 0.81 % 1.34 % -0.08 % 1.26 % MFS (Reg. TM) VIT Core Equity Series (Service Class)(66)(67)(68) 0.00 1.20 -0.05 1.15 MFS (Reg. TM) VIT Growth Series (Service Class)(66)(68) 0.00 1.08 MFS (Reg. TM) VIT Total Return Series (Service Class)(66)(68) 0.00 1.06 MFS (Reg. TM) VIT Utilities Series (Service Class)(66)(68) 0.00 1.06 Neuberger Berman AMT Mid-Cap Growth Portfolio (I Class)(69) 0.00 0.92 Neuberger Berman AMT Regency Portfolio (I Class)(69) 0.00 0.97 PIMCO VIT Commodity Real Return Strategy Portfolio (Advisor Class)(70)(71)(72)(73)(74) 0.09 1.25 -0.09 1.16 Putnam VT Global Health Care Fund (Class 1B)(75)(76) 0.01 1.12 Putnam VT Growth & Income Fund (Class 1B)(77) 0.00 0.85
(1) The Series' investment adviser waived a portion of its management fee from September 1, 2004 (May 1, 2006 in the case of Global Growth and Income Fund and October 4, 2006 in the case of Global Bond Fund) through December 31, 2008. Management fees and total expenses in the table do not reflect any waivers. Information regarding the effect of any waiver on total annual fund operating expenses can be found in the Financial Highlights table in the prospectus and annual report. (2) Except as otherwise noted, figures shown in the table are for the year ended December 31, 2008 and are expressed as a percentage of the Fund's average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. (3) Acquired Fund Fees and Expenses are not fees or expenses incurred by the fund directly but are expenses of the investment companies in which the fund invests. You incur these fees and expenses indirectly through the valuation of the fund's investment in those investment companies. As a result, the Net Annual Fund Operating Expenses listed above may exceed the limit on Total Annual Fund Operating Expenses, if any. The impact of the acquired fund fees and expense are included in the total returns of the Fund. (4) The Fund's advisor has contractually agreed through April 30, 2010, to waive a portion of its advisory fees and or/or reimburse expenses of Series II shares to the extent necessary to limit Total Annual Operating Expenses of Series II shares to 1.45% of average daily net assets. (5) The Fund's advisor has contractually agreed through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees Invesco AIM receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. Fee Waiver reflects this agreement. (6) The fund pays the advisor a single, unified management fee for arranging all services necessary for the fund to operate. The fee shown is based on assets during the fund's most recent fiscal year. The fund has a stepped fee schedule. As a result, the fund's unified management fee rate generally decreases as assets increase and increases as assets decrease. (7) Other expenses include the fees and expenses of the fund's independent directors and their legal counsel, interest, and, if applicable, acquired fund fees and expenses. (8) The Service Class shares are subject to an annual 12b-1 fee of not more than 0.30%. Effective May 1, 2009 through April 30, 2010, Delaware Distributors, L.P. has contracted to limit the Service Class shares 12b-1 fee to no more than 0.25% of average daily net assets. (9) Management fee has two components: (i) a fee on assets invested in other DWS funds; and (ii) a fee on assets not invested in other DWS funds ("Other Assets"). The Advisor currently intends to invest substantially all the assets of the portfolio in other DWS funds. However, in the future, the portfolio may invest a larger portion, or all, of its assets in Other Assets. If the portfolio's assets are entirely invested in Other Assets, the management fee would be 1.20% of average daily net assets. However, in such a situation, the Acquired Fund (Underlying Fund) Fees and Expenses are expected to decrease. The Advisor will waive 0.15% of the management fee until the portfolio reaches $50 million in assets and the Advisor's global tactical asset allocation overlay strategy is implemented. (10) The portfolio's shareholders bear indirectly the expenses of the shares of other DWS funds or ETF's in which the portfolio invests. Acquired Fund (Underlying Fund) Fees and Expenses for the initial fiscal year are based on the expected initial allocation of the portfolio assets. The Total Annual Operating Expenses will vary with changes in allocations to, and operating expenses of, the other DWS funds or ETFs in which the portfolio invest. (11) "Acquired Funds (Underlying Funds) Fees and Expenses" includes impact of dividends on short sales for investments in DWS Market Neutral Fund. "Acquired Funds (Underlying Funds) Fees and Expenses" would be 1.20% excluding these dividends on short sales and the Total Annual Operating Expenses" would be 1.73% without these dividends on short sales. (12) "Other Expenses" are based on estimated amounts for the current fiscal year, including 0.05% organizational and offering expenses expected to be incurred over the next twelve months only. Actual expenses may be different. Includes 0.10% administration fee paid to the Advisor. (13) Through April 30, 2010, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay operating expenses to the extent necessary to maintain the fund's operating expenses at 0.21% for Class B, excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest and acquired funds (underlying funds) fees and expenses (estimated at 1.35%). (14) "Other Expenses" are based on estimated amounts for the current fiscal year. Actual expenses may be different. Includes 0.10% administration fee. (15) Through September 30, 2009, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay operating expenses of the fund to the extent necessary to maintain the fund's operating expenses at 0.58% for Class B, excluding certain expenses such as extraordinary expenses, taxes, brokerage and interest. (16) Contrafund - A portion of the brokerage commissions that the fund pays may be reimbursed and used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the fund's custodian expenses. Including these reductions, the total class operating expenses 12 would have been 0.90% for Service Class 2. These offsets may be discontinued at any time. (17) Growth. A portion of the brokerage commissions that the fund pays may be reimbursed and used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the fund's custodian expenses. Including these reductions, the total class operating expenses would have been 0.92% for Service Class 2. These offsets may be discontinued at any time. (18) Mid Cap. A portion of the brokerage commissions that the fund pays may be reimbursed and used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the fund's custodian expenses. Including these reductions, the total class operating expenses would have been 0.92% for Service Class 2. These offsets may be discontinued at any time. (19) Overseas. A portion of the brokerage commissions that the fund pays may be reimbursed and used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the fund's custodian expenses. Including these reductions, the total class operating expenses would have been 1.09% for Service Class 2. These offsets may be discontinued at any time. (20) The Fund administration fee is paid indirectly through the management fee. (21) The Fund's manager has agreed in advance to reduce its fees from assets invested by the Fund in a Franklin Templeton money market fund (the Sweep Money Fund which is "the acquired fund" in this case) to the extent of the Fund's fees and expenses of the acquired fund. This reduction is required by the Trust's board of trustees and an exemptive order by the Securities and Exchange Commission (SEC); this arrangement will continue as long as the exemptive order is relied upon. This reduction is not reflected in Net Annual Fund operating expenses, which would be lower if it were. (22) The Fund's name changed from Templeton Global Income Securities Fund effective as of May 1, 2009 (23) All expenses are shown without the effect of expense offset arrangements. Pursuant to such offset arrangements, credits realized as a result of uninvested cash balances are used to reduce custodian and transfer agent expenses. (24) The "Management Fee" is the investment advisory fee rate paid by each Portfolio to Janus Capital as of the end of the fiscal year. For Worldwide Growth Portfolio, this fee may go up or down monthly based on the Portfolio's performance relative to its benchmark index over the performance measurement period.. (25) Because the 12b-1 fee is charged as an ongoing fee, over time the fee will increase the cost of your investment and may cost you more than paying other types of sales charges. (26) Annual Fund Operating Expenses are stated both with and without contractual expense waivers by Janus Capital. Janus Capital has contractually agreed to waive certain Portfolios' total operating expenses (excluding the distribution and shareholder servicing fee, the administrative services fee applicable to certain Portfolios, brokerage commissions, interest, dividends, taxes, and extraordinary expenses including, but not limited to, acquired fund fees and expenses) to certain limits until at least May 1, 2010. The expense waivers shown reflect the application of such limits. The expense limits are described in the "Management Expenses" section of the Portfolio's Prospectus. (27) Formerly known as Mid Cap Growth Portfolio. (28) Worldwide Portfolio pays an investment advisory fee rate that adjusts up or down based upon the Portfolio's performance relative to its benchmark index during the measuring period. This fee rate, prior to any performance adjustment, is 0.60% for Worldwide Growth Portfolio; and may go up or down by a variable of up to 0.15% (assuming constant assets) on a monthly basis. Any such adjustment to the fee rate commenced February 2007 for Worldwide Portfolio, and may increase or decrease the Management Fee. Refer to the "Management Expenses" section in the Portfolio's Prospectus for additional information with further description in the Statement of Additional Information. (29) Formerly known as Worldwide Growth Portfolio. (30) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 1.29% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (31) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 1.03% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (32) The information in the expense table has been restated to reflect that the expense reimbursement agreement with the advisor was terminated effective April 30, 2009. (33) The adviser has contractually agreed to waive the following portion of its advisory fee for the fund: 0.22% on the first $250,000,000 of average daily net assets of the fund and 0.32% on the excess over $250,000,000 of average daily net assets of the fund. The fee waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (34) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 1.59% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (35) The adviser has contractually agreed to waive a portion of its advisory fee through April 30, 2010. The waiver amount is: 0.03% on the first $250,000,000 of average daily net assets of the fund; 0.08% on the next $500,000,000 of average daily net assets of the fund; and 0.13% of average daily net assets of the fund in excess of $750,000,000. The waiver will renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (36) The advisor has contractually agreed to waive 0.05% of its advisory fee for the fund. The waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (37) The adviser has contractually agreed to reimburse the fund to the extent that the fund's Total Annual Fund Operating Expenses (excluding underlying fund fees and expenses) exceed 1.00% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (38) Effective May 1, 2009, the adviser has contractually agreed to waive a portion of its advisory fee through April 30, 2010. The waiver amount is: 0.15% on the first $100,000,000 of average daily net assets of the fund; 0.10% of the next $150,000,000 of average daily net assets of the fund. The waiver will renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. The fee table has been restated to reflect the new agreement. (39) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 1.29% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (40) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 1.05% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (41) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 13 1.29% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (42) The fund's distributor and fund's advisor have voluntarily agreed to waive fees and/or reimburse expenses to the extent necessary to prevent a negative yield for each class of shares of the fund. The voluntary waivers and reimbursements may be modified or terminated at any time, without notice, and are subject to future recapture by the fund's distributor and fund's advisor. There is no guarantee that the fund will be able to avoid a negative yield. (43) The advisor has contractually agreed to waive the following portion of its advisory fee for the fund: 0.07% on the first $500 million of average daily net assets of the fund and 0.12% of average daily net assets of the fund in excess of $500 million. This waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (44) The adviser has contractually agreed to reimburse the fund to the extent that the fund's Total Annual Fund Operating Expenses exceed 0.70% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (45) The advisor has contractually agreed to waive the following portion of its advisory fee for the fund: 0.35% on the first $100 million of average daily net assets of the fund and 0.43% of average daily net assets of the fund in excess of $100 million. This waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (46) The adviser has contractually agreed to reimburse the fund to the extent that the fund's Total Annual Fund Operating Expenses exceed 0.76% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (47) The advisor has contractually agreed to waive the following portion of its advisory fee for the fund: 0.69% on the first $100 million of average daily net assets of the fund and 0.76% of average daily net assets of the fund in excess of $100 million. This waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (48) The adviser has contractually agreed to reimburse the fund to the extent that the fund's Total Annual Fund Operating Expenses exceed 0.95% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (49) The advisor has contractually agreed to waive the following portion of its advisory fee for the fund: 0.06% on the first $500 million of average daily net assets of the fund and 0.09% of average daily net assets of the fund in excess of $500 million. This waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (50) The advisor has contractually agreed to waive the following portion of its advisory fee for the fund: 0.12% on the first $100 million of average daily net assets of the fund and 0.22% of average daily net assets of the fund in excess of $100 million. This waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (51) The adviser has contractually agreed to reimburse the fund to the extent that the fund's Total Annual Fund Operating Expenses exceed 0.71% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (52) The information in the expense table has been restated to reflect that the expense reimbursement agreement with the adviser was terminated effective April 30, 2009. (53) The adviser has contractually agreed to reimburse the fund to the extent that the fund's Total Annual Fund Operating Expenses (excluding underlying fund fees and expenses) exceed 0.71% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (54) The advisor has contractually agreed to waive the following portion of its advisory fee for the fund: 0.29% on the first $100 million of average daily net assets of the fund and 0.39% of average daily net assets of the fund in excess of $100 million. This waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (55) The Acquired Fund Fees and Expenses (AFFE) in the fund's chart are based on the 2008 fees and expenses of the underlying funds owned by this fund during 2008 and are provided to show you an estimate of the underlying fees and expenses attributable to the fund. (56) The information in the expense table has been restated to reflect that the expense reimbursement agreement with the adviser was terminated effective April 30, 2009. (57) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 1.11% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (58) The information in the expense table has been restated to reflect that the expense reimbursement agreement with the adviser and the distribution services waiver agreement with the distributor were terminated effective April 30, 2009. (59) The adviser has contractually agreed to waive a portion of its advisory fee through April 30, 2010. The waiver amount is: 0.10% on the first $25 million and 0.05% on the next $50 million. The waiver will renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. (60) The adviser has contractually agreed to reimburse the fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses exceed 1.27% of average daily net assets. The Agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (61) Acquired Fund Fees and Expenses in the fund's fee chart are based on the 2008 fees and expenses of the UBS Relationship funds owned by the fund during 2008 and are provided to show you an estimate of the underlying fees and expenses attributable to the fund. (62) Effective January 1, 2009, the advisor contractually agreed to waive the following portion of the its advisory fee for the Funds': 0.05% of average daily net assets of the Fund. The Agreement will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination of the Fund. The fee table has been restated to reflect this agreement. (63) The adviser has contractually agreed to reimburse each fund's Service Class to the extent that the fund's Total Annual Fund Operating Expenses (excluding underlying fund fees and expenses) exceed 0.45% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. The fee table has been restated to reflect the new agreement. (64) The "Acquired Fund Fees and Expenses (AFFE)" in the chart have been restated to reflect the expenses of the underlying funds in which the Profile Funds currently invest. Each funds' expense ratio will vary based on the actual allocations to the underlying funds that occurred through the year. (65) The "Acquired Fund Fees and Expenses (AFFE)" in the chart are based on the 2008 fees and expenses of the underlying funds that were owned by each Profile fund during 2008 and are provided to show you an estimate of the underlying fees and expenses attributable to each fund. Each funds' expense ratio will vary based on the actual allocations to the underlying funds that occurred through the year. (66) The fund has entered into an expense offset arrangement that reduces the fund's custodian fee based upon the amount of cash maintained by the fund with its custodian and dividend disbursing agent. Such fee reduction 14 is not reflected in the table. Had this fee reduction been taken into account, "Total Annual Fund Operating Expenses" would be lower. (67) MFS has agreed in writing to bear the series' expenses, such that "Other Expenses", determined without giving effect to the expense offset arrangements described above, do not exceed 0.15% annually. This written agreement excludes management fees, distribution and service fees, taxes, extraordinary expenses, brokerage and transaction costs and investment- related expenses and will continue until at least April 30, 2010. (68) The funds' Rule 12b-1 plan permits it to pay distribution and/or service fees to support the sale and distribution of the funds' Service Class shares and the services provided by financial intermediaries. The maximum rates that may be charged under the plan, together with details of any fee reduction arrangements, are set forth under "12b-1 fee" of the fund's prospectus. (69) Neuberger Berman Management Inc. ("NBMI") has undertaken through December 31, 2012 to waive fees and/or reimburse certain operating expenses, including the compensation of NBMI (except with respect to Balanced, Short Duration Bond, Mid-Cap Growth, and Partners Portfolios) and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the aggregate, 1% of average daily net asset value of the Balanced, Short Duration Bond, Mid-Cap Growth and Partners Portfolios; and 1.50% of the average daily net asset value of the Regency Portfolio. The expense limitation arrangements for the Portfolios are contractual and any excess expenses can be repaid to NBMI within three years of the year incurred, provided such recoupment would not cause a Portfolio to exceed its respective limitation. (70) "Management Fees" reflect an advisory fees and a supervisory and administrative fees payable by the Fund to PIMCO. (71) "Other Expenses" reflect interest expense. Interest expense is based on the amounts incurred during the Portfolio's most recent fiscal year as a result of entering into certain investment, such as reverse repurchase agreements. This interest expense is required to be treated as an expense of the Portfolio for accounting purposes, but the amount of the interest expense (if any) will vary with the Portfolio's use of those investments (like reverse repurchase agreements) as an investment strategy. (72) The Total Annual Portfolio Operating Expenses do not match the Ratio of Expense to Average Net Assets of the Portfolio, as set forth in the Financial Highlights table of the shareholder report, because the Ratio of Expenses to Average Net Assets reflects the operating expenses of the Portfolio and does not include Underlying Fund Expenses. (73) The Subsidiary has entered into a separate contract with PIMCO for the management of the Subsidiary's portfolio pursuant to which the Subsidiary pays PIMCO management fee at the annual rates of 0.69% of its net assets. (74) PIMCO has contractually agreed to waive the management fee and administration fee it received from the Portfolio in an amount equal to the management fee paid to PIMCO by the Subsidiary as described. This waiver may not be terminated by PIMCO and will remain in effect as long as PIMCO's contract with the Subsidiary is in place. (75) In order to further limit expenses, Putnam Management had agreed to waive fees and reimburse expenses of the funds through June 30, 2008 to the extent necessary to ensure that the fund pays total fund operating expenses at an annual rate that does not exceed the simple average of the expenses of a custom group of competitive funds selected by Lipper Inc. based on the size of the applicable fund. For these purposes, total fund operating expenses of both the applicable fund and the Lipper custom group average are calculated without giving effect to 12b-1 fees or any expense offset and brokerage service arrangements that may reduce fund expenses. The expense limitation that resulted in the greater reduction in expenses of the fund at the end of each applicable period for the fund was applied to the fund for that period. During the year ended December 31, 2008 this limitation decreased expenses by 0.03%. (76) "Total Annual Fund Operating Expenses" includes the amount from "Acquired Fund Fees and Expenses" column, which is an estimate of expenses attributable to the fund's investments in other investment companies, based on the total annual fund operating expenses of such companies as reported in their most recent shareholder reports (net of any applicable expense limitations). These indirect expenses will vary from time to time depending on the fund's investments in other investment companies and their operating expenses. (77) Includes estimated expenses attributable to the fund's investments in other investment companies that the fund bears indirectly . (78) "Other Expenses, "Acquired Fund Fees and Expenses" and Annual Fund Operating Expenses" in connection with the fund and funds (Pro Forma) have been estimated since the fund has not yet commenced. The advisor has contractually agreed to waive the following portion of its advisory fee for the fund: 0.10% of average daily net assets of the fund in excess of $100 million. This waiver will continue at least through April 30, 2010, and renew automatically for one-year terms unless the advisor provides written notice of termination to the fund. (79) The adviser has contractually agreed to reimburse the fund to the extent that the fund's Total Annual Fund Operating Expenses (excluding underlying fund fees and expenses) exceed 0.98% of average daily net assets. The agreement will continue at least through April 30, 2010 and renew automatically for one-year terms unless the adviser provides written notice of termination to the fund. Certain underlying funds have reserved the right to impose fees when fund shares are redeemed within a specified period of time of purchase ("redemption fees") not reflected in the table above. As of the date of this prospectus, none have done so. See The Contracts - Market Timing for a discussion of redemption fees. For information concerning compensation paid for the sale of the contracts, see Distribution of the Contracts. 15 EXAMPLES This Example is intended to help you compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include contractowner transaction expenses, contract fees, separate account annual expenses, and fund fees and expenses. The Example assumes that you invest $10,000 in the contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year, the maximum fees and expenses of any of the funds and that the EGMDB and Lincoln Lifetime IncomeSM Advantage at the guaranteed maximum charge are in effect. Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1) If you surrender your contract at the end of the applicable time period:
1 year 3 years 5 years 10 years ----------- --------- --------- --------- $1,600 $3,056 $4,373 $7,642
2) If you annuitize or do not surrender your contract at the end of the applicable time period:
1 year 3 years 5 years 10 years -------- --------- --------- --------- $750 $2,256 $3,773 $7,642
For more information, see Charges and Other Deductions in this prospectus, and the prospectuses for the funds. Premium taxes may also apply, although they do not appear in the examples. The examples do not reflect bonus credits or persistency credits. Different fees and expenses not reflected in the examples may be imposed during a period in which regular income payments or annuity payouts are made. See The Contracts - i4LIFE (Reg. TM) Advantage including the Guaranteed Income Benefit, 4LATER (Reg. TM) Advantage and Annuity Payouts. These examples should not be considered a representation of past or future expenses. Actual expenses may be more or less than those shown. Summary of Common Questions What kind of contract am I buying? It is an individual variable or fixed and/or interest adjusted, if applicable, annuity contract between you and Lincoln New York. This prospectus primarily describes the variable side of the contract. See The Contracts. What is the variable annuity account (VAA)? It is a separate account we established under New York insurance law, and registered with the SEC as a unit investment trust. VAA assets are allocated to one or more subaccounts, according to your investment choices. VAA assets are not chargeable with liabilities arising out of any other business which we may conduct. See Variable Annuity Account. What are Asset Allocation Models? Asset allocation models are designed to assist you in deciding how to allocate your purchase payments among the various subaccounts. Each model provides a diversified investment portfolio by combining different asset classes to help it reach its stated investment goal. See The Contracts - Asset Allocation Models. What are Investment Requirements? If you elect one of the following riders: Lincoln Lifetime IncomeSM Advantage, 4LATER (Reg. TM) Advantage, the Lincoln SmartSecurity (Reg. TM) Advantage, or i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit, you will be subject to certain requirements for your subaccount investments. You will be limited in how much you can invest in certain subaccounts. See The Contracts - Investment Requirements. What are my investment choices? Based upon your instruction for purchase payments, the VAA applies your purchase payments, bonus credits and persistency credits to buy shares in one or more of the investment options. In turn, each fund holds a portfolio of securities consistent with its investment policy. See Investments of the Variable Annuity Account - Description of the Funds. Who invests my money? Several different investment advisers manage the investment options. See Investments of the Variable Annuity Account - Description of the Funds. How does the contract work? If we approve your application, we will send you a contract. When you make purchase payments during the accumulation phase, you receive bonus credits and you buy accumulation units. If you decide to receive an annuity payout, your accumulation units are converted to annuity units. Your annuity payouts will be based on the number of annuity units you received and the value of each annuity unit on payout days. See The Contracts. What charges do I pay under the contract? If you withdraw purchase payments, you pay a surrender charge from 0% to 8.5% of the surrendered or withdrawn purchase payment, depending upon how long those payments have been invested in the contract. We may waive surrender charges in certain situations. See Charges and Other Deductions - Surrender Charge. We reserve the right to charge a $25 fee for the 13th and each additional transfer during any contract year, excluding automatic dollar cost averaging, portfolio rebalancing and cross-reinvestment transfers. The transfer charge will not be imposed on the first 12 transfers during the contract year. 16 We will deduct any applicable premium tax from purchase payments or contract value at the time the tax is incurred or at another time we choose. See Expense Tables and Charges and Other Deductions for additional fees and expenses in these contracts. The funds' investment management fees, expenses and expense limitations, if applicable, are more fully described in the prospectuses for the funds. The surrender, withdrawal or transfer of value from a fixed account guaranteed period may be subject to the interest adjustment, if applicable. See Fixed Side of the Contract. Charges may also be imposed during the regular income or annuity payout period, including i4LIFE (Reg. TM) Advantage, if elected. See The Contracts and Annuity Payouts. For information about the compensation we pay for sales of contracts, see The Contracts - Distribution of the Contracts. What purchase payments do I make, and how often? Subject to the minimum and maximum payment amounts, your payments are completely flexible. See The Contracts - Purchase Payments. What is a bonus credit and a persistency credit? When purchase payments are made, we will credit an additional amount to the contract, known as a bonus credit. The amount of the bonus credit is calculated as a percentage of the purchase payments. The bonus credit percentage will vary based on the owner's cumulative purchase payments, as defined in this prospectus. All bonus credits become part of the contract value at the same time as the corresponding purchase payments. Bonus credits are not considered to be purchase payments. See The Contracts - Bonus Credits. A persistency credit of 0.0625% (or 0.05% on contracts issued before June 6, 2005) of contract value less purchase payments that have been in the contract less than fourteen years will be credited on a quarterly basis after the fourteenth anniversary. See The Contracts - Persistency Credits. We offer a variety of variable annuity contracts. Other annuity contracts that we offer have no provision for bonus credits but may have lower mortality and expense risk charges and/or lower surrender charges. The amount of bonus credit may be more than offset by higher surrender charges associated with the bonus credit. After the fourteenth contract anniversary, the persistency credits are designed to fully or partially offset these additional bonus charges. We encourage you to talk with your financial adviser and determine which annuity contract is most appropriate for you. How will my annuity payouts be calculated? If you decide to annuitize, you may select an annuity option and start receiving annuity payouts from your contract as a fixed option or variable option or a combination of both. See Annuity Payouts - Annuity Options. Remember that participants in the VAA benefit from any gain, and take a risk of any loss, in the value of the securities in the funds' portfolios. What is i4LIFE (Reg. TM) Advantage? i4LIFE (Reg. TM) Advantage is an income program, available for purchase at an additional charge, that provides periodic variable lifetime income payments, a death benefit, and the ability to make withdrawals during a defined period of time (Access Period). For an additional charge, you may purchase a minimum payout floor, the Guaranteed Income Benefit. We assess a charge, imposed only during the i4LIFE (Reg. TM) Advantage payout phase, based on the i4LIFE (Reg. TM) Advantage death benefit you choose and whether or not the Guaranteed Income Benefit is in effect. What happens if I die before I annuitize? Your beneficiary will receive death benefit proceeds based upon the death benefit you select. Your beneficiary has options as to how the death benefit is paid. In the alternative, you may choose to receive a death benefit on the death of the annuitant. See The Contracts - Death Benefit. May I transfer contract value between variable options and between the variable and fixed sides of the contract? Yes, subject to currently effective restrictions. For example, transfers made before the annuity commencement date are generally restricted to no more than twelve (12) per contract year. If permitted by your contract, we may discontinue accepting transfers into the fixed side of the contract at any time. See The Contracts - Transfers On or Before the Annuity Commencement Date and Transfers After the Annuity Commencement Date. What is Lincoln Lifetime IncomeSM Advantage? Lincoln Lifetime IncomeSM Advantage is a rider that you may purchase for an additional charge on or after you have reached age 60 and which provides minimum guaranteed, periodic withdrawals for your life regardless of the investment performance of the contract provided certain conditions are met. Withdrawals are based on the Guaranteed Amount which is equal to the initial purchase payment (or contract value if elected after contract issue). The Guaranteed Amount is not available as a separate benefit upon death or surrender and is increased by subsequent purchase payments, Automatic Annual Step-ups, 5% Enhancements and the step-up to 200% of the initial Guaranteed Amount and is decreased by withdrawals in accordance with provisions described later in this prospectus. See The Contracts-Lincoln Lifetime IncomeSM Advantage. You may not simultaneously elect Lincoln Lifetime IncomeSM Advantage and another one of the Living Benefit riders. By electing this rider you will be subject to Investment Requirements. See The Contracts - Investment Requirements. 17 What are Living Benefit Riders? Living Benefit riders are optional riders available to purchase for an additional fee. These riders provide different types of minimum guarantees if you meet certain conditions. If you select a Living Benefit rider, excess withdrawals may have adverse effects on the benefit, and you will be subject to Investment Requirements. These riders are the Lincoln Smart Security (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage (both of which are withdrawal benefit riders) and 4LATER (Reg. TM) Advantage and i4LIFE (Reg. TM) Advantage (with or without the Guaranteed Income Benefit) (both of which are annuity payout riders). These riders are discussed in detail in this prospectus. In addition, there is an overview of these riders that is provided with this prospectus. What is the Lincoln SmartSecurity (Reg. TM) Advantage? This benefit, which may be available for purchase at an additional charge, provides a Guaranteed Amount equal to the initial purchase payment and its corresponding bonus credit (or contract value at the time of election) as adjusted. You may access this benefit through periodic withdrawals. Excess withdrawals will adversely affect the Guaranteed Amount. You cannot simultaneously elect Lincoln SmartSecurity (Reg. TM) Advantage with any other Living Benefit rider. By electing this benefit, you will be subject to Investment Requirements. See The Contracts - Lincoln SmartSecurity (Reg. TM) Advantage. What is the Guaranteed Income Benefit? The Guaranteed Income Benefit provides a minimum payout floor for your i4LIFE (Reg. TM) regular income payments. The i4LIFE (Reg. TM) Guaranteed Income Benefit is purchased at the time you elect i4LIFE (Reg. TM) Advantage or any time during the Access Period subject to terms and conditions at that time. 4LATER (Reg. TM) Advantage, Lincoln Smart Security (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage have features that may be used to establish the amount of the Guaranteed Income Benefit. 4LATER (Reg. TM) Advantage is purchased prior to the time you elect i4LIFE (Reg. TM) Advantage and provides a guaranteed value, the Income Base, which can be used to establish the Guaranteed Income Benefit floor in the future. The i4LIFE (Reg. TM) Guaranteed Income Benefit does not have an Income Base; the minimum floor is based on the contract value at the time you elect i4LIFE (Reg. TM) with the Guaranteed Income Benefit. You may use your Guaranteed Amount from Lincoln Smart Security (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage to establish the Guaranteed Income Benefit at the time you terminate Lincoln Smart Security (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage to purchase i4LIFE (Reg. TM) Advantage. By electing this benefit, you will be subject to Investment Requirements. See The Contracts - i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, 4LATER (Reg. TM) Advantage Guaranteed Income Benefit, and Lincoln Lifetime IncomeSM Advantage - i4LIFE (Reg. TM) Advantage option. What is 4LATER (Reg. TM) Advantage? 4LATER (Reg. TM) Advantage, which may be available for purchase at an additional charge, is a way to guarantee today a minimum payout floor (a Guaranteed Income Benefit) in the future for the i4LIFE (Reg. TM) Advantage regular income payments. 4LATER (Reg. TM) Advantage provides an initial Income Base that is guaranteed to increase at a specified percentage over the accumulation period of the annuity. By electing this benefit, you will be subject to Investment Requirements. See The Contracts - 4LATER (Reg. TM) Advantage. May I surrender the contract or make a withdrawal? Yes, subject to contract requirements and to the restrictions of any qualified retirement plan for which the contract was purchased. See The Contracts - Surrenders and Withdrawals. If you surrender the contract or make a withdrawal, certain charges may apply. See Charges and Other Deductions. A portion of surrender or withdrawal proceeds may be taxable. In addition, if you decide to take a distribution before age 591/2, a 10% Internal Revenue Service (IRS) tax penalty may apply. A surrender or a withdrawal also may be subject to 20% withholding. See Federal Tax Matters. Do I get a free look at this contract? Yes. You can cancel the contract within ten days of the date you first receive the contract. You need to return the contract, postage prepaid, to our Servicing office. You assume the risk of any market drop on purchase payments you allocate to the variable side of the contract. We will not refund any bonus credits credited to your contract value if you elect to cancel your contract; however, we will assume the risk of investment loss on the bonus credits. See Return Privilege. Where may I find more information about accumulation unit values? Appendix A and B to this prospectus provide more information about accumulation unit values. Investment Results At times, the VAA may compare its investment results to various unmanaged indices or other variable annuities in reports to shareholders, sales literature and advertisements. The results will be calculated on a total return basis for various periods, with or without contingent deferred sales charges. Results calculated without contingent deferred sales charges will be higher. Total returns include the reinvestment of all distributions, which are reflected in changes in unit value. The money market subaccount's yield is based upon investment performance over a 7-day period, which is then annualized. Note that there can be no assurance that any money market fund will be able to maintain a stable net asset value per share. During extended periods of low interest rates, and due in part to the contract fees and expenses, the yields of any subaccount investing in a money market fund may also become extremely low and possibly negative. The money market yield figure and annual performance of the subaccounts are based on past performance and do not indicate or represent future performance. 18 Lincoln Life & Annuity Company of New York Lincoln New York (the Company) is a stock life insurance company chartered in New Jersey in 1897 and redomesticated to New York on April 2, 2007. Lincoln New York is a subsidiary of The Lincoln National Life Insurance Company (Lincoln Life). Lincoln Life is an Indiana-domiciled insurance corporation, engaged primarily in the direct issuance of life insurance contracts and annuities. Lincoln Life is wholly owned by Lincoln National Corporation (LNC), a publicly held insurance and financial services holding company incorporated in Indiana. Lincoln New York is obligated to pay all amounts promised to policy owners under the policies. Depending on when you purchased your contract, you may be permitted to make allocations to the fixed account, which is part of our general account. See The Fixed Side of the Contract. In addition, any guarantees under the contract that exceed your contract value, such as those associated with death benefit options and Living Benefit riders are paid from our general account (not the VAA). Therefore, any amounts that we may pay under the contract in excess of contract value are subject to our financial strength and claims-paying ability and our long-term ability to make such payments. We issue other types of insurance policies and financial products as well, and we also pay our obligations under these products from our assets in the general account. Moreover, unlike assets held in the VAA, the assets of the general account are subject to the general liabilities of the Company and, therefore, to the Company's general creditors. In the event of an insolvency or receivership, payments we make from our general account to satisfy claims under the contract would generally receive the same priority as our other contractowner obligations. Our Financial Condition. Among the laws and regulations applicable to us as an insurance company are those which regulate the investments we can make with assets held in our general account. In general, those laws and regulations determine the amount and type of investments which we can make with general account assets. In addition, state insurance regulations require that insurance companies calculate and establish on their financial statements, a specified amount of reserves in order to meet the contractual obligations to pay the claims of our policyholders. In order to meet our claims-paying obligations, we regularly monitor our reserves to ensure we hold sufficient amounts to cover actual or expected contract and claims payments. However, it is important to note that there is no guarantee that we will always be able to meet our claims paying obligations, and that there are risks to purchasing any insurance product. State insurance regulators also require insurance companies to maintain a minimum amount of capital in excess of liabilities, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurer's operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on assets held in our general account, which include bonds, mortgages, general real estate investments, and stocks, as well as the loss in value of these investments resulting from a loss in their market value. How to Obtain More Information. We encourage both existing and prospective policyholders to read and understand our financial statements. We prepare our financial statements on both a statutory basis and according to Generally Accepted Accounting Principles (GAAP). Our audited GAAP financial statements, as well as the financial statements of the VAA, are located in the SAI. If you would like a free copy of the SAI, please write to us at: PO Box 7866 , Fort Wayne, IN 46802-7866, or call 1-888-868-2583 . In addition, the Statement of Additional Information is available on the SEC's website at http://www.sec.gov. You may obtain our audited statutory financial statements and any unaudited statutory financial statements that may be available by visiting our website at www.LincolnFinancial.com. You also will find on our website information on ratings assigned to us by one or more independent rating organizations. These ratings are opinions of an operating insurance company's financial capacity to meet the obligations of its insurance and annuity contracts based on its financial strength and/or claims-paying ability. Additional information about rating agencies is included in the Statement of Additional Information. Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. Lincoln Financial Group sells a wide variety of financial products and solutions through financial advisors: mutual funds, managed accounts, retirement solutions, life insurance, 401(k) and 403(b) plans, savings plans, institutional investments and comprehensive financial planning and advisory services. Variable Annuity Account (VAA) On March 11, 1999, the VAA was established as an insurance company separate account under New York law. It is registered with the SEC as a unit investment trust under the provisions of the Investment Company Act of 1940 (1940 Act). The VAA is a segregated investment account, meaning that its assets may not be charged with liabilities resulting from any other business that we may conduct. Income, gains and losses, whether realized or not, from assets allocated to the VAA are, in accordance with the applicable annuity contracts, credited to or charged against the VAA. They are credited or charged without regard to any other income, gains or losses of Lincoln New York. We are the issuer of the contracts and the obligations set forth in the contract, other than those of the contractowner, are ours. The VAA satisfies the definition of a separate account under the federal securities laws. We do not guarantee 19 the investment performance of the VAA. Any investment gain or loss depends on the investment performance of the funds. You assume the full investment risk for all amounts placed in the VAA. The VAA is used to support other annuity contracts offered by us in addition to the contracts described in this prospectus. The other annuity contracts supported by the VAA generally invest in the same funds as the contracts described in this prospectus. These other annuity contracts may have different charges that could affect the performance of their subaccounts, and they offer different benefits. Financial Statements The December 31, 2008 financial statements of the VAA and the December 31, 2008 financial statements of Lincoln New York are located in the SAI. If you would like a free copy of the SAI, complete and mail the request on the last page of this prospectus, or call 1-888-868-2583. Investments of the Variable Annuity Account You decide the subaccount(s) to which you allocate purchase payments. Bonus credits are allocated to the subaccounts at the same time and at the same percentage as the purchase payments being made. There is a separate subaccount which corresponds to each class of each fund. You may change your allocation without penalty or charges. Shares of the funds will be sold at net asset value with no initial sales charge to the VAA in order to fund the contracts. The funds are required to redeem fund shares at net asset value upon our request. Investment Advisers As compensation for its services to the fund, the investment adviser receives a fee from the fund which is accrued daily and paid monthly. This fee is based on the net assets of each fund, as defined in the prospectus for the fund. Certain Payments We Receive with Regard to the Funds With respect to a fund, including affiliated funds, the adviser and/or distributor, or an affiliate thereof, may make payments to us (or an affiliate). It is anticipated that such payments will be based on a percentage of assets of the particular fund attributable to the contracts along with certain other variable contracts issued or administered by us (or an affiliate). These percentages are negotiated and vary with each fund. Some funds may pay us significantly more than other funds and the amount we receive may be substantial. These percentages currently range up to 0.50%, and as of the date of this prospectus, we were receiving payments from each fund family. We (or our affiliates) may profit from these payments or use these payments for a variety of purposes, including payment of expenses that we (and our affiliates) incur in promoting, marketing, and administering the contracts and, in our role as intermediary, the funds. These payments may be derived, in whole or in part, from the investment advisory fee deducted from fund assets. Contractowners, through their indirect investment in the funds, bear the costs of these investment advisory fees (see the funds' prospectuses for more information). Additionally, a fund's adviser and/or distributor or its affiliates may provide us with certain services that assist us in the distribution of the contracts and may pay us and/or certain affiliates amounts for marketing programs and sales support, as well as amounts to participate in training and sales meetings. The AIM, AllianceBernstein, American Century, American Funds, BlackRock, Delaware, DWS, Fidelity, Franklin Templeton, Janus, Lincoln, MFS, PIMCO and Putnam Funds offered as part of this contract make payments to us under their distribution plans (12b-1 plans). The payment rates range up to 0.35% based on the amount of assets invested in those Funds. Payments made out of the assets of the fund will reduce the amount of assets that otherwise would be available for investment, and will reduce the fund's investment return. The dollar amount of future asset-based fees is not predictable because these fees are a percentage of the fund's average net assets, which can fluctuate over time. If, however, the value of the fund goes up, then so would the payment to us (or our affiliates). Conversely, if the value of the funds goes down, payments to us or our affiliates would decrease. Description of the Funds Each of the subaccounts of the VAA is invested solely in shares of one of the funds available under the contract. Each fund may be subject to certain investment policies and restrictions which may not be changed without a majority vote of shareholders of that fund. We select the funds offered through the contract based on several factors, including, without limitation, asset class coverage, the strength of the manager's reputation and tenure, brand recognition, performance, and the capability and qualification of each sponsoring investment firm. Another factor we consider during the initial selection process is whether the fund or an affiliate of the fund will make payments to us or our affiliates. We review each fund periodically after it is selected. Upon review, we may remove a fund or restrict allocation of additional purchase payments to a fund if we determine the fund no longer meets one or more of the factors and/or if the fund has not attracted significant contractowner assets. Finally, when we develop a variable annuity product in cooperation with a fund family or distributor (e.g., a "private label"product), we generally will include funds based on recommendations made by the fund family or distributor, whose selection criteria may differ from our selection criteria. 20 Certain funds offered as part of this contract have similar investment objectives and policies to other portfolios managed by the adviser. The investment results of the funds, however, may be higher or lower than the other portfolios that are managed by the adviser or sub-adviser. There can be no assurance, and no representation is made, that the investment results of any of the funds will be comparable to the investment results of any other portfolio managed by the adviser or sub-adviser, if applicable. Following are brief summaries of the fund descriptions. More detailed information may be obtained from the current prospectus for the fund. You should read each fund prospectus carefully before investing. Please be advised that there is no assurance that any of the funds will achieve their stated objectives. AIM Variable Insurance Funds, advised by Invesco A I M Advisors, Inc. o Capital Appreciation Fund (Series II): Capital appreciation. This fund is not offered in contracts issued on or after May 24, 2004. o Core Equity Fund (Series II): Long-term growth. This fund is not offered in contracts issued on or after May 24, 2004. o International Growth Fund (Series II): Long-term growth. This fund is not offered in contracts issued on or after May 24, 2004. AllianceBernstein Variable Products Series Fund, advised by AllianceBernstein, L.P. o AllianceBernstein VPS Global Thematic Growth Portfolio (Class B): Maximum capital appreciation. (formerly AllianceBernstein VPS Global Technology Portfolio) o AllianceBernstein VPS Growth and Income Portfolio (Class B): Growth and income. o AllianceBernstein VPS International Value Portfolio (Class B): Long-term growth. o AllianceBernstein VPS Large Cap Growth Portfolio (Class B): Maximum capital appreciation. This fund is not offered in contracts issued on or after June 6, 2005. o AllianceBernstein VPS Small/Mid Cap Value Portfolio (Class B): Long-term growth. American Century Investments Variable Products, advised by American Century Investment Management, Inc. o Inflation Protection Fund (Class II): Long-term total return. American Funds Insurance SeriesSM, advised by Capital Research and Management Company o Global Growth Fund (Class 2): Long-term growth. o Global Small Capitalization Fund (Class 2): Long-term growth. o Growth Fund (Class 2): Long-term growth. o Growth-Income Fund (Class 2): Growth and income. o International Fund (Class 2): Long-term growth. BlackRock Variable Series Funds, Inc.,advised by BlackRock Advisors, LLC and subadvised by BlackRock Investment Management, LLC o BlackRock Global Allocation V.I. Fund (Class III): High total return. This fund will be available on or about June 30, 2009. Consult your financial advisor. Delaware VIP Trust, advised by Delaware Management Company o Diversified Income Series (Service Class): Total return. o Emerging Markets Series (Service Class): Capital appreciation. o High Yield Series (Service Class): Total return. o Limited-Term Diversified Income Series (Service Class): Total return. (formerly Capital Reserves Series) o REIT Series (Service Class): Total return. This fund is not available in contracts issued after June 4, 2007. This fund will be reopened and available in all contracts on or about June 30, 2009. Consult your financial advisor. o Small Cap Value Series (Service Class): Capital appreciation. o Trend Series (Service Class): Capital appreciation. o U.S. Growth Series (Service Class): Capital appreciation. 21 o Value Series (Service Class): Capital appreciation. DWS Investments VIT Funds, advised by Deutsche Investment Management Americas, Inc. and subadvised by Northern Trust Investments, Inc. o DWS Equity 500 Index VIP (Class B): Capital appreciation. This fund is not offered in contracts issued on or after June 4, 2007. o DWS Small Cap Index VIP (Class B): Capital appreciation. This fund is not offered in contracts issued on or after June 4, 2007. DWS Variable Series II, advised by Deutsche Investment Management Americas, Inc. and subadvised by RREEF America L.L.C. o DWS Alternative Asset Allocation Plus VIP Portfolio (Class B): Capital Appreciation This fund will be available on or about June 30, 2009. Consult your financial advisor. Fidelity (Reg. TM) Variable Insurance Products, advised by Fidelity Management and Research Company and subadvised by FMR CO., Inc. o Contrafund (Reg. TM) Portfolio (Service Class 2): Long-term capital appreciation. o Equity-Income Portfolio (Service Class 2): Reasonable income. This fund is not offered in contracts issued on or after June 6, 2005. o Growth Portfolio (Service Class 2): Capital appreciation. o Mid Cap Portfolio (Service Class 2): Long-term growth. o Overseas Portfolio (Service Class 2): Long-term growth. Franklin Templeton Variable Insurance Products Trust, advised by Franklin Advisers, Inc. for the Franklin Income Securities Fund, the Franklin Small-Mid Cap Growth Securities Fund, and the Templeton Global Bond Securities Fund, and by Templeton Global Advisors Limited for the Templeton Growth Securities Fund, and by Franklin Mutual Advisers, LLC for the Mutual Shares Securities Fund. o Franklin Income Securities Fund (Class 2): Current income. o Franklin Small-Mid Cap Growth Securities Fund (Class 2): Long-term capital growth. o Mutual Shares Securities Fund (Class 2): Capital appreciation. o Templeton Global Bond Securities Fund (Class 2): High current income. This fund is not offered in contracts issued on or after June 30, 2009. (formerly Templeton Global Income Securities Fund) o Templeton Growth Securities Fund (Class 2): Long-term capital growth. This fund is not offered in contracts issued on or after June 4, 2007. Janus Aspen Series, advised by Janus Capital Management LLC o Balanced Portfolio (Service Class): Long-term growth and current income. This fund is not offered in contracts issued on or after June 6, 2005. o Enterprise Portfolio (Service Class): Long-term growth. This fund is not offered in contracts issued on or after June 6, 2005. (formerly Mid Cap Growth Portfolio) o Worldwide Portfolio (Service Class): Long-term growth. This fund is not offered in contracts issued on or after May 24, 2004. (formerly Worldwide Growth Portfolio) Lincoln Variable Insurance Products Trust, advised by Lincoln Investment Advisors Corporation. o LVIP Baron Growth Opportunities Fund (Service Class): Capital appreciation. (Subadvised by BAMCO, Inc.) o LVIP Capital Growth Fund (Service Class): Capital growth. (Subadvised by Wellington Management) o LVIP Cohen & Steers Global Real Estate Fund (Service Class): Total Return. (Subadvised by Cohen & Steers Capital Management) o LVIP Columbia Value Opportunities Fund (Service Class): Long-term capital appreciation. (Subadvised by Columbia Management Advisors, LLC) (formerly LVIP Value Opportunities Fund) 22 o LVIP Delaware Bond Fund (Service Class): Current income. (Subadvised by Delaware Management Company) o LVIP Delaware Foundation Aggressive Allocation Fund (Service Class): Long-term capital growth. (Subadvised by Delaware Management Company) This fund will not be available until the merger with the LVIP UBS Global Asset Allocation Fund is complete. This fund is not offered in contracts issued on or after June 30, 2009. o LVIP Delaware Growth and Income Fund (Service Class): Capital appreciation. (Subadvised by Delaware Management Company) o LVIP Delaware Social Awareness Fund (Service Class): Capital appreciation. (Subadvised by Delaware Management Company) o LVIP Delaware Special Opportunities Fund (Service Class): Capital appreciation. (Subadvised by Delaware Management Company) o LVIP FI Equity-Income Fund (Service Class): Income. (Subadvised by Pyramis Global Advisors LLC) This fund is not offered in contracts issued before June 6, 2005. o LVIP Global Income Fund (Service Class): Current income consistent with preservation of capital. (Subadvised by Mondrian Investment Partners Limited and Templeton Investment Counsel, LLC) This fund will be available on or about June 30, 2009. Consult your financial advisor. o LVIP Janus Capital Appreciation Fund (Service Class): Long-term growth. (Subadvised by Janus Capital Management LLC) o LVIP Marsico International Growth Fund (Service Class): Long-term capital appreciation. (Subadvised by Marsico Capital Management, LLC) o LVIP MFS (Reg. TM) Value Fund (Service Class): Capital appreciation. (Subadvised by Massachusetts Financial Services Company) o LVIP Mid-Cap Value Fund (Service Class): Long-term capital appreciation. (Subadvised by Wellington Management) o LVIP Mondrian International Value Fund (Service Class): Long-term capital appreciation. (Subadvised by Mondrian Investment Partners Limited) o LVIP Money Market Fund (Service Class): Current income/Preservation of capital. (Subadvised by Delaware Management Company) o LVIP SSgA Bond Index Fund (Service Class): Replicate Barclays Aggregate Bond Index (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Developed International 150 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Emerging Markets 100 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA International Index Fund (Service Class): Replicate broad foreign index. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Large Cap 100 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Small/Mid Cap 200 Fund (Service Class): Long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA S&P 500 Index Fund (Service Class): Replicate S&P 500 Index. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Small-Cap Index Fund (Service Class): Replicate Russell 2000 Index. (Sub-advised by SSgA Funds Management, Inc.) o LVIP T. Rowe Price Growth Stock Fund (Service Class): Long-term growth of capital. (Subadvised by T. Rowe Price Associates, Inc.) o LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Service Class): Maximum capital appreciation. (Subadvised by T. Rowe Price Associates, Inc.) o LVIP Templeton Growth Fund (Service Class): Long-term growth of capital. (Subadvised by Templeton Investment Counsel, LLC) 23 o LVIP Turner Mid-Cap Growth Fund (Service Class): Capital appreciation. (Subadvised by Turner Investment Partners) o LVIP UBS Global Asset Allocation Fund (Service Class): Total return. (Subadvised by UBS Global Asset Management (Americas) Inc. (UBS Global AM) The Board of Trustees of the Lincoln Variable Insurance Products Trust has approved a reorganization pursuant to which the assets of the LVIP UBS Global Asset Allocation Fund would be acquired and the liabilities of such fund would be assumed by the LVIP Delaware Foundation (Reg. TM) Aggressive Allocation Fund in exchange for shares of the LVIP Delaware Foundation (Reg. TM) Aggressive Allocation Fund. This reorganization is subject to the approval of the LVIP UBS Global Asset Allocation Fund's shareholders. This reorganization is expected to occur in June 2009. This fund is not offered in contracts issued after June 30, 2009. o LVIP Wilshire 2010 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) This fund is not offered in contracts issued on or after June 30, 2009. o LVIP Wilshire 2020 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) This fund is not offered in contracts issued on or after June 30, 2009. o LVIP Wilshire 2030 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) This fund is not offered in contracts issued on or after June 30, 2009. o LVIP Wilshire 2040 Profile Fund (Service Class): Total return; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) This fund is not offered in contracts issued on or after June 30, 2009. o LVIP Wilshire Aggressive Profile Fund (Service Class): Long-term growth of capital; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire Conservative Profile Fund (Service Class): Current income; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire Moderate Profile Fund (Service Class): Growth and income; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) o LVIP Wilshire Moderately Aggressive Profile Fund (Service Class): Growth and income; a fund of funds.* (Subadvised by Wilshire Associates Incorporated) *Funds offered in a fund of funds structure may have higher expenses than funds that invest directly in debt or equity securities. MFS (Reg. TM) Variable Insurance TrustSM, advised by Massachusetts Financial Services Company o Core Equity Series (Service Class): Capital appreciation. This fund is not offered in contracts issued on or after June 6, 2005. o Growth Series (Service Class): Capital appreciation. o Total Return Series (Service Class): Total return. o Utilities Series (Service Class): Total return. Neuberger Berman Advisers Management Trust, advised by Neuberger Berman Management, Inc. and subadvised by Neuberger Berman, LLC o Mid-Cap Growth Portfolio (I Class): Capital appreciation. This fund is not offered in contracts issued on or after June 4, 2007. o Regency Portfolio (I Class): Long-term growth. This fund is not offered in contracts issued on or after June 4, 2007. PIMCO Variable Insurance Trust, advised by PIMCO o PIMCO VIT Commodity Real Return Strategy Portfolio (Advisor Class): Maximum real return. This fund will be available on or about June 30, 2009. Consult your financial advisor. Putnam Variable Trust, advised by Putnam Investment Management, LLC o Global Health Care Fund (Class IB): Capital appreciation. This fund is not offered in contracts issued on or after May 24, 2004. (formerly Health Sciences Fund) o Growth & Income Fund (Class IB): Capital growth and current income. This fund is not offered in contracts issued on or after May 24, 2004. 24 Fund Shares We will purchase shares of the funds at net asset value and direct them to the appropriate subaccounts of the VAA. We will redeem sufficient shares of the appropriate funds to pay annuity payouts, death benefits, surrender/withdrawal proceeds or for other purposes described in the contract. If you want to transfer all or part of your investment from one subaccount to another, we may redeem shares held in the first and purchase shares of the other. Redeemed shares are retired, but they may be reissued later. Shares of the funds are not sold directly to the general public. They are sold to us, and may be sold to other insurance companies, for investment of the assets of the subaccounts established by those insurance companies to fund variable annuity and variable life insurance contracts. When a fund sells any of its shares both to variable annuity and to variable life insurance separate accounts, it is said to engage in mixed funding. When a fund sells any of its shares to separate accounts of unaffiliated life insurance companies, it is said to engage in shared funding. The funds currently engage in mixed and shared funding. Therefore, due to differences in redemption rates or tax treatment, or other considerations, the interest of various contractowners participating in a fund could conflict. Each of the fund's Board of Directors will monitor for the existence of any material conflicts, and determine what action, if any, should be taken. The funds do not foresee any disadvantage to contractowners arising out of mixed or shared funding. If such a conflict were to occur, one of the separate accounts might withdraw its investment in a fund. This might force a fund to sell portfolio securities at disadvantageous prices. See the prospectuses for the funds. Reinvestment of Dividends and Capital Gain Distributions All dividends and capital gain distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to contractowners as additional units, but are reflected as changes in unit values. Addition, Deletion or Substitution of Investments We reserve the right, within the law, to make certain changes to the structure and operation of the VAA at our discretion and without your consent. We may add, delete, or substitute funds for all contractowners or only for certain classes of contractowners. New or substitute funds may have different fees and expenses, and may only be offered to certain classes of contractowners. Substitutions may be made with respect to existing investments or the investment of future purchase payments, or both. We may close subaccounts to allocations of purchase payments or contract value, or both, at any time in our sole discretion. The funds, which sell their shares to the subaccounts pursuant to participation agreements, also may terminate these agreements and discontinue offering their shares to the subaccounts. Substitutions might also occur if shares of a fund should no longer be available, or if investment in any fund's shares should become inappropriate, in the judgment of our management, for the purposes of the contract, or for any other reason in our sole discretion and, if required, after approval from the SEC. We also may: o remove, combine, or add subaccounts and make the new subaccounts available to you at our discretion; o transfer assets supporting the contracts from one subaccount to another or from the VAA to another separate account; o combine the VAA with other separate accounts and/or create new separate accounts; o deregister the VAA under the 1940 Act; and o operate the VAA as a management investment company under the 1940 Act or as any other form permitted by law. We may modify the provisions of the contracts to reflect changes to the subaccounts and the VAA and to comply with applicable law. We will not make any changes without any necessary approval by the SEC. We will also provide you written notice. Charges and Other Deductions We will deduct the charges described below to cover our costs and expenses, services provided and risks assumed under the contracts. We incur certain costs and expenses for the distribution and administration of the contracts and for providing the benefits payable thereunder. Our administrative services include: o processing applications for and issuing the contracts; o processing purchases and redemptions of fund shares as required (including dollar cost averaging, cross-reinvestment, portfolio rebalancing, and automatic withdrawal services - See Additional Services and the SAI for more information on these programs); o maintaining records; o administering annuity payouts; 25 o furnishing accounting and valuation services (including the calculation and monitoring of daily subaccount values); o reconciling and depositing cash receipts; o providing contract confirmations; o providing toll-free inquiry services; and o furnishing telephone and electronic fund transfer services. The risks we assume include: o the risk that annuitants receiving annuity payouts under contracts live longer than we assumed when we calculated our guaranteed rates (these rates are incorporated in the contract and cannot be changed); o the risk that death benefits paid will exceed the actual contract value; o the risk that more owners than expected will qualify for waivers of the surrender charge; o the risk that lifetime payments to individuals from Lincoln Smart Security (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage will exceed the contract value; o the risk that, if the i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit or 4LATER (Reg. TM) Guaranteed Income Benefit is in effect, the required income payments will exceed the account value; and o the risk that our costs in providing the services will exceed our revenues from contract charges (which we cannot change). The amount of a charge may not necessarily correspond to the costs associated with providing the services or benefits indicated by the description of the charge. For example, the contingent deferred sales charge collected may not fully cover all of the sales and distribution expenses actually incurred by us. Any remaining expenses will be paid from our general account which may consist, among other things, of proceeds derived from mortality and expense risk charges deducted from the account. A portion of the mortality and expense risk and administrative charge are assessed to fully or partially recoup bonus credits paid into the contract by us when purchase payments are made. We may profit from one or more of the fees and charges deducted under the contract. We may use these profits for any corporate purpose, including financing the distribution of the contracts. Deductions from the VAA We apply to the average daily net asset value of the subaccounts a charge which is equal to an annual rate of:
With Enhanced Guarantee of Guaranteed Minimum Principal Death Death Benefit (EGMDB) Benefit (GOP) Account Value Death Benefit ----------------------- ---------------- ---------------------------- o Mortality and expense risk charge 1.70% 1.45% 1.40% o Administrative charge 0.10% 0.10% 0.10% ---- ---- ---- o Total annual charge for each subaccount** 1.80% 1.55% 1.50%
**For contracts purchased before July 22, 2005, the total annual charges are as follows: EGMDB 1.60%; Guarantee of Principal 1.50%; Account Value N/A. Surrender Charge A surrender charge applies (except as described below) to surrenders and withdrawals of purchase payments that have been invested for the periods indicated as follows:
Number of contract anniversaries since purchase payment was invested ------------------------------------------------------- 0 1 2 3 4 5 6 7 8 9+ Surrender charge as a percentage of th8.50% 8.50% 8% 7% 6% 5% 4% 3% 2% 0% surrendered or withdrawn purchase payments
A surrender charge does not apply to: o A surrender or withdrawal of a purchase payment beyond the ninth anniversary since the purchase payment was invested; o Withdrawals of contract value during a contract year to the extent that the total contract value withdrawn during the current contract year does not exceed the free amount which is equal to the greater of 10% of the current contract value or 10% of the total purchase payments (this does not apply upon surrender of the contract); o When the surviving spouse assumes ownership of the contract as a result of the death of the original owner (however, surrender charge schedule of the original contract will continue to apply to the spouses's contract); o A surrender of the contract as a result of the death of the contractowner, joint owner or annuitant; 26 o Purchase payments when used in the calculation of the initial periodic income payment and the initial Account Value under the i4LIFE (Reg. TM) Advantage option or the contract value applied to calculate the benefit amount under any annuity payout option made available by us; o Regular income payments made under i4LIFE (Reg. TM) Advantage, including any payments to provide the 4LATER or i4LIFE Guaranteed Income Benefits, or periodic payments made under any annuity payout option made available by us; o A surrender or withdrawal of any purchase payments, if such purchase payments were received by us more than 12 months prior to the onset of a permanent and total disability of the contractowner as defined in Section 22(e)(3) of the tax code and the disability occurred after the effective date of the contract and before the 65th birthday of the contractowner; o A surrender or withdrawal of any purchase payments, if such purchase payments were received by us more than 12 months prior to the admittance of the contractowner to an accredited nursing home or equivalent health care facility, where the admittance into such facility occurs after the effective date of the contract and the owner has been confined for at least 90 consecutive days; o A surrender or withdrawal of any purchase payments, if such purchase payments were received by us more than 12 months prior to the diagnosis date of a terminal illness that is after the date of the contract and results in a life expectancy of less than one year as determined by a qualified professional medical practitioner; o A surrender or annuitization of bonus credits and persistency credits; o Withdrawals up to the Maximum Annual Withdrawal amount under the Lincoln SmartSecurity (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage, subject to certain conditions. For purposes of calculating the surrender charge on withdrawals, we assume that: The free amount will be withdrawn from purchase payments on a "first in-first out (FIFO)"basis. Prior to the ninth anniversary of the contract, any amount withdrawn above the free amount during a contract year will be withdrawn in the following order: 1. from purchase payments (on a FIFO basis) until exhausted; then 2. from earnings until exhausted; then 3. from bonus credits. On or after the ninth anniversary of the contract, any amount withdrawn above the free amount during a contract year will be withdrawn in the following order: 1. from purchase payments (on a FIFO basis)to which a surrender charge no longer applies until exhausted; then 2. from earnings and persistency credits until exhausted; then 3. from bonus credits attributable to purchase payments to which a surrender charge no longer applies until exhausted; then 4. from purchase payments (on a FIFO basis) to which a surrender charge still applies until exhausted; then 5. from bonus credits attributable to purchase payments to which a surrender charge still applies. We apply the surrender charge as a percentage of purchase payments, which means that you would pay the same surrender charge at the time of surrender regardless of whether your contract value has increased or decreased. The surrender charge is calculated separately for each purchase payment. The surrender charges associated with surrender or withdrawal are paid to us to compensate us for the loss we experience on contract distribution costs when contractowners surrender or withdraw before distribution costs have been recovered. If the contractowner is a corporation or other non-individual (non-natural person), the annuitant or joint annuitant will be considered the contractowner or joint owner for purposes of determining when a surrender charge does not apply. Account Fee During the accumulation period, we will deduct $30 from the contract value on each contract anniversary to compensate us for the administrative services provided to you; this $30 account fee will also be deducted from the contract value upon surrender. This fee will be waived after the fifteenth contract year. The account fee will be waived for any contract with a contract value that is equal to or greater than $100,000 on the contract anniversary. Transfer Fee We reserve the right to charge a $25 fee for the 13th and each additional transfer during any contract year, excluding automatic dollar cost averaging, portfolio rebalancing and cross-reinvestment transfers. The transfer charge will not be imposed on the first 12 transfers during the contract year. Rider Charges A fee or expense may also be deducted in connection with any benefits added to the contract by rider or endorsement. 27 Lincoln Lifetime IncomeSM Advantage Charge. While this Rider is in effect, there is a charge for the Lincoln Lifetime IncomeSM Advantage, if elected. The Rider charge is currently equal to an annual rate of 0.90% of the Guaranteed Amount (0.225% quarterly) for the Lincoln Lifetime IncomeSM Advantage. For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.75% to 0.90% upon the earlier of (a) the next Automatic Annual Step-up of the Guaranteed Amount or (b) the next Benefit Year anniversary if cumulative purchase payments received after the first Benefit Year anniversary equal or exceed $100,000. See The Contracts - Lincoln Lifetime IncomeSM Advantage - Guaranteed Amount for a description of the calculation of the Guaranteed Amount. The charge is applied to the Guaranteed Amount as increased for subsequent purchase payments and bonus credits, Automatic Annual Step-ups, 5% Enhancements, and the 200% Step-up and decreased for withdrawals. We will deduct the cost of this Rider from the contract value on a quarterly basis, with the first deduction occurring on the valuation date on or next following the three-month anniversary of the effective date of the Rider. This deduction will be made in proportion to the value in each subaccount of the contract on the valuation date the Rider charge is assessed. The amount we deduct will increase or decrease as the Guaranteed Amount increases or decreases, because the charge is based on the Guaranteed Amount. Refer to the Lincoln Lifetime IncomeSM Advantage Guaranteed Amount section for a discussion and example of the impact of the changes to the Guaranteed Amount. The annual Rider percentage charge may increase each time the Guaranteed Amount increases as a result of the Automatic Annual Step-up, but the charge will never exceed the guaranteed maximum annual percentage charge of 1.50% of the Guaranteed Amount. Therefore, your percentage charge for this Rider could increase every Benefit Year anniversary. If your percentage charge is increased, you may opt out of the Automatic Annual Step-up by giving us notice within 30 days after the Benefit Year anniversary if you do not want your percentage charge to change. This opt out will only apply for this particular Automatic Annual Step-up and is not available if additional purchase payments would cause your charge to increase (see below). You will need to notify us each time the percentage charge increases if you do not want the Automatic Annual Step-up. An increase in the Guaranteed Amount as a result of the 5% Enhancement or 200% Step-up will not cause an increase in the annual Rider percentage charge but will increase the dollar amount of charge. Once cumulative additional purchase payments into your annuity contract after the first Benefit Year exceed $100,000, any additional purchase payment will potentially cause the charge for your Rider to change to the current charge for new purchases in effect on the next Benefit Year anniversary, but the charge will never exceed the guaranteed maximum annual charge. The new charge will become effective on the Benefit Year anniversary. The Rider charge will be discontinued upon termination of the Rider. The pro-rata amount of the Rider charge will be deducted upon termination of the Rider (except for death) or surrender of the contract. If the Guaranteed Amount is reduced to zero while the contractowner is receiving a lifetime Maximum Annual Withdrawal, no rider charge will be deducted. Lincoln SmartSecurity (Reg. TM) Advantage Charge. While this Rider is in effect, there is a charge for the Lincoln SmartSecurity (Reg. TM) Advantage, if elected. The Rider charge is currently equal to an annual rate of: 1) 0.65% of the Guaranteed Amount (0.1625% quarterly) for the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option (for Riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.45% to 0.65% upon the next election of a step-up of the Guaranteed Amount); or 2) 0.65% of the Guaranteed Amount (0.1625% quarterly) for the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up, Single Life option (and also the prior version of Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up); or 3) 0.80% of the Guaranteed Amount (0.2000% quarterly) for the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up, Joint Life option. See The Contracts - Lincoln SmartSecurity (Reg. TM) Advantage - Guaranteed Amount for a description of the calculation of the Guaranteed Amount. If you purchase this Rider in the future, the percentage charge will be the current charge in effect at the time of purchase. As of January 16, 2009, the Lincoln SmartSecurity (Reg. TM)Advantage - 5 Year Step-up option is no longer available for purchase. The charge is applied to the Guaranteed Amount as adjusted. We will deduct the cost of this Rider from the contract value on a quarterly basis, with the first deduction occurring on the valuation date on or next following the three-month anniversary of the effective date of the Rider. This deduction will be made in proportion to the value in each subaccount on the valuation date the Rider charge is assessed. The amount we deduct will increase or decrease as the Guaranteed Amount increases or decreases, because the charge is based on the Guaranteed Amount. Because bonus credits increase the Guaranteed Amount, bonus credits also increase the amount we deduct for the cost of the Rider. Refer to the Lincoln SmartSecurity (Reg. TM) Advantage, Guaranteed Amount section, for a discussion and example of the impact of changes to the Guaranteed Amount. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the annual Rider percentage charge will not change upon each automatic step-up of the Guaranteed Amount for the 10-year period. 28 If you elect to step-up the Guaranteed Amount for another step-up period (including if we administer the step-up election for you or if you make a change from a Joint Life to a Single Life option after a death or divorce), a pro-rata deduction of the Rider charge based on the Guaranteed Amount immediately prior to the step-up will be made on the valuation date of the step-up. This deduction covers the cost of the Rider from the time of the previous deduction to the date of the step-up. After a contractowner's step-up, we will deduct the Rider charge for the stepped-up Guaranteed Amount on a quarterly basis, beginning on the valuation date on or next following the three-month anniversary of the step-up. At the time of the elected step-up, the Rider percentage charge will change to the current charge in effect at that time (if the current charge has changed), but it will never exceed the guaranteed maximum annual percentage charge of 0.95% of the Guaranteed Amount for the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option or 1.50% of the Guaranteed Amount for the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option. If you never elect to step-up your Guaranteed Amount, your Rider percentage charge will never change, although the amount we deduct will change as the Guaranteed Amount changes. The Rider charge will be discontinued upon the earlier of the annuity commencement date, election of i4LIFE (Reg. TM) Advantage or termination of the Rider. The pro-rata amount of the Rider charge will be deducted upon termination of the Rider or surrender of the contract. Rider Charge Waiver. For the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option, after the later of the fifth anniversary of the effective date of the Rider or the fifth anniversary of the most recent step-up of the Guaranteed Amount, the Rider charge may be waived. For the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, no Rider charge waiver is available with the Single Life and Joint Life options. The earlier version of the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option has a waiver charge provision which may occur after the fifth Benefit Year anniversary following the last automatic step-up opportunity. Whenever the above conditions are met, on each valuation date the Rider charge is to be deducted, if the total withdrawals from the contract have been less than or equal to 10% of the sum of: (1) the Guaranteed Amount on the effective date of this Rider or on the most recent step-up date; and (2) purchase payments (and bonus credits) made after the step-up, then the quarterly Rider charge will be waived. If the withdrawals have been more than 10%, then the Rider charge will not be waived. 4LATER (Reg. TM) Advantage Charge. Prior to the periodic income commencement date (which is defined as the valuation date the initial regular income payment under i4LIFE (Reg. TM) Advantage is determined), the annual 4LATER (Reg. TM) charge is currently 0.65% of the Income Base. For riders purchased before January 20, 2009, the current annual percentage charge will increase from 0.50% to 0.65% upon the next election to reset the Income Base. The Income Base (an amount equal to the initial purchase payment and any bonus credit or contract value at the time of election), as adjusted, is a value that will be used to calculate the 4LATER (Reg. TM) Guaranteed Income Benefit. An amount equal to the quarterly 4LATER (Reg. TM) Rider charge multiplied by the Income Base will be deducted from the subaccounts on every third month anniversary of the later of the 4LATER (Reg. TM) Rider Effective Date or the most recent reset of the Income Base. This deduction will be made in proportion to the value in each subaccount on the valuation date the 4LATER (Reg. TM) Rider charge is assessed. The amount we deduct will increase as the Income Base increases, because the charge is based on the Income Base. As described in more detail below, the only time the Income Base will change is when there are additional purchase payments, withdrawals, automatic enhancements at the end of the 3-year waiting periods or in the event of a Reset to the current Account Value. If you purchase 4LATER (Reg. TM) in the future, the percentage charge will be the charge in effect at the time you elect 4LATER (Reg. TM). Upon a reset of the Income Base, a pro-rata deduction of the 4LATER (Reg. TM) Rider charge based on the Income Base immediately prior to the reset will be made on the valuation date of the reset. This deduction covers the cost of the 4LATER (Reg. TM) Rider from the time of the previous deduction to the date of the reset. After the reset, we will deduct the 4LATER (Reg. TM) Rider charge for the reset Income Base on a quarterly basis, beginning on the valuation date on or next following the three month anniversary of the reset. At the time of the reset, the annual charge will be the current charge in effect for new purchases of 4LATER (Reg. TM) at the time of reset, not to exceed the guaranteed maximum charge of 1.50% of the Income Base. If you never elect to reset your Income Base, your 4LATER (Reg. TM) Rider percentage charge will never change, although the amount we deduct will change as your Income Base changes. Prior to the periodic income commencement date, a pro-rata amount of the 4LATER (Reg. TM) Rider charge will be deducted upon termination of the 4LATER (Reg. TM) Rider for any reason other than death. On the periodic income commencement date, a pro-rata deduction of the 4LATER (Reg. TM) Rider charge will be made to cover the cost of 4LATER (Reg. TM) since the previous deduction. i4LIFE (Reg. TM) Advantage Charge . i4LIFE (Reg. TM) Advantage is subject to a charge (imposed during the i4LIFE (Reg. TM) Advantage payout phase), computed daily of the Account Value. The annual rate of the i4LIFE (Reg. TM) Advantage charge is: 1.90% for the i4LIFE (Reg. TM) Advantage Account Value death benefit; 1.95% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit and 2.20% for the i4LIFE (Reg. TM) Advantage EGMDB. This charge consists of a mortality and expense risk and administrative charge (charges for the Guaranteed Income Benefit are not included and are listed below). Otherwise, i4LIFE (Reg. TM) Advantage and the charge will begin on the periodic income commencement date which is the valuation date on which the regular income payment is determined. After the Access Period ends, the charge will be the same rate as the cost of the i4LIFE (Reg. TM) Advantage Account Value death benefit. i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Charge. The Guaranteed Income Benefit which is purchased with i4LIFE (Reg. TM) Advantage is subject to a current annual charge of 0.50% of the Account Value, which is added to the i4LIFE (Reg. TM) Advantage charge for a total current percentage charge of the Account Value, computed daily as follows: 2.40% for the i4LIFE (Reg. TM) Advantage Account Value death benefit; 2.45% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit; and 2.70% for the i4LIFE (Reg. TM) Advantage EGMDB. 29 The Guaranteed Income Benefit percentage charge will not change unless you elect an additional step-up period during which the Guaranteed Income Benefit is stepped-up to 75% of the current regular income payment (described later in the i4LIFE (Reg. TM) Advantage section of this prospectus). At the time you elect a new step-up period, the percentage charge will change to the current charge in effect at that time (if the current charge has changed) up to the guaranteed maximum annual charge of 1.50% of the Account Value. If we automatically administer the step-up period election for you and your percentage charge is increased, you may ask us to reverse the step-up period election by giving us notice within 30 days after the date on which the step-up period election occurred. If we receive this notice, we will decrease the percentage charge to the amounts they were before the step-up period election occurred. Increased fees collected during the 30 day period will be refunded into your contract. You will have no more step-ups unless you notify us that you wish to start a new step-up period (described later in the i4LIFE (Reg. TM) Advantage section of this prospectus). After the periodic income commencement date, if the Guaranteed Income Benefit is terminated, the Guaranteed Income Benefit annual charge will also terminate. 4LATER (Reg. TM) Guaranteed Income Benefit Charge . The 4LATER (Reg. TM) Guaranteed Income Benefit which is purchased with i4LIFE (Reg. TM) Advantage is subject to a current annual charge of 0.65% of the Account Value, which is added to the i4LIFE (Reg. TM) Advantage charge for a total current percentage charge of the Account Value, computed daily as follows: 2.55% for the i4LIFE (Reg. TM) Account Value death benefit; 2.60% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit; and 2.85% for the EGMDB. (For riders purchased before January 20, 2009, the current annual percentage charge is 0.50%, but will increase to 0.65% upon the next election to reset the Income Base.) These charges apply only during the i4LIFE (Reg. TM) Advantage payout phase. On and after the periodic income commencement date, the 4LATER (Reg. TM) Guaranteed Income Benefit charge will be added to the i4LIFE (Reg. TM) charge as a daily percentage of average account value. This is a change to the calculation of the 4LATER (Reg. TM) charge because after the periodic income commencement date, when the 4LATER (Reg. TM) Guaranteed Income Benefit is established, the Income Base is no longer applicable. The percentage 4LATER (Reg. TM) charge is the same immediately before and after the periodic income commencement date; however, the charge is multiplied by the Income Base (on a quarterly basis) prior to the periodic income commencement date and then multiplied by the average daily account value after the periodic income commencement date. After the periodic income commencement date, the 4LATER (Reg. TM) Guaranteed Income Benefit percentage charge will not change unless the contractowner elects additional 15 year step-up periods during which the 4LATER (Reg. TM) Guaranteed Income Benefit (described later) is stepped-up to 75% of the current regular income payment. At the time you elect a new 15 year period, the 4LATER (Reg. TM) Guaranteed Income Benefit percentage charge will change to the current charge in effect at that time (if the current charge has changed) up to the guaranteed maximum annual charge of 1.50% of Account Value. After the periodic income commencement date, if the 4LATER (Reg. TM) Guaranteed Income Benefit is terminated, the 4LATER (Reg. TM) Guaranteed Income Benefit annual charge will also terminate. Guaranteed Income Benefit Charge for Lincoln Lifetime IncomeSM Advantage purchasers. For purchasers of Lincoln Lifetime IncomeSM Advantage who terminate their rider and purchase i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit, the Guaranteed Income Benefit which is purchased with i4LIFE (Reg. TM) Advantage is subject to a current annual charge of 0.50% of the Account Value, which is added to the i4LIFE (Reg. TM)Advantage charge for a total current percentage charge of the Account Value, computed daily as follows: 2.40% for the i4LIFE (Reg. TM) Advantage Account Value death benefit; 2.45% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit; and 2.70% for the i4LIFE (Reg. TM) Advantage EGMDB. Purchasers of Lincoln Lifetime IncomeSM Advantage are guaranteed that in the future the guaranteed maximum charge for the Guaranteed Income Benefit will be the guaranteed maximum charge then in effect at the time that they purchase the Lincoln Lifetime IncomeSM Advantage. The Guaranteed Income Benefit percentage charge will not change unless you elect an additional step-up period during which the Guaranteed Income Benefit is stepped-up to 75% of the current regular income payment (described later). At the time you elect a new step-up period, the percentage charge will change to the current charge in effect at that time (if the current charge has changed) up to the guaranteed maximum annual charge of 1.50% of the Account Value. If we automatically administer the step-up period election for you and your percentage charge is increased, you may ask us to reverse the step-up period election by giving us notice within 30 days after the date on which the step-up period election occurred. If we receive this notice, we will decrease the percentage charge to the amounts they were before the step-up period election occurred. Increased fees collected during the 30-day period will be refunded into your contract. You will have no more step-ups unless you notify us that you wish to start a new step-up period (described later in the i4LIFE (Reg. TM) Advantage section of this prospectus). After the periodic income commencement date, if the Guaranteed Income Benefit is terminated, the Guaranteed Income Benefit annual charge will also terminate. Deductions for Premium Taxes Any premium tax or other tax levied by any governmental entity as a result of the existence of the contracts or the VAA will be deducted from the contract value when incurred, or at another time of our choosing. 30 The applicable premium tax rates that states and other governmental entities impose on the purchase of an annuity are subject to change by legislation, by administrative interpretation or by judicial action. These premium taxes generally depend upon the law of your state of residence. The tax ranges from zero to 3.5%. Currently, there is no premium tax levied for New York residents. Other Charges and Deductions The surrender, withdrawal or transfer of value from a fixed account guaranteed period may be subject to the interest adjustment if applicable. See Fixed Side of the Contract. The mortality and expense risk and administrative charge of 1.40% of the contract value will be assessed on all variable annuity payouts (except for the i4LIFE (Reg. TM) Advantage, which has a different charge), including options that may be offered that do not have a life contingency and therefore no mortality risk. This charge covers the expense risk and administrative services listed previously in this prospectus. The expense risk is the risk that our costs in providing the services will exceed our revenues from contract charges. There are additional deductions from and expenses paid out of the assets of the underlying funds that are more fully described in the prospectuses for the funds. Among these deductions and expenses are 12b-1 fees which reimburse us or an affiliate for certain expenses incurred in connection with certain administrative and distribution support services provided to the funds. Additional Information The charges described previously may be reduced or eliminated for any particular contract. However, these reductions may be available only to the extent that we anticipate lower distribution and/or administrative expenses, or that we perform fewer sales or administrative services than those originally contemplated in establishing the level of those charges, or when required by law. Lower distribution and administrative expenses may be the result of economies associated with: o the use of mass enrollment procedures, o the performance of administrative or sales functions by the employer, o the use by an employer of automated techniques in submitting deposits or information related to deposits on behalf of its employees, or o any other circumstances which reduce distribution or administrative expenses. The exact amount of charges and fees applicable to a particular contract will be stated in that contract. The Contracts Purchase of Contracts If you wish to purchase a contract, you must apply for it through a sales representative authorized by us. Certain broker-dealers may not offer all of the features discussed in this prospectus. The completed application is sent to us and we decide whether to accept or reject it. If the application is accepted, a contract is prepared and executed by our legally authorized officers. The contract is then sent to you through your sales representative. See Distribution of the Contracts. When a completed application and all other information necessary for processing a purchase order is received at our Servicing office, an initial purchase payment and its corresponding bonus credit will be priced no later than two business days after we receive the order. If you submit your application and/or initial purchase payment to your agent, we will not begin processing your purchase order until we receive the application and initial purchase payment from your agent's broker-dealer. While attempting to finish an incomplete application, we may hold the initial purchase payment for no more than five business days unless we receive your consent to our retaining the payment until the application is completed. If the incomplete application cannot be completed within those five days and we have not received your consent, you will be informed of the reasons, and the purchase payment will be returned immediately. Once the application is complete, we will allocate your initial purchase payment and its corresponding bonus credit within two business days. Who Can Invest To apply for a contract, you must be of legal age in a state where the contracts may be lawfully sold and also be eligible to participate in any of the qualified and nonqualified plans for which the contracts are designed. At the time of issue, the contractowner, joint owner and annuitant must be under age 86. Certain death benefit options may not be available at all ages. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license, photo i.d. or other identifying documents. 31 In accordance with money laundering laws and federal economic sanction policy, the Company may be required in a given instance to reject a purchase payment and/or freeze a contractowner's account. This means we could refuse to honor requests for transfers, withdrawals, surrenders or death benefits. Once frozen, monies would be moved from the VAA to a segregated interest-bearing account maintained for the contractowner, and held in that account until instructions are received from the appropriate regulator. If you are purchasing the contract through a tax-favored arrangement, including traditional IRAs and Roth IRAs, you should consider carefully the costs and benefits of the contract (including annuity income benefits) before purchasing the contract, since the tax-favored arrangement itself provides tax-deferred growth. Replacement of Existing Insurance Careful consideration should be given prior to surrendering or withdrawing money from an existing insurance contract to purchase the contract described in this prospectus. Surrender charges may be imposed on your existing contract and/or a new surrender charge period may be imposed with the purchase of, or transfer into, this contract. An investment representative or tax adviser should be consulted prior to making an exchange. Cash surrenders from an existing contract may be subject to tax and tax penalties. Purchase Payments Purchase payments are payable to us at a frequency and in an amount selected by you in the application. The minimum initial purchase payment is $10,000. The minimum annual amount for additional purchase payments is $300. The minimum payment to the contract at any one time must be at least $100 ($25 if transmitted electronically). If a minimum purchase payment is not submitted, we will contact you to see if additional money will be sent, or if we should return the purchase payment to you. Purchase payments in total may not exceed $2 million without our approval. If you stop making purchase payments, the contract will remain in force as a paid-up contract. However, we may terminate the contract as allowed by New York's non-forfeiture law for individual deferred annuities. Purchase payments may be made or, if stopped, resumed at any time until the annuity commencement date, the surrender of the contract, or the death of the contractowner, whichever comes first. Upon advance written notice, we reserve the right to limit purchase payments made to the contract. Bonus Credits For each purchase payment made into the contract, we will credit the contract with a bonus credit. The amount of the bonus credit will be added to the value of the contract at the same time and allocated in the same percentage as the purchase payment. The amount of the bonus credit is calculated as a percentage of the purchase payment made. The amount of any bonus credit applied to the contract will be noted on the confirmation sent after each purchase payment. The bonus credit percentage is based on the owner's cumulative purchase payments at the time each purchase payment is made according to the following scale:
Owner's Investment Bonus Credit % ---------------------------- --------------- Less than $100,000 . 3.0% $100,000-$999,999 . 4.0% $1,000,000 or greater . 5.0%
Your cumulative purchase payments at the time of a purchase payment are equal to the sum of (1) all prior purchase payments made to your contract; plus (2) the current purchase payment made to your contract; minus (3) all prior withdrawals of purchase payments from your contract. Tax qualified annuity contracts (including IRAs) cannot be used when determining the amount of the owner's investment. Inclusion of qualified contracts could result in loss of the tax qualified status or tax penalties. It is your responsibility to provide us with contract values for only nonqualified contracts. During the first contract year if you make any purchase payment(s) after the initial purchase payment ("subsequent purchase payment"), we may add a bonus credit ("additional bonus credit") to the contract that is in addition to any bonus credit that was previously added to the contract and the bonus credit that is added due to the subsequent purchase payment. The additional bonus credit will be added to the contract if the subsequent purchase payment increases the owner's investment to a dollar level that qualifies for a higher bonus credit percentage than the bonus credit percentage that any prior purchase payments qualified for. The additional bonus credit will be added to your contract at the time the subsequent purchase payment is made. The bonus credit percentage for the additional bonus credit will be the difference between the higher bonus credit percentage that the subsequent purchase payment qualifies for and the bonus credit percentage that the prior purchase payments qualified for. We will then multiply the sum of all prior first year purchase payments by this bonus credit percentage to determine the amount of the additional bonus credit. You may receive more than one additional bonus credit during the first contract year as we will add an additional bonus credit anytime a subsequent purchase payment increases the amount of the total purchase payments to an amount that qualifies for a higher bonus credit percentage. We offer a variety of variable annuity contracts. The amount of the bonus credit may be more than offset by higher surrender charges associated with the bonus credit. Similar products that do not offer bonus credits and have lower fees and charges may provide larger 32 cash surrender values than this contract, depending on the level of the bonus credits in this contract and the performance of the owner's chosen subaccounts. We encourage you to talk with your financial adviser and determine which annuity contract is most appropriate for you. Persistency Credits Contractowners will receive a persistency credit on a quarterly basis after the fourteenth contract anniversary. The amount of the persistency credit is calculated by multiplying the contract value, less any purchase payments that have not been invested in the contract for at least fourteen years, by 0.0625% (or 0.05% on contracts issued before June 6, 2005). This persistency credit will be allocated to the variable subaccounts and the fixed subaccounts in proportion to the contract value in each variable subaccount and fixed subaccount at the time the persistency credit is paid into the contract. The amount of any persistency credit received will be noted on your quarterly statement. Confirmation statements for each individual transaction will not be issued. There is no additional charge to receive this persistency credit, and in no case will the persistency credit be less than zero. Valuation Date Accumulation and annuity units will be valued once daily at the close of trading (normally, 4:00 p.m., New York time) on each day the New York Stock Exchange is open (valuation date). On any date other than a valuation date, the accumulation unit value and the annuity unit value will not change. Allocation of Purchase Payments Purchase payments allocated to the variable account are placed into the VAA's subaccounts, according to your instructions. You may also allocate purchase payments in the fixed account, if available. Corresponding bonus credits will be allocated to the subaccount(s) and or the fixed side of the contract in the same proportion in which you allocated purchase payments. The minimum amount of any purchase payment which can be put into any one subaccount is $20. The minimum amount of any purchase payment which can be put into a fixed account guaranteed period is $2,000, subject to state approval. If we receive your purchase payment from you or your broker-dealer in good order at our Servicing office prior to 4:00 p.m., New York time, we will use the accumulation unit value computed on that valuation date when processing your purchase payment. If we receive your purchase payment at or after 4:00 p.m., New York time, we will use the accumulation unit value computed on the next valuation date. If you submit your purchase payment to your representative, we will generally not begin processing the purchase payment until we receive it from your representative's broker-dealer. If your broker-dealer submits your purchase payment to us through the Depository Trust and Clearing Corporation (DTCC) or, pursuant to terms agreeable to us, uses a proprietary order placement system to submit your purchase payment to us, and your purchase payment was placed with your broker-dealer prior to 4:00 p.m., New York time, then we will use the accumulation unit value computed on that valuation date when processing your purchase payment. If your purchase payment was placed with your broker-dealer at or after 4:00 p.m. New York time, then we will use the accumulation unit value computed on the next valuation date. The number of accumulation units determined in this way is not impacted by any subsequent change in the value of an accumulation unit. However, the dollar value of an accumulation unit will vary depending not only upon how well the underlying fund's investments perform, but also upon the expenses of the VAA and the underlying funds. Valuation of Accumulation Units Purchase payments and bonus credits allocated to the VAA are converted into accumulation units. This is done by dividing the amount allocated by the value of an accumulation unit for the valuation period during which the purchase payments and bonus credits are allocated to the VAA. The accumulation unit value for each subaccount was or will be established at the inception of the subaccount. It may increase or decrease from valuation period to valuation period. Accumulation unit values are affected by investment performance of the funds, fund expenses, and the contract charges. The accumulation unit value for a subaccount for a later valuation period is determined as follows: 1. The total value of the fund shares held in the subaccount is calculated by multiplying the number of fund shares owned by the subaccount at the beginning of the valuation period by the net asset value per share of the fund at the end of the valuation period, and adding any dividend or other distribution of the fund if an ex-dividend date occurs during the valuation period; minus 2. The liabilities of the subaccount at the end of the valuation period; these liabilities include daily charges imposed on the subaccount, and may include a charge or credit with respect to any taxes paid or reserved for by us that we determine result from the operations of the VAA; and 3. The result is divided by the number of subaccount units outstanding at the beginning of the valuation period. The daily charges imposed on a subaccount for any valuation period are equal to the daily mortality and expense risk charge and the daily administrative charge multiplied by the number of calendar days in the valuation period. Contracts with different features have 33 different daily charges, and therefore, will have different corresponding accumulation unit values on any given day. In certain circumstances, and when permitted by law, it may be prudent for us to use a different standard industry method for this calculation, called the Net Investment Factor method. We will achieve substantially the same result using either method. Transfers On or Before the Annuity Commencement Date After the first 30 days from the effective date of your contract, you may transfer all or a portion of your investment from one subaccount to another. A transfer involves the surrender of accumulation units in one subaccount and the purchase of accumulation units in the other subaccount. A transfer will be done using the respective accumulation unit values determined at the end of the valuation date on which the transfer request is received. Currently, there is no charge to you for a transfer. However, we reserve the right to impose a $25 fee for transfers after the first 12 times during a contract year. Transfers are limited to twelve (12) (within and/or between the variable and fixed subaccounts) per contract year unless otherwise authorized by Lincoln New York. Lincoln New York reserves the right to require a 30 day minimum time period between each transfer. Transfers made as a part of an automatic transfer program will not be counted against these twelve transfers. The minimum amount which may be transferred between subaccounts is $300 (or the entire amount in the subaccount, if less than $300). If the transfer from a subaccount would leave you with less than $300 in the subaccount, we may transfer the total balance of the subaccount. A transfer request may be made to our Servicing office using written, telephone, fax, or electronic instructions, if the appropriate authorization is on file with us. Our address, telephone number, and Internet address are on the first page of this prospectus. In order to prevent unauthorized or fraudulent transfers, we may require certain identifying information before we will act upon instructions. We may also assign the contractowner a Personal Identification Number (PIN) to serve as identification. We will not be liable for following instructions we reasonably believe are genuine. Telephone requests will be recorded and written confirmation of all transfer requests will be mailed to the contractowner on the next valuation date. Please note that the telephone and/or electronic devices may not always be available. Any telephone or electronic device, whether it is yours, your service provider's, or your agent's, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request by writing to our Servicing office. Requests for transfers will be processed on the valuation date that they are received when they are received at our Servicing office before the end of the valuation date (normally 4:00 p.m. New York time). If we receive a transfer request at or after 4:00p.m., New York time, we will process the request using the accumulation unit value computed on the next valuation date. If your contract offers a fixed account, you may also transfer all or any part of the contract value from the subaccount(s) to the fixed side of the contract, except during periods when (if permitted by your contract) we have discontinued accepting transfers into the fixed side of the contract. The minimum amount which can be transferred to a fixed account is $2,000 or the total amount in the subaccount if less than $2,000. However, if a transfer from a subaccount would leave you with less than $300 in the subaccount, we may transfer the total amount to the fixed side of the contract. You may also transfer part of the contract value from a fixed account to the various subaccount(s) subject to the following restrictions: o the sum of the percentages of fixed value transferred is limited to 25% of the value of that fixed account in any twelve month period; and o the minimum amount which can be transferred is $300 or the amount in the fixed account. Transfers of all or a portion of a fixed account (other than automatic transfer programs and i4LIFE (Reg. TM) Advantage transfers) may be subject to interest adjustments, if applicable. Transfers may be delayed as permitted by the 1940 Act. See Delay of Payments. Market Timing Frequent, large, or short-term transfers among subaccounts and the fixed account, such as those associated with "market timing" transactions, can affect the funds and their investment returns. Such transfers may dilute the value of the fund shares, interfere with the efficient management of the fund's portfolio, and increase brokerage and administrative costs of the funds. As an effort to protect our contractowners and the funds from potentially harmful trading activity, we utilize certain market timing policies and procedures (the "Market Timing Procedures"). Our Market Timing Procedures are designed to detect and prevent such transfer activity among the subaccounts and the fixed account that may affect other contractowners or fund shareholders. In addition, the funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the funds describe any such policies and procedures, which may be more or less restrictive than the frequent trading policies and procedures of other funds and the Market Timing Procedures we have adopted to 34 discourage frequent transfers among subaccounts. While we reserve the right to enforce these policies and procedures, contractowners and other persons with interests under the contracts should be aware that we may not have the contractual authority or the operational capacity to apply the frequent trading policies and procedures of the funds. However, under SEC rules, we are required to: (1) enter into a written agreement with each fund or its principal underwriter that obligates us to provide to the fund promptly upon request certain information about the trading activity of individual contractowners, and (2) execute instructions from the fund to restrict or prohibit further purchases or transfers by specific contractowners who violate the excessive trading policies established by the fund. You should be aware that the purchase and redemption orders received by the funds generally are "omnibus" orders from intermediaries such as retirement plans or separate accounts funding variable insurance contracts. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and/or individual owners of variable insurance contracts. The omnibus nature of these orders may limit the funds' ability to apply their respective disruptive trading policies and procedures. We cannot guarantee that the funds (and thus our contractowners) will not be harmed by transfer activity relating to the retirement plans and/or other insurance companies that may invest in the funds. In addition, if a fund believes that an omnibus order we submit may reflect one or more transfer requests from policy owners engaged in disruptive trading activity, the fund may reject the entire omnibus order. Our Market Timing Procedures detect potential "market timers"by examining the number of transfers made by contractowners within given periods of time. In addition, managers of the funds might contact us if they believe or suspect that there is market timing. If requested by a fund company, we may vary our Market Timing Procedures from subaccount to subaccount to comply with specific fund policies and procedures. We may increase our monitoring of contractowners who we have previously identified as market timers. When applying the parameters used to detect market timers, we will consider multiple contracts owned by the same contractowner if that contractowner has been identified as a market timer. For each contractowner, we will investigate the transfer patterns that meet the parameters being used to detect potential market timers. We will also investigate any patterns of trading behavior identified by the funds that may not have been captured by our Market Timing Procedures. Once a contractowner has been identified as a "market timer" under our Market Timing Procedures, we will notify the contractowner in writing that future transfers (among the subaccounts and/or the fixed account) will be temporarily permitted to be made only by original signature sent to us by U.S. mail, standard delivery for the remainder of the contract year (or calendar year if the contract is an individual contract that was sold in connection with an employer sponsored plan). Overnight delivery or electronic instructions (which may include telephone, facsimile, or Internet instructions) submitted during this period will not be accepted. If overnight delivery or electronic instructions are inadvertently accepted from a contractowner that has been identified as a market timer, upon discovery, we will reverse the transaction within 1 or 2 business days. We will impose this "original signature"restriction on that contractowner even if we cannot identify, in the particular circumstances, any harmful effect from that contractowner's particular transfers. Contractowners seeking to engage in frequent, large, or short-term transfer activity may deploy a variety of strategies to avoid detection. Our ability to detect such transfer activity may be limited by operational systems and technological limitations. The identification of contractowners determined to be engaged in such transfer activity that may adversely affect other contractowners or fund shareholders involves judgments that are inherently subjective. We cannot guarantee that our Market Timing Procedures will detect every potential market timer. If we are unable to detect market timers, you may experience dilution in the value of your fund shares and increased brokerage and administrative costs in the funds. This may result in lower long-term returns for your investments. Our Market Timing Procedures are applied consistently to all contractowners. An exception for any contractowner will be made only in the event we are required to do so by a court of law. In addition, certain funds available as investment options in your contract may also be available as investment options for owners of other, older life insurance policies issued by us. Some of these older life insurance policies do not provide a contractual basis for us to restrict or refuse transfers which are suspected to be market timing activity. In addition, because other insurance companies and/or retirement plans may invest in the funds, we cannot guarantee that the funds will not suffer harm from frequent, large, or short-term transfer activity among subaccounts and the fixed accounts of variable contracts issued by other insurance companies or among investment options available to retirement plan participants. In our sole discretion, we may revise our Market Timing Procedures at any time without prior notice as necessary to better detect and deter frequent, large, or short-term transfer activity to comply with state or federal regulatory requirements, and/or to impose additional or alternate restrictions on market timers (such as dollar or percentage limits on transfers). If we modify our Market Timing Procedures, they will be applied uniformly to all contractowners or as applicable to all contractowners investing in underlying funds. We also reserve the right to implement and administer redemption fees imposed by one or more of the funds in the future. Some of the funds have reserved the right to temporarily or permanently refuse payments or transfer requests from us if, in the judgment of the fund's investment adviser, the fund would be unable to invest effectively in accordance with its investment objective or policies, or would otherwise potentially be adversely affected. To the extent permitted by applicable law, we reserve the right to defer or reject a transfer request at any time that we are unable to purchase or redeem shares of any of the funds available through the VAA, 35 including any refusal or restriction on purchases or redemptions of the fund shares as a result of the funds' own policies and procedures on market timing activities. If a fund refuses to accept a transfer request we have already processed, we will reverse the transaction within 1 or 2 business days. We will notify you in writing if we have reversed, restricted or refused any of your transfer requests. Some funds also may impose redemption fees on short-term trading (i.e., redemptions of mutual fund shares within a certain number of business days after purchase). We reserve the right to administer and collect any such redemption fees on behalf of the funds. You should read the prospectuses of the funds for more details on their redemption fees and their ability to refuse or restrict purchases or redemptions of their shares. Transfers After the Annuity Commencement Date You may transfer all or a portion of your investment in one subaccount to another subaccount or to the fixed side of the contract, as permitted under your contract. Those transfers will be limited to three times per contract year. You may also transfer from a variable annuity payment to a fixed annuity payment. You may not transfer from a fixed annuity payment to a variable annuity payment. If you select i4LIFE (Reg. TM) Advantage your transfer rights and restrictions for the variable subaccounts and the fixed account during the Access Period are the same as stated in the section of this prospectus called Transfers On or Before the Annuity Commencement Date. During the i4LIFE (Reg. TM) Advantage Lifetime Income Period, you are subject to the rights set forth in the prior paragraph. Ownership The owner on the date of issue will be the person or entity designated in the contract specifications. If no owner is designated, the annuitant(s) will be the owner. The owner may name a joint owner. As contractowner, you have all rights under the contract. According to New York law, the assets of the VAA are held for the exclusive benefit of all contractowners and their designated beneficiaries; and the assets of the VAA are not chargeable with liabilities arising from any other business that we may conduct. Qualified contracts may not be assigned or transferred except as permitted by applicable law and upon written notification to us. Assignments may have an adverse impact on any death benefits or living benefits in this product. We assume no responsibility for the validity or effect of any assignment. Consult your tax adviser about the tax consequences of an assignment. Joint Ownership If a contract has joint owners, the joint owners shall be treated as having equal undivided interests in the contract. Either owner, independently of the other, may exercise any ownership rights in this contract. Not more than two owners (an owner and joint owner) may be named and contingent owners are not permitted. Annuitant The following rules apply prior to the annuity commencement date. You may name only one annuitant [unless you are a tax-exempt entity, then you can name two joint annuitants]. You (if the contractowner is a natural person) have the right to change the annuitant at any time by notifying us of the change. The new annuitant must be under age 86 as of the effective date of the change. This change may cause a reduction in the death benefit on the death of the annuitant. See The Contracts - Death Benefit. A contingent annuitant may be named or changed by notifying us in writing. Contingent annuitants are not allowed on contracts owned by non-natural owners. On or after the annuity commencement date, the annuitant or joint annuitants may not be changed and contingent annuitant designations are no longer applicable. Surrenders and Withdrawals Before the annuity commencement date, we will allow the surrender of the contract or a withdrawal of the contract value upon your written request on an approved Lincoln distribution request form (available from the Servicing office), subject to the rules discussed below. Surrender or withdrawal rights after the annuity commencement date depend on the annuity payout option selected. The amount available upon surrender/withdrawal is the contract value less any applicable charges, fees, and taxes at the end of the valuation period during which the written request for surrender/withdrawal is received at the Servicing office. If we receive a surrender or withdrawal request at or after 4:00 p.m., New York time, we will process the request using the accumulation unit value computed on the next valuation date. The minimum amount which can be withdrawn is $300. Unless a request for withdrawal specifies otherwise, withdrawals will be made from all subaccounts within the VAA and from the fixed account in the same proportion that the amount of withdrawal bears to the total contract value. Surrenders and withdrawals from the fixed account may be subject to the interest adjustment. See Fixed Side of the Contract. Unless prohibited, surrender/withdrawal payments will be mailed within seven days after we receive a valid written request at the Servicing office. The payment may be postponed as permitted by the 1940 Act. If you request a lump sum surrender and your surrender value is over $10,000, your money will be placed into a SecureLine (Reg. TM) account in your name. You are the owner of the account, and are the only one authorized to transfer proceeds from the account. You may choose to leave the proceeds in this account, or you may begin writing checks immediately. 36 The SecureLine (Reg. TM) account is a special service that we offer in which your surrender proceeds are placed into an interest-bearing account. Instead of mailing you a check, we will send a checkbook so that you will have access to the account simply by writing a check for all or any part of the proceeds. The SecureLine (Reg. TM) account is part of our general account. It is not a bank account and it is not insured by the FDIC or any other government agency. As part of our general account, it is subject to the claims of our creditors. We receive a benefit from all amounts left in the SecureLine (Reg. TM) account. You may request that surrender proceeds be paid directly to you instead of deposited in a SecureLine (Reg. TM) account. There are charges associated with surrender of a contract or withdrawal of contract value. You may specify whether these charges are deducted from the amount you request to be withdrawn or from the remaining contract value. If the charges are deducted from the remaining contract value, the amount of the total withdrawal will increase according to the impact of the applicable surrender charge percentage; consequently, the dollar amount of the surrender charge associated with the withdrawal will also increase. In other words, the dollar amount deducted to cover the surrender charge is also subject to a surrender charge. The tax consequences of a surrender/withdrawal are discussed later in this booklet. See Federal Tax Matters - Taxation of Withdrawals and Surrenders. Additional Services These are the additional services available to you under your contract: dollar-cost averaging (DCA), automatic withdrawal service (AWS), cross-reinvestment service and portfolio rebalancing. Currently, there is no charge for these services. However, we reserve the right to impose one. In order to take advantage of one of these services, you will need to complete the appropriate election form that is available from our Servicing office. For further detailed information on these services, please see Additional Services in the SAI. Dollar-cost averaging allows you to transfer amounts from the DCA fixed account, if available, or certain variable subaccounts into the variable subaccounts on a monthly basis or in accordance with other terms we make available. We reserve the right to discontinue or modify this program at any time. DCA does not assure a profit or protect against loss. The automatic withdrawal service (AWS) provides for an automatic periodic withdrawal of your contract value. The cross-reinvestment service allows you to automatically transfer the account value in a designated variable subaccount that exceeds a baseline amount to another specific variable subaccount at specific intervals. Portfolio rebalancing is an option that restores to a pre-determined level the percentage of contract value allocated to each variable account subaccount. The rebalancing may take place monthly, quarterly, semi-annually or annually. Only one of the three additional services (DCA, cross reinvestment and portfolio rebalancing) may be used at one time. For example, you cannot have DCA and cross reinvestment running simultaneously. Asset Allocation Models Your registered representative may discuss asset allocation models with you to assist you in deciding how to allocate your purchase payments among the various subaccounts and/or the fixed account. The models listed below were designed and prepared by the Company, in consultation with SSgA Funds Management, Inc., for use by Lincoln Financial Distributors, Inc., (LFD) the principal underwriter of the contracts. LFD provides models to broker dealers who may offer the models to their own clients. The models do not constitute investment advice and you should consult with your broker dealer representative to determine whether you should utilize a model or which model is suitable for you based upon your goals, risk tolerance and time horizon. Each model invests different percentages of contract value in some or all of the LVIP subaccounts currently available within your annuity contract. If you select an asset allocation model, 100% of your contract value (and any additional purchase payments you make) will be allocated among certain subaccounts in accordance with the model's asset allocation strategy. You may not make transfers among the subaccounts. We will deduct any withdrawals you make from the subaccounts in the asset allocation model on a pro rata basis. You may only choose one asset allocation model at a time, though you may change to a different asset allocation model available in the contract at any time. Each of the asset allocation models seeks to meet its investment objective while avoiding excessive risk. The models also strive to achieve diversification among asset classes in order to help reduce volatility and boost returns over the long-term. There can be no assurance, however, that any of the asset allocation models will achieve its investment objective. If you are seeking a more aggressive strategy, these models are probably not appropriate for you. The asset allocation models are intended to provide a diversified investment portfolio by combining different asset classes to help it reach its stated investment goal. While diversification may help reduce overall risk, it does not eliminate the risk of losses and it does not protect against losses in a declining market. In order to maintain the model's specified subaccount allocation percentages, you agree to be automatically enrolled in and you thereby authorize us to automatically rebalance your contract value on a quarterly basis based upon your allocation instructions in effect at the time of the rebalancing. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive 37 an individual confirmation after each allocation. We reserve the right to change the rebalancing frequency at any time, in our sole discretion, but will not make changes more than once per calendar year. You will be notified at least 30 days prior to the date of any change in frequency. The models are static asset allocation models. This means that that they have fixed allocations made up of underlying funds that are offered within your contract and the percentage allocations will not change over time. Once you have selected an asset allocation model, we will not make any changes to the fund allocations within the model except for the rebalancing described above. If you desire to change your contract value or purchase payment allocation or percentages to reflect a revised or different model, you must submit new allocation instructions to us. You may terminate a model at any time. There is no charge from Lincoln for participating in a model. The election of certain Living Benefit riders may require that you allocate purchase payments in accordance with Investment Requirements that may be satisfied by choosing one of the asset allocation models. Different requirements and/or restrictions may apply under the individual rider. See The Contracts - Investment Requirements. At this time, the available models are as follows: o The Lincoln SSgA Conservative Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 40% in three equity subaccounts and 60% in one fixed income subaccount. This model seeks a high level of current income with some consideration given to growth of capital. The model utilizes index funds exclusively. o The Lincoln SSgA Moderate Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 60% in three equity subaccounts and 40% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with an emphasis on growth of capital. The model utilizes index funds exclusively. o The Lincoln SSgA Moderately Aggressive Equity Index Model (formerly known as the Lincoln SSgA Moderately Aggressive Index Model) is composed of specified underlying subaccounts representing a target allocation of approximately 80% in three equity subaccounts and 20% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes index funds exclusively. (Not available to contracts issued on or after June 30, 2009) o The Lincoln SSgA Moderately Aggressive Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 70% in three equity subaccounts and 30% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes index funds exclusively. (Available on or after June 30, 2009) o The Lincoln SSgA Aggressive Index Model is composed of specified underlying subaccounts representing a target allocation of approximately 90% in three equity subaccounts and 10% in one fixed income subaccount. This model seeks long term growth of capital. The model utilizes index funds exclusively. o The Lincoln SSgA Structured Conservative Model is composed of specified underlying subaccounts representing a target allocation of approximately 40% in seven equity subaccounts and 60% in one fixed income subaccount. This model seeks a high level of current income with some consideration given to growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. o The Lincoln SSgA Structured Moderate Model is composed of specified underlying subaccounts representing a target allocation of approximately 60% in seven equity subaccounts and 40% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with an emphasis on growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. o The Lincoln SSgA Structured Moderately Aggressive Equity Model (formerly known as the Lincoln SSgA Structured Moderately Aggressive Model) is composed of specified underlying subaccounts representing a target allocation of approximately 80% in seven equity subaccounts and 20% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. (Not available to contracts issued on or after June 30, 2009) o The Lincoln SSgA Structured Moderately Aggressive Model is composed of specified underlying subaccounts representing a target allocation of approximately 70% in seven equity subaccounts and 30% in one fixed income subaccount. This model seeks a balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. (Available on or after June 30, 2009) o The Lincoln SSgA Structured Aggressive Model is composed of specified underlying subaccounts representing a target allocation of approximately 90% in seven equity subaccounts and 10% in one fixed income subaccount. This model seeks long term growth of capital. The model utilizes a combination of index funds and rules-based strategies with an emphasis placed on value oriented stocks. Your registered representative will have more information on the specific investments of each model. 38 Franklin Templeton Founding Investment Strategy: Through the Franklin Templeton Founding Investment Strategy you may allocate purchase payments and/or contract values to three underlying funds as listed below. This is not an asset allocation model. If you choose to follow this strategy you will invest 100% of your contract value according to the strategy. You may invest in any of the three funds without adopting the strategy. Upon selection of this program you agree to be automatically enrolled in portfolio rebalancing and authorize us to automatically rebalance your contract value on a quarterly basis in accordance with the strategy. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive an individual confirmation after each allocation. You may terminate the strategy at any time and reallocate your contract value to other investment options. We reserve the right to change the rebalancing frequency at any time, in our sole discretion, but will not make changes more than once per calendar year. You will be notified at least 30 days prior to the date of any change in frequency. o FTVIPT Franklin Income Securities 34% of contract value o FTVIPT Mutual Shares Securities 33% of contract value o LVIP Templeton Growth Fund 33% of contract value
Death Benefit The chart below provides a brief overview of how the death benefit proceeds will be distributed, if death occurs prior to i4LIFE (Reg. TM) Advantage elections or to the annuity commencement date. Refer to your contract for the specific provisions applicable upon death.
UPON DEATH OF: AND... contractowner There is a surviving joint owner contractowner There is no surviving joint owner contractowner There is no surviving joint owner and the beneficiary predeceases the contractowner annuitant The contractowner is living annuitant The contractowner is living annuitant** The contractowner is a trust or other non-natural person UPON DEATH OF: AND... DEATH BENEFIT PROCEEDS PASS TO: contractowner The annuitant is living or deceased joint owner contractowner The annuitant is living or deceased designated beneficiary contractowner The annuitant is living or deceased contractowner's estate annuitant There is no contingent annuitant The youngest contractowner becomes the contingent annuitant and the contract continues. The contractowner may waive* this continuation and receive the death benefit proceeds. annuitant The contingent annuitant is living contingent annuitant becomes the annuitant and the contract continues annuitant** No contingent annuitant allowed designated beneficiary with non-natural contractowner
* Notification from the contractowner to select the death benefit proceeds must be received within 75 days of the death of the annuitant. ** Death of annuitant is treated like death of the contractowner. If the contractowner (or a joint owner) or annuitant dies prior to the annuity commencement date, a death benefit may be payable. You can choose the death benefit. Only one death benefit may be in effect at any one time and this election terminates if you elect i4LIFE (Reg. TM) Advantage or any annuitization option. Generally, the more expensive the death benefit the greater the protection. You should consider the following provisions carefully when designating the beneficiary, annuitant, any contingent annuitant and any joint owner, as well as before changing any of these parties. The identity of these parties under the contract may significantly affect the amount and timing of the death benefit or other amount paid upon a contractowner's or annuitant's death. You may designate a beneficiary during your lifetime and change the beneficiary by filing a written request with our Servicing office. Each change of beneficiary revokes any previous designation. We reserve the right to request that you send us the contract for endorsement of a change of beneficiary. Upon the death of the contractowner, a death benefit will be paid to the beneficiary. Upon the death of a joint owner, the death benefit will be paid to the surviving joint owner. If the contractowner is a corporation or other non-individual (non-natural person), the death of the annuitant will be treated as death of the contractowner. 39 If an annuitant who is not the contractowner or joint owner dies, then the contingent annuitant, if named, becomes the annuitant and no death benefit is payable on the death of the annuitant. If no contingent annuitant is named, the contractowner (or younger of joint owners) becomes the annuitant. Alternatively, a death benefit may be paid to the contractowner (and joint owner, if applicable, in equal shares). Notification of the election of this death benefit must be received by us within 75 days of the death of the annuitant. The contract terminates when any death benefit is paid due to the death of the annuitant. Only the contract value as of the valuation date we approve the payment of the death claim is available as a death benefit if a contractowner, joint owner or annuitant was added or changed subsequent to the effective date of this contract unless the change occurred because of the death of a prior contractowner, joint owner or annuitant. If your contract value equals zero, no death benefit will be paid. Account Value Death Benefit. Contractowners who purchase their contracts on or after July 22, 2005 may select the Account Value Death Benefit. If you elect the Account Value Death Benefit contract option, we will pay a death benefit equal to the contract value on the valuation date the death benefit is approved by us for payment. No additional death benefit is provided. Once you have selected this death benefit option, it cannot be changed. (Your contract may refer to this benefit as the Contract Value Death Benefit.) Guarantee of Principal Death Benefit. If you do not select a death benefit, the Guarantee of Principal Death Benefit will apply to your contract. If the Guarantee of Principal Death Benefit is in effect, the death benefit will be equal to the greater of: o The current contract value as of the valuation date we approve the payment of the claim; or o The sum of all purchase payments decreased by withdrawals in the same proportion that withdrawals reduced the contract value (withdrawals less than or equal to the Maximum Annual Withdrawal amount under the Lincoln Lifetime IncomeSM Advantage rider may reduce the sum of all purchase payments amount on a dollar for dollar basis. See The Contracts - Lincoln Lifetime IncomeSM Advantage). In a declining market, withdrawals deducted in the same proportion that withdrawals reduce the contract value may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for any applicable charges associated with those withdrawals (surrender charges for example) and premium taxes, if any. For contracts issued on or after July 22, 2005, you may discontinue the Guarantee of Principal Death Benefit by completing the Death Benefit Discontinuance form and sending it to our Servicing Office. The benefit will be discontinued as of the valuation date we receive the request and the Account Value Death Benefit will apply. We will deduct the charge for the Account Value Death Benefit as of that date. See Charges and Other Deductions. Enhanced Guaranteed Minimum Death Benefit (EGMDB). If the EGMDB is in effect, the death benefit paid will be the greatest of: o The current contract value as of the valuation date we approve the payment of the claim; or o the sum of all purchase payments decreased by withdrawals in the same proportion that withdrawals reduced the contract value (withdrawals less than or equal to the Maximum Annual Withdrawal amount under the Lincoln Lifetime IncomeSM Advantage rider may reduce the sum of all purchase payments amount on a dollar for dollar basis. See The Contracts - Lincoln Lifetime IncomeSM Advantage); or o the highest contract value which the contract attains on any contract anniversary (including the inception date) (determined before the allocation of any purchase payments on that contract anniversary) prior to the 81st birthday of the deceased and prior to the death of the contractowner, joint owner (if applicable) or annuitant for whom the death claim is approved for payment. The highest contract value is increased by purchase payments and bonus credits and is decreased by withdrawals subsequent to that anniversary date in the same proportion that withdrawals reduced the contract value. In a declining market, withdrawals deducted in the same proportion that withdrawals reduce the contract value may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for any applicable charges associated with that withdrawal (surrender charges for example) and premium taxes, if any. The EGMDB is not available under contracts issued to a contractowner, or joint owner or annuitant, who is age 80 or older at the time of issuance. You may discontinue the EGMDB at any time by completing the Death Benefit Discontinuance form and sending it to our Servicing office. The benefit will be discontinued as of the valuation date we receive the request, and the Guarantee of Principal Death Benefit will apply, or, if your contract was purchased on or after July 22, 2005 (or later in some states) you may instead choose the Account Value Death Benefit. We will deduct the applicable charge for the new death benefit as of that date. See Charges and Other Deductions. General Death Benefit Information Only one of these death benefit elections may be in effect at any one time and these elections terminate if you elect i4LIFE (Reg. TM) Advantage. 40 If there are joint owners, upon the death of the first contractowner, we will pay a death benefit to the surviving joint owner. The surviving joint owner will be treated as the primary, designated beneficiary. Any other beneficiary designation on record at the time of death will be treated as a contingent beneficiary. If the surviving joint owner is the spouse of the deceased joint owner, he/she may continue the contract as sole contractowner. Upon the death of the spouse who continues the contract, we will pay a death benefit to the designated beneficiary(s). If the beneficiary is the spouse of the contractowner, then the spouse may elect to continue the contract as the new contractowner. Should the surviving spouse elect to continue the contract, a portion of the death benefit may be credited to the contract. Any portion of the death benefit that would have been payable (if the contract had not been continued) that exceeds the current contract value on the date the surviving spouse elects to continue will be added to the contract value. If the contract is continued in this way, the death benefit in effect at the time the beneficiary elected to continue the contract will remain as the death benefit. The value of the death benefit will be determined as of the valuation date we approve the payment of the claim. Approval of payment will occur upon our receipt of all the following: 1. proof (e.g. an original certified death certificate), or any other proof of death satisfactory to us, of the death; 2. written authorization for payment; and 3. all required claim forms, fully completed (including selection of a settlement option). Notwithstanding any provision of this contract to the contrary, the payment of death benefits provided under this contract must be made in compliance with Code Section 72(s) or 401(a)(9) as applicable, as amended from time to time. Death benefits may be taxable. See Federal Tax Matters. Unless otherwise provided in the beneficiary designation, one of the following procedures will take place on the death of a beneficiary: o If any beneficiary dies before the contractowner, that beneficiary's interest will go to any other beneficiaries named, according to their respective interests; and/or o If no beneficiary survives the contractowner, the proceeds will be paid to the contractowner's estate. If the beneficiary is a minor, court documents appointing the guardian/custodian may be required. Unless the contractowner has already selected a settlement option, the beneficiary may choose the method of payment of the death benefit. The death benefit payable to the beneficiary or joint owner must be distributed within five years of the contractowner's date of death unless the beneficiary begins receiving within one year of the contractowner's death the distribution in the form of a life annuity or an annuity for a designated period not extending beyond the beneficiary's life expectancy. Upon the death of the annuitant, Federal tax law requires that an annuity election be made no later than 60 days after we have approved the death claim for payment. If the death benefit becomes payable, the recipient may elect to receive payment either in the form of a lump sum settlement or an annuity payout. If a lump sum settlement is elected, the proceeds will be mailed within seven days of approval by us of the claim subject to the laws, regulations and tax code governing payment of death benefits. This payment may be postponed as permitted by the Investment Company Act of 1940. In the case of a death of one of the parties to the annuity contract, if the recipient of the death benefit has elected a lump sum settlement and the contract value is over $10,000, the proceeds will be placed into the interest-bearing account in the recipient's name as the owner of the account. The SecureLine (Reg. TM) account allows the recipient additional time to decide how to manage death benefit proceeds with the balance earning interest from the day the account is opened. SecureLine (Reg. TM) is not a method of deferring taxation. The SecureLine (Reg. TM) account is a special service that we offer in which the death benefit proceeds are placed into an interest-bearing account. Instead of mailing you (or the recipient of the death proceeds) a check, we will send a checkbook so that you (or the death proceeds recipient) will have access to the account simply by writing a check for all or any part of the proceeds. The SecureLine (Reg. TM) account is part of our general account. It is not a bank account and it is not insured by the FDIC or any other government agency. As part of our general account, it is subject to the claims of our creditors. We receive a benefit from all amounts left in the SecureLine (Reg. TM) account. The recipient of death benefit proceeds may request to receive the proceeds in the form of a check rather than a deposit into the SecureLine (Reg. TM) account. Investment Requirements Prior to January 20, 2009. Contractowners who purchased the Lincoln Lifetime Income (Reg. TM) Advantage Rider from December 15, 2008 through January 19, 2009 will be subject to Investment Requirements as set forth in your contract. As of January 20, 2009 and prior to June 30, 2009. Contractowners who have elected the Lincoln Lifetime Income (Reg. TM) Advantage Rider or the Guaranteed Income Benefit (version 3) under i4Life (Reg. TM) Advantage from January 20, 2009 through June 29, 2009 will be subject to the following Investment Requirements on the investments in their contracts. 41 We have divided the subaccounts of your contract into two groups. We will specify the minimum or maximum percentages of your contract value (includes Account Value if i4LIFE (Reg. TM) Advantage is in effect) that must be in each group at the time you purchase the rider. In addition, you may allocate your contract value and purchase payments in accordance with certain asset allocation models. If you terminate an asset allocation model, you must follow the Investment Requirements applicable to your rider. Some investment options are not available to you if you purchase certain riders. The Investment Requirements may not be consistent with an aggressive investment strategy. You should consult with your registered representative to determine if the Investment Requirements are consistent with your investment objectives. You can select the percentages of contract value to allocate to individual subaccounts within each group, but the total investment for all subaccounts in a group must comply with the specified minimum or maximum percentages for that group. In accordance with these Investment Requirements, you agree to be automatically enrolled in the portfolio rebalancing option under your contract and thereby authorize us to automatically rebalance your contract value on a periodic basis. On each quarterly anniversary of the effective date of the Rider, we will rebalance your contract value, on a pro-rata basis, based on your allocation instructions in effect at the time of the rebalancing. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive an individual confirmation after each reallocation. At this time, the subaccount groups are as follows: Group 1 Group 2 Investments must be at least 30% of contract value Investments cannot exceed 70% of contract value or Account Value ----------------------------------------------------------------- or Account Value ---------------------------------------------------- 1. American Century VP Inflation Protection Fund All other funds except as described below. 2. LVIP Delaware Bond Fund 3. Delaware VIP Limited-Term Diversified Income Series 4. Delaware VIP Diversified Income Series 5. FTVIPT Templeton Global Bond Securities Fund 6. LVIP SSgA Bond Index Fund 7. LVIP Global Income Fund
To satisfy the Investment Requirements, you may allocate 100% of your contract value among the MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, the FTVIPT Franklin Income Securities Fund, or the LVIP Wilshire Profile Funds that are available in your contract except not more than 70% can be allocated to the LVIP Wilshire Aggressive Profile Fund, LVIP Wilshire 2030 Profile Fund and LVIP Wilshire 2040 Profile Fund. If you allocate less than 100% of your contract value to or among MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, the FTVIPT Franklin Income Securities Fund, or the available LVIP Wilshire Profile Funds, then these funds will be considered as part of Group 2 above and you will be subject to Group 2 restrictions. The DWS Alternative Asset Allocation Plus VIP Portfolio, the PIMCO VIT Commodity Real Return Strategy Portfolio, the LVIP SSgA Emerging Markets 100 Fund, the AllianceBernstein VPS Global Thematic Growth Portfolio, the Delaware VIP REIT Series and the Delaware VIP Emerging Markets Series are not available with these riders. The fixed account is only available for dollar cost averaging. To satisfy the Investment Requirements, contract value can be allocated in accordance with certain asset allocation models, made available to you by your broker dealer. 100% of the contract value can be allocated to one of the following models: Lincoln SSgA Structured Conservative Model, Lincoln SSgA Structured Moderate Model, Lincoln SSgA Structured Moderately Aggressive Model, Lincoln SSgA Conservative Index Model, Lincoln SSgA Moderate Index Model, and Lincoln SSgA Moderately Aggressive Index Model. You may choose one asset allocation model at a time, though you may change to a different asset allocation model in your contract that meets the Investment Requirements or reallocate your contract value among the Group 1 or 2 subaccounts. Beginning June 30, 2009. Contractowners who have elected the Lincoln Lifetime Income (Reg. TM) Advantage Rider, the Guaranteed Income Benefit (version 2 or version 3) under i4Life (Reg. TM) Advantage, Lincoln SmartSecurity (Reg. TM) Advantage, or 4Later (Reg. TM) Advantage as of June 30, 2009 will be subject to the following Investment Requirements on the investments in their contracts. We have divided the subaccounts of your contract into three groups. We will specify the minimum or maximum percentages of your contract value (includes Account Value if i4LIFE (Reg. TM) Advantage is in effect) that must be in each group at the time you purchase the rider. In addition, you may allocate your contract value and purchase payments in accordance with certain asset allocation models. If you terminate an asset allocation model, you must follow the Investment Requirements applicable to your rider. Some investment options are not available to you if you purchase certain riders. The Investment Requirements may not be consistent with an aggressive investment strategy. You should consult with your registered representative to determine if the Investment Requirements are consistent with your investment objectives. You can select the percentages of contract value to allocate to individual funds within each group, but the total investment for all funds in a group must comply with the specified minimum or maximum percentages for that group. 42 In accordance with these Investment Requirements, you agree to be automatically enrolled in the portfolio rebalancing option under your contract and thereby authorize us to automatically rebalance your contract value on a periodic basis. On each quarterly anniversary of the effective date of the Rider, we will rebalance your contract value, on a pro-rata basis, based on your allocation instructions in effect at the time of the rebalancing. Confirmation of the rebalancing will appear on your quarterly statement and you will not receive an individual confirmation after each reallocation. At this time, the subaccount groups are as follows: Group 1 Group 2 Investments must be at least 30% of contract value Investments cannot exceed 70% of contract value or Account Value ----------------------------------------------------------------- or Account Value ---------------------------------------------------- 1. American Century VP Inflation Protection Fund All other funds except as described below. 2. LVIP Delaware Bond Fund 3. Delaware VIP Limited-Term Diversified Income Series 4. Delaware VIP Diversified Income Series 5. FTVIPT Templeton Global Bond Securities Fund 6. LVIP SSgA Bond Index Fund 7. LVIP Global Income Fund
Group 3 Investments cannot exceed 10% of contract value or Account Value --------------------------------------------------- 1. AllianceBernstein VPS Global Thematic Growth Portfolio 2. Delaware VIP Emerging Markets Series 3. Delaware VIP REIT Series 4. LVIP SSgA Emerging Markets 100 Fund 5. LVIP Cohen & Steers Global Real Estate Fund 6. MFS VIT Utilities Series
To satisfy the Investment Requirements, you may allocate 100% of your contract value among the MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, or the LVIP Wilshire Profile Funds that are available in your contract except not more than 70% can be allocated to the LVIP Wilshire Aggressive Profile Fund, LVIP Wilshire 2030 Profile Fund and LVIP Wilshire 2040 Profile Fund. If you allocate less than 100% of your contract value to or among MFS VIT Total Return Series, the BlackRock Global Allocation VI Fund, or the available LVIP Wilshire Profile Funds, then these funds will be considered as part of Group 2 above and you will be subject to Group 2 restrictions. The DWS Alternative Asset Allocation Plus VIP Portfolio and the PIMCO VIT Commodity Real Return Strategy Portfolio are not available with these riders, The fixed account is only available for dollar cost averaging. To satisfy the Investment Requirements, contract value can be allocated in accordance with certain asset allocation models, made available to you by your broker dealer. 100% of the contract value can be allocated to one of the following models: Lincoln SSgA Structured Conservative Model, Lincoln SSgA Structured Moderate Model, Lincoln SSgA Structured Moderately Aggressive Model, Lincoln SSgA Conservative Index Model, Lincoln SSgA Moderate Index Model, and Lincoln SSgA Moderately Aggressive Index Model. You may choose one asset allocation model at a time, though you may change to a different asset allocation model in your contract that meets the Investment Requirements or reallocate your contract value among the Group 1, 2 or 3 subaccounts. Living Benefit Riders The optional Living Benefit Riders offered under this variable annuity contract - Lincoln Lifetime IncomeSM Advantage, Lincoln SmartSecurity (Reg. TM) Advantage, i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit and 4LATER (Reg. TM) Advantage - are described in the following sections. The riders offer either a minimum withdrawal benefit (Lincoln Lifetime IncomeSM Advantage and Lincoln SmartSecurity (Reg. TM) Advantage) or a minimum annuity payout (i4LIFE (Reg. TM) Advantage and 4LATER (Reg. TM) Advantage). You may not elect more than one Living Benefit rider at a time. Upon election of a Living Benefit rider, you will be subject to Investment Requirements. The overview chart provided with this prospectus provides a brief description and comparison of each Living Benefit rider. Terms and conditions may change after the contract is purchased. 43 Lincoln Lifetime IncomeSM Advantage The Lincoln Lifetime IncomeSM Advantage is a Rider that is available for purchase with your variable annuity contract if the purchase payment or contract value (if purchased after the contract is issued) is at least $25,000 and you are age 60 or older. This Rider provides minimum, guaranteed, periodic withdrawals for your life as contract owner/annuitant regardless of the investment performance of the contract, provided that certain conditions are met. A minimum guaranteed amount (Guaranteed Amount) is used to calculate the periodic withdrawals from your contract but, is not available as a separate benefit upon death or surrender. The Guaranteed Amount is equal to the initial purchase payment plus the amount of any bonus credit applicable to that purchase payment (or contract value if elected after contract issue) increased by subsequent purchase payments, any bonus credits, Automatic Annual Step-ups, 5% Enhancements and the Step-up to 200% of the initial Guaranteed Amount and decreased by withdrawals in accordance with the provisions set forth below. No additional purchase payments are allowed if the contract value decreases to zero for any reason. This Rider provides annual withdrawals of 5% of the initial Guaranteed Amount called Maximum Annual Withdrawal amounts. You may receive Maximum Annual Withdrawal amounts for your lifetime. Withdrawals in excess of the Maximum Annual Withdrawal amount may significantly reduce your Maximum Annual Withdrawal amount. Withdrawals will also negatively impact the availability of the 5% Enhancement and the 200% Step-up. These options are discussed below in detail. By purchasing the Lincoln Lifetime IncomeSM Advantage Rider, you will be limited in how you can invest in the subaccounts in your contract. In addition, the fixed account is not available except for use with dollar cost averaging. See The Contracts - Investment Requirements. Lincoln New York offers other optional riders available for purchase with its variable annuity contracts. These riders provide different methods to take income from your contract value and may provide certain guarantees. These riders are fully discussed in this prospectus. There are differences between the riders in the features provided as well as the charge structure. In addition, the purchase of one rider may impact the availability of another rider. Information about the relationship between Lincoln Lifetime IncomeSM Advantage and these other riders is included later in this prospectus. Not all riders will be available at all times. We have designed the rider to protect you from outliving your contract value. If the rider terminates or you die before your contract value is reduced to zero, neither you nor your estate will receive any lifetime withdrawals from us under the rider. We limit your withdrawals to the Maximum Annual Withdrawal amount and impose Investment Requirements in order to minimize the risk that your contract value will be reduced to zero before your death. Accordingly, a significant risk against which the rider protects, i.e., that your contract value will be reduced to zero (due to poor market performance or charges) while you are still alive, may be minimal. If the Rider is elected at contract issue, then the Rider will be effective on the contract's effective date. If the Rider is elected after the contract is issued (by sending a written request to our Servicing Office), the Rider will be effective on the next valuation date following approval by us. You may not simultaneously elect Lincoln Lifetime IncomeSM Advantage with any other living benefit rider. Benefit Year. The Benefit Year is the 12-month period starting with the effective date of the Rider and starting with each anniversary of the Rider effective date after that. Guaranteed Amount. The Guaranteed Amount is a value used to calculate your withdrawal benefit under this Rider. The Guaranteed Amount is not available to you as a lump sum withdrawal or a death benefit. The initial Guaranteed Amount varies based on when you elect the Rider. If you elect the Rider at the time you purchase the contract, the initial Guaranteed Amount will equal your initial purchase payment plus the amount of any bonus credit. If you elect the Rider after we issue the contract, the initial Guaranteed Amount will equal the contract value on the effective date of the Rider. The maximum Guaranteed Amount is $10,000,000. This maximum takes into consideration the total Guaranteed Amounts from all Lincoln New York contracts (or contracts issued by our affiliates) in which you are the covered life under either the Lincoln Lifetime IncomeSM Advantage or Lincoln SmartSecurity (Reg. TM) Advantage. Additional purchase payments and any bonus credits automatically increase the Guaranteed Amount by the amount of the purchase payment and any bonus credit (not to exceed the maximum Guaranteed Amount); for example, a $10,000 additional purchase payment, which receives a 3% bonus credit, will increase the Guaranteed Amount by $10,300. After the first anniversary of the Rider effective date, each time a purchase payment is made after the cumulative purchase payments equal or exceed $100,000, the charge for your Rider may change on the next Benefit Year anniversary. The charge will be the current charge in effect on that next Benefit Year Anniversary, for new purchases of the Rider. The charge will never exceed the guaranteed maximum annual charge. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. Additional purchase payments will not be allowed if the contract value decreases to zero for any reason including market loss. The following example demonstrates the impact of additional purchase payments on the Lincoln Lifetime IncomeSM Advantage charge: Initial purchase payment $100,000 Additional purchase payment in Year 2 $ 95,000 No change to charge Additional purchase payment in Year 3 $ 75,000 Charge will be the current charge Additional purchase payment in Year 4 $ 25,000 Charge will be the current charge
44 Each withdrawal reduces the Guaranteed Amount as discussed below. Since the charge for the Rider is based on the Guaranteed Amount, the cost of the Rider increases when additional purchase payments, and applicable bonus credits, Automatic Annual Step-ups, 5% Enhancements and the 200% Step-up are made, and the cost decreases as withdrawals are made because these transactions all adjust the Guaranteed Amount. In addition, the percentage charge may change when cumulative purchase payments exceed $100,000 and also when Automatic Annual Step-ups occur as discussed below. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. 5% Enhancement to the Guaranteed Amount. On each Benefit Year anniversary, the Guaranteed Amount, minus purchase payments and any applicable bonus credits received in that year, will be increased by 5% if the contract owner/annuitant is under age 86 and the Rider is within the 10 year period described below. Additional purchase payments and any bonus credits must be invested in the contract at least one Benefit Year before the 5% Enhancement will be made on the portion of the Guaranteed Amount equal to that purchase payment (and bonus credit). Any purchase payments and bonus credits made within the first 90 days after the effective date of the Rider will be included in the Guaranteed Amount for purposes of receiving the 5% Enhancement on the first Benefit Year anniversary. Note: The 5% Enhancement is not available in any year there is a withdrawal from contract value including a Maximum Annual Withdrawal Amount. A 5% Enhancement will occur in subsequent years after a withdrawal only under certain conditions. If you are eligible (as defined below) for the 5% Enhancement in the next year, the Enhancement will not occur until the Benefit Year anniversary of that year. The following is an example of the impact of the 5% Enhancement on the Guaranteed Amount: Initial purchase payment = $100,000; Bonus Credit of 4% = $4,000; Guaranteed Amount = $104,000 Additional purchase payment on day 30 = $15,000; Bonus Credit of 4% = $600; Guaranteed Amount = $119,600 Additional purchase payment on day 95 = $10,000; Bonus Credit of 4% = $400; Guaranteed Amount = $130,000 On the first Benefit Year Anniversary, the Guaranteed Amount will never be less than $135,980 ($119,600 times 1.05% = $125,580 plus $10,400). The $10,000 purchase payment and $400 bonus credit on day 95 is not eligible for the 5% Enhancement until the 2nd Benefit Year Anniversary. The 5% Enhancement will be in effect for 10 years from the effective date of the Rider. The 5% Enhancement will cease upon the death of the contractowner/annuitant or when the contractowner/annuitant reaches age 86. A new 10-year period will begin each time an Automatic Annual Step-up to the contract value occurs as described below. As explained below, the 5% Enhancement and Automatic Annual Step-up will not occur in the same year. If the Automatic Annual Step-up provides a greater increase to the Guaranteed Amount, you will not receive the 5% Enhancement. The 5% Enhancement cannot increase the Guaranteed Amount above the maximum Guaranteed Amount of $10,000,000. For riders purchased prior to January 20, 2009, the 5% Enhancement will be in effect for 15 years from the effective date of the Rider, and a new 15-year period will begin following each Automatic Annual Step-up. The 5% Enhancement will not occur on any Benefit Year anniversary in which there is a withdrawal, including a Maximum Annual Withdrawal amount, from the contract during that Benefit Year. The 5% Enhancement will occur on the following Benefit Year anniversary if no other withdrawals are made from the contract and the Rider is within the 10-year period. An example of the impact of a withdrawal on the 5% Enhancement is included in the Withdrawals section below. If your Guaranteed Amount is increased by the 5% Enhancement on the Benefit Year anniversary, your percentage charge for the Rider will not change. However, the amount you pay for the Rider will increase since the charge for the Rider is based on the Guaranteed Amount. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. Automatic Annual Step-ups of the Guaranteed Amount. The Guaranteed Amount will automatically step-up to the contract value on each Benefit Year anniversary if: a. the contractowner/annuitant is still living and under age 86; and b. the contract value on that Benefit Year anniversary is greater than the Guaranteed Amount after the 5% Enhancement (if any) or 200% Step-up (if any, as described below). Each time the Guaranteed Amount is stepped up to the current contract value as described above, your percentage charge for the Rider will be the current charge for the Rider, not to exceed the guaranteed maximum charge. Therefore, your percentage charge for this Rider could increase every Benefit Year anniversary. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. If your percentage rider charge is increased upon an Automatic Annual Step-up, you may opt out of the Automatic Annual Step-up by giving us notice within 30 days after the Benefit Year anniversary if you do not want your percentage charge for the Rider to change. This opt out will only apply for this particular Automatic Annual Step-up. You will need to notify us each time the percentage charge increases if you do not want the Step-up. If you decline the Automatic Annual Step-up, you will receive the 200% Step-up (if you are 45 eligible as described below) or the 5% Enhancement (if you are eligible as specified above); however, a new 10-year period for 5% Enhancements will not begin. You may not decline the Automatic Annual Step-up, if applicable, if your additional purchase payments would cause your charge to increase. See the earlier Guaranteed Amount section. Following is an example of how the Automatic Annual Step-ups and the 5% Enhancement will work (assuming no withdrawals or additional purchase payments):
Potential for Length of 5% Guaranteed Charge to Enhancement Contract Value Amount Change Period ---------------- ------------ --------------- ------------- Initial Purchase Payment $50,000 + 3% bonus credit . $51,500 $51,500 No 10 1st Benefit Year Anniversary........................... $54,000 $54,075 No 9 2nd Benefit Year Anniversary........................... $53,900 $56,779 No 8 3rd Benefit Year Anniversary........................... $57,000 $59,618 No 7 4th Benefit Year Anniversary........................... $64,000 $64,000 Yes 10
On the 1st Benefit Year anniversary, the 5% Enhancement increased the Guaranteed Amount to $54,075 since the increase in the contract value ($2,500) is less than the 5% Enhancement amount of $2,575 (5% of $51,500). On the 2nd Benefit Year anniversary, the 5% Enhancement provided a larger increase (5% of $54,075 = $2,704). On the 3rd Benefit Year anniversary, the 5% Enhancement provided a larger increase (5% of $56,779 = $2,839). On the 4th Benefit Year anniversary, the Automatic Annual Step-up to the contract value was greater than the 5% Enhancement amount of $2,981 (5% of $59,618). An Automatic Annual Step-up cannot increase the Guaranteed Amount beyond the maximum Guaranteed Amount of $10,000,000. Step-up to 200% of the initial Guaranteed Amount. On the later of the 10th Benefit Year anniversary or the Benefit Year anniversary after you reach age 75, we will step-up your Guaranteed Amount to 200% of your initial Guaranteed Amount (plus any purchase payments, including bonus credits, made within 90 days of rider election), less any withdrawals, if this would increase your Guaranteed Amount to an amount higher than that provided by the 5% Enhancement or the Automatic Annual Step-up for that year, if applicable. (You will not also receive the 5% Enhancement or Automatic Annual Step-up if the 200% Step-up applies.) (The 200% Step-up will occur on the 10th Benefit Year anniversary if you purchased the rider prior to May 1, 2009.) This Step-up will not occur if: 1) An Excess Withdrawal (defined below) has occurred; or 2) Cumulative withdrawals totaling more than 10% of the initial Guaranteed Amount (plus purchase payments and applicable bonus credits within 90 days of rider election) have been made (even if these withdrawals were within the Maximum Annual Withdrawal amount). For example, assume the initial Guaranteed Amount is $208,000. A $10,400 Maximum Annual Withdrawal was made at age 69 and at age 70. If one more $10,400 Maximum Annual Withdrawal was made at age 71, the Step-up would not be available since withdrawals cannot exceed $20,800 (10% of $208,000). This Step-up is only available one time and it will not occur if, on the applicable Benefit Year anniversary, your Guaranteed Amount exceeds 200% of your initial Guaranteed Amount (plus purchase payments and applicable bonus credits within 90 days of rider election). Required minimum distributions (RMDs) from qualified contracts may adversely impact this benefit because you may have to withdraw more than 10% of your initial Guaranteed Amount. See the terms governing RMDs in the Maximum Annual Withdrawal Amounts section below. This Step-up will not cause a change to the percentage charge for your rider. However, the amount you pay for the rider will increase since the charge is based on the Guaranteed Amount. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage Charge. The following example demonstrates the impact of this Step-up on the Guaranteed Amount: Initial purchase payment at age 65 = $200,000; Bonus Credit of $8,000; Guaranteed Amount =$208,000; Maximum Annual Withdrawal amount = $10,400. After 10 years, at age 75, the Guaranteed Amount is $283,232 (after applicable 5% Enhancements and two $10,400 Maximum Annual Withdrawal Amounts) and the contract value is $250,000. Since the Guaranteed Amount is less than $374,400 ($208,000 initial Guaranteed Amount reduced by the two $10,400 withdrawals times 200%), the Guaranteed Amount is increased to $374,400. The 200% Step-up cannot increase the Guaranteed Amount beyond the Maximum Guaranteed Amount of $10,000,000. Maximum Annual Withdrawal Amount. You may make periodic withdrawals up to the Maximum Annual Withdrawal amount each Benefit Year for your lifetime as long as your Maximum Annual Withdrawal amount is greater than zero. 46 On the effective date of the Rider, the Maximum Annual Withdrawal amount is equal to 5% of the initial Guaranteed Amount. If you do not withdraw the entire Maximum Annual Withdrawal amount during a Benefit Year, there is no carryover of the extra amount into the next Benefit Year. If your contract value is reduced to zero because of market performance, withdrawals equal to the Maximum Annual Withdrawal amount will continue automatically for your life under the Maximum Annual Withdrawal Amount Annuity Payment Option (discussed later). You may not withdraw the remaining Guaranteed Amount in a lump sum. Note: if any withdrawal is made, the 5% Enhancement is not available during that Benefit Year and the Lincoln Lifetime IncomeSM Advantage Plus is not available (see below). Withdrawals may also negatively impact the 200% Step-up (see above). The tax consequences of withdrawals are discussed in Federal Tax Matters section of this prospectus. All withdrawals you make, whether or not within the Maximum Annual Withdrawal amount, will decrease your contract value. The Maximum Annual Withdrawal amount is increased by 5% of any additional purchase payments and bonus credits. For example, if the Maximum Annual Withdrawal amount of $2,575 (5% of $51,500 Guaranteed Amount) is in effect and an additional purchase payment of $10,000 is made (which receives a 3% bonus credit), the new Maximum Annual Withdrawal amount is $3,090 ($2,575 + 5% of $10,300). 5% Enhancements, Automatic Annual Step-ups and the 200% Step-up will cause a recalculation of the eligible Maximum Annual Withdrawal amount to the greater of: a. the Maximum Annual Withdrawal amount immediately prior to the 5% Enhancement, Automatic Annual Step-up or 200% Step-up; or b. 5% of the Guaranteed Amount on the Benefit Year anniversary. See the chart below for examples of the recalculation. The Maximum Annual Withdrawal amount from both Lincoln Lifetime IncomeSM Advantage and Lincoln SmartSecurity (Reg. TM) Advantage under all Lincoln New York contracts (or contracts issued by our affiliates) applicable to you can never exceed 5% of the maximum Guaranteed Amount. Withdrawals. If the cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) are within the Maximum Annual Withdrawal amount, then: 1. the withdrawal will reduce the Guaranteed Amount by the amount of the withdrawal on a dollar-for-dollar basis, and 2. the Maximum Annual Withdrawal amount will remain the same. The following example illustrates the impact of Maximum Annual Withdrawals on the Guaranteed Amount and the recalculation of the Maximum Annual Withdrawal amount (assuming no additional purchase payments):
Guaranteed Maximum Annual Contract Value Amount Withdrawal Amount ---------------- ------------ ------------------ Initial Purchase Payment $50,000 + 3% bonus credit . $51,500 $51,500 $2,575 1st Benefit Year Anniversary........................... $54,000 $54,000 $2,700 2nd Benefit Year Anniversary........................... $51,000 $51,300 $2,700 3rd Benefit Year Anniversary........................... $57,000 $57,000 $2,850 4th Benefit Year Anniversary........................... $64,000 $64,000 $3,200
The initial Maximum Annual Withdrawal amount is equal to 5% of the Guaranteed Amount. Since withdrawals occurred each year (even withdrawals within the Maximum Annual Withdrawal amount), the 5% Enhancement of the Guaranteed Amount was not available. However, each year the Automatic Annual Step-up occurred (1st, 3rd and 4th anniversaries), the Maximum Annual Withdrawal amount was recalculated to 5% of the current Guaranteed Amount. Withdrawals within the Maximum Annual Withdrawal amount are not subject to surrender charges. Withdrawals from Individual Retirement Annuity contracts will be treated as within the Maximum Annual Withdrawal amount (even if they exceed the 5% Maximum Annual Withdrawal amount) only if the withdrawals are taken in systematic monthly or quarterly installments of the amount needed to satisfy the RMD rules under Internal Revenue Code Section 401(a)(9). In addition, in order for this exception for RMDs to apply, the following must occur: 1. Lincoln's monthly or quarterly automatic withdrawal service is used to calculate and pay the RMD; 2. The RMD calculation must be based only on the value in this contract; and 3. No withdrawals other than RMDs are made within that Benefit Year (except as described in next paragraph). 47 If your RMD withdrawals during a Benefit Year are less than the Maximum Annual Withdrawal amount, an additional amount up to the Maximum Annual Withdrawal Amount may be withdrawn and will not be subject to surrender charges. If a withdrawal, other than an RMD is made during the Benefit Year, then all amounts withdrawn in excess of the Maximum Annual Withdrawal amount, including amounts attributed to RMDs, will be treated as Excess Withdrawals (see below). Distributions from qualified contracts are generally taxed as ordinary income. In nonqualified contracts, withdrawals of contract value that exceed purchase payments are taxed as ordinary income. See Federal Tax Matters. Excess Withdrawals. Excess Withdrawals are the cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) that exceed the Maximum Annual Withdrawal amount. When Excess Withdrawals occur: 1. The Guaranteed Amount is reduced by the same proportion that the Excess Withdrawal reduces the contract value. This means that the reduction in the Guaranteed Amount could be more than a dollar-for-dollar reduction. 2. The Maximum Annual Withdrawal amount will be immediately recalculated to 5% of the new (reduced) Guaranteed Amount (after the pro rata reduction for the Excess Withdrawal); and 3. The 200% Step-up will never occur. The following example demonstrates the impact of an Excess Withdrawal on the Guaranteed Amount and the Maximum Annual Withdrawal amount. A $12,000 withdrawal caused a $15,102 reduction in the Guaranteed Amount. Prior to Excess Withdrawal: Contract Value = $60,000 Guaranteed Amount = $85,000 Maximum Annual Withdrawal amount = $5,200 (5% of the initial Guaranteed Amount of $104,000) After a $12,000 Withdrawal ($5,200 is within the Maximum Annual Withdrawal amount, $6,800 is the Excess Withdrawal): The contract value and Guaranteed Amount are reduced dollar for dollar for the Maximum Annual Withdrawal amount of $5,200: Contract Value = $54,800 Guaranteed Amount = $79,800 The contract value is reduced by the $6,800 Excess Withdrawal and the Guaranteed Amount is reduced by 12.41%, the same proportion that the Excess Withdrawal reduced the $54,800 contract value ($6,800 - $54,800) Contract value = $48,000 Guaranteed Amount = $69,898 ($79,800 X 12.41% = $9,902; $79,800 - $9,902 = $69,898) Maximum Annual Withdrawal amount = $3,494.89 (5% of $69,898) In a declining market, withdrawals that exceed the Maximum Annual Withdrawal amount may substantially deplete or eliminate your Guaranteed Amount and reduce or deplete your Maximum Annual Withdrawal amount. The portion of Excess Withdrawals attributed to purchase payments (and not bonus credits) will be subject to surrender charges unless one of the waiver of surrender charge provisions set forth in your prospectus is applicable. Continuing with the prior example of the $12,000 withdrawal: the $5,200 Maximum Annual Withdrawal amount is not subject to surrender charges; the $6,800 Excess Withdrawal may be subject to surrender charges. See Charges and Other Deductions - Surrender Charges. Withdrawals attributed to bonus credits are not subject to surrender charges. Maximum Annual Withdrawal Amount Annuity Payout Option. If you are required to annuitize your Maximum Annual Withdrawal Amount, because you have reached the Maturity Date of the Contract, the Maximum Annual Withdrawal Amount Annuity Payout Option is available. The Maximum Annual Withdrawal Amount Annuity Payment Option is a fixed annuitization in which the contractowner will receive annual annuity payments equal to the Maximum Annual Withdrawal amount for life (this option is different from other annuity payment options discussed in your prospectus, including i4LIFE (Reg. TM) Advantage, which are based on your contract value). Payment frequencies other than annual may be available. You will have no other contract features other than the right to receive annuity payments equal to the Maximum Annual Withdrawal amount for your life. If the contract value is zero and you have a remaining Maximum Annual Withdrawal amount, you will receive the Maximum Annual Withdrawal Amount Annuity Payment Option. If you are receiving the Maximum Annual Withdrawal Amount Annuity Payout Option, your beneficiary may be eligible for a final payment upon your death. To be eligible the death benefit option in effect immediately prior to the Maximum Annual Withdrawal Amount Annuity Payout Option must not be the Account Value Death Benefit. 48 The final payment is equal to the sum of all purchase payments, decreased by withdrawals in the same proportion as the withdrawals reduce the contract value; withdrawals less than or equal to the Maximum Annual Withdrawal amount and payments under the Maximum Annual Withdrawal Annuity Payout Option will reduce the sum of the purchase payments dollar for dollar. If your death benefit option in effect immediately prior to the Maximum Annual Withdrawal Amount Annuity Payout Option provided for deduction for withdrawals on a dollar for dollar basis, then any withdrawals that occurred prior to the election of the Lincoln Lifetime Income (Reg. TM) Advantage will reduce the sum of all purchase payments on a dollar for dollar basis. Death Prior to the Annuity Commencement Date. The Lincoln Lifetime IncomeSM Advantage has no provision for a payout of the Guaranteed Amount or any other death benefit upon death of the contractowners or annuitant. At the time of death, if the contract value equals zero, no death benefit options (as described in the Death Benefit section of this prospectus) will be in effect. Election of the Lincoln Lifetime IncomeSM Advantage does not impact the death benefit options available for purchase with your annuity contract except as described below in Impact to Withdrawal Calculations of Death Benefits before the Annuity Commencement Date. All death benefit payments must be made in compliance with Internal Revenue Code Sections 72(s) or 401(a)(9) as applicable as amended from time to time. See The Contracts - Death Benefit. Upon the death of the contractowner/annuitant, the Lincoln Lifetime IncomeSM Advantage will end and no further Maximum Annual Withdrawal amounts are available (even if there was a Guaranteed Amount in effect at the time of the death). If the beneficiary elects to continue the contract after the death of the contractowner/annuitant (through a separate provision of the contract), the beneficiary may purchase a new Lincoln Lifetime IncomeSM Advantage Rider if available under the terms and charge in effect at the time of the new purchase. There is no carryover of the Guaranteed Amount. General Provisions. Termination. After the seventh anniversary of the effective date of the Rider, the contractowner may terminate the Rider by notifying us in writing. Lincoln Lifetime IncomeSM Advantage will automatically terminate: o on the annuity commencement date (except payments under the Maximum Annual Withdrawal Amount Annuity Payment Option will continue if applicable); o if the contractowner or annuitant is changed including any sale or assignment of the contract or any pledge of the contract as collateral; o on the date the contractowner is changed pursuant to an enforceable divorce agreement or decree; o upon the death of the contractowner/annuitant; o when the Maximum Annual Withdrawal amount is reduced to zero; or o upon termination of the underlying annuity contract. The termination will not result in any increase in contract value equal to the Guaranteed Amount. Upon effective termination of this Rider, the benefits and charges within this Rider will terminate. If you terminate the Rider, you must wait one year before you can re-elect any Lincoln Lifetime IncomeSM Advantage, Lincoln SmartSecurity (Reg. TM) Advantage, 4LATER (Reg. TM) Advantage or any other living benefits we may offer in the future. Compare to Lincoln SmartSecurity (Reg. TM) Advantage. If a contractowner is interested in purchasing a rider that provides guaranteed minimum withdrawals, the following factors should be considered when comparing Lincoln Lifetime IncomeSM Advantage and the Lincoln SmartSecurity (Reg. TM) Advantage (discussed in your prospectus) (only one of these riders can be added to a contract at any one time): the Lincoln Lifetime IncomeSM Advantage has the opportunity to provide a higher Guaranteed Amount because of the 5% Enhancement, Automatic Annual Step-up or 200% Step-up. However, the percentage charge for the Lincoln Lifetime IncomeSM Advantage is higher for the Single Life and has the potential to increase on every Benefit Year Anniversary if the increase in contract value exceeds the 5% Enhancement. There is no Joint Life option for Lincoln Lifetime IncomeSM Advantage. Another factor to consider is that immediate withdrawals from your contract, under the Lincoln Lifetime IncomeSM Advantage, will adversely impact the 5% Enhancement and 200% Step-up. The Lincoln SmartSecurity (Reg. TM) Advantage provides that Maximum Annual Withdrawal amounts can continue to a beneficiary to the extent of any remaining Guaranteed Amount while the Lincoln Lifetime IncomeSM Advantage does not offer this feature. The Investment Requirements and Termination provisions are different between these two riders. i4LIFE (Reg. TM) Advantage Option. i4LIFE (Reg. TM) Advantage is an income program, available for purchase at an additional charge, that provides periodic variable income payments for life, the ability to make withdrawals during a defined period of time (the Access Period) and a death benefit during the Access Period. A minimum payout floor, called the Guaranteed Income Benefit, is also available for purchase at the time you elect i4LIFE (Reg. TM) Advantage. Depending on a person's age and the selected length of the Access Period, i4LIFE (Reg. TM) Advantage may provide a higher payout than the Maximum Annual Withdrawal amounts under Lincoln Lifetime IncomeSM Advantage. You cannot have both i4LIFE (Reg. TM)Advantage and Lincoln Lifetime IncomeSM Advantage in effect on your contract at the same time. Contractowners with an active Lincoln Lifetime IncomeSM Advantage may decide to drop Lincoln Lifetime IncomeSM Advantage and purchase i4LIFE (Reg. TM)Advantage if i4LIFE (Reg. TM) Advantage will provide a higher payout amount. If this decision is made, the contractowner can use any remaining Lincoln Lifetime IncomeSM Advantage Guaranteed Amount to establish the Guaranteed Income Benefit under the 49 i4LIFE (Reg. TM) Advantage. Owners of the Lincoln Lifetime IncomeSM Advantage rider are guaranteed the ability to purchase i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit in the future even if it is no longer generally available for purchase. Owners of Lincoln LIfetime IncomeSM Advantage are also guaranteed that the annuity factors that are used to calculate the initial Guaranteed Income Benefit under i4LIFE (Reg. TM) Advantage will be the annuity factors in effect as of the day they purchased Lincoln Lifetime IncomeSM Advantage. In addition, owners of Lincoln Lifetime IncomeSM Advantage may in the future purchase the Guaranteed Income Benefit at or below the guaranteed maximum charge that is in effect on the date that they purchase Lincoln Lifetime IncomeSM Advantage. i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit must be elected before the Annuity Commencement Date and by age 90 for nonqualified contracts or age 85 for qualified contracts. See i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit sections of your prospectus. The charges for these benefits will be the current charge for new purchasers in effect for the i4LIFE (Reg. TM) Advantage and the current Guaranteed Income Benefit charge in effect for prior purchasers of Lincoln Lifetime IncomeSM Advantage at the time of election of these benefits. If you use your Lincoln Lifetime IncomeSM Advantage Guaranteed Amount to establish the Guaranteed Income Benefit, you must keep i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit in effect for at least 3 years. Below is an example of how the Guaranteed Amount from the Lincoln Lifetime IncomeSM Advantage is used to establish the Guaranteed Income Benefit with i4LIFE (Reg. TM)Advantage. Prior to i4LIFE (Reg. TM)Advantage election: Contract Value = $100,000 Guaranteed Amount = $100,000 After i4LIFE (Reg. TM)Advantage election: Regular Income Payment = $6,700 per year = Contract Value divided by the i4LIFE (Reg. TM) Advantage annuity factor Guaranteed Income Benefit = $5,020 per year = Guaranteed Amount divided by Guaranteed Income Benefit Table factor applicable to owners of the Lincoln Lifetime IncomeSM Advantage rider. Impact to Withdrawal Calculations of Death Benefits before the Annuity Commencement Date. The death benefit calculation for certain death benefit options in effect prior to the annuity commencement date may change for contractowners with an active Lincoln Lifetime IncomeSM Advantage. Certain death benefit options provide that all withdrawals reduce the death benefit in the same proportion that the withdrawals reduce the contract value. If you elect the Lincoln Lifetime IncomeSM Advantage, withdrawals less than or equal to the Maximum Annual Withdrawal amount will reduce the sum of all purchase payments option of the death benefit on a dollar for dollar basis. This applies to the Guarantee of Principal Death Benefit, and only the sum of all purchase payments alternative of the Enhanced Guaranteed Minimum Death Benefit, whichever is in effect. See Death Benefits in this prospectus. Any Excess Withdrawals will reduce the sum of all purchase payments in the same proportion that the withdrawals reduced the contract value under any death benefit option in which proportionate withdrawals are in effect. This change has no impact on death benefit options in which all withdrawals reduce the death benefit calculation on a dollar for dollar basis. The terms of your contract will describe which method is in effect for your contract. The following example demonstrates how a withdrawal will reduce the death benefit if both the Enhanced Guaranteed Minimum Death Benefit (EGMDB) and the Lincoln Lifetime IncomeSM Advantage are in effect when the contractowner dies. Note that this calculation applies only to the sum of all purchase payments calculation and not for purposes of reducing the highest anniversary contract value under the EGMDB: Contract value before withdrawal $80,000 Maximum Annual Withdrawal Amount $ 5,000 Enhanced Guaranteed Minimum Death Benefit (EGMDB) values before withdrawal is the greatest of a), b), or c) described in detail in the EGMDB section of this prospectus: a) Contract value $80,000 b) Sum of purchase payments $100,000 c) Highest anniversary contract value $150,000 Withdrawal of $9,000 will impact the death benefit calculations as follows: a) $80,000 - $9,000 = $71,000 (Reduction $9,000) b) $100,000 - $5,000 = $95,000 (dollar for dollar reduction of Maximum Annual Withdrawal amount) $95,000 - $5,067 = $89,933 [$95,000 times ($4,000/$75,000) = $5,067] Pro rata reduction of Excess Withdrawal. Total reduction = $10,067. c) $150,000 - $16,875 = $133,125 [$150,000 times $9,000/$80,000 = $16,875] The entire $9,000 withdrawal reduces the death benefit option pro rata. Total reduction = $16,875. 50 Item c) provides the largest death benefit of $133,125. Availability. The Lincoln Lifetime IncomeSM Advantage is available for purchase with nonqualified and qualified (IRAs and Roth IRAs) annuity contracts. The contractowner/annuitant must be at least age 60 and under age 86 at the time this Rider is elected. You cannot elect the Rider on or after the purchase of i4LIFE (Reg. TM) Advantage or on or after the Annuity Commencement Date and must wait at least 12 months after terminating 4LATER (Reg. TM) Advantage, Lincoln SmartSecurity (Reg. TM) Advantage or any other living benefits we may offer in the future. If you decide to drop a rider to add Lincoln Lifetime IncomeSM Advantage your Guaranteed Amount will equal the current contract value on the effective date of the change. Before you make this change, you should consider that no guarantees or fee waiver provisions carry over from the previous rider. The Lincoln Lifetime IncomeSM Advantage terminates after the death of a covered life and the Guaranteed Amount is not available to a beneficiary. You will be subject to additional Investment Requirements. See the comparison to Lincoln SmartSecurity (Reg. TM) Advantage for other factors to consider before making a change. There is no guarantee that the Lincoln Lifetime IncomeSM Advantage will be available for new purchasers in the future as we reserve the right to discontinue this benefit at any time. The availability of this Rider will depend upon your state's approval of this Rider. In addition, certain features of the Rider may not be available in some states. Check with your investment representative regarding availability. Lincoln SmartSecurity (Reg. TM) Advantage The Lincoln SmartSecurity (Reg. TM) Advantage is a Rider that is available for purchase with your variable annuity contract. This benefit provides a minimum guaranteed amount (Guaranteed Amount) that you will be able to withdraw, in installments, from your contract. The Guaranteed Amount is equal to the initial purchase payment plus the amount of any bonus credit applicable to that purchase payment (or contract value if elected after contract issue) adjusted for subsequent purchase payments, any bonus credits, step-ups and withdrawals in accordance with the provisions set forth below. There are two different options that step-up the Guaranteed Amount to a higher level (the contract value at the time of the step-up): Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up or Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up The Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option is no longer available for purchase after January 16, 2009. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up, the contractowner has the option to step-up the Guaranteed Amount after five years. With the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the Guaranteed Amount will automatically step-up to the contract value, if higher, on each Benefit Year anniversary through the 10th anniversary. With the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up, the contractowner can also initiate additional ten-year periods of automatic step-ups. You may access this Guaranteed Amount through periodic withdrawals which are based on a percentage of the Guaranteed Amount. With the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up Single Life or Joint Life options, you also have the option to receive periodic withdrawals for your lifetime or for the lifetimes of you and your spouse (when available in your state). These options are discussed below in detail. By purchasing this Rider, you will be limited in how much you can invest in certain subaccounts. See The Contracts - Investment Requirements. We offer other optional riders available for purchase with its variable annuity contracts. These riders, which are fully discussed in this prospectus, provide different methods to take income from your contract value and may provide certain guarantees. There are differences between the riders in the features provided as well as the charge structure. In addition, the purchase of one rider may impact the availability of another rider. In particular, before you elect the Lincoln SmartSecurity (Reg. TM) Advantage, you may want to compare it to Lincoln Lifetime IncomeSM Advantage, which provides minimum guaranteed, periodic withdrawals for life. See The Contracts - Lincoln Lifetime IncomeSM Advantage - Compare to Lincoln SmartSecurity (Reg. TM) Advantage. If the benefit is elected at contract issue, then the Rider will be effective on the contract's effective date. If the benefit is elected after the contract is issued (by sending a written request to our Servicing office), the Rider will be effective on the next valuation date following approval by us. Benefit Year. The Benefit Year is the 12-month period starting with the effective date of the Rider and starting with each anniversary of the Rider effective date after that. If the contractowner elects to step-up the Guaranteed Amount (this does not include automatic annual step-ups within a ten-year period), the Benefit Year will begin on the effective date of the step-up and each anniversary of the effective date of the step-up after that. The step-up will be effective on the next valuation date after notice of the step-up is approved by us. Guaranteed Amount. The Guaranteed Amount is a value used to calculate your withdrawal benefit under this Rider. The Guaranteed Amount is not available to you as a lump sum withdrawal or a death benefit. The initial Guaranteed Amount varies based on when and how you elect the benefit. If you elect the benefit at the time you purchase the contract, the Guaranteed Amount will equal your initial purchase payment plus the amount of any bonus credit. If you elect the benefit after we issue the contract, the Guaranteed Amount will equal the contract value on the effective date of the Rider. The maximum Guaranteed Amount is $5,000,000 under Lincoln 51 SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option and $10,000,000 for Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option. This maximum takes into consideration the combined Guaranteed Amounts of all Lincoln New York contracts (or contracts issued by our affiliates) owned by you (or on which you or your spouse if joint owner are the annuitant) under either the Lincoln SmartSecurity (Reg. TM) Advantage or the Lincoln Lifetime IncomeSM Advantage. Additional purchase payments and bonus credits automatically increase the Guaranteed Amount by the amount of the purchase payment and bonus credit (not to exceed the maximum); for example, a $10,000 additional purchase payment, which receives a 3% bonus credit will increase the Guaranteed Amount by $10,300. For the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option we may restrict purchase payments to your annuity contract in the future. We will notify you if we restrict additional purchase payments. For the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, we will allow purchase payments into your annuity contract after the first anniversary of the Rider effective date if the cumulative additional purchase payments exceed $100,000 only with prior Servicing Office approval. Additional purchase payments will not be allowed if the contract value is zero. Each withdrawal reduces the Guaranteed Amount as discussed below. Since the charge for the Rider is based on the Guaranteed Amount, the cost of the Rider increases when additional purchase payments and step-ups are made and any bonus credits are received, and the cost decreases as withdrawals are made because these transactions all adjust the Guaranteed Amount. Step-ups of the Guaranteed Amount. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the Guaranteed Amount will automatically step-up to the contract value on each Benefit Year anniversary up to and including the tenth Benefit Year if: a. the contractowner or joint owner is still living; and b. the contract value as of the valuation date, after the deduction of any withdrawals (including any surrender charges and other deductions), the Rider charge and account fee plus any purchase payments and any bonus credits made on that date is greater than the Guaranteed Amount immediately preceding the valuation date. After the tenth Benefit Year anniversary, you may initiate another ten-year period of automatic step-ups by electing (in writing) to step-up the Guaranteed Amount to the greater of the Contract Value or the current Guaranteed Amount if: a. each contractowner and annuitant is under age 81; and b. the contractowner or joint owner is still living. If you choose, we will administer this election for you automatically, so that a new ten-year period of step-ups will begin at the end of each prior ten-year step-up period. Following is an example of how the step-ups work in the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, (assuming no withdrawals or additional purchase payments):
Contract Value Guaranteed Amount ---------------- ------------------ o Initial Purchase Payment $50,000 (3% bonus credit) $51,500 $51,500 o 1st Benefit Year Anniversary $54,000 $54,000 o 2nd Benefit Year Anniversary $53,900 $54,000 o 3rd Benefit Year Anniversary $57,000 $57,000
Annual step-ups, if the conditions are met, will continue until (and including) the 10th Benefit Year Anniversary. If you had elected to have the next ten-year period of step-ups begin automatically after the prior ten-year period, annual step-ups, if conditions are met, will continue beginning on the 11th Benefit Year Anniversary. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option, after the fifth anniversary of the Rider, you may elect (in writing) to step-up the Guaranteed Amount to an amount equal to the contract value on the effective date of the step-up. Additional step-ups are permitted, but you must wait at least 5 years between each step-up. Under both the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up and the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up options, contractowner elected step-ups (other than automatic step-ups) will be effective on the next valuation date after we receive your request and a new Benefit Year will begin. Purchase payments, any bonus credits and withdrawals made after a step-up adjust the Guaranteed Amount. In the future, we may limit your right to step-up the Guaranteed Amount to your Benefit Year anniversary dates. All step-ups are subject to the maximum Guaranteed Amount. A contractowner elected step-up (including contractowner step-ups that we administer for you to begin a new ten-year step-up period) may cause a change in the percentage charge for this benefit. There is no change in the percentage charge when automatic, annual step-ups occur during a ten-year period. See Rider Charges - Lincoln SmartSecurity (Reg. TM) Advantage Charge. 52 Withdrawals. You will have access to your Guaranteed Amount through periodic withdrawals up to the Maximum Annual Withdrawal amount each Benefit Year until the Guaranteed Amount equals zero. On the effective date of the Rider, the Maximum Annual Withdrawal amount is: o 7% of the Guaranteed Amount under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option and o 5% of the Guaranteed Amount under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option. If you do not withdraw the entire Maximum Annual Withdrawal amount during a Benefit Year, there is no carryover of the extra amount into the next Benefit Year. The Maximum Annual Withdrawal amount is increased by 7% or 5% (depending on your option) of any additional purchase payments and any bonus credits. For example, if the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option with a Maximum Annual Withdrawal amount of $2,575 (5% of $51,500 Guaranteed Amount) is in effect and an additional purchase payment of $10,000 is made (which receives a 3% bonus credit), the new Maximum Annual Withdrawal amount is $3,090 ($2,575 + 5% of $10,300). Step-ups of the Guaranteed Amount (both automatic step-ups and step-ups elected by you) will step-up the Maximum Annual Withdrawal amount to the greater of: a. the Maximum Annual Withdrawal amount immediately prior to the step-up; or b. 7% or 5% (depending on your option) of the new (stepped-up) Guaranteed Amount. If the cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) are within the Maximum Annual Withdrawal amount, then: 1. the withdrawal will reduce the Guaranteed Amount by the amount of the withdrawal on a dollar-for-dollar basis, and 2. the Maximum Annual Withdrawal amount will remain the same. Withdrawals within the Maximum Annual Withdrawal amount are not subject to surrender charges or the interest adjustment on the amount withdrawn from the fixed account, if applicable. See The Contracts - Fixed Side of the Contract. If the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option is in effect, withdrawals from IRA contracts will be treated as within the Maximum Annual Withdrawal amount (even if they exceed the 5% Maximum Annual Withdrawal amount) only if the withdrawals are taken in the form of systematic monthly or quarterly installments, as calculated by Lincoln, of the amount needed to satisfy the required minimum distribution rules under Internal Revenue Code Section 401(a)(9) for this contract value. Distributions from qualified contracts are generally taxed as ordinary income. In nonqualified contracts, withdrawals of contract value that exceed purchase payments are taxed as ordinary income. See Federal Tax Matters. When cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) exceed the Maximum Annual Withdrawal amount: 1. The Guaranteed Amount is reduced to the lesser of: o the contract value immediately following the withdrawal, or o the Guaranteed Amount immediately prior to the withdrawal, less the amount of the withdrawal. 2. The Maximum Annual Withdrawal amount will be the least of: o the Maximum Annual Withdrawal amount immediately prior to the withdrawal; or o the greater of: o 7% or 5% (depending on your option) of the reduced Guaranteed Amount immediately following the withdrawal (as specified above when withdrawals exceed the Maximum Annual Withdrawal amount); or o 7% or 5% (depending on your option) of the contract value immediately following the withdrawal; or o the new Guaranteed Amount. The following example of the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option,demonstrates the impact of a withdrawal in excess of the Maximum Annual Withdrawal amount on the Guaranteed Amount and the Maximum Annual Withdrawal amount. A $7,000 withdrawal caused a $29,400 reduction in the Guaranteed Amount. Prior to Excess Withdrawal: Contract Value = $60,000 Guaranteed Amount = $82,400 Maximum Annual Withdrawal = $5,200 (5% of the initial Guaranteed Amount of $104,000) Initial Guaranteed Amount of $104,000 equals $100,000 purchase payment and 4% bonus credit After a $7,000 Withdrawal: Contract Value = $53,000 Guaranteed Amount = $53,000 Maximum Annual Withdrawal = $2,650 53 The Guaranteed Amount was reduced to the lesser of the contract value immediately following the withdrawal ($53,000) or the Guaranteed Amount immediately prior to the withdrawal, less the amount of the withdrawal ($82,400 - $7,000 = $75,400). The Maximum Annual Withdrawal amount was reduced to the least of: 1) Maximum Annual Withdrawal amount prior to the withdrawal ($5,150); or 2) The greater of 5% of the new Guaranteed Amount ($2,650) or 5% of the contract value following the withdrawal ($2,650); or 3) The new Guaranteed Amount ($53,000). The least of these three items is $2,650. In a declining market, withdrawals that exceed the Maximum Annual Withdrawal amount may substantially deplete or eliminate your Guaranteed Amount and reduce your Maximum Annual Withdrawal amount. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option for IRA contracts, the annual amount available for withdrawal within the Maximum Annual Withdrawal amount may not be sufficient to satisfy your required minimum distributions under the Internal Revenue Code. This is particularly true for individuals over age 84. Therefore, you may have to make withdrawals that exceed the Maximum Annual Withdrawal amount. Withdrawals over the Maximum Annual Withdrawal amount may quickly and substantially decrease your Guaranteed Amount and Maximum Annual Withdrawal amount, especially in a declining market. You should consult your tax advisor to determine if there are ways to limit the risks associated with these withdrawals. Such methods may involve the timing of withdrawals or foregoing step-ups of the Guaranteed Amount. Withdrawals in excess of the Maximum Annual Withdrawal amount will be subject to surrender charges and an interest adjustment on the amount withdrawn from the fixed account. Refer to the Statement of Additional Information for an example of the interest adjustment calculation. Lifetime Withdrawals. (Available only with the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up Single or Joint Life options and not the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option or the prior version of the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option). Payment of the Maximum Annual Withdrawal amount will be guaranteed for your (contractowner) lifetime (if you purchase the Single Life option) or for the lifetimes of you (contractowner) and your spouse (if the Joint Life option is purchased), as long as: 1) No withdrawals are made before you (and your spouse if a Joint Life) are age 65; and 2) An excess withdrawal (described above) has not reduced the Maximum Annual Withdrawal amount to zero. If the lifetime withdrawal is not in effect, the Maximum Annual Withdrawal amount will last only until the Guaranteed Amount equals zero. If any withdrawal is made prior to the time you (or both spouses) are age 65, the Maximum Annual Withdrawal amount will not last for the lifetime(s), except in the two situations described below: 1) If a step-up of the Guaranteed Amount after age 65 causes the Maximum Annual Withdrawal amount to equal or increase from the immediately prior Maximum Annual Withdrawal amount. This typically occurs if the contract value equals or exceeds the highest, prior Guaranteed Amount. If this happens, the new Maximum Annual Withdrawal amount will automatically be available for the specified lifetime(s); or 2) The contractowner makes a one-time election to reset the Maximum Annual Withdrawal amount to 5% of the current Guaranteed Amount. This reset will occur on the first valuation date following the Benefit Year anniversary and will be based on the Guaranteed Amount as of that valuation date. This will reduce your Maximum Annual Withdrawal amount. A contractowner would only choose this if the above situation did not occur. To reset the Maximum Annual Withdrawal amount, the following must occur: a. the contractowner (and spouse if applicable) is age 65; b. the contract is currently within a ten-year automatic step-up period described above (or else a contractowner submits a step-up request to start a new ten-year automatic step-up period) (the contractowner must be eligible to elect a step-up i.e. all contractowners and the annuitant must be alive and under age 81); and c. you have submitted this request to us in writing at least 30 days prior to the end of the Benefit Year. As an example of these two situations, if you purchased an annuity with the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up with $100,000 (and received a bonus credit of 4%), your initial Guaranteed Amount is $104,000 and your initial Maximum Annual Withdrawal amount is $5,200. If you make a $5,000 withdrawal at age 62, your Guaranteed Amount will decrease to $99,000. Since you did not satisfy the age 65 requirement, you do not have a lifetime Maximum Annual Withdrawal amount. If a step-up of the Guaranteed Amount after age 65 (either automatic or owner-elected) causes the Guaranteed Amount to equal or exceed $104,000, then the Maximum Annual Withdrawal amount of $5,200 (or greater) will become a lifetime payout. This is the first situation described above. However, if the Guaranteed Amount has not been reset to equal or exceed the highest prior Guaranteed Amount, then you can choose the second situation described above if you are age 65 and the contract is within a ten-year automatic step-up period. This will reset the Maximum Annual Withdrawal amount to 5% of the current Guaranteed Amount, 5% of $99,000 is $4,950. This is your new Maximum Annual Withdrawal amount which can be paid for your lifetime unless excess withdrawals are made. The tax consequences of withdrawals and annuity payments are discussed in Federal Tax Matters. 54 All withdrawals you make, whether or not within the Maximum Annual Withdrawal amount, will decrease your contract value. If the contract is surrendered, the contractowner will receive the contract value (less any applicable charges, fees, and taxes) and not the Guaranteed Amount. If your contract value is reduced to zero because of market performance, withdrawals equal to the Maximum Annual Withdrawal amount will continue for the life of you (and your spouse if applicable) if the lifetime withdrawals are in effect. If not, the Maximum Annual Withdrawal amount will continue until the Guaranteed Amount equals zero. You may not withdraw the remaining Guaranteed Amount in a lump sum. Guaranteed Amount Annuity Payout Option. If you desire to annuitize your Guaranteed Amount, the Guaranteed Amount Annuity Payout Option is available. The Guaranteed Amount Annuity Payment Option is a fixed annuitization in which the contractowner (and spouse if applicable) will receive the Guaranteed Amount in annual annuity payments equal to the current 7% or 5% (depending on your option) Maximum Annual Withdrawal amount, including the lifetime Maximum Annual Withdrawals if in effect (this option is different from other annuity payment options discussed in your prospectus, including i4LIFE (Reg. TM) Advantage, which are based on your contract value). Payment frequencies other than annual may be available. Payments will continue until the Guaranteed Amount equals zero (or until death if the lifetime Maximum Annual Withdrawal is in effect) and your contract terminates. This may result in a partial, final payment. You would consider this option only if your contract value is less than the Guaranteed Amount (and you don't believe the contract value will ever exceed the Guaranteed Amount) and you do not wish to keep your annuity contract in force other than to pay out the Guaranteed Amount. You will have no other contract features other than the right to receive annuity payments equal to the Maximum Annual Withdrawal amount until the Guaranteed Amount equals zero (or until death if the lifetime Maximum Annual Withdrawal is in effect). If the contract value is zero and you have a remaining Guaranteed Amount, you may not withdraw the remaining Guaranteed Amount in a lump sum, but must elect the Guaranteed Amount Annuity Payment Option. Death Prior to the Annuity Commencement Date. There is no provision for a lump sum payout of the Guaranteed Amount upon death of the contractowners or annuitant. At the time of death, if the contract value equals zero, no death benefit will be paid other than any applicable Maximum Annual Withdrawal amounts. All death benefit payments must be made in compliance with Internal Revenue Code Sections 72(s) or 401(a)(9) as applicable as amended from time to time. See The Contracts - Death Benefit. Upon the death of the Single Life under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, the lifetime payout of the Maximum Annual Withdrawal amount, if in effect, will end. If the contract is continued as discussed below, the Maximum Annual Withdrawal amount will continue until the Guaranteed Amount, if any, is zero. In the alternative, the surviving spouse can choose to become the new Single Life, if the surviving spouse is under age 81. This will cause a reset of the Guaranteed Amount and the Maximum Annual Withdrawal amount. The new Guaranteed Amount will equal the contract value on the date of the reset and the new Maximum Annual Withdrawal amount will be 5% of the new Guaranteed Amount. This also starts a new 10 year period of automatic step-ups. At this time, the charge for the Rider will become the current charge in effect for new purchases of the Single Life option. The surviving spouse will need to be 65 before taking withdrawals to qualify for a lifetime payout. In deciding whether to make this change, the surviving spouse should consider: 1) the change a reset would cause to the Guaranteed Amount and the Maximum Annual Withdrawal amount ; 2) whether it is important to have Maximum Annual Withdrawal amounts for life versus the remainder of the prior Guaranteed Amount and 3) the cost of the Single Life option. Upon the first death under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up-Joint Life option, the lifetime payout of the Maximum Annual Withdrawal amount, if in effect, will continue for the life of the surviving spouse. Upon the death of the surviving spouse, the lifetime payout of the Maximum Annual Withdrawal amount will end. However, if the spouse's beneficiary elects to take the annuity death benefit in installments, the Maximum Annual Withdrawal amount will continue until the Guaranteed Amount, if any, is zero (see below for a non-spouse beneficiary). As an alternative, after the first death, the surviving spouse may choose to change from the Joint Life option to the Single Life option, if the surviving spouse is under age 81. This will cause a reset of the Guaranteed Amount and the Maximum Annual Withdrawal amount. The new Guaranteed Amount will equal the contract value on the date of the reset and the new Maximum Annual Withdrawal amount will be 5% of the new Guaranteed Amount. This also starts a new 10 year period of automatic step-ups. At this time, the charge for the Rider will become the current charge in effect for new purchases of the Single Life option. In deciding whether to make this change, the surviving spouse should consider: 1) if the reset will cause the Guaranteed Amount and the Maximum Annual Withdrawal amount to decrease and 2) if the cost of the Single Life option is less than the cost of the Joint Life option. If the surviving spouse of the deceased contractowner continues the contract, the remaining automatic step-ups under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option, will apply to the spouse as the new contractowner. Under the Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elective Step-up option, the new contractowner is eligible to elect to step-up the Guaranteed Amount prior to the next available step-up date; however, all other conditions for the step-up apply and any subsequent step-up by the new contractowner must meet all conditions for a step-up. If a non-spouse beneficiary elects to receive the death benefit in installments (thereby keeping the contract in force), the beneficiary may continue the Lincoln SmartSecurity (Reg. TM) Advantage if desired. Automatic step-ups under the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option will not continue and elective step-ups of the Guaranteed Amount under both options will not be 55 permitted. In the event the contract value declines below the Guaranteed Amount (as adjusted for withdrawals of death benefit payments), the beneficiary is assured of receiving payments equal to the Guaranteed Amount (as adjusted). Deductions for the Rider charge will continue on a quarterly basis and will be charged against the remaining Guaranteed Amount. Note: there are instances where the required installments of the death benefit, in order to be in compliance with the Internal Revenue Code as noted above, may exceed the Maximum Annual Withdrawal amount, thereby reducing the benefit of this Rider. If there are multiple beneficiaries, each beneficiary will be entitled to continue a share of the Lincoln SmartSecurity (Reg. TM) Advantage equal to his or her share of the death benefit. Impact of Divorce on Joint Life Option. In the event of a divorce, the contractowner may change from a Joint Life Option to a Single Life Option (if the contractowner is under age 81) at the current Rider charge for new sales of the Single Life Option. At the time of the change, the Guaranteed Amount will be reset to the current contract value and the Maximum Annual Withdrawal amount will equal 5% of this new Guaranteed Amount. After a divorce, the contractowner may keep the Joint Life Option to have the opportunity to receive lifetime payouts for the lives of the contractowner and a new spouse. This is only available if no withdrawals were made from the contract after the effective date of the Rider up to and including the date the new spouse is added to the Rider. Termination. After the later of the fifth anniversary of the effective date of the Rider or the fifth anniversary of the most recent contractowner-elected step-up, including any step-up we administered for you, of the Guaranteed Amount, the contractowner may terminate the Rider by notifying us in writing. Lincoln SmartSecurity (Reg. TM) Advantage will automatically terminate: o on the annuity commencement date (except payments under the Guaranteed Amount Annuity Payment Option will continue if applicable); o upon the election of i4LIFE (Reg. TM) Advantage; o if the contractowner or annuitant is changed (except if the surviving spouse assumes ownership of the contract upon death of the contractowner) including any sale or assignment of the contract or any pledge of the contract as collateral; o upon the last payment of the Guaranteed Amount unless the lifetime Maximum Annual Withdrawal is in effect; o when a withdrawal in excess of the Maximum Annual Withdrawal amount reduces the Guaranteed Amount to zero; or o Upon termination of the underlying annuity contract. The termination will not result in any increase in contract value equal to the Guaranteed Amount. Upon effective termination of this Rider, the benefits and charges within this Rider will terminate. If you terminate the Rider, you must wait one year before you can elect any Lincoln SmartSecurity (Reg. TM) Advantage, 4LATER (Reg. TM) Advantage options, or Lincoln Lifetime IncomeSM Advantage option. i4LIFE (Reg. TM) Advantage Option. Contractowners with an active Lincoln SmartSecurity (Reg. TM) Advantage who decide to terminate the Lincoln SmartSecurity (Reg. TM) Advantage rider and purchase i4LIFE (Reg. TM) Advantage can use any remaining Guaranteed Amount to establish the Guaranteed Income Benefit under the i4LIFE (Reg. TM) Advantage terms and charge in effect at the time of the i4LIFE (Reg. TM) Advantage election. Contractowners may consider this if i4LIFE (Reg. TM) Advantage will provide a higher payout amount. There are many factors to consider when making this decision, including the cost of the riders, the payout amounts and applicable guarantees. You should discuss this decision with your registered representative. See i4LIFE (Reg. TM) Advantage. Availability. The Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option is available for purchase with nonqualified and qualified (IRAs and Roth IRAs) annuity contracts. All contractowners and the annuitant of the contracts with the Lincoln SmartSecurity (Reg. TM) Advantage - 1 Year Automatic Step-up option must be under age 81 at the time this Rider is elected. You cannot elect the Rider on or after the purchase of i4LIFE (Reg. TM) Advantage or 4LATER (Reg. TM) Advantage or on or after the Annuity Commencement Date. The Lincoln SmartSecurity (Reg. TM) Advantage - 5 Year Elecive Step-up option is no longer available for purchase. There is no guarantee that the Lincoln SmartSecurity (Reg. TM) Advantage will be available for new purchasers in the future as we reserve the right to discontinue this benefit at any time. This Rider is available for contracts issued after October 1, 2003. Check with your investment representative regarding availability. i4LIFE (Reg. TM) Advantage i4LIFE (Reg. TM) Advantage (the Variable Annuity Payout Option Rider in your contract) is an optional annuity payout rider you may purchase at an additional cost and is separate and distinct from other annuity payout options offered under your contract and described later in this prospectus. You may also purchase either the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit or the 4LATER (Reg. TM) Guaranteed Income Benefit (described below) for an additional charge. See Charges and Other Deductions - i4LIFE (Reg. TM) Advantage Charges. i4LIFE (Reg. TM) Advantage is a payout option that provides you with variable, periodic regular income payments for life. These payouts are made during an Access Period, where you have access to the Account Value. After the Access Period ends, payouts continue for the rest of your life, during the Lifetime Income Period. i4LIFE (Reg. TM) Advantage is different from other annuity payout options provided by Lincoln because with i4LIFE (Reg. TM) Advantage, you have the ability to make additional withdrawals or surrender the contract during the Access Period. You may also purchase the Guaranteed Income Benefit which provides a minimum payout floor for your regular income payments. The initial regular income payment is calculated from the Account Value on the periodic income commencement date, a date 56 no more than 14 days prior to the date you select to begin receiving the regular income payments. This option is available on non-qualified annuities, IRAs and Roth IRAs (check with your registered representative regarding availability with SEP market). This option is subject to a charge (imposed only during the i4LIFE (Reg. TM) Advantage payout phase) computed daily on the average account value. See Charges and Other Deductions - i4LIFE (Reg. TM) Advantage Charges. i4LIFE (Reg. TM) Advantage is available for contracts with a contract value of at least $50,000 and may be elected after the effective date of the contract and before an annuity payout option is elected by sending a written request to our Servicing Office. If you purchased 4LATER (Reg. TM) Advantage, you must wait at least one year before you can purchase i4LIFE (Reg. TM) Advantage. When you elect i4LIFE (Reg. TM) Advantage, you must choose the annuitant, secondary life, if applicable, and make several choices about your regular income payments. The annuitant and secondary life may not be changed after i4LIFE (Reg. TM) Advantage is elected. For qualified contracts, the secondary life must be the spouse. See i4LIFE (Reg. TM) Advantage Death Benefits regarding the impact of a change to the annuitant prior to the i4LIFE (Reg. TM) Advantage election. i4LIFE (Reg. TM) Advantage for IRA annuity contracts is only available if the annuitant and secondary life, if applicable, are age 591/2 or older at the time the option is elected. Additional limitations on issue ages and features may be necessary to comply with the IRC provisions for required minimum distributions. Additional purchase payments may be made during the Access Period for an IRA annuity contract, unless a Guaranteed Income Benefit has been elected. Additional purchase payments will not be accepted once i4LIFE (Reg. TM) Advantage becomes effective for a non-qualified annuity contract. If i4LIFE (Reg. TM) Advantage is selected, the applicable transfer provisions among subaccounts and the fixed account will continue to be those specified in your annuity contract for transfers on or before the annuity commencement date. However, once i4LIFE (Reg. TM) Advantage begins, any automatic withdrawal service will terminate. See The Contracts - Transfers on or Before the Annuity Commencement Date. When you elect i4LIFE (Reg. TM) Advantage you must select a death benefit option. Once i4LIFE (Reg. TM) Advantage begins, any prior death benefit election will terminate and the i4LIFE (Reg. TM) Advantage death benefit will be in effect. Existing contractowners, with the Account Value death benefit, who elect i4LIFE (Reg. TM) Advantage must choose the i4LIFE (Reg. TM) Advantage Account Value death benefit. The amount paid under the new death benefit may be less than the amount that would have been paid under the death benefit provided before i4LIFE (Reg. TM) Advantage began. See The Contracts - i4LIFE (Reg. TM) Advantage Death Benefits. Access Period. At the time you elect i4LIFE (Reg. TM) Advantage, you also select the Access Period, which begins on the periodic income commencement date. The Access Period is a defined period of time during which we pay variable, periodic regular income payments and provide a death benefit, and during which you may surrender the contract and make withdrawals from your Account Value (defined below). At the end of the Access Period, the remaining Account Value is used to make regular income payments for the rest of your life (or the Secondary Life if applicable) and you will no longer be able to make withdrawals or surrenders or receive a death benefit. Shortening the Access Period will terminate the Guaranteed Income Benefit. See Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage. If your Account Value is reduced to zero because of withdrawals or market loss, your Access Period ends. We will establish the minimum (currently 5 years) and maximum (currently to age 115 for non-qualified contracts; to age 100 for qualified contracts) Access Periods at the time you elect i4LIFE (Reg. TM) Advantage. Generally, shorter Access Periods will produce a higher initial regular income payment than longer Access Periods. At any time during the Access Period, and subject to the rules in effect at that time, you may extend or shorten the Access Period by sending us notice. Additional restrictions may apply if you are under age 591/2 when you request a change to the Access Period. Currently, if you extend the Access Period, it must be extended at least 5 years. If you change the Access Period, subsequent regular income payments will be adjusted accordingly, and the Account Value remaining at the end of the new Access Period will be applied to continue regular income payments for your life. Additional limitations on issue ages and features may be necessary to comply with the IRC provisions for required minimum distributions. We may reduce or terminate the Access Period for IRA i4LIFE (Reg. TM) Advantage contracts in order to keep the regular income payments in compliance with IRC provisions for required minimum distributions. The minimum Access Period requirements for Guaranteed Income Benefits are longer than the requirements for i4LIFE (Reg. TM) Advantage without a Guaranteed Income Benefit. Shortening the Access Period will terminate the Guaranteed Income Benefit. See The Contracts - Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage. Account Value. The initial Account Value is the contract value on the valuation date i4LIFE (Reg. TM) Advantage is effective, less any applicable premium taxes. During the Access Period, the Account Value will be increased/decreased by any investment gains/losses including interest credited on the fixed account, and will be reduced by regular income payments and Guaranteed Income Benefit payments made as well as any withdrawals taken. After the Access Period ends, the remaining Account Value will be applied to continue regular income payments for your life and the Account Value will be reduced to zero. Regular income payments during the Access Period. i4LIFE (Reg. TM) Advantage provides for variable, periodic regular income payments for as long as an annuitant (or secondary life, if applicable) is living and access to your Account Value during the Access Period. When you elect i4LIFE (Reg. TM) Advantage, you will have to choose the date you will receive the initial regular income payment, the frequency of the payments (monthly, quarterly, semi-annually or annually), how often the payment is recalculated, the length of the Access Period and the assumed investment return. These choices will influence the amount of your regular income payments. Regular income payments must begin within one year of the date you elect i4LIFE (Reg. TM) Advantage. 57 If you do not choose a payment frequency, the default is a monthly frequency. In most states, you may also elect to have regular income payments from non-qualified contracts recalculated only once each year rather than recalculated at the time of each payment. This results in level regular income payments between recalculation dates. Qualified contracts are only recalculated once per year, at the beginning of each calendar year. You also choose the assumed investment return. Return rates of 3%, 4%, or 5% may be available. The higher the assumed investment return you choose, the higher your initial regular income payment will be and the higher the return must be to increase subsequent regular income payments. You also choose the length of the Access Period. At this time, changes can only be made on periodic income commencement date anniversaries. Regular income payments are not subject to any surrender charges or applicable interest adjustments. See Charges and Other Deductions. For information regarding income tax consequences of regular income payments, see Federal Tax Matters. The amount of the initial regular income payment is determined on the periodic income commencement date by dividing the contract value (or purchase payment if elected at contract issue), less applicable premium taxes by 1000 and multiplying the result by an annuity factor. The annuity factor is based upon: o the age and sex of the annuitant and secondary life, if applicable; o the length of the Access Period selected; o the frequency of the regular income payments; o the assumed investment return you selected; and o the Individual Annuity Mortality table specified in your contract. The annuity factor used to determine the regular income payments reflects the fact that, during the Access Period, you have the ability to withdraw the entire Account Value and that a death benefit of the entire Account Value will be paid to your beneficiary upon your death. These benefits during the Access Period result in a slightly lower regular income payment, during both the Access Period and the Lifetime Income Period, than would be payable if this access was not permitted and no lump-sum death benefit of the full Account Value was payable. The contractowner must elect an Access Period of no less than the minimum Access Period which is currently set at 5 years. The annuity factor also reflects the requirement that there be sufficient Account Value at the end of the Access Period to continue your regular income payments for the remainder of your life (and/or the secondary life if applicable), during the Lifetime Income Period, with no further access or death benefit. The Account Value will vary with the actual net investment return of the subaccounts selected and the interest credited on the fixed account, which then determines the subsequent regular income payments during the Access Period. Each subsequent regular income payment (unless the levelized option is selected) is determined by dividing the Account Value on the applicable valuation date by 1000 and multiplying this result by an annuity factor revised to reflect the declining length of the Access Period. As a result of this calculation, the actual net returns in the Account Value are measured against the assumed investment return to determine subsequent regular income payments. If the actual net investment return (annualized) for the contract exceeds the assumed investment return, the regular income payment will increase at a rate approximately equal to the amount of such excess. Conversely, if the actual net investment return for the contract is less than the assumed investment return, the regular income payment will decrease. For example, if net investment return is 3% higher (annualized) than the assumed investment return, the regular income payment for the next year will increase by approximately 3%. Conversely, if actual net investment return is 3% lower than the assumed investment return, the regular income payment will decrease by approximately 3%. Withdrawals made during the Access Period will also reduce the Account Value that is available for regular income payments, and subsequent regular income payments will be reduced in the same proportion that withdrawals reduce the Account Value. For a joint life option, if either the annuitant or secondary life dies during the Access Period, regular income payments will be recalculated using a revised annuity factor based on the single surviving life, if doing so provides a higher regular income payment. For nonqualified contracts, if the annuitant and secondary life, if applicable, both die during the Access Period, the Guaranteed Income Benefit (if any) will terminate and the annuity factor will be revised for a non-life contingent regular income payment and regular income payments will continue until the Account Value is fully paid out and the Access Period ends. For qualified contracts, if the annuitant and secondary life, if applicable, both die during the Access Period, i4LIFE (Reg. TM) Advantage (and any Guaranteed Income Benefit if applicable) will terminate. Regular income payments during the Lifetime Income Period. The Lifetime Income Period begins at the end of the Access Period if either the annuitant or secondary life is living. Your earlier elections regarding the frequency of regular income payments, assumed investment return and the frequency of the recalculation do not change. The initial regular income payment during the Lifetime Income Period is determined by dividing the Account Value on the last valuation date of the Access Period by 1000 and multiplying the result by an annuity factor revised to reflect that the Access Period has ended. The annuity factor is based upon: o the age and sex of the annuitant and secondary life (if living); o the frequency of the regular income payments; o the assumed investment return you selected; and o the Individual Annuity Mortality table specified in your contract. 58 The impact of the length of the Access Period and any withdrawals made during the Access Period will continue to be reflected in the regular income payments during the Lifetime Income Period. To determine subsequent regular income payments, the contract is credited with a fixed number of annuity units equal to the initial regular income payment (during the Lifetime Income Period) divided by the annuity unit value (by subaccount). Subsequent regular income payments are determined by multiplying the number of annuity units per subaccount by the annuity unit value. Your regular income payments will vary based on the value of your annuity units. If your regular income payments are adjusted on an annual basis, the total of the annual payment is transferred to Lincoln New York's general account to be paid out based on the payment mode you selected. Your payment(s) will not be affected by market performance during that year. Your regular income payment(s) for the following year will be recalculated at the beginning of the following year based on the current value of the annuity units. Regular income payments will continue for as long as the annuitant or secondary life, if applicable, is living, and will continue to be adjusted for investment performance of the subaccounts your annuity units are invested in (and the fixed account if applicable). Regular income payments vary with investment performance. During the lifetime income period, there is no longer an Account Value; therefore, no withdrawals are available and no death benefit is payable. In addition, transfers are not allowed from a fixed annuity payment to a variable annuity payment. i4LIFE (Reg. TM) Advantage Death Benefits i4LIFE (Reg. TM) Advantage Account Value Death Benefit. The i4LIFE (Reg. TM) Advantage Account Value death benefit is available during the Access Period. This death benefit is equal to the Account Value as of the valuation date on which we approve the payment of the death claim. You may not change this death benefit once it is elected. i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit. The i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit is in effect during the Access Period and will be equal to the greater of: o the Account Value as of the valuation date we approve the payment of the claim; or o the sum of all purchase payments, less the sum of regular income payments and other withdrawals where: o regular income payments, including withdrawals to provide the Guaranteed Income Benefits, reduce the death benefit by the dollar amount of the payment; and o all other withdrawals, if any, reduce the death benefit in the same proportion that withdrawals reduce the contract value or Account Value. References to purchase payments and withdrawals include purchase payments and withdrawals made prior to the election of i4LIFE (Reg. TM) Advantage if your contract was in force with the Guarantee of Principal or greater death benefit option prior to that election. In a declining market, withdrawals which are deducted in the same proportion that withdrawals reduce the contract or Account Value, may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for applicable charges and premium taxes, if any. The following example demonstrates the impact of a proportionate withdrawal on your death benefit: o i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit $200,000 o Total i4LIFE (Reg. TM) Regular Income payments $ 25,000 o Additional Withdrawal $15,000 ($15,000/$150,000=10% withdrawal) o Account Value at the time of Additional Withdrawal $150,000
Death Benefit Value after i4LIFE (Reg. TM) regular income payment = $200,000 - $25,000 = $175,000 Death Benefit Value after additional withdrawal = $175,000 - $17,500 = $157,500 Reduction in Death Benefit Value for Withdrawal = $175,000 X 10% = $17,500 The regular income payments reduce the death benefit by $25,000 and the additional withdrawal causes a 10% reduction in the death benefit, the same percentage that the withdrawal reduced the Account Value. During the Access Period, contracts with the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit may elect to change to the i4LIFE (Reg. TM) Advantage Account Value death benefit. We will effect the change in death benefit on the valuation date we receive a completed election form at our Servicing Office, and we will begin deducting the lower i4LIFE (Reg. TM) Advantage charge at that time. Once the change is effective, you may not elect to return to the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit. i4LIFE (Reg. TM) Advantage EGMDB. The i4LIFE (Reg. TM) Advantage EGMDB is available during the Access Period. This benefit is the greatest of: o the Account Value as of the valuation date on which we approve the payment of the claim; or o the sum of all purchase payments, less the sum of regular income payments and other withdrawals where: o regular income payments, including withdrawals to provide the Guaranteed Income Benefit, reduce the death benefit by the dollar amount of the payment or in the same proportion that regular income payments reduce the Account Value, depending on the terms of your contract; and 59 o all other withdrawals, if any, reduce the death benefit in the same proportion that withdrawals reduce the contract value or Account Value. References to purchase payments and withdrawals include purchase payments and withdrawals made prior to the election of i4LIFE (Reg. TM) Advantage if your contract was in force with the Guarantee of Principal or greater death benefit option prior to that election; or o the highest Account Value or contract value on any contract anniversary date (including the inception date of the contract) after the EGMDB is effective (determined before the allocation of any purchase payments on that contract anniversary) prior to the 81st birthday of the deceased and prior to the date of death. The highest Account Value or contract value is increased by purchase payments and bonus credits and is decreased by regular income payments, including withdrawals to provide the Guaranteed Income Benefits and all other withdrawals subsequent to the anniversary date on which the highest Account Value or contract value is obtained. Regular income payments and withdrawals are deducted in the same proportion that regular income payments and withdrawals reduce the contract value or Account Value. When determining the highest anniversary value, if you elected the EGMDB (or more expensive death benefit option) prior to electing i4LIFE (Reg. TM) Advantage and this death benefit was in effect when you purchased i4LIFE (Reg. TM) Advantage, we will look at the contract value before i4LIFE (Reg. TM) Advantage and the Account Value after the i4LIFE (Reg. TM) Advantage election to determine the highest anniversary value. In a declining market, withdrawals which are deducted in the same proportion that withdrawals reduce the Account Value, may have a magnified effect on the reduction of the death benefit payable. All references to withdrawals include deductions for applicable charges and premium taxes, if any. Contracts with the i4LIFE (Reg. TM) Advantage EGMDB may elect to change to the i4LIFE (Reg. TM) Advantage Account Value death benefit. We will effect the change in death benefit on the valuation date we receive a completed election form at our Servicing office, and we will begin deducting the lower i4LIFE (Reg. TM) Advantage charge at that time. Once the change is effective, you may not elect to return to the i4LIFE (Reg. TM) Advantage EGMDB. General Death Benefit Provisions. For all death benefit options, following the Access Period, there is no death benefit. The death benefits also terminate when the Account Value equals zero, because the Access Period terminates. If there is a change in the contractowner, joint owner or annuitant during the life of the contract, for any reason other than death, the only death benefit payable for the new person will be the i4LIFE (Reg. TM) Advantage Account Value death benefit. For non-qualified contracts, upon the death of the contractowner, joint owner or annuitant, the contractowner (or beneficiary) may elect to terminate the contract and receive full payment of the death benefit or may elect to continue the contract and receive regular income payments. Upon the death of the secondary life, who is not also an owner, only the surrender value is paid. If you are the owner of an IRA annuity contract, and there is no secondary life, and you die during the Access Period, the i4LIFE (Reg. TM) Advantage will terminate. A spouse beneficiary may start a new i4LIFE (Reg. TM) Advantage program. If a death occurs during the Access Period, the value of the death benefit will be determined as of the valuation date we approve the payment of the claim. Approval of payment will occur upon our receipt of all the following: 1. proof (e.g. an original certified death certificate), or any other proof of death satisfactory to us; and 2. written authorization for payment; and 3. all required claim forms, fully completed (including selection of a settlement option). Notwithstanding any provision of this contract to the contrary, the payment of death benefits provided under this contract must be made in compliance with Code Section 72(s) or 401(a)(9) as applicable, as amended from time to time. Death benefits may be taxable. See Federal Tax Matters. Upon notification to us of the death, regular income payments may be suspended until the death claim is approved. Upon approval, a lump sum payment for the value of any suspended payments will be made as of the date the death claim is approved, and regular income payments will continue, if applicable. The excess, if any, of the death benefit over the Account Value will be credited into the contract at that time. If a lump sum settlement is elected, the proceeds will be mailed within seven days of approval by us of the claim subject to the laws, regulations and tax code governing payment of death benefits. This payment may be postponed as permitted by the Investment Company Act of 1940. Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage A Guaranteed Income Benefit is available for purchase when you elect i4LIFE (Reg. TM) Advantage which ensures that your regular income payments will never be less than a minimum payout floor, regardless of the actual investment performance of your contract. See Charges and Other Deductions for a discussion of the Guaranteed Income Benefit charges. 60 As discussed below, certain features of the Guaranteed Income Benefit may be impacted if you purchased Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage (withdrawal benefit riders) prior to electing i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit (annuity payout rider). Refer to the 4LATER (Reg. TM)Advantage section of this prospectus for a discussion of the 4LATER (Reg. TM) Guaranteed Income Benefit. Once the Guaranteed Income Benefit is elected, additional purchase payments cannot be made to the contract. Election of this rider will limit how much you can invest in certain subaccounts. See the Contracts - Investment Requirements. There is no guarantee that the i4LIFE (Reg. TM) Guaranteed Income Benefit option will be available to elect in the future, as we reserve the right to discontinue this option for new elections at any time. In addition, we may make different versions of the Guaranteed Income Benefit available to new purchasers or may create different versions for use with various Living Benefit riders. However, a contractowner with the Lincoln Lifetime IncomeSM Advantage who decides to drop Lincoln Lifetime IncomeSM Advantage to purchase i4LIFE (Reg. TM) Advantage will be guaranteed the right to purchase the Guaranteed Income Benefit under the terms set forth in the Lincoln Lifetime IncomeSM Advantage rider. i4LIFE (Reg. TM) Guaranteed Income Benefit, if available, is purchased when you elect i4LIFE (Reg. TM) Advantage or anytime during the Access Period, subject to terms and conditions at that time. If you intend to use the Guaranteed Amount from either the Lincoln SmartSecurity (Reg. TM) Advantage or the Lincoln Lifetime IncomeSM Advantage riders to establish the Guaranteed Income Benefit, you must elect the Guaranteed Income Benefit at the time you elect i4LIFE (Reg. TM) Advantage. The Guaranteed Income Benefit is initially equal to 75% of the regular income payment (which is based on your Account Value as defined in the i4LIFE (Reg. TM) Advantage rider section) in effect at the time the Guaranteed Income Benefit is elected. Contractowners who purchased the Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage can use the remaining Guaranteed Amount (if greater than the contract value) at the time the Guaranteed Income Benefit is determined, to increase the Guaranteed Income Benefit. The Guaranteed Income Benefit will be increased by the ratio of the remaining Guaranteed Amount to the contract value at the time the initial i4LIFE (Reg. TM) Advantage payment is calculated. In other words, the Guaranteed Income Benefit will equal 75% of the initial regular income payment times the remaining Guaranteed Amount divided by the contract value, if the Guaranteed Amount is greater than the contract value. If the amount of your i4LIFE (Reg. TM) Advantage regular income payment has fallen below the Guaranteed Income Benefit, because of poor investment results, a payment equal to the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit is the minimum payment you will receive. If the Guaranteed Income Benefit is paid, it will be paid with the same frequency as your regular income payment. If your regular income payment is less than the Guaranteed Income Benefit, we will reduce the Account Value by the regular income payment plus an additional amount equal to the difference between your regular income payment and the Guaranteed Income Benefit (In other words, Guaranteed Income Benefit payments reduce the Account Value by the entire amount of the Guaranteed Income Benefit payment.) (Regular income payments also reduce the Account Value). This withdrawal will be made from the variable subaccounts and the fixed account on a pro-rata basis according to your investment allocations. If your Account Value reaches zero as a result of withdrawals to provide the Guaranteed Income Benefit, we will continue to pay you an amount equal to the Guaranteed Income Benefit. If your Account Value reaches zero, your Access Period will end and your Lifetime Income Period will begin. Additional amounts withdrawn from the Account Value to provide the Guaranteed Income Benefit may terminate your Access Period earlier than originally scheduled, and will reduce your death benefit. If your Account Value equals zero, no death benefit will be paid. See i4LIFE (Reg. TM) Advantage Death Benefits. After the Access Period ends, we will continue to pay the Guaranteed Income Benefit for as long as the annuitant (or the secondary life, if applicable) is living. If the market performance in your contract is sufficient to provide regular income payments at a level that exceeds the Guaranteed Income Benefit, the Guaranteed Income Benefit will never come into effect. The following example illustrates how poor investment performance, which results in a Guaranteed Income Benefit payment, affects the i4LIFE (Reg. TM) Account Value: o i4LIFE (Reg. TM) Account Value before market decline $135,000 o i4LIFE (Reg. TM) Account Value after market decline $100,000 o Guaranteed Income Benefit $ 810 o Regular Income Payment after market decline $ 769 o Account Value after market decline and Guaranteed $ 99,190 Income Benefit payment
The contractowner receives an amount equal to the Guaranteed Income Benefit. The entire amount of the Guaranteed Income Benefit is deducted from the Account Value. If you purchased the Guaranteed Income Benefit (version 3) on or after January 20, 2009, the Guaranteed Income Benefit will automatically step-up every year to 75% of the current regular income payment, if that result is greater than the immediately prior Guaranteed Income Benefit. If you purchased the Guaranteed Income Benefit (version 2) prior to January 20, 2009, the Guaranteed Income 61 Benefit will automatically step-up every three years on the periodic income commencement date anniversary to 75% of the current regular income payment, if the result is greater than the immediately prior Guaranteed Income Benefit. The step-up will occur on every periodic income commencement date anniversary during either a 5-year step-up period (version 3) or every third periodic income commencement date anniversary for a 15 year step-up period (version 2). At the end of a step-up period, you may elect a new step-up period by submitting a written request to the Servicing office. If you prefer, when you start the Guaranteed Income Benefit, you can request that we administer this election for you. Step-ups for qualified contracts, including IRAs, will occur on a calendar year basis. At the time of a reset of the step-up period the i4LIFE (Reg. TM) Guaranteed Income Benefit percentage charge may increase subject to the maximum guaranteed charge of 1.50%. This means that your charge may change every five years for version 3 of the Guaranteed Income Benefit or every 15 years for version 2 of the Guaranteed Income Benefit. If we automatically administer a new step-up period for you and if your percentage charge is increased, you may ask us to reverse the step-up by giving us notice within 30 days after the periodic income commencement anniversary. If we receive this notice, we will decrease the percentage charge to the amounts they were before the step-up occurred. Increased fees collected during the 30 day period will be refunded into your contract. You will have no more step-ups unless you notify us that you wish to start a new step-up period. i4LIFE (Reg. TM) Advantage charges are in addition to the Guaranteed Income Benefit Charges. If you have an older version of the Guaranteed Income Benefit (Version 1), your Guaranteed Income Benefit will not step-up on an anniversary, but will remain level. This version is no longer available for sale. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit is reduced by withdrawals (other than regular income payments) in the same proportion that the withdrawals reduce the Account Value. See below in General i4LIFE (Reg. TM) Provisions for an example. Impacts to i4LIFE (Reg. TM) Advantage Regular Income Payments. When you select the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, certain restrictions will apply to your contract: o A 4% assumed investment return (AIR) will be used to calculate the regular income payments. o The minimum Access Period required for this benefit is the longer of 15 years or the difference between your age (nearest birthday) and age 85. We may change this Access Period requirement prior to election of the Guaranteed Income Benefit. o The maximum Access Period available for this benefit is to age 115 for non-qualified contracts; to age 100 for qualified contracts. If you have elected i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit and the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit on or after October 6, 2008, the minimum Access Period required for this benefit is the longer of 20 years or the difference between your age (nearest birthday) and age 90. If you choose to lengthen your Access Period, (which must be increased by a minimum of 5 years) thereby reducing your regular income payment, your i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will also be reduced. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will be reduced in proportion to the reduction in the regular income payment. If you choose to shorten your Access Period, the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will terminate. Refer to the Example in the 4LATER (Reg. TM) Guaranteed Income Benefit section. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will terminate due to any of the following events: o the death of the annuitant (or the later of the death of the annuitant or secondary life if a joint payout was elected); or o a contractowner requested decrease in the Access Period or a change to the regular income payment frequency; or o upon written notice to us; or o assignment of the contract. A termination due to a decrease in the Access Period, a change in the regular income payment frequency, or upon written notice from the contractowner will be effective as of the valuation date on the next periodic income commencement date anniversary. Termination will be only for the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit and not the i4LIFE (Reg. TM)Advantage election, unless otherwise specified. If you used your Lincoln Lifetime IncomeSM Advantage Guaranteed Amount to establish the Guaranteed Income Benefit, you must keep i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit in effect for at least 3 years. If you terminate the i4LIFE (Reg. TM)Advantage Guaranteed Income Benefit you may be able to re-elect it, if available, after one year. The election will be treated as a new purchase, subject to the terms and charges in effect at the time of election and the i4LIFE (Reg. TM) Advantage regular income payments will be recalculated. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will be based on the Account Value at the time of the election. General i4LIFE (Reg. TM) Provisions Withdrawals. You may request a withdrawal at any time prior to or during the Access Period. We reduce the Account Value by the amount of the withdrawal, and all subsequent regular income payments and Guaranteed Income Benefit payments, if applicable, will be reduced proportionately. Withdrawals may have tax consequences. See Federal Tax Matters. Withdrawals are subject to any applicable surrender charges except when amounts may be withdrawn free of surrender charges. See Charges and Other Deductions. The interest adjustment may apply. 62 The following example demonstrates the impact of a withdrawal on the regular income payments and the Guaranteed Income Benefit payments: o i4LIFE (Reg. TM) Regular Income Payment before Withdrawal $ 1,200 o Guaranteed Income Benefit before Withdrawal $ 900 o Account Value at time of Additional Withdrawal $150,000 o Additional Withdrawal $ 15,000 (a 10% withdrawal)
Reduction in i4LIFE (Reg. TM) Regular Income payment for Withdrawal = $1,200 X 10 % = $120 i4LIFE (Reg. TM) Regular Income payment after Withdrawal = $1,200 - $120 = $1,080 Reduction in Guaranteed Income Benefit for Withdrawal = $900 X 10% = $90 Guaranteed Income Benefit after Withdrawal = $900 - $90 = $810 Surrender. At any time prior to or during the Access Period, you may surrender the contract by withdrawing the surrender value. If the contract is surrendered, the contract terminates and no further regular income payments will be made. Withdrawals are subject to any applicable surrender charges except when amounts may be withdrawn free of surrender charges. See Charges and Other Deductions. The interest adjustment may apply. Termination. For IRA annuity contracts, you may terminate i4LIFE (Reg. TM) Advantage prior to the end of the Access Period by notifying us in writing. The termination will be effective on the next valuation date after we receive the notice and your contract will return to the accumulation phase. Your i4LIFE (Reg. TM) Advantage death benefit will terminate and you may choose the Guarantee of Principal (if you had the i4LIFE (Reg. TM) Advantage Guarantee of Principal death benefit) or Account Value death benefit options. Upon termination, we will stop assessing the charge for i4LIFE (Reg. TM) Advantage and begin assessing the mortality and expense risk charge and administrative charge associated with the new death benefit option. Your contract value upon termination will be equal to the Account Value on the valuation date we terminate i4LIFE (Reg. TM) Advantage. For non-qualified contracts, you may not terminate i4LIFE (Reg. TM) Advantage once you have elected it. 4LATER (Reg. TM) Advantage 4LATER (Reg. TM) Advantage is a rider that is available to protect against market loss by providing you with a method to receive a minimum payout from your annuity. The rider provides an Income Base (described below) prior to the time you begin taking payouts from your annuity. If you elect 4LATER (Reg. TM) Advantage, you must elect i4LIFE (Reg. TM) with the 4LATER (Reg. TM) Guaranteed Income Benefit to receive a benefit from 4LATER (Reg. TM) Advantage. Election of these riders will limit how much you can invest in certain subaccounts. See The Contracts-Investment Requirements. See Charges and Other Deductions for a discussion of the 4LATER (Reg. TM) Advantage charge. 4LATER (Reg. TM) Advantage Before Payouts Begin The following discussion applies to 4LATER (Reg. TM) Advantage during the accumulation phase of your annuity, referred to as 4LATER (Reg. TM). This is prior to the time any payouts begin under i4LIFE (Reg. TM) Advantage with the 4LATER (Reg. TM) Guaranteed Income Benefit. Income Base. The Income Base is a value established when you purchase 4LATER (Reg. TM) and will only be used to calculate the minimum payouts available under your contract at a later date. The Income Base is not available for withdrawals or as a death benefit. If you elect 4LATER (Reg. TM) at the time you purchase the contract, the Income Base initially equals the purchase payments and any bonus credits. If you elect 4LATER (Reg. TM) after we issue the contract, the Income Base will initially equal the contract value on the 4LATER (Reg. TM) Effective Date. Additional purchase payments automatically increase the Income Base by the amount of the purchase payments and any bonus credits. Additional purchase payments will not be allowed if the contract value is zero. Each withdrawal reduces the Income Base in the same proportion as the amount withdrawn reduces the contract value on the valuation date of the withdrawal. As described below, during the accumulation phase, the Income Base will be automatically enhanced by 15% (adjusted for additional purchase payments and withdrawals as described in the Future Income Base section below) at the end of each Waiting Period. In addition, after the Initial Waiting Period, you may elect to reset your Income Base to the current contract value if your contract value has grown beyond the 15% enhancement. You may elect this reset on your own or you may choose to have Lincoln New York automatically reset the Income Base for you at the end of each Waiting Period. These reset options are discussed below. Then, when you are ready to elect i4LIFE (Reg. TM) Advantage and establish the 4LATER (Reg. TM) Guaranteed Income Benefit, the Income Base (if higher than the contract value) is used in the 4LATER (Reg. TM) Advantage Guaranteed Income Benefit calculation. Waiting Period. The Waiting Period is each consecutive 3-year period which begins on the 4LATER (Reg. TM) Effective Date, or on the date of any reset of the Income Base to the contract value. At the end of each completed Waiting Period, the Income Base is increased by 15% (as adjusted for purchase payments, corresponding bonus credits, and withdrawals) to equal the Future Income Base as discussed below. The Waiting Period is also the amount of time that must pass before the Income Base can be reset to the current contract value. A new Waiting Period begins after each reset and must be completed before the next 15% enhancement or another reset occurs. 63 Future Income Base. 4LATER (Reg. TM) provides a 15% automatic enhancement to the Income Base after a 3-year Waiting Period. This enhancement will continue every 3 years until i4LIFE (Reg. TM) Advantage is elected, you terminate 4LATER (Reg. TM) or you reach the Maximum Income Base. See Maximum Income Base. During the Waiting Period, the Future Income Base is established to provide the value of this 15% enhancement on the Income Base. After each 3-year Waiting Period is satisfied, the Income Base is increased to equal the value of the Future Income Base. The 4LATER (Reg. TM) charge will then be assessed on this newly adjusted Income Base, but the percentage charge will not change. Any purchase payment made after the 4LATER (Reg. TM) Effective Date, but within 90 days of the contract effective date, will increase the Future Income Base by the amount of the purchase payment and corresponding bonus credit, plus 15% of that purchase payment and bonus credit. Example: Initial Purchase Payment and corresponding bonus credit $104,000 Purchase Payment and corresponding bonus credit 60 $ 10,400 -------- days later Income Base $114,400 Future Income Base (during the 1st Waiting Period) $131,560 ($114,400 x 115%) Income Base (after 1st Waiting Period) $131,560 New Future Income Base (during 2nd Waiting Period) $151,294 ($131,560 x 115%)
Any purchase payments made after the 4LATER (Reg. TM) Effective Date and more than 90 days after the contract effective date will increase the Future Income Base by the amount of the purchase payment and corresponding bonus credit plus 15% of that purchase payment and corresponding bonus credit on a pro-rata basis for the number of full years remaining in the current Waiting Period. Example: Income Base $104,000 Purchase Payment and corresponding bonus credit in $ 10,400 Year 2 New Income Base $114,400 -------- Future Income Base (during 1st Waiting Period-Year 2) $130,520 ($104,000 x 115%) + ($10,400 x 100%) + (10,400 x 15% x 1/3) Income Base (after 1st Waiting Period) $130,520 New Future Income Base (during 2nd Waiting Period) $150,098 (130,520 x 115%)
Withdrawals reduce the Future Income Base in the same proportion as the amount withdrawn reduces the contract value on the valuation date of the withdrawal. During any subsequent Waiting Periods, if you elect to reset the Income Base to the contract value, the Future Income Base will equal 115% of the contract value on the date of the reset and a new Waiting Period will begin. See Resets of the Income Base to the current contract value below. In all situations, the Future Income Base is subject to the Maximum Income Base described below. The Future Income Base is never available to the contractowner to establish a 4LATER (Reg. TM) Advantage Guaranteed Income Benefit, but is the value the Income Base will become at the end of the Waiting Period. Maximum Income Base. The Maximum Income Base is equal to 200% of the Income Base on the 4LATER (Reg. TM) Effective Date. The Maximum Income Base will be increased by 200% of any additional purchase payments and corresponding bonus credits. In all circumstances, the Maximum Income Base can never exceed $10,000,000. This maximum takes into consideration the combined Income Bases for all Lincoln Life contracts (or contracts issued by our affiliates) owned by you or on which you are the annuitant. After a reset to the current contract value, the Maximum Income Base will equal 200% of the contract value on the valuation date of the reset not to exceed $10,000,000. Each withdrawal will reduce the Maximum Income Base in the same proportion as the amount withdrawn reduces the contract value on the valuation date of the withdrawal. 64 Example: Income Base $104,000 Maximum Income Base $208,000 Purchase Payment and $ 10,400 Increase to Maximum Income Base $ 20,800 corresponding bonus credit in Year 2 New Income Base $114,400 New Maximum Income Base $228,800 Future Income Base after Purchase $130,520 Maximum Income Base $228,800 Payment Income Base (after 1st Waiting $130,520 Period) Future Income Base (during 2nd $150,098 Maximum Income Base $228,800 Waiting Period) Contract Value in Year 4 $112,000 Withdrawal of 10% $ 11,200 After Withdrawal (10% adjustment) ----------------------------------------- Contract Value $100,800 Income Base $117,468 Future Income Base $135,088 Maximum Income Base $205,920
Resets of the Income Base to the current contract value ("Resets"). You may elect to reset the Income Base to the current contract value at any time after the initial Waiting Period following: (a) the 4LATER (Reg. TM) Effective Date or (b) any prior reset of the Income Base. Resets are subject to a maximum of $10,000,000 and the annuitant must be under age 81. You might consider resetting the Income Base if your contract value has increased above the Income Base (including the 15% automatic Enhancements) and you want to lock-in this increased amount to use when setting the Guaranteed Income Benefit. If the Income Base is reset to the contract value, the 15% automatic Enhancement will not apply until the end of the next Waiting Period. This reset may be elected by sending a written request to our Servicing Office or by specifying at the time of purchase that you would like us to administer this reset election for you. If you want us to administer this reset for you, at the end of each 3-year Waiting Period, if the contract value is higher than the Income Base (after the Income Base has been reset to the Future Income Base), we will implement this election and the Income Base will be equal to the contract value on that date. We will notify you that a reset has occurred. This will continue until you elect i4LIFE (Reg. TM) Advantage, the annuitant reaches age 81, or you reach the Maximum Income Base. If we administer this reset election for you, you have 30 days after the election to notify us if you wish to reverse this election and have your Income Base increased to the Future Income Base instead. You may wish to reverse this election if you are not interested in the increased charge. If the contract value is less than the Income Base on any reset date, we will not administer this reset. We will not attempt to administer another reset until the end of the next 3-year Waiting Period; however, you have the option to request a reset during this period by sending a written request to our Servicing Office. At the time of each reset (whether you elect the reset or we administer the reset for you), the annual charge will change to the current charge in effect at the time of the reset, not to exceed the guaranteed maximum charge. At the time of reset, a new Waiting Period will begin. Subsequent resets may be elected at the end of each new Waiting Period. The reset will be effective on the next valuation date after notice of the reset is approved by us. We reserve the right to restrict resets to Benefit Year anniversaries. The Benefit Year is the 12-month period starting with the 4LATER (Reg. TM) Effective Date and starting with each anniversary of the 4LATER (Reg. TM) Effective Date after that. If the contractowner elects to reset the Income Base, the Benefit Year will begin on the effective date of the reset and each anniversary of the effective date of the reset after that. Eligibility. To purchase 4LATER (Reg. TM) Advantage, the annuitant must be age 80 or younger. If you plan to elect i4LIFE (Reg. TM) Advantage within three years of the issue date of 4LATER (Reg. TM) Advantage, you will not receive the benefit of the Future Income Base. 4LATER (Reg. TM) Rider Effective Date. If 4LATER (Reg. TM) is elected at contract issue, then it will be effective on the contract's effective date. If 4LATER (Reg. TM) is elected after the contract is issued (by sending a written request to our Servicing Office), then it will be effective on the next valuation date following approval by us. 4LATER (Reg. TM) Guaranteed Income Benefit When you are ready to elect i4LIFE (Reg. TM) Advantage regular income payments, the greater of the Income Base accumulated under 4LATER (Reg. TM) or the contract value will be used to calculate the 4LATER (Reg. TM) Guaranteed Income Benefit. The 4LATER (Reg. TM) Guaranteed Income Benefit is a minimum payout floor for your i4LIFE (Reg. TM) Advantage regular income payments. 65 The Guaranteed Income Benefit will be determined by dividing the greater of the Income Base or contract value (or Guaranteed Amount if applicable) on the periodic income commencement date, by 1000 and multiplying the result by the rate per $1000 from the Guaranteed Income Benefit Table in your 4LATER (Reg. TM) Rider. If the contract value is used to establish the 4LATER (Reg. TM) Guaranteed Income Benefit, this rate provides a Guaranteed Income Benefit not less than 75% of the initial i4LIFE (Reg. TM) Advantage regular income payment (which is also based on the contract value). If the Income Base is used to establish the Guaranteed Income Benefit (because it is larger than the contract value), the resulting Guaranteed Income Benefit will be more than 75% of the initial i4LIFE (Reg. TM) Advantage regular income payment. If the amount of your i4LIFE (Reg. TM) Advantage regular income payment (which is based on your i4LIFE (Reg. TM) Advantage Account Value) has fallen below the 4LATER (Reg. TM) Guaranteed Income Benefit, because of poor investment results, a payment equal to the 4LATER (Reg. TM) Guaranteed Income Benefit is the minimum payment you will receive. If the 4LATER (Reg. TM) Guaranteed Income Benefit is paid, it will be paid with the same frequency as your i4LIFE (Reg. TM) Advantage regular income payment. If your regular income payment is less than the 4LATER (Reg. TM) Guaranteed Income Benefit, we will reduce your i4LIFE (Reg. TM) Advantage Account Value by the regular income payment plus an additional amount equal to the difference between your regular income payment and the 4LATER (Reg. TM) Guaranteed Income Benefit. This withdrawal from your Account Value will be made from the subaccounts and the fixed account on a pro-rata basis according to your investment allocations. The following example illustrates how poor investment performance, which results in a Guaranteed Income Benefit payment, affects the i4LIFE (Reg. TM) Account Value: o i4LIFE (Reg. TM) Account Value before market decline $135,000 o i4LIFE (Reg. TM) Account Value after market decline $100,000 o Guaranteed Income Benefit $ 810 o Regular Income Payment after market decline $ 769 o Account Value after market decline and Guaranteed $ 99,190 Income Benefit payment
If your Account Value reaches zero as a result of withdrawals to provide the 4LATER (Reg. TM) Guaranteed Income Benefit, we will continue to pay you an amount equal to the 4LATER (Reg. TM) Guaranteed Income Benefit. When your Account Value reaches zero, your i4LIFE (Reg. TM) Advantage Access Period will end and the i4LIFE (Reg. TM) Advantage Lifetime Income Period will begin. Additional amounts withdrawn from the Account Value to provide the 4LATER (Reg. TM) Guaranteed Income Benefit may terminate your Access Period earlier than originally scheduled and will reduce your death benefit. See i4LIFE (Reg. TM) Advantage Death Benefits. After the Access Period ends, we will continue to pay the 4LATER (Reg. TM) Guaranteed Income Benefit for as long as the annuitant (or the secondary life, if applicable) is living (i.e., the i4LIFE (Reg. TM) Advantage Lifetime Income Period). If your Account Value equals zero, no death benefit will be paid. If the market performance in your contract is sufficient to provide regular income payments at a level that exceeds the 4LATER (Reg. TM) Guaranteed Income Benefit, the 4LATER (Reg. TM) Guaranteed Income Benefit will never come into effect. The 4LATER (Reg. TM) Advantage Guaranteed Income Benefit will automatically step-up every three years to 75% of the then current regular income payment, if that result is greater than the immediately prior 4LATER (Reg. TM) Guaranteed Income Benefit. The step-up will occur on every third periodic income commencement date anniversary for 15 years. At the end of a 15-year step-up period, the contractowner may elect a new 15-year step-up period by submitting a written request to the Servicing Office. If you prefer, when you start the Guaranteed Income Benefit, you can request that Lincoln New York administer this election for you. At the time of a reset of the 15 year period, the charge for the 4LATER (Reg. TM) Guaranteed Income Benefit will become the current charge up to the guaranteed maximum charge of 1.50% (i4LIFE (Reg. TM) Advantage charges are in addition to the Guaranteed Income Benefit charge). After we administer this election, you have 30 days to notify us if you wish to reverse the election (because you do not wish to incur the additional cost). If we receive this notice, we will decrease the percentage charge to the amounts they were before the election of the step-up period occurred. Increased fees collected during the 30-day period will be refunded into your contract. Additional purchase payments cannot be made to your contract after the periodic income commencement date. The 4LATER (Reg. TM) Guaranteed Income Benefit is reduced by withdrawals (other than regular income payments) in the same proportion that the withdrawals reduce the Account Value. You may want to discuss the impact of additional withdrawals with your financial adviser. Impacts to i4LIFE (Reg. TM) Advantage Regular Income Payments. At the time you elect i4LIFE (Reg. TM) Advantage, you also select the Access Period. See i4LIFE (Reg. TM) Advantage - Access Period. Generally, shorter Access Periods will produce a higher initial i4LIFE (Reg. TM) Advantage regular income payment and higher Guaranteed Income Benefit payments than longer Access Periods. The minimum Access Period required with the 4LATER (Reg. TM) Guaranteed Income Benefit is currently the longer of 15 years or the difference between your current age (nearest birthday) and age 85. We reserve the right to increase this minimum prior to the election of 4LATER (Reg. TM) Advantage, subject to the terms in your Rider. (Note: i4LIFE (Reg. TM) Advantage may allow a shorter Access Period if a Guaranteed Income Benefit is not provided.) 66 If you choose to lengthen your Access Period at a later date, thereby recalculating and reducing your regular income payment, your 4LATER (Reg. TM) Guaranteed Income Benefit will also be recalculated and reduced. The 4LATER (Reg. TM) Guaranteed Income Benefit will be adjusted in proportion to the reduction in the regular income payment. If you choose to shorten your Access Period, the 4LATER (Reg. TM) Rider will terminate. When you make your 4LATER (Reg. TM) Guaranteed Income Benefit and i4LIFE (Reg. TM) Advantage elections, you must also choose an assumed investment return of 4% to calculate your i4LIFE (Reg. TM) Advantage regular income payments. Once you have elected 4LATER (Reg. TM), the assumed investment return rate will not change; however, we may change the required assumed investment return rate in the future for new purchasers only. The following is an example of what happens when you extend the Access Period: Assume: i4LIFE (Reg. TM) Advantage remaining Access Period = 10 years Current i4LIFE (Reg. TM) Advantage regular income payment = $6375 Current 4LATER (Reg. TM) Guaranteed Income Benefit = $5692 Extend Access Period 5 years: i4LIFE (Reg. TM) Advantage regular income payment after extension = $5355 Percentage change in i4LIFE (Reg. TM) Advantage regular income payment = $5355 - $6375 = 84% New 4LATER (Reg. TM) Guaranteed Income Benefit = $5692 x 84% = $4781 General Provisions of 4LATER (Reg. TM) Advantage Termination. After the later of the third anniversary of the 4LATER (Reg. TM) Rider Effective Date or the most recent Reset, the 4LATER (Reg. TM) Rider may be terminated upon written notice to us. Prior to the periodic income commencement date, 4LATER (Reg. TM) will automatically terminate upon any of the following events: o termination of the contract to which the 4LATER (Reg. TM) Rider is attached; o the change of or the death of the annuitant (except if the surviving spouse assumes ownership of the contract and the role of the annuitant upon death of the contractowner); or o the change of contractowner (except if the surviving spouse assumes ownership of the contract and the role of annuitant upon the death of the contractowner), including the assignment of the contract. After the periodic income commencement date, the 4LATER (Reg. TM) Rider will terminate due to any of the following events: o the death of the annuitant (or for nonqualified contracts,, the later of the death of the annuitant or secondary life if a joint payout was elected); or o a contractowner requested decrease in the Access Period or a change to the regular income payment frequency. A termination due to a decrease in the Access Period, a change in the regular income payment frequency, or upon written notice from the contractowner will be effective as of the valuation date on the next periodic income commencement date anniversary. Termination will be only for the 4LATER (Reg. TM) Guaranteed Income Benefit and not the i4LIFE (Reg. TM) Advantage election, unless otherwise specified. If you terminate 4LATER (Reg. TM) prior to the periodic income commencement date, you must wait one year before you can re-elect 4LATER (Reg. TM) or purchase the Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage. If you terminate the 4LATER (Reg. TM) Rider on or after the periodic income commencement date, you cannot re-elect it. You may be able to elect the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, if available, after one year. The i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will be based on the Account Value at the time of the election. The election of one of these benefits, if available, will be treated as a new purchase, subject to the terms and charges in effect at the time of election. Availability. The availability of 4LATER (Reg. TM) will depend upon your state's approval of the 4LATER (Reg. TM) Rider. Check with your registered representative regarding availability. You cannot elect 4LATER (Reg. TM) after an annuity payout option or i4LIFE (Reg. TM) Advantage has been elected, and it cannot be elected on contracts that currently have Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage. Contractowners who drop Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage and elect 4LATER (Reg. TM) will not carry their Guaranteed Amount over into the new 4LATER (Reg. TM). The 4LATER (Reg. TM) Income Base will be established based on the contractowner's contract value on the Effective Date of 4LATER (Reg. TM). Contractowners who drop Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage will have to wait one year before they can elect 4LATER (Reg. TM). See The Contracts - Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage. Annuity Payouts When you apply for a contract, you may select any annuity commencement date permitted by law, which is usually on or before the annuitant's 90th birthday. Your broker-dealer may recommend that you annuitize at an earlier age. As an alternative, contractowners 67 with Lincoln SmartSecurity (Reg. TM) Advantage may elect to annuitize their Guaranteed Amount under the Guaranteed Amount Annuity Payout Option. Contractowners with Lincoln Lifetime IncomeSM Advantage may elect the Maximum Annual Withdrawal Amount Annuity Payout option. The contract provides optional forms of payouts of annuities (annuity options), each of which is payable on a variable basis, a fixed basis or a combination of both as you specify. The contract provides that all or part of the contract value may be used to purchase an annuity payout option. You may elect annuity payouts in monthly, quarterly, semiannual or annual installments. If the payouts from any subaccount would be or become less than $50, we have the right to reduce their frequency until the payouts are at least $50 each. Following are explanations of the annuity options available. Annuity Options The annuity options outlined below do not apply to contractowners who have elected i4LIFE (Reg. TM) Advantage, the Maximum Annual Withdrawal Amount Annuity Payout option or the Guaranteed Amount Annuity Payout option. Life Annuity. This option offers a periodic payout during the lifetime of the annuitant and ends with the last payout before the death of the annuitant. This option offers the highest periodic payout since there is no guarantee of a minimum number of payouts or provision for a death benefit for beneficiaries. However, there is the risk under this option that the recipient would receive no payouts if the annuitant dies before the date set for the first payout; only one payout if death occurs before the second scheduled payout, and so on. Life Annuity with Payouts Guaranteed for Designated Period. This option guarantees periodic payouts during a designated period, usually 10 or 20 years, and then continues throughout the lifetime of the annuitant. The designated period is selected by the contractowner. Joint Life Annuity. This option offers a periodic payout during the joint lifetime of the annuitant and a designated joint annuitant. The payouts continue during the lifetime of the survivor. However, under a joint life annuity, if both annuitants die before the date set for the first payout, no payouts will be made. Only one payment would be made if both deaths occur before the second scheduled payout, and so on. Joint Life Annuity with Guaranteed Period. This option guarantees periodic payouts during a designated period, usually 10 or 20 years, and continues during the joint lifetime of the annuitant and a designated joint annuitant. The payouts continue during the lifetime of the survivor. The designated period is selected by the contractowner. Joint Life and Two Thirds to Survivor Annuity. This option provides a periodic payout during the joint lifetime of the annuitant and a designated joint annuitant. When one of the joint annuitants dies, the survivor receives two thirds of the periodic payout made when both were alive. Joint Life and Two-Thirds Survivor Annuity with Guaranteed Period. This option provides a periodic payout during the joint lifetime of the annuitant and a joint annuitant. When one of the joint annuitants dies, the survivor receives two-thirds of the periodic payout made when both were alive. This option further provides that should one or both of the annuitants die during the elected guaranteed period, usually 10 or 20 years, full benefit payment will continue for the rest of the guaranteed period. Unit Refund Life Annuity. This option offers a periodic payout during the lifetime of the annuitant with the guarantee that upon death a payout will be made of the value of the number of annuity units (see Variable Annuity Payouts) equal to the excess, if any, of: o the total amount applied under this option divided by the annuity unit value for the date payouts begin, minus o the annuity units represented by each payout to the annuitant multiplied by the number of payouts paid before death. The value of the number of annuity units is computed on the date the death claim is approved for payment by the Servicing office. Life Annuity with Cash Refund. Fixed annuity benefit payments that will be made for the lifetime of the annuitant with the guarantee that upon death, should (a) the total dollar amount applied to purchase this option be 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. Under the annuity options listed above, you may not make withdrawals. Other options, with or without withdrawal features, may be made available by us. You may pre-select an annuity payout option as a method of paying the death benefit to a beneficiary. If you do, the beneficiary cannot change this payout option. You may change or revoke in writing to our Servicing office, any such selection, unless such selection was made irrevocable. If you have not already chosen an annuity payout option, the beneficiary may choose any annuity payout option. At death, options are only available to the extent they are consistent with the requirements of the contract as well as Sections 72(s) and 401(a)(9) of the tax code, if applicable. General Information 68 Any previously selected death benefit in effect before the annuity commencement date will no longer be available on and after the annuity commencement date. You may change the annuity commencement date, change the annuity option or change the allocation of the investment among subaccounts up to 30 days before the scheduled annuity commencement date, upon written notice to the Servicing office. You must give us at least 30 days notice before the date on which you want payouts to begin. Annuity payouts cannot commence within twelve months of the effective date of the contract. Unless you select another option, the contract automatically provides for a life annuity with annuity payouts guaranteed for 10 years (on a fixed, variable or combination fixed and variable basis, in proportion to the account allocations at the time of annuitization) except when a joint life payout is required by law. Under any option providing for guaranteed period payouts, the number of payouts which remain unpaid at the date of the annuitant's death (or surviving annuitant's death in case of joint life annuity) will be paid to you or your beneficiary as payouts become due after we are in receipt of: o proof, satisfactory to us, of the death; o written authorization for payment; and o all claim forms, fully completed. Variable Annuity Payouts Variable annuity payouts will be determined using: o The contract value on the annuity commencement date, less applicable premium taxes; o The annuity tables contained in the contract; o The annuity option selected; and o The investment performance of the fund(s) selected. To determine the amount of payouts, we make this calculation: 1. Determine the dollar amount of the first periodic payout; then 2. Credit the contract with a fixed number of annuity units equal to the first periodic payout divided by the annuity unit value; and 3. Calculate the value of the annuity units each period thereafter. Annuity payouts assume an investment return of 3%, 4% or 5% per year, as applied to the applicable mortality table. Some of these assumed interest rates may not be available in your state; therefore, please check with your investment representative. You may choose your assumed interest rate at the time you elect a variable annuity payout on the administrative form provided by us. The higher the assumed interest rate you choose, the higher your initial annuity payment will be. The amount of each payout after the initial payout will depend upon how the underlying fund(s) perform, relative to the assumed rate. If the actual net investment rate (annualized) exceeds the assumed rate, the payment will increase at a rate proportional to the amount of such excess. Conversely, if the actual rate is less than the assumed rate, annuity payments will decrease. The higher the assumed interest rate, the less likely future annuity payments are to increase, or the payments will increase more slowly than if a lower assumed rate was used. There is a more complete explanation of this calculation in the SAI. Fixed Side of the Contract Purchase payments, bonus credits, persistency credits and contract value allocated to the fixed side of the contract become part of our general account, and do not participate in the investment experience of the VAA. The general account is subject to regulation and supervision by the New York Insurance Department as well as the insurance laws and regulations of the jurisdictions in which the contracts are distributed. In reliance on certain exemptions, exclusions and rules, we have not registered interests in the general account as a security under the Securities Act of 1933 and have not registered the general account as an investment company under the 1940 Act. Accordingly, neither the general account nor any interests in it are regulated under the 1933 Act or the 1940 Act. We have been advised that the staff of the SEC has not made a review of the disclosures which are included in this prospectus which relate to our general account and to the fixed account under the contract. These disclosures, however, may be subject to certain provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. This prospectus is generally intended to serve as a disclosure document only for aspects of the contract involving the VAA, and therefore contains only selected information regarding the fixed side of the contract. Complete details regarding the fixed side of the contract are in the contract. We guarantee an effective interest rate of not less than 1.50% per year on amounts held in a fixed account. Your contract may not offer a fixed account or if permitted by your contract, we may discontinue accepting purchase payments or transfers into the fixed side of the contract at any time. ANY INTEREST IN EXCESS OF 1.50% (OR THE GUARANTEED MINIMUM INTEREST RATE STATED IN YOUR CONTRACT) WILL BE DECLARED IN ADVANCE AT OUR SOLE DISCRETION. CONTRACTOWNERS BEAR THE RISK THAT NO INTEREST IN EXCESS OF THE MINIMUM INTEREST RATE WILL BE DECLARED. 69 Guaranteed Periods The portion of the fixed account which accepts allocations for a guaranteed period at a guaranteed interest rate is called a fixed subaccount. There is a fixed subaccount for each particular guaranteed period. You may allocate purchase payments to one or more fixed subaccounts with guaranteed periods of 1 to 10 years. We may add guaranteed periods or discontinue accepting purchase payments into one or more guaranteed periods at any time. The minimum amount of any purchase payment that can be allocated to a fixed subaccount is $2,000. Each purchase payment and its corresponding bonus credit allocated to a fixed subaccount will start its own guaranteed period and will earn a guaranteed interest rate. The duration of the guaranteed period affects the guaranteed interest rate of the fixed subaccount. A fixed subaccount guarantee period ends on the date after the number of calendar years in the fixed subaccount's guaranteed period. Interest will be credited daily at a guaranteed rate that is equal to the effective annual rate determined on the first day of the fixed subaccount guaranteed period. Amounts surrendered, transferred or withdrawn from a fixed subaccount prior to the end of the guaranteed period will be subject to the interest adjustment if applicable. Each guaranteed period purchase payment and its corresponding bonus credit will be treated separately for purposes of determining any applicable interest adjustment. Any amount withdrawn from a fixed subaccount may be subject to any applicable surrender charges, account fees and premium taxes. We will notify the contractowner in writing at least 45 but not more than 75 days prior to the expiration date for any guaranteed period amount. A new fixed subaccount guaranteed period of the same duration as the previous fixed subaccount guaranteed period will begin automatically at the end of the previous guaranteed period, unless we receive, prior to the end of a guaranteed period, a written election by the contractowner. The written election may request the transfer of the guaranteed period amount to a different fixed subaccount or to a variable subaccount from among those being offered by us. Transfers of any guaranteed period amount which become effective upon the date of expiration of the applicable guaranteed period are not subject to the limitation of twelve transfers per contract year or the additional fixed account transfer restrictions. Small Contract Surrenders We may surrender your contract, in accordance with the laws of your state if: o your contract value drops below certain state specified minimum amounts ($2,000 or less) for any reason, including if your contract value decreases due to the performance of the subaccounts you selected; o no purchase payments have been received for three (3) full, consecutive contract years; and o the paid up annuity benefit at maturity would be less than $20.00 per month (these requirements may differ in some states). At least 60 days before we surrender your contract, we will send you a letter at your last address we have on file, to inform you that your contract will be surrendered. You will have the opportunity to make additional purchase payments to bring your contract value above the minimum level to avoid surrender. If we surrender your contract, we will not assess any surrender charge. Delay of Payments Contract proceeds from the VAA will be paid within seven days, except: o when the NYSE is closed (other than weekends and holidays); o times when market trading is restricted or the SEC declares an emergency, and we cannot value units or the funds cannot redeem shares; or o when the SEC so orders to protect contractowners. Payment of contract proceeds from the fixed account may be delayed for up to six months. Due to federal laws designed to counter terrorism and prevent money laundering by criminals, we may be required to reject a purchase payment and/or deny payment of a request for transfers, withdrawals, surrenders, or death benefits, until instructions are received from the appropriate regulator. We also may be required to provide additional information about a contractowner's account to government regulators. Reinvestment Privilege You may elect to make a reinvestment purchase with any part of the proceeds of a surrender/withdrawal, (including previously credited bonus credits), and we will recredit that portion of the surrender/withdrawal charges attributable to the amount returned. This election must be made by your written authorization to us on an approved Lincoln reinvestment form and received in our Servicing office within 30 days of the date of the surrender/withdrawal, and the repurchase must be of a contract covered by this prospectus. In the case of a qualified retirement plan, a representation must be made that the proceeds being used to make the purchase have retained their tax-favored status under an arrangement for which the contracts offered by this prospectus are designed. The number of accumulation units which will be credited when the proceeds are reinvested will be based on the value of the accumulation unit(s) on the next valuation date. This computation will occur following receipt of the proceeds and request for reinvestment at the Servicing office. You may utilize the reinvestment privilege only once. No bonus credits will apply when a reinvestment purchase occurs. For tax 70 reporting purposes, we will treat a surrender/withdrawal and a subsequent reinvestment purchase as separate transactions (and a Form 1099 may be issued, if applicable). You should consult a tax adviser before you request a surrender/withdrawal or subsequent reinvestment purchase. Amendment of Contract We reserve the right to amend the contract to meet the requirements of the 1940 Act or other applicable federal or state laws or regulations. You will be notified in writing of any changes, modifications or waivers. Any changes are subject to prior approval of your state's insurance department (if required). Distribution of the Contracts Lincoln Financial Distributors ("LFD") serves as Principal Underwriter of this contract. LFD is affiliated with Lincoln New York and is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934 and is a member of FINRA. The Principal Underwriter has entered into selling agreements with Lincoln Financial Advisors ("LFA"), also an affiliate of ours. The Principal Underwriter has also entered into selling agreements with broker-dealers that are unaffiliated with us ("Selling Firms"). While the Principal Underwriter has the legal authority to make payments to broker-dealers which have entered into selling agreements, we will make such payments on behalf of the Principal Underwriter in compliance with appropriate regulations. We also pay on behalf of LFD certain of its operating expenses related to the distribution of this and other of our contracts. The following paragraphs describe how payments are made by us and the Principal Underwriter to various parties. Compensation Paid to LFA. The maximum commission the Principal Underwriter pays to LFA is 7.00% of purchase payments. LFA may elect to receive a lower commission when a purchase payment is made along with an earlier quarterly payment based on contract value for so long as the contract remains in effect. Upon annuitization, the maximum commission the Principal Underwriter pays to LFA is 7.00% of annuitized value and/or ongoing annual compensation of up to 1.00% of annuity value or statutory reserves. Lincoln New York also pays for the operating and other expenses of LFA, including the following sales expenses: sales representative training allowances; compensation and bonuses for LFA's management team; advertising expenses; and all other expenses of distributing the contracts. LFA pays its sales representatives a portion of the commissions received for their sales of contracts. LFA sales representatives and their managers are also eligible for various cash benefits, such as bonuses, insurance benefits and financing arrangements, and non-cash compensation items that we may provide jointly with LFA. Non-cash compensation items may include conferences, seminars, trips, entertainment, merchandise and other similar items. In addition, LFA sales representatives who meet certain productivity, persistency and length of service standards and/or their managers may be eligible for additional compensation. Sales of the contracts may help LFA sales representatives and/or their managers qualify for such benefits. LFA sales representatives and their managers may receive other payments from us for services that do not directly involve the sale of the contracts, including payments made for the recruitment and training of personnel, production of promotional literature and similar services. Compensation Paid to Unaffiliated Selling Firms. The Principal Underwriter pays commissions to all Selling Firms. The maximum commission the Principal Underwriter pays to Selling Firms, other than LFA, is 7.00% of purchase payments. Some Selling Firms may elect to receive a lower commission when a purchase payment is made along with an earlier quarterly payment based on contract value for so long as the contract remains in effect. Upon annuitization, the maximum commission the Principal Underwriter pays to Selling Firms is 7.00% of annuitized value and/or ongoing annual compensation of up to 1.15% of annuity value or statutory reserves. LFD also acts as wholesaler of the contracts and performs certain marketing and other functions in support of the distribution and servicing of the contracts. LFD may pay certain Selling Firms or their affiliates additional amounts for, among other things: (1) "preferred product"treatment of the contracts in their marketing programs, which may include marketing services and increased access to sales representatives; (2) sales promotions relating to the contracts; (3) costs associated with sales conferences and educational seminars for their sales representatives; (4) other sales expenses incurred by them; (5) and inclusion in the financial products the Selling Firm offers. Lincoln New York may provide loans to broker-dealers or their affiliates to help finance marketing and distribution of the contracts, and those loans may be forgiven if aggregate sales goals are met. In addition, we may provide staffing or other administrative support and services to broker-dealers who distribute the contracts. LFD, as wholesaler, may make bonus payments to certain Selling Firms based on aggregate sales of our variable insurance contracts (including the contracts) or persistency standards. These additional payments are not offered to all Selling Firms, and the terms of any particular agreement governing the payments may vary among Selling Firms. These additional types of compensation are not offered to all Selling Firms. The terms of any particular agreement governing compensation may vary among Selling Firms and the amounts may be significant. The prospect of receiving, or the receipt of, additional compensation may provide Selling Firms and/or their registered representatives with an incentive to favor sales of the contracts over other variable annuity contracts (or other investments) with respect to which a Selling Firm does not receive additional compensation, or 71 lower levels of additional compensation. You may wish to take such payment arrangements into account when considering and evaluating any recommendation relating to the contracts. Additional information relating to compensation paid in 2008 is contained in the Statement of Additional Information (SAI). Compensation Paid to Other Parties. Depending on the particular selling arrangements, there may be others whom LFD compensates for the distribution activities. For example, LFD may compensate certain "wholesalers", who control access to certain selling offices, for access to those offices or for referrals, and that compensation may be separate from the compensation paid for sales of the contracts. LFD may compensate marketing organizations, associations, brokers or consultants which provide marketing assistance and other services to broker-dealers who distribute the contracts, and which may be affiliated with those broker-dealers. A marketing expense allowance is paid to American Funds Distributors (AFD) in consideration of the marketing assistance AFD provides to LFD. This allowance, which ranges from 0.10% to 0.16% is based on the amount of purchase payments initially allocated to the American Funds Insurance Series underlying the variable annuity. Commissions and other incentives or payments described above are not charged directly to contract owners or the Separate Account. All compensation is paid from our resources, which include fees and charges imposed on your contract. Contractowner Questions The obligations to purchasers under the contracts are those of Lincoln New York. This prospectus provides a general description of the contract. Questions about your contract should be directed to us at 1-888-868-2583. Federal Tax Matters Introduction The Federal income tax treatment of the contract 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 contract. This discussion also does not address other Federal tax consequences (including consequences of sales to foreign individuals or entities), or state or local tax consequences, associated with the contract. As a result, you should always consult a tax adviser about the application of tax rules to your individual situation. Nonqualified Annuities This part of the discussion describes some of the Federal income tax rules applicable to nonqualified annuities. A nonqualified annuity is a contract not issued in connection with a qualified retirement plan, such as an IRA or a section 403(b) plan, receiving special tax treatment under the tax code. We may not offer nonqualified annuities for all of our annuity products. Tax Deferral On Earnings The Federal income tax law generally does not tax any increase in your contract value until you receive a contract distribution. However, for this general rule to apply, certain requirements must be satisfied: o An individual must own the contract (or the tax law must treat the contract as owned by an individual). o The investments of the VAA must be "adequately diversified" in accordance with IRS regulations. o Your right to choose particular investments for a contract must be limited. o The annuity commencement date must not occur near the end of the annuitant's life expectancy. Contracts Not Owned By An Individual If a contract is owned by an entity (rather than an individual) the tax code generally does not treat it as an annuity contract for Federal income tax purposes. This means that the entity owning the contract pays tax currently on the excess of the contract value over the purchase payments for the contract. Examples of contracts where the owner pays current tax on the contract's earnings, bonus credits and persistency credits, if applicable, are contracts issued to a corporation or a trust. Some exceptions to the rule are: o Contracts in which the named owner is a trust or other entity that holds the contract as an agent for an individual; however, this exception does not apply in the case of any employer that owns a contract to provide deferred compensation for its employees; o Immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase and substantially equal periodic payments are made, not less frequently than annually, during the annuity payout period; o Contracts acquired by an estate of a decedent; o Certain qualified contracts; o Contracts purchased by employers upon the termination of certain qualified plans; and o Certain contracts used in connection with structured settlement agreements. Investments In The VAA Must Be Diversified 72 For a contract to be treated as an annuity for Federal income tax purposes, the investments of the VAA must be "adequately diversified." IRS regulations define standards for determining whether the investments of the VAA are adequately diversified. If the VAA 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 purchase payments. Although we do not control the investments of the underlying investment options, we expect that the underlying investment options will comply with the IRS regulations so that the VAA will be considered "adequately diversified." Restrictions Federal income tax law limits your right to choose particular investments for the contract. 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 VAA and thus subject to current taxation on the income, bonus credits, persistency credits and gains, if applicable, 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 contracts. We reserve the right to modify the contract without your consent to try to prevent the tax law from considering you as the owner of the assets of the VAA. Loss Of Interest Deduction After June 8, 1997, if a contract is issued to a taxpayer that is not an individual, or if a contract is held for the benefit of an entity, the entity will lose a portion of its deduction for otherwise deductible interest expenses. Age At Which Annuity Payouts Begin Federal income tax rules do not expressly identify a particular age by which annuity payouts must begin. However, those rules do require that an annuity contract provide for amortization, through annuity payouts, of the contract's purchase payments, bonus credits, persistency credits and earnings. If annuity payouts under the contract begin or are scheduled to begin on a date past the annuitant's 85th birthday, it is possible that the tax law will not treat the contract as an annuity for Federal income tax purposes. In that event, you would be currently taxed on the excess of the contract value over the purchase payments of the contract. Tax Treatment Of Payments We make no guarantees regarding the tax treatment of any contract or of any transaction involving a contract. However, the rest of this discussion assumes that your contract will be treated as an annuity for Federal income tax purposes and that the tax law will not tax any increase in your contract value until there is a distribution from your contract. Taxation Of Withdrawals And Surrenders You will pay tax on withdrawals to the extent your contract value exceeds your purchase payments in the contract. This income (and all other income from your contract) is considered ordinary income (and does not receive capital gains treatment and is not qualified dividend income). A higher rate of tax is paid on ordinary income than on capital gains. You will pay tax on a surrender to the extent the amount you receive exceeds your purchase payments. In certain circumstances, your purchase payments are reduced by amounts received from your contract that were not included in income. Surrender and reinstatement of your contract will generally be taxed as a withdrawal. If your contract has Lincoln SmartSecurity (Reg. TM) Advantage or Lincoln Lifetime IncomeSM Advantage, and if your Guaranteed Amount immediately before a withdrawal exceeds your contract value, the tax law could require that an additional amount be included in income. Please consult your tax adviser. Taxation Of Regular Income Payments The tax code imposes tax on a portion of each annuity payout (at ordinary income tax rates) and treats a portion as a nontaxable return of your purchase payments in the contract. We will notify you annually of the taxable amount of your annuity payout. Once you have recovered the total amount of the purchase payment in the contract, you will pay tax on the full amount of your annuity payouts. If annuity payouts end because of the annuitant's death and before the total amount in the contract has been distributed, the amount not received will generally be deductible. If withdrawals, other than regular income payments, are taken from i4LIFE (Reg. TM) Advantage during the access period, they are taxed subject to an exclusion ratio that is determined based on the amount of the payment. Taxation Of Death Benefits We may distribute amounts from your contract because of the death of a contractowner or an annuitant. The tax treatment of these amounts depends on whether you or the annuitant dies before or after the annuity commencement date. Death prior to the annuity commencement date: o If the beneficiary receives death benefits under an annuity payout option, they are taxed in the same manner as annuity payouts. o If the beneficiary does not receive death benefits under an annuity payout option, they are taxed in the same manner as a withdrawal. Death after the annuity commencement date: 73 o If death benefits are received in accordance with the existing annuity payout option, they are excludible from income if they do not exceed the purchase payments not yet distributed from the contract. All annuity payouts in excess of the purchase payments not previously received are includible in income. o If death benefits are received in a lump sum, the tax law imposes tax on the amount of death benefits which exceeds the amount of purchase payments not previously received. Penalty Taxes Payable On Withdrawals, Surrenders, Or Annuity Payouts The tax code may impose a 10% penalty tax on any distribution from your contract 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, surrenders, or annuity payouts that: o you receive on or after you reach 591/2, o you receive because you became disabled (as defined in the tax law), o you receive from an immediate annuity, o a beneficiary receives on or after your death, or o you receive as a series of substantially equal periodic payments based on your life or life expectancy (non-natural owners holding as agent for an individual do not qualify). Special Rules If You Own More Than One Annuity Contract In certain circumstances, you must combine some or all of the nonqualified annuity contracts you own in order to determine the amount of an annuity payout, a surrender, or a withdrawal that you must include in income. For example, if you purchase two or more deferred annuity contracts from the same life insurance company (or its affiliates) during any calendar year, the tax code treats all such contracts as one contract. Treating two or more contracts as one contract could affect the amount of a surrender, a withdrawal or an annuity payout that you must include in income and the amount that might be subject to the penalty tax described previously. Loans and Assignments Except for certain qualified contracts, the tax code treats any amount received as a loan under your contract, and any assignment or pledge (or agreement to assign or pledge) of any portion of your contract value, as a withdrawal of such amount or portion. Gifting A Contract If you transfer ownership of your contract, other than to your spouse (or to your former spouse incident to divorce), and receive a payment less than your contract's value, you will pay tax on your contract value to the extent it exceeds your purchase payments not previously received. The new owner's purchase payments in the contract would then be increased to reflect the amount included in income. Charges for Additional Benefits Your contract automatically includes a basic death benefit and may include other optional riders. Certain enhancements to the basic death benefit may also be available to you. The cost of the basic death benefit and any additional benefit are deducted from your contract. It is possible that the tax law may treat all or a portion of the death benefit charge and charges for other optional riders, if any, as a contract withdrawal. Qualified Retirement Plans We also designed the contracts for use in connection with certain types of retirement plans that receive favorable treatment under the tax code. Contracts issued to or in connection with a qualified retirement plan are called "qualified contracts." We issue contracts for use with various types of qualified plans. The Federal income tax rules applicable to those plans are complex and varied. As a result, this prospectus does not attempt to provide more than general information about the use of the contract with the various types of qualified plans. Persons planning to use the contract in connection with a qualified plan should obtain advice from a competent tax adviser. Types of Qualified Contracts and Terms of Contracts Qualified plans include the following: o Individual Retirement Accounts and Annuities ("Traditional IRAs") o Roth IRAs o Traditional IRA that is part of a Simplified Employee Pension Plan ("SEP") o SIMPLE 401(k) plans (Savings Incentive Matched Plan for Employees) o 401(a) plans (qualified corporate employee pension and profit-sharing plans) o 403(a) plans (qualified annuity plans) o 403(b) plans (public school system and tax-exempt organization annuity plans) 74 o H.R. 10 or Keogh Plans (self-employed individual plans) o 457(b) plans (deferred compensation plans for state and local governments and tax-exempt organizations) o Roth 403(b) plans We do not offer certain types of qualified plans for all of our annuity products. Check with your representative concerning qualified plan availability for this product. We will amend contracts to be used with a qualified plan as generally necessary to conform to the tax law requirements for the type of plan. However, the rights of a person to any qualified plan benefits may be subject to the plan's terms and conditions, regardless of the contract's terms and conditions. In addition, we are not bound by the terms and conditions of qualified plans to the extent such terms and conditions contradict the contract, unless we consent. Pursuant to new tax regulations, starting September 24, 2007, the contract is not available for purchase under a 403(b) plan and since July 31, 2008, we do not accept additional premiums or transfers to existing 403(b) contracts. Also, we now are generally required to confirm, with your 403(b) plan sponsor or otherwise, that surrenders, loans or transfers you request comply with applicable tax requirements and to decline requests that are not in compliance. We will defer processing payments you request until all information required under the tax law has been received. By requesting a surrender, loan or transfer, you consent to the sharing of confidential information about you, your contract, and transactions under the contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers. Tax Treatment of Qualified Contracts The Federal income tax rules applicable to qualified plans and qualified contracts vary with the type of plan and contract. For example: o Federal tax rules limit the amount of purchase payments that can be made, and the tax deduction or exclusion that may be allowed for the purchase payments. These limits vary depending on the type of qualified plan and the plan participant's specific circumstances, e.g., the participant's compensation. o Minimum annual distributions are required under most qualified plans once you reach a certain age, typically age 701/2, as described below. o Loans are allowed under certain types of qualified plans, but Federal income tax rules prohibit loans under other types of qualified plans. For example, Federal income tax rules permit loans under some section 403(b) plans, but prohibit loans under Traditional and Roth IRAs. If allowed, loans are subject to a variety of limitations, including restrictions as to the loan amount, the loan's duration, the rate of interest, and the manner of repayment. Your contract or plan may not permit loans. Tax Treatment of Payments The Federal income tax rules generally include distributions from a qualified contract in the participant's income as ordinary income. These taxable distributions will include purchase payments that were deductible or excludible from income. Thus, under many qualified contracts, the total amount received is included in income since a deduction or exclusion from income was taken for purchase payments. There are exceptions. For example, you do not include amounts received from a Roth IRA in income if certain conditions are satisfied. Required Minimum Distributions Under most qualified plans, you must begin receiving payments from the contract in certain minimum amounts by the later of age 701/2 or retirement. You are required to take distributions from your traditional IRAs beginning in the year you reach age 701/2. If you own a Roth IRA, you are not required to receive minimum distributions from your Roth IRA during your life. Failure to comply with the minimum distribution rules applicable to certain qualified plans, such as Traditional IRAs, will result in the imposition of an excise tax. This excise tax equals 50% of the amount by which a minimum required distribution exceeds the actual distribution from the qualified plan. The IRS has issued new regulations concerning required minimum distributions. The regulations may impact the distribution method you have chosen and the amount of your distributions. Under new regulations, the presence of an enhanced death benefit, or other benefit which could provide additional value to your contract, may require you to take additional distributions. An enhanced death benefit is any death benefit that has the potential to pay more than the contract value or a return of purchase payments. Annuity contracts inside Custodial or Trusteed IRAs will also be subject to these regulations. Please contact your tax adviser regarding any tax ramifications. Congress enacted The Worker, Retiree, and Employer recovery Act of 2008 (the Act) in December, 2008. The Act includes a number of relief provisions, including the suspension of the RMD requirement for IRAs and certain qualified plans in 2009. You should consult your tax advisor to determine whether the RMD relief applies to your annuity contract. If your RMD is currently paid automatically each year, Lincoln will not make any changes to your payments for 2009 unless you specifically request that a change be made. Federal Penalty Taxes Payable on Distributions 75 The tax code may impose a 10% penalty tax on a distribution from a qualified contract that must be included in income. The tax code does not impose the penalty tax if one of several exceptions applies. The exceptions vary depending on the type of qualified contract you purchase. For example, in the case of an IRA, exceptions provide that the penalty tax does not apply to a withdrawal, surrender, or annuity payout: o received on or after the annuitant reaches 591/2, o received on or after the annuitant's death or because of the annuitant's disability (as defined in the tax law), o received as a series of substantially equal periodic payments based on the annuitant's life (or life expectancy), or o received as reimbursement for certain amounts paid for medical care. These exceptions, as well as certain others not described here, generally apply to taxable distributions from other qualified plans. However, the specific requirements of the exception may vary. Transfers and Direct Rollovers As a result of Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), you may be able to move funds between different types of qualified plans, such as 403(b) and 457(b) governmental plans, by means of a rollover or transfer. You may be able to rollover or transfer amounts between qualified plans and traditional IRAs. These rules do not apply to Roth IRAs and 457(b) non-governmental tax-exempt plans. The Pension Plan Act permits direct conversions from certain qualified, 403(b) or 457(b) plans to Roth IRAs (effective for distributions after 2007). There are special rules that apply to rollovers, direct rollovers and transfers (including rollovers or transfers of after-tax amounts). If the applicable rules are not followed, you may incur adverse Federal income tax consequences, including paying taxes which you might not otherwise have had to pay. Before we send a rollover distribution, we will provide a notice explaining tax withholding requirements (see Federal Income Tax Withholding). We are not required to send you such notice for your IRA. You should always consult your tax adviser before you move or attempt to move any funds. Pursuant to IRS regulations, IRAs may not invest in life insurance contracts. We do not believe that these regulations prohibit the death benefit from being provided under the contract when we issue the contract as a Traditional or Roth IRA. However, the law is unclear and it is possible that the presence of the death benefit under a contract issued as a Traditional or Roth IRA could result in increased taxes to you. Certain death benefit options may not be available for all of our products. Federal Income Tax Withholding We will withhold and remit to the IRS a part of the taxable portion of each distribution made under a contract unless you notify us prior to the distribution that tax is not to be withheld. In certain circumstances, Federal income tax rules may require us to withhold tax. At the time a withdrawal, surrender, or annuity payout is requested, we will give you an explanation of the withholding requirements. Certain payments from your contract may be considered eligible rollover distributions (even if such payments are not being rolled over). Such distributions may be subject to special tax withholding requirements. The Federal income tax withholding rules require that we withhold 20% of the eligible rollover distribution from the payment amount, unless you elect to have the amount directly transferred to certain qualified plans or contracts. The IRS requires that tax be withheld, even if you have requested otherwise. Such tax withholding requirements are generally applicable to 401(a), 403(a) or (b), HR 10, and 457(b) governmental plans and contracts used in connection with these types of plans. Our Tax Status Under existing Federal income tax laws, we do not pay tax on investment income and realized capital gains of the VAA. We do not expect that we will incur any Federal income tax liability on the income and gains earned by the VAA. However, the Company does expect, to the extent permitted under Federal tax law, to claim the benefit of the foreign tax credit as the owner of the assets of the VAA. Therefore, we 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 VAA, we may impose a charge against the VAA to pay the taxes. Changes in the Law The above discussion is based on the tax 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. Additional Information Voting Rights As required by law, we will vote the fund shares held in the VAA at meetings of the shareholders of the funds. The voting will be done according to the instructions of contractowners who have interests in any subaccounts which invest in classes of the funds. If the 76 1940 Act or any regulation under it should be amended or if present interpretations should change, and if as a result we determine that we are permitted to vote the fund shares in our own right, we may elect to do so. The number of votes which you have the right to cast will be determined by applying your percentage interest in a subaccount to the total number of votes attributable to the subaccount. In determining the number of votes, fractional shares will be recognized. Each underlying fund is subject to the laws of the state in which it is organized concerning, among other things, the matters which are subject to a shareholder vote, the number of shares which must be present in person or by proxy at a meeting of shareholders (a "quorum"), and the percentage of such shares present in person or by proxy which must vote in favor of matters presented. Because shares of the underlying fund held in the VAA are owned by us, and because under the 1940 Act we will vote all such shares in the same proportion as the voting instruction which we receive, it is important that each contractowner provide their voting instructions to us. Even though contractowners may choose not to provide voting instruction, the shares of a fund to which such contractowners would have been entitled to provide voting instruction will, subject to fair representation requirements, be voted by us in the same proportion as the voting instruction which we actually receive. As a result, the instruction of a small number of contractowners could determine the outcome of matters subject to shareholder vote. All shares voted by us will be counted when the underlying fund determines whether any requirement for a minimum number of shares be present at such a meeting to satisfy a quorum requirement has been met. Voting instructions to abstain on any item to be voted on will be applied on a pro-rata basis to reduce the number of votes eligible to be cast. Whenever a shareholders meeting is called, we will provide or make available to each person having a voting interest in a subaccount proxy voting material, reports and other materials relating to the funds. Since the funds engage in shared funding, other persons or entities besides Lincoln New York may vote fund shares. See Investments of the Variable Annuity Account - Fund Shares. Return Privilege Within the free-look period after you receive the contract, you may cancel it for any reason by delivering or mailing it postage prepaid, to the Servicing office at PO Box 7866, 1300 S. Clinton Street, Fort Wayne, IN 46802-7866. A contract canceled under this provision will be void. Except as explained in the following paragraph, we will return the contract value as of the valuation date on which we receive the cancellation request, plus any premium taxes plus mortality and expense risk charges and administrative charges proportionately attributable to the bonus credits, less any bonus credits paid into the contract by us. In addition, if the contract value on the date of cancellation is less than the sum of purchase payments minus withdrawals, we will also return both the investment loss and fund management fees, each in an amount that is proportionately attributable to the bonus credits. No surrender charges or interest adjustment will apply. A purchaser who participates in the VAA is subject to the risk of a market loss on the contract value, excluding the bonus credits during the free-look period. IRA purchasers will receive the greater of purchase payments or contract value as of the valuation day on which we receive the cancellation request. State Regulation As a life insurance company organized and operated under New York law, we are subject to provisions governing life insurers and to regulation by the New York Superintendent of Insurance. Our books and accounts are subject to review and examination by the New York Insurance Department at all times. A full examination of our operations is conducted by that Department at least every five years. Records and Reports As presently required by the 1940 Act and applicable regulations, we are responsible for maintaining all records and accounts relating to the VAA. We have entered into an agreement with The Bank of New York Mellon, One Mellon Bank Center, 500 Grant Street, Pittsburgh, Pennsylvania, 15258, to provide accounting services to the VAA. We will mail to you, at your last known address of record at the Servicing office, at least semi-annually after the first contract year, reports containing information required by that Act or any other applicable law or regulation. Administrative services necessary for the operations of the VAA and the contracts are currently provided by Lincoln Life. However, neither the assets of Lincoln Life nor the assets of LNC support the obligation of Lincoln New York under the contracts. Other Information A Registration Statement has been filed with the SEC, under the Securities Act of 1933 as amended, for the contracts being offered here. This prospectus does not contain all the information in the Registration Statement, its amendments and exhibits. Please refer to the Registration Statement for further information about the VAA, Lincoln New York and the contracts offered. Statements in this prospectus about the content of contracts and other legal instruments are summaries. For the complete text of those contracts and instruments, please refer to those documents as filed with the SEC. You may elect to receive your prospectus, prospectus supplements, quarterly statements, and annual and semiannual reports electronically over the Internet, if you have an e-mail account and access to an Internet browser. Once you select eDelivery, via the Internet Service Center, all documents available in electronic format will no longer be sent to you in hard copy. You will receive an 77 e-mail notification when the documents become available online. It is your responsibility to provide us with your current e-mail address. You can resume paper mailings at any time without cost, by updating your profile at the Internet Service Center, or contacting us. To learn more about this service, please log on to www.LincolnFinancial.com, select service centers and continue on through the Internet Service Center. Legal Proceedings In the ordinary course of its business, Lincoln New York, the VAA, and the principal underwriter may become or are involved in various pending or threatened legal proceedings, including purported class actions, arising from the conduct of business. In some instances, these proceedings include claims for unspecified or substantial punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief. After consultation with legal counsel and a review of available facts, it is management's opinion that these proceedings, after consideration of any reserves and rights to indemnification, ultimately will be resolved without materially affecting the financial position of Lincoln New York, the VAA, or the principal underwriter. 78 Contents of the Statement of Additional Information (SAI) for Lincoln New York Account N for Variable Annuities
Item Special Terms Services Principal Underwriter Purchase of Securities Being Offered Interest Adjustment Example Annuity Payouts Examples of Regular Income Payment Calculations Determination of Accumulation and Annuity Unit Value Capital Markets Advertising & Ratings Additional Services Other Information Financial Statements
For a free copy of the SAI complete the form below. Statement of Additional Information Request Card Lincoln ChoicePlus AssuranceSM (Bonus) Lincoln New York Account N for Variable Annuities . Please send me a free copy of the current Statement of Additional Information for Lincoln New York Account N for Variable Annuities. (Please Print) Name: ------------------------------------------------------------------------- Address: ---------------------------------------------------------------------- City --------------------------------------------------- State --------- Zip --------- Mail to Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne, Indiana 46801-7866. 79 (This page intentionally left blank) 80 Appendix A - Condensed Financial Information Accumulation Unit Values The following information relates to accumulation unit values and accumulation units for contracts purchased before July 22, 2005 for funds in the periods ended December 31. It should be read along with the VAA's financial statement and notes which are included in the SAI.
with EGMDB with GOP ------------------------------------------- ---------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of ----------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- -------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) AIM V.I. Capital Appreciation 2006 . 15.915 15.673 1 N/A N/A N/A 2007 . 15.673 17.234 1 N/A N/A N/A 2008 . 17.234 9.730 1 N/A N/A N/A --------- ------ ------ - ------ --- --- AIM V.I. Core Equity 2006 . N/A N/A N/A N/A N/A N/A 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ ---- ------ --- --- AIM V.I. International Growth Fund 2003 . N/A N/A N/A 11.525 12.481 354 2004 . 13.331 16.229 1* 12.481 15.210 1* 2005 . 16.229 18.799 1* 15.210 17.636 1* 2006 . 18.799 23.659 1* 17.636 22.217 1* 2007 . 23.659 26.647 1* 22.217 25.049 1* 2008 . 26.647 15.591 1* 25.049 14.671 1* --------- ------ ------ ---- ------ ------ --- AllianceBernstein VPS Global Technology 2003 . N/A N/A N/A N/A N/A N/A 2004 . 15.569 16.102 1 12.050 13.455 1* 2005 . 16.102 16.425 1 13.455 13.738 1* 2006 . 16.425 17.519 1 13.738 14.668 1* 2007 . 17.519 20.677 2 14.668 17.330 1* 2008 . 20.677 10.690 2 17.330 8.969 1* --------- ------ ------ ---- ------ ------ --- AllianceBernstein VPS Growth and Income 2003 . 11.371 13.936 4,584 11.773 12.018 451 2004 . 13.936 15.253 33 12.018 13.167 44 2005 . 15.253 15.701 51 13.167 13.568 49 2006 . 15.701 18.076 49 13.568 15.636 45 2007 . 18.076 18.654 49 15.636 16.151 40 2008 . 18.654 10.887 47 16.151 9.436 40 --------- ------ ------ ----- ------ ------ --- AllianceBernstein VPS International Value 2006 . 9.699 11.846 2 10.305 11.853 1 2007 . 11.846 12.309 1* 11.853 12.329 25 2008 . 12.309 5.659 6 12.329 5.674 27 --------- ------ ------ ----- ------ ------ --- AllianceBernstein VPS Large Cap Growth 2003 . N/A N/A N/A 11.167 11.498 93 2004 . 12.023 12.819 4 11.498 12.272 3 2005 . 12.819 14.488 6 12.272 13.884 4 2006 . 14.488 14.167 6 13.884 13.590 4 2007 . 14.167 15.840 6 13.590 15.210 4 2008 . 15.840 9.381 7 15.210 9.017 4 --------- ------ ------ ----- ------ ------ --- AllianceBernstein VPS Small/Mid Cap Value 2003 . N/A N/A N/A 12.696 13.131 79 2004 . 16.043 18.800 5 13.131 15.403 6 2005 . 18.800 19.729 13 15.403 16.180 9 2006 . 19.729 22.173 13 16.180 18.202 10 2007 . 22.173 22.154 14 18.202 18.205 9 2008 . 22.154 14.008 11 18.205 11.523 4 --------- ------ ------ ----- ------ ------ ---
A-1
with EGMDB with GOP ---------------------------------------- ---------------------------------------- Accumulation unit value Accumulation unit value ----------------------- Number of ----------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- -------- ------------- ----------- -------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) American Century Investments VP Inflation Protection Fund 2003 . 2004 . 9.906 10.408 124 10.000 10.413 95 2005 . 10.408 10.402 231 10.413 10.418 174 2006 . 10.402 10.398 159 10.418 10.425 173 2007 . 10.398 11.206 166 10.425 11.246 143 2008 . 11.206 10.852 171 11.246 10.901 101 --------- ------ ------ --- ------ ------ --- American Funds Global Growth Fund 2003 . 2004 . 10.215 11.270 5 10.019 11.276 1 2005 . 11.270 12.652 11 11.276 12.672 5 2006 . 12.652 14.994 13 12.672 15.033 9 2007 . 14.994 16.948 11 15.033 17.009 14 2008 . 16.948 10.276 9 17.009 10.323 11 --------- ------ ------ --- ------ ------ --- American Funds Global Small Capitalization Fund 2003 . 10.573 15.976 1,459 N/A N/A N/A 2004 . 15.976 19.006 14 14.256 16.837 10 2005 . 19.006 23.446 30 16.837 20.792 16 2006 . 23.446 28.624 28 20.792 25.409 18 2007 . 28.624 34.206 23 25.409 30.394 19 2008 . 34.206 15.645 13 30.394 13.916 16 --------- ------ ------ ----- ------ ------ ----- American Funds Growth Fund 2003 . 10.630 14.312 6,644 11.873 12.322 35,799 2004 . 14.312 15.845 159 12.322 13.655 303 2005 . 15.845 18.118 250 13.655 15.630 325 2006 . 18.118 19.653 241 15.630 16.971 320 2007 . 19.653 21.729 219 16.971 18.782 240 2008 . 21.729 11.981 179 18.782 10.367 204 --------- ------ ------ ----- ------ ------ ------ American Funds Growth-Income Fund 2003 . 10.876 14.174 7,325 11.672 12.296 19,373 2004 . 14.174 15.396 163 12.296 13.370 277 2005 . 15.396 16.035 237 13.370 13.939 314 2006 . 16.035 18.180 233 13.939 15.819 301 2007 . 18.180 18.794 207 15.819 16.370 225 2008 . 18.794 11.495 181 16.370 10.022 194 --------- ------ ------ ----- ------ ------ ------ American Funds International Fund 2003 . 10.890 14.452 3,941 12.328 13.203 5,680 2004 . 14.452 16.971 54 13.203 15.519 56 2005 . 16.971 20.293 92 15.519 18.576 71 2006 . 20.293 23.761 85 18.576 21.772 76 2007 . 23.761 28.066 86 21.772 25.742 59 2008 . 28.066 15.985 73 25.742 14.676 64 --------- ------ ------ ----- ------ ------ ------ Delaware VIP Capital Reserves 2005 . 10.014 9.924 2 9.952 9.930 1 2006 . 9.924 10.190 2 9.930 10.205 1 2007 . 10.190 10.452 3 10.205 10.479 1 2008 . 10.452 10.219 13 10.479 10.256 6 --------- ------ ------ ----- ------ ------ ------ Delaware VIP Diversified Income Series 2004 . 10.040 10.875 19 10.000 10.882 33 2005 . 10.875 10.639 98 10.882 10.657 71 2006 . 10.639 11.263 113 10.657 11.293 79 2007 . 11.263 11.906 119 11.293 11.949 93 2008 . 11.906 11.143 109 11.949 11.195 63 --------- ------ ------ ----- ------ ------ ------ Delaware VIP Emerging Markets Series 2004 . 10.482 13.568 10 10.838 13.576 9 2005 . 13.568 16.973 54 13.576 17.000 32 2006 . 16.973 21.182 54 17.000 21.237 34 2007 . 21.182 28.873 49 21.237 28.977 24 2008 . 28.873 13.729 34 28.977 13.792 19 --------- ------ ------ ----- ------ ------ ------
A-2
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) Delaware VIP High Yield Series 2003 . 11.104 14.055 3,687 10.752 11.078 11,728 2004 . 14.055 15.771 30 11.078 12.443 67 2005 . 15.771 16.040 52 12.443 12.668 80 2006 . 16.040 17.710 52 12.668 14.001 73 2007 . 17.710 17.873 53 14.001 14.144 66 2008 . 17.873 13.292 49 14.144 10.530 50 --------- ------ ------ ----- ------ ------ ------ Delaware VIP REIT Series 2003 . 10.725 14.115 4,479 11.483 12.197 9,697 2004 . 14.115 18.209 55 12.197 15.751 45 2005 . 18.209 19.149 78 15.751 16.581 59 2006 . 19.149 24.937 74 16.581 21.614 56 2007 . 24.937 21.061 65 21.614 18.273 40 2008 . 21.061 13.413 60 18.273 11.649 29 --------- ------ ------ ----- ------ ------ ------ Delaware VIP Small Cap Value Series 2003 . 10.685 14.897 972 12.606 13.168 4,300 2004 . 14.897 17.762 12 13.168 15.716 24 2005 . 17.762 19.080 27 15.716 16.899 34 2006 . 19.080 21.760 29 16.899 19.292 37 2007 . 21.760 19.950 25 19.292 17.705 27 2008 . 19.950 13.730 24 17.705 12.197 19 --------- ------ ------ ----- ------ ------ ------ Delaware VIP Trend Series 2003 . 11.023 14.623 2,343 12.273 12.550 14,629 2004 . 14.623 16.163 17 12.550 13.886 47 2005 . 16.163 16.800 39 13.886 14.447 51 2006 . 16.800 17.746 46 14.447 15.276 46 2007 . 17.746 19.291 35 15.276 16.623 35 2008 . 19.291 10.088 32 16.623 8.701 33 --------- ------ ------ ----- ------ ------ ------ Delaware VIP US Growth Series 2003 . 10.880 12.353 5,501 11.250 11.469 2,904 2004 . 12.353 12.524 35 11.469 11.640 50 2005 . 12.524 14.102 34 11.640 13.120 49 2006 . 14.102 14.164 32 13.120 13.191 38 2007 . 14.164 15.664 31 13.191 14.602 30 2008 . 15.664 8.808 44 14.602 8.220 27 --------- ------ ------ ----- ------ ------ ------ Delaware VIP Value Series 2003 . N/A N/A N/A 11.609 12.049 710 2004 . 13.466 15.185 5 12.049 13.601 10 2005 . 15.185 15.810 9 13.601 14.174 14 2006 . 15.810 19.261 12 14.174 17.286 14 2007 . 19.261 18.387 13 17.286 16.518 18 2008 . 18.387 12.021 9 16.518 10.810 16 --------- ------ ------ ----- ------ ------ ------ DWS VIP Equity 500 Index 2003 . 11.388 12.033 1,633 11.467 12.041 6,480 2004 . 12.033 13.064 30 12.041 13.085 55 2005 . 13.064 13.424 54 13.085 13.460 69 2006 . 13.424 15.225 57 13.460 15.280 72 2007 . 15.225 15.737 55 15.280 15.810 58 2008 . 15.737 9.705 56 15.810 9.759 47 --------- ------ ------ ----- ------ ------ ------ DWS VIP Small Cap Index 2003 . 12.850 13.531 352 N/A N/A N/A 2004 . 13.531 15.644 1 14.530 15.668 7 2005 . 15.644 16.010 4 15.668 16.051 7 2006 . 16.010 18.464 5 16.051 18.530 8 2007 . 18.464 17.779 5 18.530 17.860 11 2008 . 17.779 11.490 7 17.860 11.555 7 --------- ------ ------ ----- ------ ------ ------
A-3
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) Fidelity VIP Contrafund Portfolio 2003 . N/A N/A N/A N/A N/A N/A 2004 . 12.587 14.266 4 12.404 13.909 9 2005 . 14.266 16.378 31 13.909 15.985 14 2006 . 16.378 17.961 39 15.985 17.547 14 2007 . 17.961 20.734 39 17.547 20.276 14 2008 . 20.734 11.694 36 20.276 11.447 16 --------- ------ ------ ---- ------ ------ --- Fidelity VIP Equity-Income Portfolio 2003 . N/A N/A N/A 12.112 12.404 174 2004 . 13.787 15.092 16 12.404 13.591 14 2005 . 15.092 15.679 27 13.591 14.135 16 2006 . 15.679 18.506 27 14.135 16.699 16 2007 . 18.506 18.444 27 16.699 16.660 15 2008 . 18.444 10.380 25 16.660 9.385 14 --------- ------ ------ ---- ------ ------ --- Fidelity VIP Growth Portfolio 2003 . N/A N/A N/A N/A N/A N/A 2004 . 13.422 13.622 6 12.402 12.488 4 2005 . 13.622 14.143 10 12.488 12.979 9 2006 . 14.143 14.833 11 12.979 13.626 10 2007 . 14.833 18.490 15 13.626 17.002 12 2008 . 18.490 9.588 9 17.002 8.825 6 --------- ------ ------ ---- ------ ------ --- Fidelity VIP Mid Cap 2005 . 10.523 11.568 9 10.203 11.574 1 2006 . 11.568 12.796 10 11.574 12.816 10 2007 . 12.796 14.524 17 12.816 14.562 5 2008 . 14.524 8.632 15 14.562 8.663 7 --------- ------ ------ ---- ------ ------ --- Fidelity VIP Overseas Portfolio 2003 . 11.674 14.620 2,459 13.190 14.193 616 2004 . 14.620 16.303 26 14.193 15.844 28 2005 . 16.303 19.058 35 15.844 18.539 32 2006 . 19.058 22.089 31 18.539 21.509 30 2007 . 22.089 25.445 28 21.509 24.802 27 2008 . 25.445 14.033 27 24.802 13.692 28 --------- ------ ------ ----- ------ ------ --- FTVIPT Franklin Income Securities 2006 . 10.219 11.225 6 10.912 11.232 1 2007 . 11.225 11.462 11 11.232 11.481 9 2008 . 11.462 7.935 10 11.481 7.956 10 --------- ------ ------ ----- ------ ------ --- FTVIPT Franklin Small-Mid Cap Growth Securities Fund 2003 . N/A N/A N/A 12.692 12.955 318 2004 . 15.584 17.097 2 12.955 14.227 2 2005 . 17.097 17.631 5 14.227 14.686 6 2006 . 17.631 18.860 7 14.686 15.725 7 2007 . 18.860 20.647 12 15.725 17.232 7 2008 . 20.647 11.684 8 17.232 9.762 3 --------- ------ ------ ----- ------ ------ --- FTVIPT Mutual Shares Securities 2006 . 9.912 11.270 25 10.022 11.277 1 2007 . 11.270 11.479 39 11.277 11.497 4 2008 . 11.479 7.104 23 11.497 7.123 11 --------- ------ ------ ----- ------ ------ --- FTVIPT Templeton Global Income Securities 2005 . 9.811 9.875 1* N/A N/A N/A 2006 . 9.875 10.959 2 10.559 10.977 3 2007 . 10.959 11.971 14 10.977 12.004 4 2008 . 11.971 12.513 19 12.004 12.559 11 --------- ------ ------ ----- ------ ------ --- FTVIPT Templeton Growth Securities Fund 2003 . N/A N/A N/A N/A N/A N/A 2004 . 13.777 15.731 9 12.970 14.509 3 2005 . 15.731 16.853 36 14.509 15.560 19 2006 . 16.853 20.203 36 15.560 18.671 18 2007 . 20.203 20.349 24 18.671 18.825 15 2008 . 20.349 11.550 16 18.825 10.696 10 --------- ------ ------ ----- ------ ------ ---
A-4
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) Janus Aspen Balanced Portfolio 2003 . N/A N/A N/A 10.523 10.850 557 2004 . 11.338 12.084 1* 10.850 11.575 1 2005 . 12.084 12.803 1 11.575 12.276 6 2006 . 12.803 13.912 1 12.276 13.352 6 2007 . 13.912 15.100 1 13.352 14.507 7 2008 . 15.100 12.473 19 14.507 11.996 7 --------- ------ ------ ---- ------ ------ --- Janus Aspen Mid Cap Growth Portfolio 2003 . N/A N/A N/A N/A N/A N/A 2004 . 13.567 16.086 1* 12.600 14.725 1* 2005 . 16.086 17.734 2 14.725 16.250 1* 2006 . 17.734 19.775 2 16.250 18.138 1* 2007 . 19.775 23.692 2 18.138 21.753 1* 2008 . 23.692 13.090 2 21.753 12.031 1* --------- ------ ------ ---- ------ ------ ---- Janus Aspen Worldwide Growth Portfolio 2003 . N/A N/A N/A N/A N/A N/A 2004 . 12.557 12.917 1 N/A N/A N/A 2005 . 12.917 13.421 1 N/A N/A N/A 2006 . 13.421 15.577 1 N/A N/A N/A 2007 . 15.577 16.766 1 N/A N/A N/A 2008 . 16.766 9.106 1* N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Baron Growth Opportunities(4) 2006 . N/A N/A N/A N/A N/A N/A 2007 . 11.133 10.809 14 N/A N/A N/A 2008 . 10.809 6.474 5 N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Capital Growth 2007 . 10.799 10.704 9 N/A N/A N/A 2008 . 10.704 6.138 8 N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Cohen & Steers Global Real Estate 2007 . 9.701 8.221 2 8.726 8.226 1* 2008 . 8.221 4.678 2 8.226 4.686 14 --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Columbia Value Opportunities 2007 . N/A N/A N/A N/A N/A N/A 2008 . 8.478 6.067 16 N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Core Fund(1) 2005 . N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Delaware Bond 2003 . 9.843 10.017 34,822 9.848 10.023 54,408 2004 . 10.017 10.356 337 10.023 10.372 399 2005 . 10.356 10.434 468 10.372 10.462 422 2006 . 10.434 10.726 457 10.462 10.765 416 2007 . 10.726 11.101 455 10.765 11.153 367 2008 . 11.101 10.569 384 11.153 10.628 307 --------- ------ ------ ------ ------ ------ ------ Lincoln VIP Delaware Growth and Income 2005 . N/A N/A N/A N/A N/A N/A 2006 . 10.172 11.435 1 N/A N/A N/A 2007 . 11.435 11.912 9 N/A N/A N/A 2008 . 11.912 7.503 14 N/A N/A N/A --------- ------ ------ ------ ------ ------ ------ Lincoln VIP Delaware Social Awareness 2003 . 11.622 12.263 5,384 11.933 12.271 525 2004 . 12.263 13.568 44 12.271 13.590 43 2005 . 13.568 14.922 59 13.590 14.961 49 2006 . 14.922 16.451 54 14.961 16.510 44 2007 . 16.451 16.628 53 16.510 16.705 40 2008 . 16.628 10.696 52 16.705 10.756 39 --------- ------ ------ ------ ------ ------ ------ Lincoln VIP Delaware Special Opportunities 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ ------ ------ ------ ------
A-5
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) Lincoln VIP FI Equity-Income 2005 . 10.116 10.475 1* 10.258 10.480 1* 2006 . 10.475 11.442 1 10.480 11.458 1* 2007 . 11.442 11.721 1 11.458 11.749 1* 2008 . 11.721 7.096 1 11.749 7.120 1* --------- ------ ------ - ------ ------ - Lincoln VIP Growth Fund(2) 2005 . N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Growth Opportunities(3) 2005 . N/A N/A N/A N/A N/A N/A 2006 . 11.898 12.375 9 N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Janus Capital Appreciation 2003 . N/A N/A N/A N/A N/A N/A 2004 . 12.191 12.600 4 11.996 12.620 3 2005 . 12.600 12.889 5 12.620 12.923 5 2006 . 12.889 13.877 5 12.923 13.927 5 2007 . 13.877 16.403 5 13.927 16.479 5 2008 . 16.403 9.529 4 16.479 9.583 5 --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Marsico International Growth 2007 . 11.038 11.149 2 N/A N/A N/A 2008 . 11.149 5.588 3 9.879 5.597 4 --------- ------ ------ ---- ------ ------ ---- Lincoln VIP MFS Value 2007 . N/A N/A N/A N/A N/A N/A 2008 . 7.573 6.454 1* 8.934 6.464 6 --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Mid-Cap Value 2007 . N/A N/A N/A N/A N/A N/A 2008 . 7.428 5.028 13 N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- Lincoln VIP Mondrian International Value 2003 . 12.000 13.133 7,133 12.561 13.141 6,017 2004 . 13.133 15.592 58 13.141 15.617 70 2005 . 15.592 17.226 113 15.617 17.271 95 2006 . 17.226 21.985 108 17.271 22.065 89 2007 . 21.985 24.061 98 22.065 24.172 76 2008 . 24.061 14.962 87 24.172 15.046 71 --------- ------ ------ ----- ------ ------ ----- Lincoln VIP Money Market Fund 2003 . 9.941 9.922 39,540 9.947 9.928 55,061 2004 . 9.922 9.826 65 9.928 9.842 84 2005 . 9.826 9.915 65 9.842 9.941 74 2006 . 9.915 10.188 151 9.941 10.225 72 2007 . 10.188 10.498 79 10.225 10.547 115 2008 . 10.498 10.548 205 10.547 10.607 157 --------- ------ ------ ------ ------ ------ ------ Lincoln VIP SSgA Bond Index 2008 . 10.066 10.459 2 10.080 10.465 7 --------- ------ ------ ------ ------ ------ ------ Lincoln VIP SSgA Developed International 150 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ ------ ------ ------ ------ Lincoln VIP SSgA Emerging Markets 100 2008 . N/A N/A N/A 8.592 6.055 1 --------- ------ ------ ------ ------ ------ ------ Lincoln VIP SSgA International Index 2008 . 9.545 6.397 1 9.644 6.400 3 --------- ------ ------ ------ ------ ------ ------ Lincoln VIP SSgA Large Cap 100 2008 . 9.949 6.973 15 N/A N/A N/A --------- ------ ------ ------ ------ ------ ------ Lincoln VIP SSgA S&P 500 Index 2007 . N/A N/A N/A 11.259 11.363 1* 2008 . 9.782 6.989 1 11.363 7.013 20 --------- ------ ------ ------ ------ ------ ------ Lincoln VIP SSgA Small Cap Index 2007 . N/A N/A N/A 9.310 9.153 1* 2008 . 8.256 5.929 2 9.153 5.939 5 --------- ------ ------ ------ ------ ------ ------
A-6
with EGMDB with GOP ------------------------------------------- ------------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of -------------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- ----------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) Lincoln VIP SSgA Small/Mid Cap 200 2008 . N/A N/A N/A N/A N/A N/A --------- -- -- --- ------ -- --- Lincoln VIP T. Rowe Price Growth Stock 2007 . N/A N/A N/A N/A N/A N/A 2008 . 8.548 5.665 4 N/A N/A N/A --------- ----- ----- --- ------ -- --- Lincoln VIP T. Rowe Price Structured Mid-Cap Growth 2003 . N/A N/A N/A N/A N/A N/A 2004 . 12.321 13.751 1* 12.265 13.772 6 2005 . 13.751 14.825 1 13.772 14.862 6 2006 . 14.825 15.903 1 14.862 15.959 6 2007 . 15.903 17.732 1 15.959 17.812 5 2008 . 17.732 9.961 1 17.812 10.016 3 --------- ------ ------ --- ------ ------ --- Lincoln VIP Templeton Growth 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Turner Mid-Cap Growth 2007 . 9.817 10.949 5 N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP UBS Global Asset Allocation 2003 . N/A N/A N/A N/A N/A N/A 2004 . 11.521 12.647 1* 11.583 12.668 1 2005 . 12.647 13.259 2 12.668 13.295 1 2006 . 13.259 14.905 2 13.295 14.960 1 2007 . 14.905 15.565 2 14.960 15.638 1 2008 . 15.565 10.203 8 15.638 10.261 1 --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2010 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . 10.166 7.796 4 N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2020 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2030 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2040 Profile 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Aggressive Profile 2005 . N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Conservative Profile 2005 . N/A N/A N/A N/A N/A N/A 2006 . 10.442 11.007 2 N/A N/A N/A 2007 . 11.007 11.645 7 11.197 11.675 18 2008 . 11.645 9.323 8 11.675 9.356 1* --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Moderate Profile 2005 . 10.031 10.472 57 N/A N/A N/A 2006 . 10.472 11.519 65 10.699 11.537 4 2007 . 11.519 12.356 73 11.537 12.388 4 2008 . 12.356 8.900 65 12.388 8.932 5 --------- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Moderately Aggressive Profile 2005 . 10.000 10.649 1* N/A N/A N/A 2006 . 10.649 11.932 24 N/A N/A N/A 2007 . 11.932 12.863 23 N/A N/A N/A 2008 . 12.863 8.408 26 N/A N/A N/A --------- ------ ------ --- ------ ------ ---
A-7
with EGMDB with GOP ------------------------------------------- ---------------------------------------- Accumulation unit value Accumulation unit value -------------------------- Number of ----------------------- Number of Beginning End of accumulation Beginning End of accumulation of period period units of period period units ----------- ----------- ------------- ----------- -------- ------------- (Accumulation unit value in dollars. Number of accumulation units in thousands beginning in 2004.) MFS VIT Core Equity 2003 . N/A N/A N/A 11.712 11.915 436 2004 . 13.326 14.699 1 11.915 13.157 2 2005 . 14.699 14.678 2 13.157 13.151 2 2006 . 14.678 16.396 2 13.151 14.704 1* 2007 . 16.396 17.890 2 14.704 16.061 1* 2008 . 17.890 10.682 1 N/A N/A N/A --------- ------ ------ ---- ------ ------ ---- MFS VIT Growth Series 2003 . N/A N/A N/A N/A N/A N/A 2004 . 13.041 14.466 6 11.916 13.173 1 2005 . 14.466 15.507 6 13.173 14.135 3 2006 . 15.507 16.422 3 14.135 14.984 4 2007 . 16.422 19.535 1* 14.984 17.842 4 2008 . 19.535 12.006 1* 17.842 10.977 2 --------- ------ ------ ---- ------ ------ ---- MFS VIT Total Return Series 2003 . N/A N/A N/A 10.618 11.101 8,516 2004 . 11.872 12.972 32 11.101 12.142 19 2005 . 12.972 13.098 70 12.142 12.272 23 2006 . 13.098 14.388 58 12.272 13.494 24 2007 . 14.388 14.717 66 13.494 13.817 23 2008 . 14.717 11.250 44 13.817 10.573 17 --------- ------ ------ ---- ------ ------ ----- MFS VIT Utilities Series 2003 . 11.381 15.184 294 11.010 11.939 3,265 2004 . 15.184 19.404 2 11.939 15.271 12 2005 . 19.404 22.260 35 15.271 17.537 30 2006 . 22.260 28.689 29 17.537 22.625 31 2007 . 28.689 36.015 30 22.625 28.430 27 2008 . 36.015 22.042 17 28.430 17.418 19 --------- ------ ------ ---- ------ ------ ----- Neuberger Berman AMT Mid-Cap Growth Portfolio 2003 . 9.949 12.540 2,236 11.919 12.151 1,867 2004 . 12.540 14.354 18 12.151 13.922 21 2005 . 14.354 16.067 34 13.922 15.599 21 2006 . 16.067 18.135 40 15.599 17.625 25 2007 . 18.135 21.868 36 17.625 21.274 21 2008 . 21.868 12.187 27 21.274 11.868 17 --------- ------ ------ ----- ------ ------ ----- Neuberger Berman AMT Regency Portfolio 2003 . 10.131 13.980 3,655 12.563 12.811 3,265 2004 . 13.980 16.834 45 12.811 15.443 43 2005 . 16.834 18.555 100 15.443 17.038 69 2006 . 18.555 20.300 92 17.038 18.659 68 2007 . 20.300 20.637 87 18.659 18.988 59 2008 . 20.637 11.003 76 18.988 10.134 51 --------- ------ ------ ----- ------ ------ ----- Putnam VT Growth and Income Fund 2003 . N/A N/A N/A N/A N/A N/A 2004 . 13.542 14.808 1* N/A N/A N/A 2005 . 14.808 15.335 1* N/A N/A N/A 2006 . 15.335 17.492 1* N/A N/A N/A 2007 . 17.492 16.175 1* N/A N/A N/A 2008 . 16.175 9.758 1* N/A N/A N/A --------- ------ ------ ----- ------ ------ ----- Putnam VT Health Sciences Fund 2003 . 10.812 11.331 575 N/A N/A N/A 2004 . N/A N/A N/A N/A N/A N/A 2005 . 11.946 13.308 3 N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A 2007 . N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A --------- ------ ------ ----- ------ ------ -----
* All numbers less than 500 were rounded up to one. (1) Effective April 30, 2007, the Lincoln Core Fund was reorganized into the LVIP S&P 500 Index Fund, a series of Lincoln Variable Insurance Products Trust. (2) Effective April 30, 2007, the Lincoln Growth Fund, was reorganized into the LVIP Janus Capital Appreciation Fund, a series of Lincoln Variable Insurance Products Trust. A-8 (3) Effective June 11, 2007, the Lincoln Growth Opportunities Fund was reorganized into the LVIP Baron Growth Opportunities Fund, a series of Lincoln Variable Insurance Products Trust. (4)Effective June 5, 2007, the Baron Capital Asset Fund, a series of Baron Capital Funds Trust, was reorganized into the LVIP Baron Growth Opportunities Fund, a series of Lincoln Variable Insurance Products Trust. The values in the table for periods prior to the date of the reorganization reflect investments in the Baron Capital Asset Fund. A-9 [THIS PAGE INTENTIONALLY LEFT BLANK] Appendix B - Condensed Financial Information Accumulation Unit Values The following information relates to accumulation unit values and number of accumulation units for contracts purchased after July 22, 2005 (or later in those states that have not approved the contract changes) for funds available in the periods ended December 31. It should be read along with the VAA's financial statement and notes which are included in the SAI.
with EGMDB with GOP Acct Value DB ---------------------------------- ------------------------------------ ------------------------------------ Accumulation unit Accumulation unit Accumulation unit value value value -------------------- Number of ---------------------- Number of ---------------------- Number of Beginning End of accumulation Beginning End of accumulation Beginning End of accumulation of period period units of period period units of period period units ----------- -------- ------------- ----------- ---------- ------------- ----------- ---------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) AllianceBernstein VPS Global Technology 2005 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2006 . N/A 11.373 2 N/A N/A N/A N/A N/A N/A 2007 . 11.373 13.392 13 16.206 17.289 1* N/A N/A N/A 2008 . 13.392 6.910 15 17.289 8.943 1* N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ -- --- AllianceBernstein VPS Growth and Income 2005 . 9.767 10.314 2 13.157 13.550 2 N/A N/A N/A 2006 . 10.314 11.850 14 13.550 15.607 3 14.192 15.636 1 2007 . 11.850 12.205 13 15.607 16.114 10 15.636 16.151 1 2008 . 12.205 7.109 15 16.114 9.409 11 16.151 9.436 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- AllianceBernstein VPS International Value 2006 . 9.696 11.832 4 N/A N/A N/A N/A N/A N/A 2007 . 11.832 12.263 27 11.722 12.319 40 13.169 12.329 5 2008 . 12.263 5.626 74 12.319 5.666 53 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- AllianceBernstein VPS Small/Mid Cap Value 2005 . 10.303 10.624 1 15.267 16.159 1* N/A N/A N/A 2006 . 10.624 11.916 4 16.159 18.170 1 16.520 18.202 1 2007 . 11.916 11.881 14 18.170 18.163 11 18.202 18.205 1 2008 . 11.881 7.498 19 18.163 11.491 14 18.205 11.523 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- American Century Investments VP Inflation Protection Fund 2005 . 9.971 9.870 3 10.411 10.410 24 N/A N/A N/A 2006 . 9.870 9.847 15 10.410 10.412 68 10.191 10.425 6 2007 . 9.847 10.591 22 10.412 11.226 90 10.425 11.246 7 2008 . 10.591 10.236 52 11.226 10.877 94 11.246 10.901 1* --------- ------ ------ --- ------ ------ --- ------ ------ --- American Funds Global Growth Fund 2005 . 10.840 11.397 8 11.420 12.661 1 N/A N/A N/A 2006 . 11.397 13.480 41 12.661 15.013 4 13.897 15.033 5 2007 . 13.480 15.206 47 15.013 16.977 15 15.033 17.009 7 2008 . 15.206 9.201 58 16.977 10.299 21 17.009 10.323 5 --------- ------ ------ --- ------ ------ --- ------ ------ --- American Funds Global Small Capitalization Fund 2005 . 10.740 11.998 15 16.823 20.764 2 N/A N/A N/A 2006 . 11.998 14.619 53 20.764 25.362 7 N/A N/A N/A 2007 . 14.619 17.435 69 25.362 30.324 14 N/A N/A N/A 2008 . 17.435 7.959 50 30.324 13.877 17 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- American Funds Growth Fund 2005 . 10.408 11.213 49 13.644 15.610 32 N/A N/A N/A 2006 . 11.213 12.138 204 15.610 16.940 67 16.487 16.971 4 2007 . 12.138 13.394 306 16.940 18.739 137 16.971 18.782 18 2008 . 13.394 7.370 380 18.739 10.338 163 18.782 10.367 14 --------- ------ ------ --- ------ ------ --- ------ ------ --- American Funds Growth-Income Fund 2005 . 10.317 10.553 31 13.359 13.921 46 N/A N/A N/A 2006 . 10.553 11.940 160 13.921 15.791 66 14.599 15.819 1 2007 . 11.940 12.319 270 15.791 16.332 160 15.819 16.370 14 2008 . 12.319 7.520 338 16.332 9.994 177 16.370 10.022 10 --------- ------ ------ --- ------ ------ --- ------ ------ --- American Funds International Fund 2005 . 10.713 12.011 21 15.507 18.551 14 N/A N/A N/A 2006 . 12.011 14.036 86 18.551 21.733 23 N/A N/A N/A 2007 . 14.036 16.546 122 21.733 25.683 42 24.841 25.742 3 2008 . 16.546 9.405 135 25.683 14.635 52 25.742 14.676 3 --------- ------ ------ --- ------ ------ --- ------ ------ ---
B-1
with EGMDB with GOP Acct Value DB ------------------------------------ ------------------------------------ ------------------------------------ Accumulation unit Accumulation unit Accumulation unit value value value ---------------------- Number of ---------------------- Number of ---------------------- Number of Beginning End of accumulation Beginning End of accumulation Beginning End of accumulation of period period units of period period units of period period units ----------- ---------- ------------- ----------- ---------- ------------- ----------- ---------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Delaware VIP Capital Reserves 2005 . 9.944 9.913 1* 9.907 9.927 2 N/A N/A N/A 2006 . 9.913 10.158 1* 9.927 10.198 2 N/A N/A N/A 2007 . 10.158 10.399 3 10.198 10.466 2 N/A N/A N/A 2008 . 10.399 10.147 13 10.466 10.238 3 N/A N/A N/A --------- ------ ------ -- ------ ------ - ------ -- --- Delaware VIP Diversified Income Series 2005 . 10.043 9.813 4 10.878 10.648 15 N/A N/A N/A 2006 . 9.813 10.367 13 10.648 11.277 43 N/A N/A N/A 2007 . 10.367 10.937 23 11.277 11.927 119 11.922 11.949 1* 2008 . 10.937 10.216 39 11.927 11.169 118 11.949 11.195 1* --------- ------ ------ -- ------ ------ --- ------ ------ --- Delaware VIP Emerging Markets Series 2005 . 10.797 12.023 18 11.009 12.040 11 N/A N/A N/A 2006 . 12.023 14.975 60 12.040 15.034 22 N/A N/A N/A 2007 . 14.975 20.372 86 15.034 20.503 33 16.744 20.530 2 2008 . 20.372 9.667 97 20.503 9.754 42 20.530 9.771 4 --------- ------ ------ -- ------ ------ --- ------ ------ --- Delaware VIP High Yield Series 2005 . 10.306 10.227 4 12.433 12.651 8 N/A N/A N/A 2006 . 10.227 11.270 9 12.651 13.976 16 13.362 14.001 1* 2007 . 11.270 11.351 16 13.976 14.111 58 14.001 14.144 1 2008 . 11.351 8.425 17 14.111 10.500 56 14.144 10.530 1 --------- ------ ------ -- ------ ------ --- ------ ------ --- Delaware VIP REIT Series 2005 . 10.460 10.397 14 15.738 16.559 8 N/A N/A N/A 2006 . 10.397 13.513 48 16.559 21.575 16 N/A N/A N/A 2007 . 13.513 11.390 57 21.575 18.231 26 N/A N/A N/A 2008 . 11.390 7.239 57 18.231 11.616 27 N/A N/A N/A --------- ------ ------ -- ------ ------ --- ------ ------ --- Delaware VIP Small Cap Value Series 2005 . 10.439 10.758 8 15.704 16.877 8 N/A N/A N/A 2006 . 10.758 12.245 48 16.877 19.257 11 18.074 19.292 1* 2007 . 12.245 11.204 63 19.257 17.664 26 19.292 17.705 1 2008 . 11.204 7.695 98 17.664 12.162 27 17.705 12.197 1 --------- ------ ------ -- ------ ------ --- ------ ------ --- Delaware VIP Trend Series 2005 . 10.741 11.228 2 13.875 14.428 2 N/A N/A N/A 2006 . 11.228 11.837 13 14.428 15.248 6 N/A N/A N/A 2007 . 11.837 12.841 12 15.248 16.584 6 17.924 16.623 1 2008 . 12.841 6.702 17 16.584 8.677 7 16.623 8.701 2 --------- ------ ------ -- ------ ------ --- ------ ------ --- Delaware VIP US Growth Series 2006 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2007 . 10.876 11.558 1 13.608 14.568 1* N/A N/A N/A 2008 . 11.558 6.486 24 N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Delaware VIP Value Series 2005 . 9.981 10.345 1* 13.590 14.156 6 N/A N/A N/A 2006 . 10.345 12.577 36 14.156 17.255 19 N/A N/A N/A 2007 . 12.577 11.982 47 17.255 16.481 42 18.612 16.518 1 2008 . 11.982 7.818 62 16.481 10.779 38 16.518 10.810 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- DWS VIP Equity 500 Index 2005 . 10.189 10.398 4 13.074 13.442 11 N/A N/A N/A 2006 . 10.398 11.769 8 13.442 15.253 16 13.997 15.280 1 2007 . 11.769 12.141 13 15.253 15.774 17 15.280 15.810 1 2008 . 12.141 7.472 12 15.774 9.732 19 15.810 9.759 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- DWS VIP Small Cap Index 2005 . 10.680 10.758 1 N/A N/A N/A N/A N/A N/A 2006 . 10.758 12.382 18 17.533 18.497 1 N/A N/A N/A 2007 . 12.382 11.898 21 18.497 17.819 1 N/A N/A N/A 2008 . 11.898 7.674 29 17.819 11.522 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Fidelity VIP Contrafund Portfolio 2005 . 10.561 11.222 8 13.897 15.964 14 N/A N/A N/A 2006 . 11.222 12.282 95 15.964 17.515 34 17.087 17.547 4 2007 . 12.282 14.150 127 17.515 20.229 53 17.547 20.276 12 2008 . 14.150 7.964 145 20.229 11.415 64 20.276 11.447 5 --------- ------ ------ --- ------ ------ --- ------ ------ ---
B-2
with EGMDB with GOP Acct Value DB ------------------------------------ ------------------------------------ ------------------------------------ Accumulation unit Accumulation unit Accumulation unit value value value ---------------------- Number of ---------------------- Number of ---------------------- Number of Beginning End of accumulation Beginning End of accumulation Beginning End of accumulation of period period units of period period units of period period units ----------- ---------- ------------- ----------- ---------- ------------- ----------- ---------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Fidelity VIP Growth Portfolio 2005 . N/A N/A N/A 12.478 12.962 5 N/A N/A N/A 2006 . 11.311 11.104 2 12.962 13.601 4 N/A N/A N/A 2007 . 11.104 13.814 24 13.601 16.962 8 N/A N/A N/A 2008 . 13.814 7.149 26 16.962 8.800 12 N/A N/A N/A --------- ------ ------ --- ------ ------ -- -- -- --- Fidelity VIP Mid Cap 2005 . 10.652 11.554 19 11.124 11.571 8 N/A N/A N/A 2006 . 11.554 12.756 50 11.571 12.806 15 N/A N/A N/A 2007 . 12.756 14.450 84 12.806 14.543 29 13.856 14.562 4 2008 . 14.450 8.571 83 14.543 8.648 52 14.562 8.663 6 --------- ------ ------ --- ------ ------ -- ------ ------ --- Fidelity VIP Overseas Portfolio 2005 . 10.944 11.971 1 15.831 18.515 2 N/A N/A N/A 2006 . 11.971 13.848 5 18.515 21.470 3 N/A N/A N/A 2007 . 13.848 15.920 10 21.470 24.745 3 N/A N/A N/A 2008 . 15.920 8.762 9 24.745 13.654 4 N/A N/A N/A --------- ------ ------ --- ------ ------ -- ------ ------ --- FTVIPT Franklin Income Securities 2006 . 10.180 11.212 38 10.955 11.229 1* N/A N/A N/A 2007 . 11.212 11.425 86 11.229 11.471 41 11.759 11.481 11 2008 . 11.425 7.894 106 11.471 7.945 59 11.481 7.956 5 --------- ------ ------ --- ------ ------ -- ------ ------ --- FTVIPT Franklin Small-Mid Cap Growth Securities Fund 2005 . 10.277 10.929 1 13.731 14.667 1 N/A N/A N/A 2006 . 10.929 11.667 8 14.667 15.696 5 N/A N/A N/A 2007 . 11.667 12.747 23 15.696 17.192 14 17.936 17.232 2 2008 . 12.747 7.199 29 17.192 9.734 17 17.232 9.762 1* --------- ------ ------ --- ------ ------ -- ------ ------ --- FTVIPT Mutual Shares Securities 2006 . 10.145 11.256 25 10.479 11.274 13 N/A N/A N/A 2007 . 11.256 11.440 63 11.274 11.488 58 12.389 11.497 6 2008 . 11.440 7.066 98 11.488 7.114 68 11.497 7.123 2 --------- ------ ------ --- ------ ------ -- ------ ------ --- FTVIPT Templeton Global Income Securities 2005 . N/A N/A N/A 9.862 9.878 6 N/A N/A N/A 2006 . 10.203 10.926 24 9.878 10.969 14 10.437 10.977 7 2007 . 10.926 11.912 50 10.969 11.988 27 10.977 12.004 7 2008 . 11.912 12.425 81 11.988 12.537 40 12.004 12.559 1 --------- ------ ------ --- ------ ------ -- ------ ------ --- FTVIPT Templeton Growth Securities Fund 2005 . 10.420 10.809 2 14.496 15.538 5 N/A N/A N/A 2006 . 10.809 12.931 29 15.538 18.635 9 N/A N/A N/A 2007 . 12.931 12.999 27 18.635 18.779 19 N/A N/A N/A 2008 . 12.999 7.363 16 18.779 10.665 20 N/A N/A N/A --------- ------ ------ --- ------ ------ -- ------ ------ --- Lincoln VIP Baron Growth Opportunities(4) 2006 . 10.203 10.607 4 N/A N/A N/A N/A N/A N/A 2007 . 10.607 10.774 29 11.139 10.817 10 N/A N/A N/A 2008 . 10.774 6.440 41 10.817 6.482 24 9.414 6.491 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Capital Growth 2007 . 10.789 10.691 21 9.818 10.708 3 N/A N/A N/A 2008 . 10.691 6.118 33 10.708 6.143 7 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Cohen & Steers Global Real Estate 2007 . 9.092 8.211 12 9.800 8.223 22 8.372 8.226 1* 2008 . 8.211 4.663 31 8.223 4.682 52 8.226 4.686 3 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Columbia Value Opportunities 2007 . N/A N/A N/A 10.130 9.361 3 9.669 9.364 2 2008 . 8.457 6.047 20 9.361 6.071 3 9.364 6.075 3 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Core Fund(1) 2005 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Delaware Bond 2005 . 10.009 9.872 25 10.364 10.448 78 N/A N/A N/A 2006 . 9.872 10.127 93 10.448 10.745 117 10.560 10.765 1 2007 . 10.127 10.461 160 10.745 11.127 165 10.765 11.153 8 2008 . 10.461 9.940 269 11.127 10.599 164 11.153 10.628 1 --------- ------ ------ --- ------ ------ --- ------ ------ ---
B-3
with EGMDB with GOP Acct Value DB ------------------------------------ ------------------------------------ ------------------------------------ Accumulation unit Accumulation unit Accumulation unit value value value ---------------------- Number of ---------------------- Number of ---------------------- Number of Beginning End of accumulation Beginning End of accumulation Beginning End of accumulation of period period units of period period units of period period units ----------- ---------- ------------- ----------- ---------- ------------- ----------- ---------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Lincoln VIP Delaware Growth and Income 2005 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2006 . 10.513 11.400 3 10.519 11.444 2 N/A N/A N/A 2007 . 11.400 11.852 3 11.444 11.928 3 N/A N/A N/A 2008 . 11.852 7.450 3 11.928 7.517 5 N/A N/A N/A --------- ------ ------ --- ------ ------ --- -- -- Lincoln VIP Delaware Social Awareness 2005 . N/A N/A N/A 13.579 14.941 2 N/A N/A N/A 2006 . 11.158 11.836 7 14.941 16.480 2 N/A N/A N/A 2007 . 11.836 11.940 10 16.480 16.666 2 N/A N/A N/A 2008 . 11.940 7.665 10 16.666 10.726 3 N/A N/A N/A --------- ------ ------ --- ------ ------ --- -- -- Lincoln VIP Delaware Special Opportunities 2007 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2008 . 8.264 5.663 6 8.914 5.686 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- -- -- Lincoln VIP FI Equity-Income 2005 . 9.898 10.463 2 10.110 10.478 1 N/A N/A N/A 2006 . 10.463 11.406 25 10.478 11.451 2 10.642 11.458 1 2007 . 11.406 11.661 40 11.451 11.736 12 11.458 11.749 1 2008 . 11.661 7.046 47 11.736 7.109 21 11.749 7.120 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Growth Fund(2) 2005 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2006 . 9.974 11.245 1* N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Growth Opportunities(3) 2005 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2006 . 12.161 12.336 14 12.822 12.385 1 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Janus Capital Appreciation 2005 . N/A N/A N/A 12.574 12.905 1 N/A N/A N/A 2006 . N/A N/A N/A 12.905 13.901 1 N/A N/A N/A 2007 . 11.961 13.250 2 13.901 16.440 2 N/A N/A N/A 2008 . 13.250 7.682 6 16.440 9.556 2 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Marsico International Growth 2007 . 10.049 11.135 9 10.054 11.153 8 N/A N/A N/A 2008 . 11.135 5.570 50 11.153 5.593 13 9.945 5.597 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP MFS Value 2007 . 9.731 9.698 1* 10.097 9.713 4 10.017 9.716 2 2008 . 9.698 6.433 31 9.713 6.459 15 9.716 6.464 3 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Mid-Cap Value 2007 . 9.972 8.627 8 9.979 8.641 9 N/A N/A N/A 2008 . 8.627 5.012 42 8.641 5.032 16 7.433 5.036 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Mondrian International Value 2005 . 10.585 11.087 4 15.605 17.248 11 N/A N/A N/A 2006 . 11.087 14.122 45 17.248 22.025 17 N/A N/A N/A 2007 . 14.122 15.425 65 22.025 24.116 27 24.096 24.172 2 2008 . 15.425 9.573 60 24.116 15.004 29 24.172 15.046 2 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Money Market Fund 2005 . 10.045 10.065 1* 9.834 9.928 11 N/A N/A N/A 2006 . 10.065 10.322 7 9.928 10.207 35 N/A N/A N/A 2007 . 10.322 10.615 76 10.207 10.523 104 10.511 10.547 3 2008 . 10.615 10.643 266 10.523 10.577 131 10.547 10.607 50 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIPT SSGA Bond Index 2008 . 9.998 10.449 14 10.039 10.462 2 9.987 10.465 5 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIPT SSGA Developed International 150 2008 . 5.567 6.253 3 N/A N/A N/A 5.333 6.263 2 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIPT SSGA Emerging Markets 100 2008 . 6.899 6.045 3 N/A N/A N/A 5.159 6.055 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIPT SSGA International Index 2008 . 5.744 6.390 3 N/A N/A N/A 5.450 6.400 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIPT SSGA Large Cap 100 2008 . 9.876 6.965 28 N/A N/A N/A 5.867 6.976 3 --------- ------ ------ --- ------ ------ --- ------ ------ ---
B-4
with EGMDB with GOP Acct Value DB ------------------------------------ ------------------------------------ ------------------------------------ Accumulation unit Accumulation unit Accumulation unit value value value ---------------------- Number of ---------------------- Number of ---------------------- Number of Beginning End of accumulation Beginning End of accumulation Beginning End of accumulation of period period units of period period units of period period units ----------- ---------- ------------- ----------- ---------- ------------- ----------- ---------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Lincoln VIP SSgA S&P 500 Index 2007 . 11.620 11.277 1 11.740 11.348 18 11.807 11.363 6 2008 . 11.277 6.939 19 11.348 7.000 22 11.363 7.013 4 --------- ------ ------ -- ------ ------ -- ------ ------ - Lincoln VIP SSgA Small Cap Index 2007 . 10.080 9.136 6 10.228 9.150 9 N/A N/A N/A 2008 . 9.136 5.910 12 9.150 5.934 9 4.833 5.939 1 --------- ------ ------ -- ------ ------ -- ------ ------ --- Lincoln VIPT SSGA Small/Mid Cap 200 2008 . 6.450 7.216 2 N/A N/A N/A 5.750 7.227 1 --------- ------ ------ -- ------ ------ --- ------ ------ --- Lincoln VIP T. Rowe Price Growth Stock 2007 . N/A N/A N/A 10.388 9.927 3 N/A N/A N/A 2008 . 9.457 5.647 29 9.927 5.670 4 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP T. Rowe Price Structured Mid-Cap Growth 2005 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2006 . N/A N/A N/A 14.514 15.930 1* 15.930 15.959 12 2007 . 13.019 13.067 1 15.930 17.771 3 15.959 17.812 11 2008 . 13.067 7.326 3 17.771 9.988 4 17.812 10.016 2 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Templeton Growth 2007 . 10.052 9.783 9 9.972 9.798 27 9.786 9.801 1* 2008 . 9.783 5.967 22 9.798 5.991 34 9.801 5.996 1* --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Turner Mid-Cap Growth 2007 . 10.150 10.935 20 10.578 10.950 1* N/A N/A N/A 2008 . 10.935 5.431 34 10.950 5.451 6 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP UBS Global Asset Allocation 2005 . 10.288 10.569 1* N/A N/A N/A N/A N/A N/A 2006 . 10.569 11.857 3 N/A N/A N/A 13.896 14.960 1 2007 . 11.857 12.357 14 N/A N/A N/A 14.960 15.638 1 2008 . 12.357 8.084 40 N/A N/A N/A 15.638 10.261 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2010 Profile 2007 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2008 . 10.153 7.771 2 N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2020 Profile 2007 . N/A N/A N/A 10.109 10.287 1 N/A N/A N/A 2008 . 9.466 7.357 6 10.287 7.387 3 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2030 Profile 2007 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2008 . N/A N/A N/A N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire 2040 Profile 2007 . N/A N/A N/A N/A N/A N/A N/A N/A N/A 2008 . 9.440 6.442 4 N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Aggressive Profile 2005 . 10.559 10.872 5 N/A N/A N/A N/A N/A N/A 2006 . 10.872 12.414 10 11.115 12.463 47 N/A N/A N/A 2007 . 12.414 13.503 11 12.463 13.590 47 N/A N/A N/A 2008 . 13.503 7.875 17 13.590 7.946 55 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Conservative Profile 2005 . 10.199 10.243 1 9.969 10.257 21 N/A N/A N/A 2006 . 10.243 10.972 17 10.257 11.015 23 N/A N/A N/A 2007 . 10.972 11.585 26 11.015 11.660 35 11.468 11.675 4 2008 . 11.585 9.256 31 11.660 9.340 45 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Lincoln VIP Wilshire Moderate Profile 2005 . 10.398 10.460 3 10.327 10.475 17 N/A N/A N/A 2006 . 10.460 11.483 96 10.475 11.528 57 N/A N/A N/A 2007 . 11.483 12.293 127 11.528 12.372 194 12.590 12.388 9 2008 . 12.293 8.836 149 12.372 8.916 197 12.388 8.932 28 --------- ------ ------ --- ------ ------ --- ------ ------ ---
B-5
with EGMDB with GOP Acct Value DB ------------------------------------ ------------------------------------ ---------------------------------- Accumulation unit Accumulation unit Accumulation unit value value value ---------------------- Number of ---------------------- Number of -------------------- Number of Beginning End of accumulation Beginning End of accumulation Beginning End of accumulation of period period units of period period units of period period units ----------- ---------- ------------- ----------- ---------- ------------- ----------- -------- ------------- (Accumulation unit value in dollars and Number of accumulation units in thousands) Lincoln VIP Wilshire Moderately Aggressive Profile 2005 . 10.421 10.637 40 10.251 10.652 16 N/A N/A N/A 2006 . 10.637 11.895 76 10.652 11.941 24 11.277 11.951 11 2007 . 11.895 12.797 113 11.941 12.880 65 11.951 12.896 11 2008 . 12.797 8.348 89 12.880 8.423 65 N/A N/A N/A --------- ------ ------ --- ------ ------ -- ------ ------ --- MFS VIT Growth Series 2008 . N/A N/A N/A N/A N/A N/A N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- MFS VIT Total Return Series 2005 . 10.020 10.115 6 12.132 12.256 8 N/A N/A N/A 2006 . 10.115 11.089 25 12.256 13.470 10 N/A N/A N/A 2007 . 11.089 11.320 30 13.470 13.785 12 N/A N/A N/A 2008 . 11.320 8.636 38 13.785 10.543 13 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- MFS VIT Utilities Series 2005 . 10.658 11.047 31 15.259 17.514 2 N/A N/A N/A 2006 . 11.047 14.209 64 17.514 22.584 5 19.871 22.625 1 2007 . 14.209 17.801 88 22.584 28.365 25 22.625 28.430 1 2008 . 17.801 10.873 77 28.365 17.369 28 28.430 17.418 1 --------- ------ ------ --- ------ ------ --- ------ ------ --- Neuberger Berman AMT Mid-Cap Growth Portfolio 2005 . 10.635 11.183 4 N/A N/A N/A N/A N/A N/A 2006 . 11.183 12.597 32 17.549 17.594 2 N/A N/A N/A 2007 . 12.597 15.160 41 17.594 21.226 4 N/A N/A N/A 2008 . 15.160 8.432 38 21.226 11.835 5 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ --- Neuberger Berman AMT Regency Portfolio 2005 . 10.553 11.004 13 15.430 17.016 6 N/A N/A N/A 2006 . 11.004 12.014 21 17.016 18.625 7 N/A N/A N/A 2007 . 12.014 12.190 22 18.625 18.944 7 N/A N/A N/A 2008 . 12.190 6.486 13 18.944 10.106 7 N/A N/A N/A --------- ------ ------ --- ------ ------ --- ------ ------ ---
* All numbers less than 500 were rounded up to one. (1) Effective April 30, 2007, the Lincoln Core Fund was reorganized into the LVIP S&P 500 Index Fund, a series of Lincoln Variable Insurance Products Trust. (2) Effective April 30, 2007, the Lincoln Growth Fund, was reorganized into the LVIP Janus Capital Appreciation Fund, a series of Lincoln Variable Insurance Products Trust. (3) Effective June 11, 2007, the Lincoln Growth Opportunities Fund was reorganized into the LVIP Baron Growth Opportunities Fund, a series of Lincoln Variable Insurance Products Trust. (4)Effective June 5, 2007, the Baron Capital Asset Fund, a series of Baron Capital Funds Trust, was reorganized into the LVIP Baron Growth Opportunities Fund, a series of Lincoln Variable Insurance Products Trust. The values in the table for periods prior to the date of the reorganization reflect investments in the Baron Capital Asset Fund. B-6 OVERVIEW OF LIVING BENEFIT RIDERS We offer a number of optional living benefit riders that, for an additional fee, offer certain guarantees, if certain conditions are met. These living benefit riders are described briefly below. Please see the more detailed description in the prospectus discussion for each rider, as well as the Charges and Other Deductions section of the prospectus, for important information on the costs, restrictions, and availability of each rider. Please consult your registered representative as to whether any living benefit rider is appropriate for you based on factors such as your investment objectives, risk tolerance, liquidity needs, and time horizon. Not all riders or features are available in all states. Prior versions of these riders may have different features.
------------------------------------------------------------------------------------------------------------------------ LINCOLN SMARTSECURITY(R) LINCOLN SMARTSECURITY(R) LINCOLN LIFETIME INCOME(SM) ADVANTAGE 5-YR. ELECTIVE ADVANTAGE 1-YR. AUTOMATIC ADVANTAGE (WITH OR WITHOUT STEP-UP STEP-UP LINCOLN LIFETIME INCOME(SM) (PRIOR VERSIONS MAY VARY) ADVANTAGE PLUS) ------------------------------------------------------------------------------------------------------------------------ 1. Overview Designed to guarantee that Designed to guarantee that Designed to guarantee that at least the entire amount if you make your first if you make your first of your purchase payments withdrawal on or after the withdrawal on or after the will be returned to you date you reach age 65, you date you reach age 59 1/2 (age through periodic are guaranteed income for 65 under Joint Life), you withdrawals, regardless of your life (and your are guaranteed income for the investment performance spouse's, under Joint Life your life (and your of the contract. (no version), spouse's, under Joint Life longer available for even after the entire version). purchase on or after amount of purchase payments January 16, 2009) has been returned to you LINCOLN LIFETIME INCOME(SM) through periodic Advantage Plus is designed withdrawals. If lifetime to guarantee that contract withdrawals are not in value will not be less than effect, you may make the initial purchase periodic withdrawals of the payment (or contract value Guaranteed Amount. on rider date) at the end of a 7-year period if you make no withdrawals and cancel the LINCOLN LIFETIME INCOME(SM) Advantage at that time. ------------------------------------------------------------------------------------------------------------------------ 2. Current Fee 0.65% of Guaranteed Amount 0.65% (Single Life) or 0.90% of Guaranteed Amount 0.80% (Joint Life) of (1.05% with LINCOLN Guaranteed Amount LIFETIME INCOME(SM) Advantage Plus) ------------------------------------------------------------------------------------------------------------------------- 3. Guaranteed 0.95% of Guaranteed Amount 1.50% of Guaranteed Amount 1.50% of Guaranteed Amount Maximum Fee -------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------ I4LIFE(R) ADVANTAGE 4LATER(R) ADVANTAGE 1) 4LATER(R) ADVANTAGE GUARANTEED INCOME BENEFIT 2) I4LIFE(R) ADVANTAGE GUARANTEED INCOME BENEFIT (VERSION 3) (PRIOR VERSIONS MAY VARY) 3) GUARANTEED INCOME BENEFIT FOR PURCHASERS OF LINCOLN LIFETIME INCOME(SM) ADVANTAGE ------------------------------------------------------------------------------------------------------------------------ 1. Overview Designed to provide an Designed to guarantee today Designed to use the Income income program that a future minimum payout Base established under combines variable lifetime floor for i4LIFE(R) Advantage 4LATER(R) Advantage (if income payments and a death regular income payments, 4LATER(R) Advantage benefit with the ability to regardless of investment Guaranteed Income Benefit make withdrawals during a performance, by providing is elected) or the Account defined period. an Income Base during the Value* established under accumulation period that i4LIFE(R) Advantage (if can be used to establish in i4LIFE(R) Advantage the future a Guaranteed Guaranteed Income Benefit Income Benefit with i4LIFE(R) is elected) or the Advantage. Guaranteed Amount under LINCOLN LIFETIME INCOME(SM) Advantage (for prior purchasers of LINCOLN LIFETIME INCOME(SM) ) to provide a minimum payout floor for i4LIFE(R) Advantage regular income payments, regardless of investment performance. * Can instead use the remaining Guaranteed Amount under LINCOLN SMARTSECURITY(R) Advantage ------------------------------------------------------------------------------------------------------------------------ 2. Current Fee Varies based on product and 0.65% of Income Base 1) 0.65% added to the i4LIFE(R) death benefit option Advantage charge (assessed as a % of (4LATER(R) Advantage account value, and only Guaranteed Income Benefit) during annuity payout 2) 0.50% added to the i4LIFE(R) phase) Advantage charge (i4LIFE(R) Advantage Guaranteed Income Benefit) (assessed as a % of account value, and only during annuity payout phase ------------------------------------------------------------------------------------------------------------------------ 3. Guaranteed Same as current fee 1.50% of Income Base 1.50% added to the i4LIFE(R) Maximum Fee Advantage charge (assessed as a % of account value, and only during annuity payout phase) ------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------ LINCOLN SMARTSECURITY(R) LINCOLN SMARTSECURITY(R) LINCOLN LIFETIME INCOME(SM) ADVANTAGE 5-YR. ELECTIVE ADVANTAGE 1-YR. AUTOMATIC ADVANTAGE (WITH OR WITHOUT STEP-UP STEP-UP LINCOLN LIFETIME INCOME(SM) (PRIOR VERSIONS MAY VARY) ADVANTAGE PLUS) ------------------------------------------------------------------------------------------------------------------------ 4. Withdrawals Yes - 7% annually Yes - 5% annually Yes - 5% annually Permitted Withdrawals negate LINCOLN LIFETIME INCOME(SM) Advantage Plus ------------------------------------------------------------------------------------------------------------------------ 5. Payments No Yes (if conditions are met) Yes (if conditions are met) for Life ------------------------------------------------------------------------------------------------------------------------ 6. Potential Purchase Payments Purchase Payments Purchase Payments Increases to Optional 5-Year Step-Ups Automatic Annual Step-Ups 5% Enhancements Guaranteed Amount, (if conditions are met) (if conditions are met) Automatic Annual Step-Ups Income Base, or 200% Step-Up Guaranteed Income (if conditions are met) Benefit (as applicable) ------------------------------------------------------------------------------------------------------------------------ 7. Investment Option 3 (different Option 3 (different Option 3 (different Requirements Investment Requirements may Investment Requirements may Investment Requirements may apply depending upon date apply depending upon date apply depending upon date of purchase. See of purchase. See of purchase. See Investment Requirements Investment Requirements Investment Requirements section of prospectus for section of prospectus for section of prospectus for more details) more details) more details) ------------------------------------------------------------------------------------------------------------------------ 8. Ability to Yes Yes, after the first rider Yes-may impact the charge Make Additional anniversary, if cumulative Purchase payments are over $100,000 Payments if Contract and prior Home Office Value is greater than approval is provided zero ------------------------------------------------------------------------------------------------------------------------ 9. Spousal Yes Yes No Continuation ------------------------------------------------------------------------------------------------------------------------ 10. Ability to Yes, after 5 years Yes, after 5 years Yes, after 7 Years Cancel Rider following the later of following the later of rider effective date or rider effective date or contractowner-elected step- contractowner-elected step- up up ------------------------------------------------------------------------------------------------------------------------ 11. Nursing No No Yes Home Benefit ------------------------------------------------------------------------------------------------------------------------ 12. May Elect No No No Other Living Benefit Riders ------------------------------------------------------------------------------------------------------------------------
I4LIFE(R) ADVANTAGE 4LATER(R) ADVANTAGE 1) 4LATER(R) ADVANTAGE GUARANTEED INCOME BENEFIT 2) I4LIFE(R) ADVANTAGE GUARANTEED INCOME BENEFIT (VERSION 3) (PRIOR VERSIONS MAY VARY) 3) GUARANTEED INCOME BENEFIT FOR PURCHASERS OF LINCOLN LIFETIME INCOME(SM) ADVANTAGE ------------------------------------------------------------------------------------------------------------------------ 4. Withdrawals Yes, during Access Period Yes, only after you elect No Permitted i4LIFE(R) Advantage ------------------------------------------------------------------------------------------------------------------------ 5. Payments Yes (if conditions are met) If elect i4LIFE(R)Advantage Yes (if conditions are met) for Life ------------------------------------------------------------------------------------------------------------------------ 6. Potential N/A Purchase Payments Automatic Annual Step-Ups Increases to 15% Enhancements (every 3 Prior versions will have Guaranteed Amount, years) different Step-Up Income Base, or provisions Guaranteed Income Resets to contract value Benefit (as applicable) (if conditions are met) (if conditions are met) ------------------------------------------------------------------------------------------------------------------------ 7. Investment None Option 3 (different Option 3 (different Requirements Investment Requirements may Investment Requirements may apply depending upon date apply depending upon date of purchase. See of purchase. See Investment Requirements Investment Requirements section of prospectus for section of prospectus for more details) more details) ------------------------------------------------------------------------------------------------------------------------ 8. Ability to No (non-qualified Yes No Make Additional contracts) Purchase Payments if Yes, during Access Period, Contract Value unless 4LATER(R) Advantage is greater than Guaranteed Income Benefit zero or i4LIFE(R) Advantage Guaranteed Income Benefit has been elected (qualified contracts) ------------------------------------------------------------------------------------------------------------------------ 9. Spousal No Yes (prior to Periodic No Continuation Income Commencement Date) ------------------------------------------------------------------------------------------------------------------------ 10. Ability to No (non-qualified Yes, after 3 years Yes, after 3 years Cancel Rider contracts) following the later of following the later of rider effective date or rider effective date or Yes, at any time most recent Reset most recent Reset (if (qualified contracts) 4LATER(R) Advantage Guaranteed Income Benefit is elected or purchasers of LINCOLN LIFETIME INCOME(SM) Advantage elect the Guaranteed Income Benefit) Yes, at any time (if i4LIFE(R) Advantage Guaranteed Income Benefit is elected) ------------------------------------------------------------------------------------------------------------------------ 11. Nursing No No No Home Benefit ------------------------------------------------------------------------------------------------------------------------ 12. May Elect Limited to Guaranteed No (prior to Periodic Limited to i4LIFE(R) Other Living Benefit Income Benefit Income Commencement Date) Advantage Riders ------------------------------------------------------------------------------------------------------------------------
LINCOLN LIFE VARIABLE ANNUITY CONTRACTS ELIGIBLE FOR INCLUSION IN OWNER'S INVESTMENT The American Legacy Lincoln ChoicePlus American Legacy II Lincoln ChoicePlus Access American Legacy III Lincoln ChoicePlus Bonus American Legacy III C Share Lincoln ChoicePlus II American Legacy III Plus Lincoln ChoicePlus II Access American Legacy III View Lincoln ChoicePlus II Bonus American Legacy Shareholder's Advantage Lincoln ChoicePlus II Advance American Legacy Design Lincoln ChoicePlus Assurance (A Share) Lincoln ChoicePlus Assurance (A Class) Multi-Fund(R) Lincoln ChoicePlus Assurance (B Share) Multi-Fund(R) 5 Lincoln ChoicePlus Assurance (B Class) Lincoln ChoicePlus Assurance (C Share) Lincoln ChoicePlus Assurance (L Share) Lincoln ChoicePlus Assurance (Bonus) Lincoln ChoicePlus Design
SAI 2 Lincoln ChoicePlus AssuranceSM (Bonus) Lincoln New York Account N for Variable Annuities (Registrant) Lincoln Life & Annuity Company of New York (Depositor) Statement of Additional Information (SAI) This SAI should be read in conjunction with the Lincoln ChoicePlus AssuranceSM (Bonus) prospectus of Lincoln New York Account N for Variable Annuities dated May 1, 2009. You may obtain a copy of the Lincoln ChoicePlus AssuranceSM (Bonus) prospectus on request and without charge. Please write Lincoln Life & Annuity Company of New York, PO Box 7866, Fort Wayne, IN 46802-7866, or call 1-888-868-2583. Table of Contents
Item Page Special Terms B-2 Services B-2 Principal Underwriter B-2 Purchase of Securities Being Offered B-2 Interest Adjustment Example B-2 Annuity Payouts B-4 Examples of Regular Income Payment Calculations B-5
Item Page Determination of Accumulation and Annuity Unit Value B-5 Capital Markets B-5 Advertising & Ratings B-6 More About the S&P 500 Index B-6 Additional Services B-6 Other Information B-7 Financial Statements B-7
This SAI is not a prospectus. The date of this SAI is May 1, 2009. Special Terms The special terms used in this SAI are the ones defined in the Prospectus. Services Independent Registered Public Accounting Firm The financial statements of the VAA and the financial statements of Lincoln New York appearing in this SAI and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, Two Commerce Square, 2001 Market Street, Suite 4000, Philadelphia, Pennsylvania 19103, as set forth in their reports, also appearing in this SAI and in the Registration Statement. The financial statements audited by Ernst & Young LLP have been included herein in reliance on their reports given on their authority as experts in accounting and auditing. Keeper of Records All accounts, books, records and other documents which are required to be maintained for the VAA are maintained by us or by third parties responsible to Lincoln Life. We have entered into an agreement with The Bank of New York Mellon, One Mellon Bank Center, 500 Grant Street, Pittsburgh, Pennsylvania, 15258, to provide accounting services to the VAA. No separate charge against the assets of the VAA is made by us for this service. Administrative services necessary for the operations of the VAA and the contracts are currently provided by Lincoln Life. However, neither the assets of Lincoln Life nor the assets of LNC support the obligation of Lincoln New York under the contracts. Principal Underwriter Lincoln Financial Distributors, Inc., ("LFD"), an affiliate of Lincoln New York, serves as principal underwriter (the "Principal Underwriter") for the contracts, as described in the prospectus. The Principal Underwriter offers the contracts to the public on a continuous basis and anticipates continuing to offer the contracts, but reserves the right to discontinue the offering. The Principal Underwriter offers the contracts through sales representatives who are also associated with Lincoln Financial Advisors Corporation ("LFA"), our affiliate and the principal underwriter for certain other contracts issued by the Principal Underwriter. The Principal Underwriter also may enter into selling agreements with other broker-dealers ("Selling Firms") for the sale of the contracts. Sales representatives of Selling Firms are appointed as our insurance agents. LFA (prior to May 1, 2007) and LFD (on and after May 1, 2007), acting as the Principal Underwriter paid $8,920,347, $11,095,671, and $9,599,993 to LFA and Selling Firms in 2006, 2007, and 2008, respectively, as sales compensation with respect to the contracts. The Principal Underwriter retained no underwriting commissions for the sale of the contracts. Purchase of Securities Being Offered The variable annuity contracts are offered to the public through licensed insurance agents who specialize in selling our products; through independent insurance brokers; and through certain securities brokers/dealers selected by us whose personnel are legally authorized to sell annuity products. There are no special purchase plans for any class of prospective buyers. However, under certain limited circumstances described in the prospectus under the section Charges and Other Deductions, any applicable account fee and/or surrender charge may be reduced or waived. Both before and after the annuity commencement date, there are exchange privileges between subaccounts, and from the VAA to the general account (if available) subject to restrictions set out in the prospectus. See The Contracts, in the prospectus. No exchanges are permitted between the VAA and other separate accounts. The offering of the contracts is continuous. Interest Adjustment Example Note: This example is intended to show how the interest adjustment calculation impacts the surrender value of a representative contract. The surrender charges, annual account fee, adjustment factor, and guaranteed minimum interest rate values shown here are generally different from those that apply to specific contracts, particularly those contracts that deduct an initial sales load or pay a bonus on deposits. Calculations of the interest adjustment in your contract, if applicable, will be based on the factors applicable to your contract. The interest adjustment may be referred to as a market value adjustment in your contract. B-2 SAMPLE CALCULATIONS FOR MALE 35 ISSUE CASH SURRENDER VALUES Single Premium.................. $50,000 Premium taxes................... None Withdrawals..................... None Guaranteed Period............... 5 years Guaranteed Interest Rate........ 3.50% Annuity Date.................... Age 70 Index Rate A.................... 3.50% Index Rate B.................... 4.00% End of contract year 1 3.50% End of contract year 2 3.00% End of contract year 3 2.00% End of contract year 4 Percentage adjustment to B...... 0.50%
Interest Adjustment Formula (1 + Index A)n ------------------------------ -1 n = Remaining Guaranteed Period (1 + Index B + % Adjustment)n
SURRENDER VALUE CALCULATION
(3) (1) (2) Adjusted (4) (5) (6) (7) Annuity 1 + Interest Annuity Minimum Greater of Surrender Surrender Contract Year Value Adjustment Formula Value Value (3) & (4) Charge Value --------------- --------- -------------------- ---------- --------- ------------ ----------- ---------- 1............ $51,710 0.962268 $49,759 $50,710 $50,710 $4,250 $46,460 2............ $53,480 0.985646 $52,712 $51,431 $52,712 $4,250 $48,462 3............ $55,312 1.000000 $55,312 $52,162 $55,312 $4,000 $51,312 4............ $57,208 1.009756 $57,766 $52,905 $57,766 $3,500 $54,266 5............ $59,170 N/A $59,170 $53,658 $59,170 $3,000 $56,170
ANNUITY VALUE CALCULATION
BOY* Annual EOY** Annuity Guaranteed Account Annuity Contract Year Value Interest Rate Fee Value ------------------ --------- --------------- --------- ---------- 1...............$50,000 x 1.035 - $40 = $51,710 2...............$51,710 x 1.035 - $40 = $53,480 3...............$53,480 x 1.035 - $40 = $55,312 4...............$55,312 x 1.035 - $40 = $57,208 5...............$57,208 x 1.035 - $40 = $59,170
SURRENDER CHARGE CALCULATION
Surrender Charge Surrender Contract Year Factor Deposit Charge ------------------ ---------- --------- ---------- 1............... 8.5% x $50,000 = $4,250 2............... 8.5% x $50,000 = $4,250 3............... 8.0% x $50,000 = $4,000 4............... 7.0% x $50,000 = $3,500 5............... 6.0% x $50,000 = $3,000
B-3 1 + INTEREST ADJUSTMENT FORMULA CALCULATION
Contract Year Index A Index B Adj Index B N Result ---------------- --------- --------- ------------- ----- --------- 1............. 3.50% 4.00% 4.50% 4 0.962268 2............. 3.50% 3.50% 4.00% 3 0.985646 3............. 3.50% 3.00% 3.50% 2 1.000000 4............. 3.50% 2.00% 2.50% 1 1.009756 5............. 3.50% N/A N/A N/A N/A
MINIMUM VALUE CALCULATION
Minimum Annual Guaranteed Account Minimum Contract Year Interest Rate Fee Value ------------------ --------------- --------- ---------- 1...............$50,000 x 1.015 - $40 = $50,710 2...............$50,710 x 1.015 - $40 = $51,431 3...............$51,431 x 1.015 - $40 = $52,162 4...............$52,162 x 1.015 - $40 = $52,905 5...............$52,905 x 1.015 - $40 = $53,658
* BOY = beginning of year ** EOY = end of year Annuity Payouts Variable Annuity Payouts Variable annuity payouts will be determined on the basis of: o the dollar value of the contract on the annuity commencement date less any applicable premium tax (and less any surrender charges on purchase payments in the contract for less than 12 months if bonus credits applied to the purchase payments); o the annuity tables contained in the contract; o the type of annuity option selected; and o the investment results of the fund(s) selected. In order to determine the amount of variable annuity payouts, we make the following calculation: o first, we determine the dollar amount of the first payout; o second, we credit the contract with a fixed number of annuity units based on the amount of the first payout; and o third, we calculate the value of the annuity units each period thereafter. These steps are explained below. The dollar amount of the first periodic variable annuity payout is determined by applying the total value of the accumulation units credited under the contract valued as of the annuity commencement date (less any premium taxes) to the annuity tables contained in the contract. The first variable annuity payout will be paid 14 days after the annuity commencement date. This day of the month will become the day on which all future annuity payouts will be paid. Amounts shown in the tables are based on the 1983 Table "a" Individual Annuity Mortality Tables modified, with an assumed investment return at the rate of 3%, 4% or 5% per annum, depending on the terms of your contract. The first annuity payout is determined by multiplying the benefit per $1,000 of value shown in the contract tables by the number of thousands of dollars of value accumulated under the contract. These annuity tables vary according to the form of annuity selected and the age of the annuitant at the annuity commencement date. The assumed interest rate is the measuring point for subsequent annuity payouts. If the actual net investment rate (annualized) exceeds the assumed interest rate, the payout will increase at a rate equal to the amount of such excess. Conversely, if the actual rate is less than the assumed interest rate, annuity payouts will decrease. If the assumed rate of interest were to be increased, annuity payouts would start at a higher level but would decrease more rapidly or increase more slowly. We may use sex-distinct annuity tables in contracts that are not associated with employer sponsored plans and where not prohibited by law. At an annuity commencement date, the contract is credited with annuity units for each subaccount on which variable annuity payouts are based. The number of annuity units to be credited is determined by dividing the amount of the first periodic payout by the value of an annuity unit in each subaccount selected. Although the number of annuity units is fixed by this process, the value of such units will vary with the value of the underlying fund. The amount of the second and subsequent periodic payouts is determined by multiplying B-4 the contractowner's fixed number of annuity units in each subaccount by the appropriate annuity unit value for the valuation date ending 14 days prior to the date that payout is due. The value of each subaccount's annuity unit will be set initially at $1.00. The annuity unit value for each subaccount at the end of any valuation date is determined by multiplying the subaccount annuity unit value for the immediately preceding valuation date by the product of: o The net investment factor of the subaccount for the valuation period for which the annuity unit value is being determined, and o A factor to neutralize the assumed investment return in the annuity table. The value of the annuity units is determined as of a valuation date 14 days prior to the payment date in order to permit calculation of amounts of annuity payouts and mailing of checks in advance of their due dates. Such checks will normally be issued and mailed at least three days before the due date. Proof of Age, Sex and Survival We may require proof of age, sex, or survival of any payee upon whose age, sex, or survival payments depend. Examples of Regular Income Payment Calculations These examples will illustrate the impact of the length of the access period and the impact of a withdrawal on the regular income payments. These examples assume that the investment return is the same as the assumed investment return (AIR) to make the regular income payment calculations simpler to understand. The regular income payments will vary based on the investment performance of the underlying funds. Annuitant............................ Male, Age 65 Secondary Life....................... Female, Age 63 Purchase Payment..................... $200,000.00 Regular Income Payment Frequency..... Annual AIR.................................. 4.0% Hypothetical Investment Return....... 4.0% 15-year Access Period 30-Year Access Period Regular Income Payment............... $ 10,795.64 $9,974.48
A 10% withdrawal from the account value will reduce the regular income payments by 10% to $9,716.07 with the 15-year access period and $8,977.03 with the 30-year access period. At the end of the 15-year access period, the remaining account value of $135,374.66 (assuming no withdrawals) will be used to continue the $10,795.64 regular income payment during the lifetime income period for the lives of the annuitant and secondary life. At the end of the 30-year access period, the remaining account value of $66,884.77 (assuming no withdrawals) will be used to continue the $9,974.48 regular income payment during the lifetime income period for the lives of the annuitant and secondary life. (Note: the regular income payments during the lifetime income period will vary with the investment performance of the underlying funds). Determination of Accumulation and Annuity Unit Value A description of the days on which accumulation and annuity units will be valued is given in the prospectus. The New York Stock Exchange's (NYSE) most recent announcement (which is subject to change) states that it will be closed on weekends and on these holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. If any of these holidays occurs on a weekend day, the Exchange may also be closed on the business day occurring just before or just after the holiday. It may also be closed on other days. Since the portfolios of some of the fund and series will consist of securities primarily listed on foreign exchanges or otherwise traded outside the United States, those securities may be traded (and the net asset value of those fund and series and of the variable account could therefore be significantly affected) on days when the investor has no access to those funds and series. Capital Markets Beginning in 2008 and continuing as of the date of this prospectus, the capital and credit markets have experienced an unusually high degree of volatility. As a result, the market for fixed income securities has experienced illiquidity, increased price volatility, credit downgrade events and increased expected probability of default. Securities that are less liquid are more difficult to value and may be B-5 hard to sell, if desired. During this time period, domestic and international equity markets have also been experiencing heightened volatility and turmoil, with issuers (such as our company) that have exposure to the real estate, mortgage and credit markets particularly affected. In any particular year, our capital may increase or decrease depending on a variety of factors - the amount of our statutory income or losses (which itself is sensitive to equity market and credit market conditions), the amount of additional capital we must hold to support business growth, changes in reserving requirements, our inability to secure capital market solutions to provide reserve relief, such as issuing letters of credit to support captive reinsurance structures, changes in equity market levels, the value of certain fixed-income and equity securities in our investment portfolio and changes in interest rates. Advertising & Ratings We may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Lincoln Life or the policies. Furthermore, we may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions. Nationally recognized rating agencies rate the financial strength of our Company. The ratings do not imply approval of the product and do not refer to the performance of the product, or to the VAA, including underlying investment options. Ratings are not recommendations to buy our products. Each of the rating agencies reviews its ratings periodically. Accordingly, all ratings are subject to revision or withdrawal at any time by the rating agencies, and therefore, no assurance can be given that these ratings will be maintained. In late September and early October of 2008, A.M. Best Company, Fitch, Moody's and Standard & Poor's each revised their outlook for the U.S. life insurance sector from stable to negative. Our financial strength ratings, which are intended to measure our ability to meet contract holder obligations, are an important factor affecting public confidence in most of our products and, as a result, our competitiveness. A downgrade of our financial strength rating could affect our competitive position in the insurance industry by making it more difficult for us to market our products as potential customers may select companies with higher financial strength ratings and by leading to increased withdrawals by current customers seeking companies with higher financial strength ratings. More About the S&P 500 Index Investors look to indexes as a standard of market performance. Indexes are groups of stocks or bonds selected to represent an entire market. The S&P 500 Index is a widely used measure of large US company stock performance. It consists of the common stocks of 500 major corporations selected according to size, frequency and ease by which their stocks trade, and range and diversity of the American economy. The LVIP SSgA S&P 500 Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P makes no representation or warranty, express or implied, to the owners of the fund or any member of the public regarding the advisability of investing in securities generally or in the fund particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the fund is the licensing of certain trademarks and trade names of S&P and of the S&P 500 Index which is determined, composed and calculated by S&P without regard to the fund. S&P has no obligation to take the needs of the fund or its shareholders into consideration in determining, composing or calculating the S&P 500 Index. S&P is not responsible for and has not participated in the determination of the prices and amount of the fund or the timing of the issuance or sale of the fund or in the determination or calculation of the equation by which the fund is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the fund. S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE FUND OR ITS SHAREHOLDERS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. Additional Services Dollar Cost Averaging (DCA) - You may systematically transfer, on a monthly basis or in accordance with other terms we make available, amounts from certain subaccounts, or the fixed side (if available) of the contract into the subaccounts or in accordance with other terms we make available. You may elect to participate in the DCA program at the time of application or at anytime before the annuity commencement date by completing an election form available from us. The minimum amount to be dollar cost averaged is $2,000 over any period between six and 60 months. Once elected, the program will remain in effect until the earlier of: o the annuity commencement date; B-6 o the value of the amount being DCA'd is depleted; or o you cancel the program by written request or by telephone if we have your telephone authorization on file. We reserve the right to restrict access to this program at any time. A transfer made as part of this program is not considered a transfer for purposes of limiting the number of transfers that may be made, or assessing any charges or interest adjustment which may apply to transfers. Upon receipt of an additional purchase payment allocated to the DCA fixed account, the existing program duration will be extended to reflect the end date of the new DCA program. However, the existing interest crediting rate will not be extended. The existing interest crediting rate will expire at its originally scheduled expiration date and the value remaining in the DCA account from the original amount as well as any additional purchase payments will be credited with interest at the standard DCA rate at the time. We reserve the right to discontinue this program at any time. DCA does not assure a profit or protect against loss. Automatic Withdrawal Service (AWS) - AWS provides an automatic, periodic withdrawal of contract value to you. AWS may take place on either a monthly, quarterly, semi-annual or annual basis, as selected by the contractowner. You may elect to participate in AWS at the time of application or at any time before the annuity commencement date by sending a written request to us. The minimum contract value required to establish AWS is $10,000. You may cancel or make changes to your AWS program at any time by sending a written request to us. If telephone authorization has been elected, certain changes may be made by telephone. Notwithstanding the requirements of the program, any withdrawal must be permitted under Section 401(a)(9) of the IRC for qualified plans or permitted under Section 72 of the IRC for non-qualified contracts. To the extent that withdrawals under AWS do not qualify for an exemption from the contingent deferred sales charge, we will assess any applicable surrender charges on those withdrawals. See Contingent deferred sales charges. Cross Reinvestment Program/Earnings Sweep Program - Under this option, account value in a designated variable subaccount of the contract that exceeds a certain baseline amount is automatically transferred to another specific variable subaccount(s) of the contract at specific intervals. You may elect to participate in the cross reinvestment program at the time of application or at any time before the annuity commencement date by sending a written request to us or by telephone if we have your telephone authorization on file. You designate the holding account, the receiving account(s), and the baseline amount. Cross reinvestment will continue until we receive authorization to terminate the program. The minimum holding account value required to establish cross-reinvestment is $10,000. A transfer under this program is not considered a transfer for purposes of limiting the number of transfers that may be made. We reserve the right to discontinue this service at any time. Portfolio Rebalancing - Portfolio rebalancing is an option, which, if elected by the contractowner, restores to a pre-determined level the percentage of the contract value, allocated to each variable subaccount. This pre-determined level will be the allocation initially selected when the contract was purchased, unless subsequently changed. The portfolio rebalancing allocation may be changed at any time by submitting a written request to us. If portfolio rebalancing is elected, all purchase payments allocated to the variable subaccounts must be subject to portfolio rebalancing. Portfolio rebalancing may take place on either a monthly, quarterly, semi-annual or annual basis, as selected by the contractowner. Once the portfolio rebalancing option is activated, any variable subaccount transfers executed outside of the portfolio rebalancing program will terminate the portfolio rebalancing program. Any subsequent purchase payment or withdrawal that modifies the account balance within each variable subaccount may also cause termination of the portfolio rebalancing program. Any such termination will be confirmed to the contractowner. The contractowner may terminate the portfolio rebalancing program or re-enroll at any time by sending a written request to us. If telephone authorization has been elected, the contractowner may make these elections by phone. The portfolio rebalancing program is not available following the annuity commencement date. Other Information Due to differences in redemption rates, tax treatment or other considerations, the interests of contractowners under the variable life accounts could conflict with those of contractowners under the VAA. In those cases, where assets from variable life and variable annuity separate accounts are invested in the same fund(s) (i.e., where mixed funding occurs), the Boards of Directors of the fund involved will monitor for any material conflicts and determine what action, if any, should be taken. If it becomes necessary for any separate account to replace shares of any fund with another investment, that fund may have to liquidate securities on a disadvantageous basis. Refer to the prospectus for each fund for more information about mixed funding. Financial Statements The December 31, 2008 financial statements of the VAA and the December 31, 2008 financial statements of Lincoln New York appear on the following pages. B-7 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK (Formerly Jefferson-Pilot LifeAmerica Insurance Company) Financial Statements For the Year Ended December 31, 2008, 2007 and for the Periods from April 3 through December 31, 2006 and January 1 through April 2, 2006. S-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholder of Lincoln Life & Annuity Company of New York We have audited the accompanying balance sheets of Lincoln Life & Annuity Company of New York (the Company) as of December 31, 2008 and 2007, and the related statements of income, stockholder's equity, and cash flows for each of the two years in the period ended December 31, 2008, for the period from April 3 through December 31, 2006, and for the period from January 1 through April 2, 2006. 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lincoln Life & Annuity Company of New York at December 31, 2008 and 2007, and the results of its operations and its cash flows for the each of the two years in the period ended December 31, 2008, for the period from April 3 through December 31, 2006, and for the period from January 1 through April 2, 2006, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young, LLP Philadelphia, Pennsylvania March 25, 2009 S-2 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE DATA)
AS OF DECEMBER 31, ------------------ 2008 2007 ------- -------- ASSETS Investments: Available-for-sale securities, at fair value: Fixed maturity (amortized cost: 2008 -- $5,778; 2007 -- $5,767) $5,159 $ 5,759 Equity (cost: 2008 -- $3; 2007 -- $3) 2 2 Mortgage loans on real estate 294 260 Policy loans 430 432 Other investments 2 3 ------ ------- Total investments 5,887 6,456 Cash and invested cash 55 129 Deferred acquisition costs and value of business acquired 1,115 799 Premiums and fees receivable 3 4 Accrued investment income 86 83 Reinsurance recoverables 595 479 Goodwill 162 162 Other assets 88 80 Separate account assets 1,690 2,284 ------ ------- Total assets $9,681 $10,476 ====== ======= LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES: Future contract benefits $1,568 $ 1,448 Other contract holder funds 4,866 4,865 Other liabilities 70 222 Separate account liabilities 1,690 2,284 ------ ------- Total liabilities 8,194 8,819 ------ ------- CONTINGENCIES AND COMMITMENTS (SEE NOTE 12) STOCKHOLDER'S EQUITY: Common stock -- 132,000 shares, authorized, issued and outstanding 940 940 Retained earnings 757 724 Accumulated other comprehensive loss (210) (7) ------ ------- Total stockholder's equity 1,487 1,657 ------ ------- Total liabilities and stockholder's equity $9,681 $10,476 ====== =======
See accompanying Notes to Financial Statements S-3 STATEMENTS OF INCOME (IN MILLIONS)
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- REVENUES: Insurance premiums $ 98 $ 98 $ 27 $ 5 Insurance fees 248 234 89 5 Net investment income 395 361 161 19 Realized loss (98) (25) (1) -- ---- ---- ---- --- Total revenues 643 668 276 29 ---- ---- ---- --- BENEFITS AND EXPENSES: Interest credited 209 194 95 11 Benefits 228 192 43 7 Underwriting, acquisition, insurance and other expenses 156 128 77 6 ---- ---- ---- --- Total benefits and expenses 593 514 215 24 ---- ---- ---- --- Income before taxes 50 154 61 5 Federal income taxes 14 52 19 2 ---- ---- ---- --- Net income $ 36 $102 $ 42 $ 3 ==== ==== ==== ===
See accompanying Notes to Financial Statements S-4 STATEMENTS OF STOCKHOLDER'S EQUITY (IN MILLIONS)
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- COMMON STOCK: Balance at beginning-of-period $ 940 $ 235 $235 $ 181 Stock compensation -- -- -- 1 Acquisition by Lincoln National Corporation: Sale of stockholder's equity -- -- -- (182) Lincoln National Corporation purchase price -- (1) -- 233 Merger with Predecessor Lincoln Life & Annuity Company of New York -- -- -- 2 Capital contribution -- 706 -- -- ------ ------ ---- ----- Balance at end-of-period 940 940 235 235 ------ ------ ---- ----- RETAINED EARNINGS: Balance at beginning-of-period 724 623 581 26 Acquisition by Lincoln National Corporation: Sale of stockholder's equity -- -- -- (29) Merger with Predecessor Lincoln Life & Annuity Company of New York -- -- -- 581 Cumulative effect of adoption of SOP 05-1 -- (1) -- -- Comprehensive (loss) income (167) 81 53 (7) Less other comprehensive income (loss), net of tax (203) (21) 11 (10) ------ ------ ---- ----- Net income 36 102 42 3 Dividends declared (3) -- -- -- ------ ------ ---- ----- Balance at end-of-period 757 724 623 581 ------ ------ ---- ----- NET UNREALIZED GAIN (LOSS) ON AVAILABLE-FOR-SALE SECURITIES: Balance at beginning-of-period (8) 14 3 10 Merger with Predecessor Lincoln Life & Annuity Company of New York -- -- -- 3 Change during the period (203) (22) 11 (10) ------ ------ ---- ----- Balance at end-of-period (211) (8) 14 3 ------ ------ ---- ----- NET UNREALIZED GAIN ON DERIVATIVE INSTRUMENTS: Balance at beginning-of-period 1 -- -- -- Change during the period -- 1 -- -- ------ ------ ---- ----- Balance at end-of-period 1 1 -- -- ------ ------ ---- ----- Total stockholder's equity at end-of-period $1,487 $1,657 $872 $ 819 ====== ====== ==== =====
See accompanying Notes to Financial Statements S-5 STATEMENTS OF CASH FLOWS (IN MILLIONS)
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 36 $ 102 $ 42 $ 3 Adjustments to reconcile net income to net cash provided by operating activities: Deferred acquisition costs, value of business acquired, deferred sales inducements and deferred front end loads deferrals and interest, net of amortization 7 (41) (34) (4) Change in premiums and fees receivable 1 9 -- -- Change in accrued investment income (3) (23) 1 (1) Change in future contract benefits 120 51 46 1 Change in other contract holder funds (70) (51) (12) 5 Change in reinsurance recoverables (116) (35) (12) -- Change in federal income tax accruals (26) 59 8 5 Realized loss 98 25 1 -- Stock-based compensation expense 1 -- -- 1 Other (16) (21) (4) (3) ----- ----- ----- ---- Net cash provided by operating activities 32 75 36 7 ----- ----- ----- ---- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of available-for-sale securities (833) (734) (349) (8) Sales of available-for-sale securities 162 143 84 12 Maturities of available-for-sale securities 548 550 212 16 Purchases of other investments (76) (82) (11) -- Sales or maturities of other investments 37 79 13 4 Cash acquired from merger -- -- 12 -- Other -- -- (6) -- ----- ----- ----- ---- Net cash (used in) provided by investing activities (162) (44) (45) 24 ----- ----- ----- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Deposits of fixed account values, including the fixed portion of variable 538 541 395 27 Withdrawals of fixed account values, including the fixed portion of variable (406) (412) (296) (65) Transfers to and from separate accounts, net (72) (74) (45) -- Common stock issued for benefit plans and excess tax benefits (4) -- -- -- ----- ----- ----- ---- Net cash provided by (used in) financing activities 56 55 54 (38) ----- ----- ----- ---- Net increase (decrease) in cash and invested cash (74) 86 45 (7) Cash and invested cash at beginning-of-period 129 43 (2) 5 ----- ----- ----- ---- Cash and invested cash at end-of-period $ 55 $ 129 $ 43 $ (2) ===== ===== ===== ====
See accompanying Notes to Financial Statements S-6 NOTES TO FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Lincoln Life & Annuity Company of New York ("LLANY" or the "Company," which also may be referred to as "we," "our" or "us"), a wholly-owned subsidiary of The Lincoln National Life Insurance Company ("LNL"), a wholly-owned subsidiary of Lincoln National Corporation ("LNC" or the "Ultimate Parent"), and formerly referred to as Jefferson-Pilot LifeAmerica Insurance Company ("JPLA"), is domiciled in the state of New York. LLANY is principally engaged in the sale of individual life insurance products, individual annuity products and worksite and group non-medical products (primarily term life and disability). These products are marketed primarily through personal producing general agents and brokers throughout the U.S. LLANY is licensed and sells its products throughout the United States of America ("U.S.") and several U.S. territories, see Note 21. BASIS OF PRESENTATION The accompanying financial statements are prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). Certain GAAP policies, which significantly affect the determination of financial position, results of operations and cash flows, are summarized below. On April 3, 2006, LNC completed its merger with Jefferson-Pilot Corporation ("Jefferson-Pilot"). At that time, JPLA, a wholly-owned subsidiary of Jefferson Pilot Financial Insurance Company ("JPFIC"), a wholly-owned subsidiary of Jefferson-Pilot, became a wholly-owned subsidiary of LNC. Associated with the merger between LNC and Jefferson-Pilot, JPLA and the predecessor Lincoln Life & Annuity Company of New York ("predecessor LLANY") were merged into a single entity, effective April 2, 2007, with JPLA being the surviving entity, which was renamed to LLANY. Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combination" ("SFAS 141"), excludes transfers of net assets or exchanges of shares between entities under common control, and notes that certain provisions under Accounting Principles Board ("APB") Opinion No. 16, "Business Combinations," provide a source of guidance for such transactions. In accordance with APB Opinion No. 16, the financial statements are presented as if on April 3, 2006, LLANY completed the merger with predecessor LLANY, and has included the results of operations and financial condition of predecessor LLANY in our financial statements beginning on April 3, 2006, and all comparative financial statements are restated and presented as if the entities had been previously combined, in a manner similar to a pooling-of interests. The financial statements for the period from January 1, 2006, through April 2, 2006, exclude the results of operations and financial condition of predecessor LLANY. LLANY also submits financial statements to insurance industry regulatory authorities. Those financial statements are prepared on the basis of statutory accounting practices ("SAP") and are significantly different from financial statements prepared in accordance with GAAP. See Note 19 for additional discussion on SAP. Certain amounts reported in prior years' financial statements have been reclassified to conform to the presentation adopted in the current year. These reclassifications had no effect on net income or stockholder's equity of the prior years. For the period from January 1, 2006, through April 2, 2006, the period from April 3, 2006 to December 31, 2006 and for the year ended December 31, 2007, we have reclassified the results of certain derivatives and embedded derivatives to realized gain (loss), which were previously reported within insurance fees, net investment income, interest credited or benefits on our Statements of Income. The associated amortization expense of deferred acquisition costs ("DAC") and value of business acquired ("VOBA") (previously reported within underwriting, acquisition, insurance and other expenses), deferred sales inducements ("DSI") (previously reported within interest credited), deferred front-end loads ("DFEL") (previously reported within insurance fees) and changes in contract holder funds (previously reported within benefits) have also been reclassified to realized loss on our Statements of Income. The detail of the reclassifications (in millions) from what was previously reported in prior period Statements of Income (in millions) was as follows: FOR THE YEAR ENDED DECEMBER, 31 2007 ------------ Realized loss, as previously reported $(19) Effect of reclassifications to: Insurance fees 3 Net investment income 1 Interest credited 1 Benefits (15) Underwriting, acquisition, insurance and other expenses 4 ---- Realized loss, as adjusted $(25) ==== The reclassifications for the period from January 1 through April 2, 2006, and from April 3 through December 31, 2006, were not significant. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, asset valuation allowances, DAC, VOBA, goodwill, future contract benefits, other contract holder funds (including DFEL), pension plans, income taxes and the potential effects of resolving litigated matters. S-7 BUSINESS COMBINATIONS For all business combination transactions initiated after June 30, 2001, the purchase method of accounting has been used, and accordingly, the assets and liabilities of the acquired company have been recorded at their estimated fair values as of the merger date. The allocation of fair values may be subject to adjustment after the initial allocation for up to a one-year period as more information relative to the fair values as of the acquisition date becomes available. The financial statements include the results of operations of any acquired company since the acquisition date. AVAILABLE-FOR-SALE SECURITIES Securities classified as available-for-sale consist of fixed maturity and equity securities and are stated at fair value with unrealized gains and losses included as a separate component of accumulated other comprehensive income ("OCI"), net of associated DAC, VOBA, DSI, other contract holder funds and deferred income taxes. We measure the fair value of our securities classified as available-for-sale based on assumptions used by market participants in pricing the security. Pursuant to SFAS No. 157, we have categorized these securities into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3), as described in "SFAS NO. 157 - FAIR VALUE MEASUREMENTS" in Note 2. The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity or equity security, and we consistently apply the valuation methodology to measure the security's fair value. Our fair value measurement is based on a market approach which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach include: third party pricing services, independent broker quotations or pricing matrices. We use observable and unobservable inputs to our valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. In addition, market indicators, industry and economic events are monitored and further market data is acquired if certain triggers are met. For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. In order to validate the pricing information and broker-dealer quotes, we employ, where possible, procedures that include comparisons with similar observable positions, comparisons with subsequent sales, and discussions with senior business leaders and brokers as well as observations of general market movements for those security classes. For those securities trading in less liquid or illiquid markets with limited or no pricing information, we use unobservable inputs in order to measure the fair value of these securities. In cases where this information is not available, such as for privately placed securities, fair value is estimated using an internal pricing matrix. This matrix relies on management's judgment concerning: the discount rate used in calculating expected future cash flows, credit quality, industry sector performance and expected maturity. We do not adjust prices received from third parties; however, we analyze the third party pricing services' valuation methodologies and related inputs and perform additional evaluation to determine the appropriate level within the fair value hierarchy. See Note 2 "SFAS NO. 157 - FAIR VALUE MEASUREMENTS" for more information regarding the fair value hierarchy. Dividends and interest income, recorded in net investment income, are recognized when earned. Amortization of premiums and accretion of discounts on investments in debt securities are reflected in net investment income over the contractual terms of the investments in a manner that produces a constant effective yield. Realized gains and losses on the sale of investments are determined using the specific identification method. We regularly review available-for-sale securities for declines in fair value that we determine to be other-than-temporary. The cost basis of securities that are determined to be other-than-temporarily impaired is written down to current fair value with a corresponding charge to realized gain (loss) on our Statements of Income. A write-down for impairment can be recognized for both credit-related events and for a decline in fair value due to changes in interest rates. Once a security is written down to fair value through net income, any subsequent recovery of fair value cannot be recognized in net income until the security is sold. However, in the event that the security is written down due to an interest-rate related impairment, a recovery in value is accreted through investment income over the life of the security. In evaluating whether a decline in value is other-than-temporary, we consider several factors including, but not limited to: the severity (generally if greater than 20%) and duration (generally if greater than six months) of the decline; our ability and intent to hold the security for a sufficient period of time to allow for a recovery in value; the cause of the decline; and fundamental analysis of the liquidity, business prospects and overall financial condition of the issuer. For asset-backed and mortgage-backed securities, included in the available-for-sale fixed maturity securities portfolio, we recognize income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from originally anticipated prepayments, the effective yield is recalculated prospectively to reflect actual payments to date plus anticipated future payments. Any adjustments resulting from changes in effective yield are reflected in net investment income on our Consolidated Statements of Income. MORTGAGE LOANS ON REAL ESTATE Mortgage loans on real estate are carried at unpaid principal balances adjusted for amortization of premiums and accretion of discounts and are net of valuation allowances. Interest income is accrued on the principal balance of the loan based on S-8 the loan's contractual interest rate. Premiums and discounts are amortized using the effective yield method over the life of the loan. Interest income and amortization of premiums and discounts are reported in net investment income on our Statements of Income along with mortgage loan fees, which are recorded as they are incurred. Loans are considered impaired when it is probable that, based upon current information and events, we will be unable to collect all amounts due under the contractual terms of the loan agreement. When we determine that a loan is impaired, a valuation allowance is established for the excess carrying value of the loan over its estimated value. The loan's estimated value is based on: the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the loan's collateral. Valuation allowances are maintained at a level we believe is adequate to absorb estimated probable credit losses. Our periodic evaluation of the adequacy of the allowance for losses is based on our past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay (including the timing of future payments), the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. We do not accrue interest on impaired loans and loans 90 days past due, and any interest received on these loans is either applied to the principal or recorded in net investment income on our Statements of Income when received, depending on the assessment of the collectibility of the loan. Mortgage loans deemed to be uncollectible are charged against the allowance for losses and subsequent recoveries, if any, are credited to the allowance for losses. All mortgage loans that are impaired have an established allowance for credit losses. Changes in valuation allowances are reported in realized gain (loss) on our Statements of Income. POLICY LOANS Policy loans represent loans we issue to contract holders that use the cash surrender value of their life insurance policy as collateral. Policy loans are carried at unpaid principal balances. DERIVATIVE INSTRUMENTS We have certain variable annuity products with guaranteed minimum withdrawal benefits ("GWB") and guaranteed income benefits ("GIB") features that are embedded derivatives. These derivative instruments are recognized as either assets or liabilities on our Balance Sheets at estimated fair value. The change in fair value of the embedded derivatives flows through net income as realized gain (loss) on our Statement of Income. CASH AND CASH EQUIVALENTS Cash and invested cash is carried at cost and includes all highly liquid debt instruments purchased with a maturity of three months or less. DAC, VOBA, DSI AND DFEL Commissions and other costs of acquiring universal life insurance ("UL"), variable universal life insurance ("VUL"), traditional life insurance, annuities and other investment contracts, which vary with and are related primarily to the production of new business, have been deferred (i.e. DAC) to the extent recoverable. VOBA is an intangible asset that reflects the estimated fair value of in-force contracts in a life insurance company acquisition and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the business in force at the acquisition date. Bonus credits and excess interest for dollar cost averaging contracts are considered DSI, and the unamortized balance is reported in other assets on our Balance Sheets. Contract sales charges that are collected in the early years of an insurance contract are deferred (referred to as "DFEL"), and the unamortized balance is reported in other contract holder funds on our Balance Sheets. The methodology for determining the amortization of DAC, VOBA, DSI and DFEL varies by product type based on two different accounting pronouncements: SFAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments" ("SFAS 97"); and SFAS No. 60, "Accounting and Reporting by Insurance Enterprises" ("SFAS 60"). For all SFAS 97 and SFAS 60 contracts, amortization is based on assumptions consistent with those used in the development of the underlying contract adjusted for emerging experience and expected trends. Both DAC and VOBA amortization is reported within underwriting, acquisition, insurance and other expenses on our Statements of Income. DSI is expensed in interest credited on our Statements of Income. The amortization of DFEL is reported within insurance fees on our Statements of Income. Under SFAS 97, acquisition costs for UL and VUL insurance and investment-type products, which include fixed and variable deferred annuities, are generally amortized over the lives of the policies in relation to the incidence of estimated gross profits ("EGPs") from surrender charges, investment, mortality net of reinsurance ceded and expense margins and actual realized gain (loss) on investments. Contract lives for UL and VUL policies are estimated to be 30 years, based on the expected lives of the contracts. Contract lives for fixed and variable deferred annuities are 14 to 20 years for the traditional, long surrender charge period products and 8 to 10 years for the more recent short-term or no surrender charge variable products. The front-end load annuity product has an assumed life of 25 years. Longer lives are assigned to those blocks that have demonstrated favorable lapse experience. All SFAS 60 contracts, including traditional life insurance, which include individual whole life, group business and term life insurance contracts, are amortized over periods of 10 to 30 years on either a straight-line basis or as a level percent of premium of the related policies depending on the block of business. There is currently no DAC, VOBA, DSI or DFEL balance or related amortization under SFAS 60 for fixed and variable payout annuities. The carrying amounts of DAC, VOBA, DSI and DFEL are adjusted for the effects of realized and unrealized gains and losses on debt securities classified as available-for-sale and certain derivatives and embedded derivatives. Amortization expense of DAC, VOBA, DSI and DFEL reflects an assumption S-9 for an expected level of credit-related investment losses. When actual credit-related investment losses are realized, we recognize a true-up to our DAC, VOBA, DSI and DFEL amortization within realized gain (loss) on our Statements of Income reflecting the incremental impact of actual versus expected credit-related investment losses. These actual to expected amortization adjustments can create volatility from period to period in realized gain (loss). On a quarterly basis, we may record an adjustment to the amounts included on our Balance Sheets for DAC, VOBA, DSI and DFEL with an offsetting benefit or charge to revenues or expenses for the impact of the difference between the estimates of future gross profits used in the prior quarter and the emergence of actual and updated estimates of future gross profits in the current quarter ("retrospective unlocking"). In addition, in the third quarter of each year, we conduct our annual comprehensive review of the assumptions and the projection models used for our estimates of future gross profits underlying the amortization of DAC, VOBA, DSI and DFEL and the calculations of the embedded derivatives and reserves for annuity and life insurance products with certain guarantees. These assumptions include investment margins, mortality, retention and rider utilization. Based on our review, the cumulative balances of DAC, VOBA, DSI and DFEL are adjusted with an offsetting benefit or charge to revenues or amortization expense to reflect such change ("prospective unlocking"). The distinction between these two types of unlocking is that retrospective unlocking is driven by the emerging experience period-over-period, while prospective unlocking is driven by changes in assumptions or projection models related to estimated future gross profits. DAC, VOBA, DSI and DFEL are reviewed periodically to ensure that the unamortized portion does not exceed the expected recoverable amounts. REINSURANCE We enter into reinsurance agreements with other companies in the normal course of business. Assets and liabilities and premiums and benefits from certain reinsurance contracts that grant statutory surplus relief to other insurance companies are netted on our Balance Sheets and Statements of Income, respectively, because there is a right of offset explicit in the reinsurance agreements. All other reinsurance agreements are reported on a gross basis on our Balance Sheets as an asset for amounts recoverable from reinsurers or as a component of other liabilities for amounts, such as premiums, owed to the reinsurers, with the exception of modified coinsurance ("Modco") agreements for which the right of offset also exists. Premiums, benefits and DAC are reported net of insurance ceded. GOODWILL We recognize the excess of the purchase price over the fair value of net assets acquired as goodwill. Under SFAS No. 142, "Goodwill and Other Intangible Assets," ("SFAS 142") goodwill is not amortized, but is reviewed at least annually for indications of value impairment, with consideration given to financial performance and other relevant factors. In addition, certain events, including a significant adverse change in legal factors or the business climate, an adverse action or assessment by a regulator or unanticipated competition, would cause us to review the carrying amounts of goodwill for impairment. SFAS 142 requires that we perform a two-step test in our evaluation of the carrying value of goodwill for impairment. In Step 1 of the evaluation, the fair value of each reporting unit is determined and compared to the carrying value of the reporting unit. If the fair value is greater than the carrying value, then the carrying value is deemed to be sufficient and Step 2 is not required. If the fair value estimate is less than the carrying value, it is an indicator that impairment may exist and Step 2 is required to be performed. In Step 2, the implied fair value of the reporting unit's goodwill is determined by allocating the reporting unit's fair value as determined in Step 1 to all of its net assets (recognized and unrecognized) as if the reporting unit had been acquired in a business combination at the date of the impairment test. If the implied fair value of the reporting unit's goodwill is lower than its carrying amount, goodwill is impaired and written down to its fair value, and a charge is reported in impairment of intangibles on our Statements of Income. SPECIFICALLY IDENTIFIABLE INTANGIBLE ASSETS Specifically identifiable intangible assets, net of accumulated amortization, are reported in other assets on our Balance Sheets. The carrying values of specifically identifiable intangible assets are reviewed periodically for indicators of impairment in value, including unexpected or adverse changes in the following: the economic or competitive environments in which the Company operates; profitability analyses; cash flow analyses; and the fair value of the relevant business operation. If there was an indication of impairment, then the cash flow method would be used to measure the impairment, and the carrying value would be adjusted as necessary and reported in impairment of intangibles on our Statements of Income. OTHER LONG-LIVED ASSETS Property and equipment owned for company use is included in other assets on our Balance Sheets and is carried at cost less allowances for depreciation. Provisions for depreciation of investment real estate and property and equipment owned for company use are computed principally on the straight-line method over the estimated useful lives of the assets, which include buildings, computer hardware and software and other property and equipment. We periodically review the carrying value of our long-lived assets, including property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. For long-lived assets to be held and used, impairments are recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value. S-10 Long-lived assets to be disposed of by abandonment or in an exchange for a similar productive long-lived asset are classified as held-for-use until they are disposed. Long-lived assets to be sold are classified as held-for-sale and are no longer depreciated. Certain criteria have to be met in order for the long-lived asset to be classified as held-for-sale, including that a sale is probable and expected to occur within one year. Long-lived assets classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell. SEPARATE ACCOUNT ASSETS AND LIABILITIES We maintain separate account assets, which are reported at fair value. The related liabilities are reported at an amount equivalent to the separate account assets. Investment risks associated with market value changes are borne by the contract holders, except to the extent of minimum guarantees made by the Company with respect to certain accounts. See Note 10 for additional information regarding arrangements with contractual guarantees. FUTURE CONTRACT BENEFITS AND OTHER CONTRACT HOLDER FUNDS The liabilities for future contract benefits and claim reserves for UL and VUL insurance policies consist of contract account balances that accrue to the benefit of the contract holders, excluding surrender charges. The liabilities for future insurance contract benefits and claim reserves for traditional life policies are computed using assumptions for investment yields, mortality and withdrawals based principally on generally accepted actuarial methods and assumptions at the time of contract issue. Investment yield assumptions for traditional direct individual life reserves for all contracts range from 2.25% to 7.00% depending on the time of contract issue. The investment yield assumptions for immediate and deferred paid-up annuities range from 1.50% to 10.00%. These investment yield assumptions are intended to represent an estimation of the interest rate experience for the period that these contract benefits are payable. The liabilities for future claim reserves for variable annuity products containing guaranteed death benefit ("GDB") features are calculated by estimating the present value of total expected benefit payments over the life of the contract divided by the present value of total expected assessments over the life of the contract ("benefit ratio") multiplied by the cumulative assessments recorded from the contract inception through the balance sheet date less the cumulative GDB payments plus interest. The change in the reserve for a period is the benefit ratio multiplied by the assessments recorded for the period less GDB claims paid in the period plus interest. If experience or assumption changes result in a new benefit ratio, the reserves are adjusted to reflect the changes in a manner similar to the unlocking of DAC, VOBA, DFEL and DSI. With respect to our future contract benefits and other contract holder funds, we continually review: overall reserve position, reserving techniques and reinsurance arrangements. As experience develops and new information becomes known, liabilities are adjusted as deemed necessary. The effects of changes in estimates are included in the operating results for the period in which such changes occur. The business written or assumed by us includes participating life insurance contracts, under which the contract holder is entitled to share in the earnings of such contracts via receipt of dividends. The dividend scale for participating policies is reviewed annually and may be adjusted to reflect recent experience and future expectations. UL and VUL products with secondary guarantees represented approximately 16% of permanent life insurance in force as of December 31, 2008, and approximately 84% of sales for these products in 2008. Liabilities for the secondary guarantees on UL-type products are calculated by multiplying the benefit ratio by the cumulative assessments recorded from contract inception through the balance sheet date less the cumulative secondary guarantee benefit payments plus interest. If experience or assumption changes result in a new benefit ratio, the reserves are adjusted to reflect the changes in a manner similar to the unlocking of DAC, VOBA, DFEL and DSI. The accounting for secondary guarantee benefits impacts, and is impacted by, EGPs used to calculate amortization of DAC, VOBA, DFEL and DSI. Future contract benefits on our Balance Sheets include guaranteed living benefit ("GLB") features and remaining guaranteed interest and similar contracts that are carried at fair value. The fair values for the GLB contracts are based on their approximate surrender values. Our LINCOLN SMARTSECURITY(R) Advantage GWB feature, GIB and 4LATER(R) features have elements of both insurance benefits accounted for under Statement of Position ("SOP") 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts" ("SOP 03-1") and embedded derivatives accounted for under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") and SFAS 157. We weight these features and their associated reserves accordingly based on their hybrid nature. The fair values for the remaining guaranteed interest and similar contracts are estimated using discounted cash flow calculations. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. We classify these items in level 3 within the hierarchy levels described in "SFAS NO. 157 - FAIR VALUE MEASUREMENTS" in Note 2. COMMITMENTS AND CONTINGENCIES Contingencies arising from environmental remediation costs, regulatory judgments, claims, assessments, guarantees, litigation, recourse reserves, fines, penalties and other sources are recorded when deemed probable and reasonably estimable. INSURANCE FEES Insurance fees for investment and interest-sensitive life insurance contracts consist of asset-based fees, cost of insurance charges, percent of premium charges, contract administration charges and surrender charges that are assessed against contract holder account balances. Investment products consist primarily of individual and group variable and fixed deferred annuities. S-11 Interest-sensitive life insurance products include UL insurance, VUL insurance and other interest-sensitive life insurance policies. These products include life insurance sold to individuals, corporate-owned life insurance and bank-owned life insurance. In bifurcating the embedded derivative of our GLB features on our variable annuity products, we attribute to the embedded derivative the portion of total fees collected from the contract holder that relate to the GLB riders (the "attributed fees"), which are not reported within insurance fees on our Statements of Income. These attributed fees represent the present value of future claims expected to be paid for the GLB at the inception of the contract plus a margin that a theoretical market participant would include for risk/profit and are reported within realized gain (loss) on our Statements of Income. The timing of revenue recognition as it relates to fees assessed on investment contracts is determined based on the nature of such fees. Asset-based fees, cost of insurance and contract administration charges are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. Percent of premium charges are assessed at the time of premium payment and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited. Surrender charges are recognized upon surrender of a contract by the contract holder in accordance with contractual terms. For investment and interest-sensitive life insurance contracts, the amounts collected from contract holders are considered deposits and are not included in revenue. INSURANCE PREMIUMS Our insurance premiums for traditional life insurance and group insurance products are recognized as revenue when due from the contract holder. Our traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies. Our group non-medical insurance products consist primarily of term life, disability and dental. REALIZED GAIN (LOSS) Realized gain (loss) on our Statements of Income includes realized gains and losses from the sale of investments, write-downs for other-than-temporary impairments of investments, derivative and embedded derivative gains and losses, gains and losses on the sale of subsidiaries and businesses and net gains and losses on reinsurance embedded derivative and trading securities on Modco and coinsurance with funds withheld ("CFW") reinsurance arrangements. Realized gain (loss) is recognized in net income, net of associated amortization of DAC, VOBA, DSI and DFEL. Realized gain (loss) is also net of allocations of investment gains and losses to certain contract holders and certain funds withheld on reinsurance arrangements for which we have a contractual obligation. INTEREST CREDITED Interest credited includes interest credited to contract holder account balances. Interest crediting rates associated with funds invested in our general account during 2006 through 2008 ranged from 3.00% to 8.50%. BENEFITS Benefits for UL and other interest-sensitive life insurance products include benefit claims incurred during the period in excess of contract account balances. Benefits also include the change in reserves for life insurance products with secondary guarantee benefits and annuity products with guaranteed death benefits. For traditional life, group health and disability income products, benefits are recognized when incurred in a manner consistent with the related premium recognition policies. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS Our employees participate in the pension and postretirement benefit plans which are sponsored by LNC and LNL. Pursuant to the accounting rules for our obligations to employees under our various pension and other postretirement benefit plans, we are required to make a number of assumptions to estimate related liabilities and expenses. We use assumptions for the weighted-average discount rate and expected return on plan assets to estimate pension expense. The discount rate assumptions are determined using an analysis of current market information and the projected benefit flows associated with these plans. The expected long-term rate of return on plan assets is initially established at the beginning of the plan year based on historical and projected future rates of return and is the average rate of earnings expected on the funds invested or to be invested in the plan. The calculation of our accumulated postretirement benefit obligation also uses an assumption of weighted-average annual rate of increase in the per capita cost of covered benefits, which reflects a health care cost trend rate. See Note 16 for additional information. STOCK-BASED COMPENSATION In general, we expense the fair value of stock awards included in our incentive compensation plans. As of the date LNC's Board of Directors approves stock awards, the fair value of stock options is determined using a Black-Scholes options valuation methodology, and the fair value of other stock awards is based upon the market value of the stock. The fair value of the awards is expensed over the service period, which generally corresponds to the vesting period, and is recognized as an increase to common stock in stockholder's equity. We classify certain stock awards as liabilities. For these awards, the settlement value is classified as a liability on our Balance Sheets and the liability is marked-to-market through net income at the end of each reporting period. Stock-based compensation expense is reflected in underwriting, acquisition, insurance and other expenses on our Statements of Income. See Note 18 for additional information. INCOME TAXES We have elected to file consolidated federal income tax returns with LNC and its subsidiaries. Pursuant to an intercompany tax sharing agreement with LNC, we provide for income taxes S-12 on a separate return filing basis. The tax sharing agreement also provides that we will receive benefit for net operating losses, capital losses and tax credits which are not usable on a separate return basis to the extent such items may be utilized in the consolidated income tax returns of LNC. Deferred income taxes are recognized, based on enacted rates, when assets and liabilities have different values for financial statement and tax reporting purposes. A valuation allowance is recorded to the extent required to reduce the deferred tax asset to an amount that we expect, more likely than not, will be realized. See Note 6 for additional information. 2. NEW ACCOUNTING STANDARDS ADOPTION OF NEW ACCOUNTING STANDARDS SOP 05-1 -- ACCOUNTING BY INSURANCE ENTERPRISES FOR DEFERRED ACQUISITION COSTS IN CONNECTION WITH MODIFICATIONS OR EXCHANGES OF INSURANCE CONTRACTS In September 2005, the American Institute of Certified Public Accountants issued SOP 05-1, "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts" ("SOP 05-1"), which provides guidance on accounting for DAC on internal replacements of insurance and investment contracts other than those specifically described in SFAS 97. An internal replacement, defined by SOP 05-1, is a modification in product benefits, features, rights or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement or rider to a contract, or by the election of a feature or coverage within a contract. Contract modifications that result in a substantially unchanged contract are accounted for as a continuation of the replaced contract. Contract modifications that result in a substantially changed contract are accounted for as an extinguishment of the replaced contract. Unamortized DAC, VOBA, DFEL and DSI from the replaced contract must be written off. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. We adopted SOP 05-1 effective January 1, 2007. The adoption of SOP 05-1 did not have a material impact on our financial condition or results of operations. FASB STAFF POSITION FAS 115-1 AND FAS 124-1 -- THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS In November 2005, the FASB issued FASB Staff Position ("FSP") Nos. SFAS 115-1 and SFAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" ("FSP 115-1"). The guidance in FSP 115-1 nullified the accounting and measurement provisions of Emerging Issues Task Force ("EITF") No. 03-1 - "The Meaning of Other-Than-Temporary Impairments and Its Application to Certain Investments" and superseded EITF Topic No. D-44 "Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value." Under the impairment model in FSP 115-1, any security in an unrealized loss position is considered impaired. An evaluation is made to determine whether the impairment is other-than-temporary based on existing accounting guidance. If an impairment is considered other-than-temporary, a realized loss is recognized to write the security's cost or amortized cost basis down to fair value. The fair value of the security on the measurement date of the other-than-temporary impairment becomes the new cost basis for the security, which may not be adjusted for subsequent recoveries in fair value. Subsequent to the recognition of an interest-related other-than-temporary impairment for debt securities, the resulting discount, or reduction to the premium, is amortized over the remaining life of the debt security, prospectively, based on the amount and timing of the estimated future cash flows of the debt security. We adopted FSP 115-1 effective January 1, 2006. The adoption of FSP 115-1 did not have a material effect on our financial condition or results of operations. SFAS NO. 155 -- ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS -- AN AMENDMENT OF FASB STATEMENTS NO. 133 AND 140 In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140" ("SFAS 155"), which permits fair value remeasurement for a hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. Under SFAS 155, an entity may make an irrevocable election to measure a hybrid financial instrument at fair value, in its entirety, with changes in fair value recognized in earnings. SFAS 155 also eliminates the interim guidance in SFAS 133 Implementation Issue No. D1, "Application of Statement 133 to Beneficial Interests in Securitized Financial Assets," and establishes a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are either freestanding derivatives or hybrid financial instruments that contain an embedded derivative requiring bifurcation. We adopted the provisions of SFAS 155 on January 1, 2007. Prior period restatement was not permitted. The adoption of SFAS 155 did not have a material impact on our financial condition or results of operations. FASB INTERPRETATION NO. 48 -- ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES -- AN INTERPRETATION OF FASB STATEMENT NO. 109 In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. FIN 48 requires companies to determine whether it is "more likely than not" that an individual tax position will be sustained upon examination by the appropriate taxing authority prior to any part of the benefit being recognized in the financial statements. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that is greater than S-13 fifty percent likely of being realized upon settlement with the tax authority, assuming full knowledge of the position and all relevant facts. In addition, FIN 48 expands disclosure requirements to include additional information related to unrecognized tax benefits, including accrued interest and penalties, and uncertain tax positions where the estimate of the tax benefit may change significantly in the next twelve months. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 effective January 1, 2007 by recording an increase in the liability for unrecognized tax benefits of less than $1 million on our Balance Sheets, offset by a reduction to the beginning balance of retained earnings. See Note 6 for more information regarding our adoption of FIN 48. SFAS 157 -- FAIR VALUE MEASUREMENTS In September 2006, the FASB issued SFAS 157, "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value under current accounting pronouncements that require or permit fair value measurement and enhances disclosures about fair value instruments. SFAS 157 retains the exchange price notion, but clarifies that exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (exit price) in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability, as opposed to the price that would be paid to acquire the asset or receive a liability (entry price). Fair value measurement is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset or non-performance risk, which would include the reporting entity's own credit risk. SFAS 157 establishes a three-level fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The three-level hierarchy for fair value measurement is defined as follows: - Level 1 - inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date. "Blockage discounts" for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available for an identical asset or liability in an active market are prohibited; - Level 2 - inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and - Level 3 - inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability, including assumptions regarding risk. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. We have certain guaranteed benefit features within our annuity products that, prior to January 1, 2008, were recorded using fair value pricing. These benefits will continue to be measured on a fair value basis with the adoption of SFAS 157, utilizing Level 3 inputs and some Level 2 inputs, which are reflective of the hypothetical market participant perspective for fair value measurement, including liquidity assumptions and assumptions regarding the Company's own credit or non-performance risk. In addition, SFAS 157 expands the disclosure requirements for annual and interim reporting to focus on the inputs used to measure fair value, including those measurements using significant unobservable inputs and the effects of the measurements on earnings. See Note 20 for additional information about our fair value disclosures for financial instruments required by SFAS 157. We adopted SFAS 157 effective January 1, 2008 and it did not have a material effect on our financial condition or results of operations. See "Summary of Significant Accounting Policies" in Note 1 for discussion of the methodologies and assumptions used to determine the fair value of our financial instruments carried at fair value. FSP NO. FAS 157-2 -- EFFECTIVE DATE OF FASB STATEMENT NO. 157 In February 2008, the FASB issued FSP No. FAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP 157-2"). FSP 157-2 delays the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Accordingly, we did not apply the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities within the scope of FSP 157-2. Examples of items to which the deferral is applicable include, but are not limited to: - Nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination or other new basis event, but not measured at fair value in subsequent periods; - Reporting units measured at fair value in the goodwill impairment test under SFAS 142, and indefinite-lived intangible assets measured at fair value for impairment assessment under SFAS 142; - Nonfinancial long-lived assets measured at fair value for an impairment assessment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"; - Asset retirement obligations initially measured at fair value under SFAS No. 143, "Accounting for Asset Retirement Obligations"; and - Nonfinancial liabilities for exit or disposal activities initially measured at fair value under SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." As of January 1, 2009, the deferral from FSP 157-2 will no longer be effective. We will apply the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities beginning on January 1, 2009, and we do not expect the application to have a material impact on our financial condition or results of operations. S-14 FSP NO. FAS 157-3 -- DETERMINING THE FAIR VALUE OF A FINANCIAL ASSET WHEN THE MARKET FOR THAT ASSET IS NOT ACTIVE In October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active" ("FSP 157-3"). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an illustrative example of key considerations to analyze in determining fair value of a financial asset when the market for the asset is not active. During times when there is little market activity for a financial asset, the objective of fair value measurement remains the same, that is, to value the asset at the price that would be received by the holder of the financial asset in an orderly transaction (exit price) that is not a forced liquidation or distressed sale at the measurement date. Determining fair value of a financial asset during a period of market inactivity may require the use of significant judgment and an evaluation of the facts and circumstances to determine if transactions for a financial asset represent a forced liquidation or distressed sale. An entity's own assumptions regarding future cash flows and risk-adjusted discount rates for financial assets are acceptable when relevant observable inputs are not available. FSP 157-3 was effective on October 10, 2008, and for all prior periods for which financial statements have not been issued. Any changes in valuation techniques resulting from the adoption of FSP 157-3 shall be accounted for as a change in accounting estimated in accordance with SFAS No. 154, "Accounting Changes and Error Corrections." We adopted the guidance in FSP 157-3 in our financial statements for the reporting period ending September 30, 2008. The adoption did not have a material impact on our financial condition or results of operations. SFAS NO. 159 -- THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL LIABILITIES In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"), which allows an entity to make an irrevocable election, on specific election dates, to measure eligible items at fair value. The election to measure an item at fair value may be determined on an instrument by instrument basis, with certain exceptions. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date, and any upfront costs and fees related to the item will be recognized in earnings as incurred. In addition, the presentation and disclosure requirements of SFAS 159 are designed to assist in the comparison between entities that select different measurement attributes for similar types of assets and liabilities. SFAS 159 applies to fiscal years beginning after November 15, 2007, with early adoption permitted for an entity that has also elected to apply the provisions of SFAS 157. At the effective date, the fair value option may be elected for eligible items that exist on that date. Effective January 1, 2008, we elected not to adopt the fair value option for any financial assets or liabilities that existed as of that date. FSP EITF 99-20-1 -- AMENDMENTS TO THE IMPAIRMENT GUIDANCE IN EITF ISSUE NO. 99-20 In January 2009, the FASB issued FSP EITF 99-20-1, "Amendments to the Impairment Guidance in EITF Issue No. 99-20" ("EITF 99-20-1"), which eliminates the requirement in EITF No. 99-20, "Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets" ("EITF 99-20") for holders of beneficial interests to estimate cash flow using current information and events that a market participant would use in determining the current fair value and other-than-temporary impairment of the beneficial interest. FSP 99-20-1 removes the reference to a market participant and requires that an other-than-temporary impairment be recognized in earnings when it is probable that there has been an adverse change in the holder's estimated cash flows from the cash flows previously projected, which is consistent with the impairment model used in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." FSP 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and must be applied prospectively at the balance sheet date of the reporting period for which the assessment of cash flows is made. We adopted the guidance in FSP 99-20-1 as of December 31, 2008. The adoption did not have a material impact on our financial condition or results of operations. FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS SFAS NO. 141(R) -- BUSINESS COMBINATIONS In December 2007, the FASB issued SFAS No. 141(revised 2007), "Business Combinations" ("SFAS 141(R)"), which is a revision of SFAS No. 141 "Business Combinations" ("SFAS 141"). SFAS 141(R) retains the fundamental requirements of SFAS 141, but establishes principles and requirements for the acquirer in a business combination to recognize and measure the identifiable assets acquired, liabilities assumed and any noncontrolling interests in the acquiree and the goodwill acquired or the gain from a bargain purchase. The revised statement requires, among other things, that assets acquired, liabilities assumed and any noncontrolling interest in the acquiree shall be measured at their acquisition-date fair values. For business combinations completed upon adoption of SFAS 141(R), goodwill will be measured as the excess of the consideration transferred, plus the fair value of any noncontrolling interest in the acquiree, in excess of the fair values of the identifiable net assets acquired. Any contingent consideration shall be recognized at the acquisition-date fair value, which improves the accuracy of the goodwill measurement. Under SFAS 141(R), contractual pre-acquisition contingencies will be recognized at their acquisition-date fair values and non-contractual pre-acquisition contingencies will be recognized at their acquisition date fair values if it is more likely than not that the contingency gives rise to an asset or liability. Deferred recognition of pre-acquisition contingencies will no longer be permitted. Acquisition costs will be expensed in the period the costs are incurred, rather than included in the cost of the acquiree, and disclosure requirements will be enhanced to provide users with information to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2008, with earlier adoption S-15 prohibited. We will adopt SFAS 141(R) for acquisitions occurring after January 1, 2009. FSP FAS NO. 142-3 -- DETERMINATION OF THE USEFUL LIFE OF INTANGIBLE ASSETS In April 2008, the FASB issued FSP FAS No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3"), which applies to recognized intangible assets accounted for under the guidance in SFAS 142. When developing renewal or extension assumptions in determining the useful life of recognized intangible assets, FSP 142-3 requires an entity to consider its own historical experience in renewing or extending similar arrangements. Absent the historical experience, an entity should use the assumptions a market participant would make when renewing and extending the intangible asset consistent with the highest and best use of the asset by market participants. In addition, FSP 142-3 requires financial statement disclosure regarding the extent to which expected future cash flows associated with the asset are affected by an entity's intent and/or ability to renew or extend an arrangement. FSP 142-3 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2008, with early adoption prohibited. FSP 142-3 should be applied prospectively to determine the useful life of a recognized intangible asset acquired after the effective date. In addition, FSP 142-3 requires prospective application of the disclosure requirements to all intangible assets recognized as of, and subsequent to, the effective date. We will adopt FSP 142-3 on January 1, 2009, and do not expect the adoption will have a material impact on our financial condition and results of operations. SFAS NO. 163 -- ACCOUNTING FOR FINANCIAL GUARANTEE INSURANCE CONTRACTS -- AN INTERPRETATION OF FASB STATEMENT NO. 60 In May 2008, the FASB issued SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60" ("SFAS 163"), which applies to financial guarantee insurance and reinsurance contracts not accounted for as derivative instruments, and issued by entities within the scope of SFAS No. 60, "Accounting and Reporting by Insurance Enterprises." SFAS 163 changes current accounting practice related to the recognition and measurement of premium revenue and claim liabilities such that premium revenue recognition is linked to the amount of insurance protection and the period in which it is provided, and a claim liability is recognized when it is expected that a claim loss will exceed the unearned premium revenue. In addition, SFAS 163 expands disclosure requirements to include information related to the premium revenue and claim liabilities, as well as information related to the risk-management activities used to evaluate credit deterioration in insured financial obligations. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years; early application is not permitted. However, the disclosure requirements related to risk-management activities are effective in the first period (including interim periods) beginning after May 2008. Because we do not hold a significant amount of financial guarantee insurance and reinsurance contracts, no additional disclosures have been made, and we expect the adoption of SFAS 163 will not be material to our financial condition or results of operations. EITF NO. 08-6 -- INVESTMENT ACCOUNTING CONSIDERATIONS In November 2008, the FASB issued EITF No. 08-6, "Equity Method Investment Accounting Considerations" ("EITF 08-6"), which addresses the effect of SFAS 141(R) and SFAS 160 on equity-method accounting under Accounting Principles Board Opinion 18, "The Equity Method of Accounting for Investments in Common Stock" ("APB 18"). EITF 08-6 will continue the APB 18 requirement that the cost basis of a new equity-method investment will follow a cost accumulation model, which includes transaction costs in the cost of the equity investment and excludes the value of contingent consideration unless it is required to be recognized under other literature. Subsequently, issuances of shares by the equity-method investee that reduce the investor's ownership percentage should be accounted for as if the investor sold a proportionate share of the investment, with gain or loss recognized through earnings. The EITF decided that the investor would not have to complete a separate impairment analysis on the investee's underlying assets, but rather the entire equity-method investment would continue to be subject to the current other-than-temporary impairment guidance in APB 18. EITF 08-6 is applicable to all investments accounted for under the equity method and is effective, prospectively, in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. We will adopt EITF 08-6 on January 1, 2009, and do not expect the adoption will have a material impact on our financial condition and results of operations. FSP FAS NO. 132(R)-1 -- EMPLOYERS' DISCLOSURES ABOUT POSTRETIREMENT BENEFIT PLAN ASSETS In December 2008, the FASB issued FSP FAS No. 132(R)-1, "Employers' Disclosures about Postretirement Benefit Plan Assets" ("FSP 132(R)-1"), which requires enhanced disclosures of the plan assets of an employer's defined benefit pension or other postretirement benefit plans. The disclosures required under FSP 132(R)-1 will include information regarding the investment allocation decisions made for plan assets, the fair value of each major category of plan assets disclosed separately for pension plans and other postretirement benefit plans and the inputs and valuation techniques used to measure the fair value of plan assets including the level within the fair value hierarchy as defined by SFAS 157. FSP 132(R)-1 requires the additional disclosure in SFAS 157 for Level 3 fair value measurements, and must also be provided for the fair value measurements of plan assets using Level 3 inputs. The disclosures in FSP 132(R)-1 are effective for fiscal years ending after December 15, 2009, and are not required for earlier periods that are presented for comparative purposes. We will include the disclosures required in FSP 132(R)-1 in the notes to our financial statements for the year ending December 31, 2009. S-16 3. ACQUISITIONS AND REINSURANCE ASSUMPTION FROM LNL JEFFERSON-PILOT ACQUISITION On April 3, 2006, LNC completed its merger with Jefferson-Pilot by acquiring 100% of the outstanding shares of Jefferson-Pilot in a transaction accounted for under the purchase method of accounting prescribed by SFAS 141. Associated with the merger between LNC and Jefferson-Pilot, JPLA and predecessor LLANY were merged into a single entity, effective April 2, 2007, with JPLA being the surviving entity, which was renamed to LLANY. REINSURANCE ASSUMPTION FROM LNL Effective March 1, 2007, LNL ceded to predecessor LLANY, through an assignment and assumption agreement, certain blocks of individual and group life business. This assumption was a non-cash transaction. The following table summarizes the amounts (in millions) assumed from LNL: ACQUIRED VALUE -------- Investments $ 2,510 Policy loans 209 Deferred acquisition costs and value of business acquired 366 Accrued investment income 11 Reinsurance recoverables 370 Other assets 22 Future contract benefits and other contract holder funds (2,701) Other liabilities (83) ------- Total capital contribution $ 704 ======= The caption capital contribution in the accompanying Statements of Stockholder's Equity includes the $704 million presented above as well as a $2 million capital contribution for an unrelated matter for the year ended December 31, 2007. 4. INVESTMENTS AVAILABLE-FOR-SALE SECURITIES Pursuant to SFAS No. 157, we have categorized these securities into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3), as described in "SFAS No. 157 - FAIR VALUE MEASUREMENTS" in Note 2. See Note 20 for additional disclosures regarding our fair values required by SFAS 157. The amortized cost, gross unrealized gains and losses and fair value of available-for-sale securities (in millions) were as follows:
AS OF DECEMBER 31, 2008 ------------------------------------ GROSS UNREALIZED AMORTIZED ---------------- FAIR COST GAINS LOSSES VALUE --------- ----- ------ ------ Corporate bonds $4,407 $ 76 $526 $3,957 U.S. Government bonds 30 7 -- 37 Foreign government bonds 28 5 1 32 Mortgage-backed securities: Mortgage pass-through securities 168 5 4 169 Collateralized mortgage obligations 727 23 103 647 Commercial mortgage-backed securities 281 1 75 207 State and municipal bonds 36 1 -- 37 Hybrid and redeemable preferred stocks 101 -- 28 73 ------ ---- ---- ------ Total fixed maturity securities 5,778 118 737 5,159 Equity securities 3 -- 1 2 ------ ---- ---- ------ Total available-for-sale securities $5,781 $118 $738 $5,161 ====== ==== ==== ======
S-17
AS OF DECEMBER 31, 2007 ------------------------------------ GROSS UNREALIZED AMORTIZED ---------------- FAIR COST GAINS LOSSES VALUE --------- ----- ------ ------ Corporate bonds $4,481 $ 94 $ 94 $4,481 U.S. Government bonds 31 2 -- 33 Foreign government bonds 46 6 -- 52 Mortgage-backed securities: Mortgage pass-through securities 92 1 -- 93 Collateralized mortgage obligations 746 8 22 732 Commercial mortgage-backed securities 331 6 10 327 State and municipal bonds 37 1 -- 38 Hybrid and redeemable preferred stocks 3 -- -- 3 ------ ---- ---- ------ Total fixed maturity securities 5,767 118 126 5,759 Equity securities 3 -- 1 2 ------ ---- ---- ------ Total available-for-sale securities $5,770 $118 $127 $5,761 ====== ==== ==== ======
The amortized cost and fair value of fixed maturity available-for-sale securities by contractual maturities (in millions) were as follows:
AS OF DECEMBER 31, 2008 ---------------------------- AMORTIZED COST FAIR VALUE --------------- --------- Due in one year or less $ 214 $ 213 Due after one year through five years 1,199 1,133 Due after five years through ten years 1,410 1,279 Due after ten years 1,779 1,511 ------ ------ Subtotal 4,602 4,136 Mortgage-backed securities 1,176 1,023 ------ ------ Total fixed maturity available-for-sale securities $5,778 $5,159 ====== ======
Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations. The fair value and gross unrealized losses of available-for-sale securities (in millions), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:
AS OF DECEMBER 31, 2008 --------------------------------------------------------------- LESS THAN OR EQUAL GREATER THAN TO TWELVE MONTHS TWELVE MONTHS TOTAL ------------------- ------------------- ------------------- GROSS GROSS GROSS FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED VALUE LOSSES VALUE LOSSES VALUE LOSSES ------ ---------- ------ ---------- ------ ---------- Corporate bonds $1,809 $229 $ 825 $297 $2,634 $ 526 U.S. Government bonds 2 -- -- -- 2 -- Foreign government bonds 4 1 2 -- 6 1 Mortgage-backed securities: Mortgage pass-through securities 10 3 2 1 12 4 Collateralized mortgage obligations 84 35 93 68 177 103 Commercial mortgage-backed securities 126 20 47 55 173 75 State and municipal bonds 5 -- 2 -- 7 -- Redeemable preferred stocks 35 7 36 21 71 28 ------ ---- ------ ---- ------ ----- Total fixed maturity securities 2,075 295 1,007 442 3,082 737 Equity securities 2 1 -- -- 2 1 ------ ---- ------ ---- ------ ----- Total available-for-sale securities $2,077 $296 $1,007 $442 $3,084 $ 738 ====== ==== ====== ==== ====== ===== Total number of securities in an unrealized loss position 1,131 =====
S-18
AS OF DECEMBER 31, 2007 --------------------------------------------------------------- LESS THAN OR EQUAL GREATER THAN TO TWELVE MONTHS TWELVE MONTHS TOTAL ------------------- ------------------- ------------------- GROSS GROSS GROSS FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED VALUE LOSSES VALUE LOSSES VALUE LOSSES ------ ---------- ------ ---------- ------ ---------- Corporate bonds $1,109 $51 $698 $43 $1,807 $ 94 Foreign government bonds 2 -- -- -- 2 -- Mortgage-backed securities: Mortgage pass-through securities 8 -- 14 -- 22 -- Collateralized mortgage obligations 266 18 105 4 371 22 Commercial mortgage-backed securities 59 6 59 4 118 10 State and municipal bonds 2 -- 5 -- 7 -- ------ --- ---- --- ------ ---- Total fixed maturity securities 1,446 75 881 51 2,327 126 Equity securities 2 1 -- -- 2 1 ------ --- ---- --- ------ ---- Total available-for-sale securities $1,448 $76 $881 $51 $2,329 $127 ====== === ==== === ====== ==== Total number of securities in an unrealized loss position 738 ====
The fair value, gross unrealized losses (in millions) and number of available-for-sale securities where the fair value had declined below amortized cost by greater than 20%, were as follows: AS OF DECEMBER 31, 2008 ------------------------------ GROSS NUMBER FAIR UNREALIZED OF VALUE LOSSES SECURITIES ----- ---------- ---------- Less than six months $ 91 $ 36 37 Six months or greater, but less than nine months 126 54 53 Nine months or greater, but less than twelve months 153 78 83 Twelve months or greater 539 379 253 ---- ---- --- Total available-for-sale securities $909 $547 426 ==== ==== === AS OF DECEMBER 31, 2007 ------------------------------ GROSS NUMBER FAIR UNREALIZED OF VALUE LOSSES SECURITIES ----- ---------- ---------- Less than six months $18 $ 6 8 Six months or greater, but less than nine months 11 5 12 Nine months or greater, but less than twelve months 4 2 5 Twelve months or greater 23 11 16 --- --- --- Total available-for-sale securities $56 $24 41 === === === As described more fully in Note 1, we regularly review our investment holdings for other-than-temporary impairments. Based upon this review, the cause of the $611 million increase in our gross unrealized losses for available-for-sale securities for the year ended December 31, 2008, was attributable primarily to the combination of reduced liquidity in all market segments and deterioration in credit fundamentals. We believe that the securities in an unrealized loss position as of December 31, 2008 and 2007 were not other-than-temporarily impaired due to our ability and intent to hold for a period of time sufficient for recovery. MORTGAGE LOANS ON REAL ESTATE Mortgage loans on real estate principally involve commercial real estate. The commercial loans are geographically diversified throughout the U.S. with the largest concentrations in New York, Illinois and Texas, which accounted for approximately 42% and 28% of mortgage loans as of December 31, 2008 and 2007, respectively. As of December 31, 2008 and 2007, we held no impaired mortgage loans and therefore had no valuation allowance. S-19 NET INVESTMENT INCOME The major categories of net investment income (in millions) on our Statements of Income were as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- NET INVESTMENT INCOME Fixed maturity available-for-sale securities $355 $319 $140 $17 Mortgage loans on real estate 17 16 13 1 Policy loans 24 21 8 1 Invested cash 3 4 2 -- Other investments -- 1 1 -- ---- ---- ---- --- Total investment income 399 361 164 19 Investment expense (4) -- (3) -- ---- ---- ---- --- Net investment income $395 $361 $161 $19 ==== ==== ==== ===
REALIZED LOSS RELATED TO INVESTMENTS The detail of the realized loss related to investments (in millions) was as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Fixed maturity securities available-for-sale: Gross gains $ 4 $ 6 $ 2 $-- Gross losses (151) (29) (2) -- Gain on other investments -- -- 1 -- Associated amortization expense (benefit) of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance liabilities 51 4 (2) -- ----- ---- --- --- Total realized loss on investments $ (96) $(19) $(1) $-- ===== ==== === === Write-downs for other-than-temporary impairments included in realized loss on investments above $(133) $(27) $(2) $-- ===== ==== === ===
See Note 14 for a comprehensive listing of realized gain (loss) reported on our Statements of Income. INVESTMENT COMMITMENTS We did not have any investment commitments as of December 31, 2008. As of December 31, 2007, our investment commitments, primarily mortgage loans on real estate, were $12 million. CONCENTRATIONS OF FINANCIAL INSTRUMENTS As of December 31, 2008, we had investments in the collateralized mortgage obligation industry with a fair value of $653 million or 11% of the invested assets portfolio totaling $5.9 billion. We utilized the industry classifications to obtain the concentration of financial instruments amount, as such, this amount will not agree to the available-for-sale securities table above. We did not have a concentration of financial instruments in a single industry as of December 31, 2007. As of December 31, 2008 and 2007, we did not have a significant concentration of financial instruments in a single investee or geographic region of the U.S. ASSETS ON DEPOSIT The Company had investment assets on deposit with regulatory agencies with a fair market value of $14 million and $13 million as of December 31, 2008 and 2007, respectively. 5. DERIVATIVE INSTRUMENTS We have certain variable annuity products with GWB and GIB features that are embedded derivatives. Certain features of these guarantees, notably our GIB and 4LATER(R) features, have elements of both insurance benefits accounted for under SOP 03-1 and embedded derivatives accounted for under SFAS 133 and SFAS 157. We weight these features and their associated reserves accordingly based on their hybrid nature. The change in fair value of the embedded derivatives flows through net income as realized gain S-20 (loss) on our Statement of Income. As of December 31, 2008 and 2007, we had embedded derivative instruments of $124 million and $12 million, respectively. As of December 31, 2008 and 2007, we had approximately $834 million and $1.1 billion, respectively, of account values that were attributable to variable annuities with a GWB feature. As of December 31, 2008 and 2007, we had approximately $48 million and $43 million, respectively, of account values that were attributable to variable annuities with a GIB feature. All of the outstanding contracts with a GIB feature are still in the accumulation phase. 6. FEDERAL INCOME TAXES The federal income tax expense on continuing operations (in millions) was as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Current $13 $27 $(8) $-- Deferred 1 25 27 2 --- --- --- --- Total federal income tax expense $14 $52 $19 $ 2 === === === ===
A reconciliation of the effective tax rate differences (dollars in millions) was as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Tax rate of 35% times pre-tax income $18 $54 $21 $ 2 Effect of: Separate account dividend received deduction (3) (2) (1) -- Other items (1) -- (1) -- --- --- --- --- Provision for income taxes $14 $52 $19 $ 2 === === === === Effective tax rate 28% 34% 31% 35% === === === ===
The effective tax rate is a ratio of tax expense over pre-tax income. The separate account dividend received deduction included in the table above is exclusive of any prior years' tax return resolution. The federal income tax liability (in millions), which is included in other liabilities on our Balance Sheets, was as follows: AS OF DECEMBER 31, ------------------ 2008 2007 ---- ---- Current $ 6 $ 32 Deferred 17 141 --- ---- Total federal income tax liability $23 $173 === ==== Significant components of our deferred tax assets and liabilities (in millions) were as follows: AS OF DECEMBER 31, ------------------ 2008 2007 ---- ---- DEFERRED TAX ASSETS: Insurance and investment contract liabilities $119 $140 Other investments 49 12 Compensation and benefit plans 1 1 Ceding commission asset 1 2 Net unrealized loss on securities available-for-sale 216 1 Other 1 1 ---- ---- Total deferred tax assets 387 157 ---- ---- DEFERRED TAX LIABILITIES: Deferred acquisition costs 154 100 Present value of business in-force 229 174 Other 21 24 ---- ---- Total deferred tax liabilities 404 298 ---- ---- Net deferred tax liability $ 17 $141 ==== ==== S-21 As of April 2, 2007, we have elected to file consolidated federal income tax returns with LNC and its subsidiaries. Pursuant to an inter-company tax sharing agreement with LNC, we provide for income taxes on a separate return filing basis. Prior to April 3, 2006, with the exception of predecessor LLANY, we were part of a consolidated Federal income tax filing with Jefferson-Pilot and its subsidiaries. Effective as of this merger date, the company, with the exception of predecessor LLANY, was part of a consolidated Federal income tax filing with JPFIC until April 2, 2007. Predecessor LLANY filed its tax return as part of a consolidated Federal income tax filing with its common parent, LNC. We are required to establish a valuation allowance for any gross deferred tax assets that are unlikely to reduce taxes payable in future years' tax returns. As of December 31, 2008 and 2007, we concluded that it was more likely than not that all gross deferred tax assets will reduce taxes payable in future years. Accordingly, no valuation allowance was necessary at December 31, 2008 and 2007. As discussed in Note 2, we adopted FIN 48 on January 1, 2007. As of December 31, 2008 and 2007 $4 million and $3 million of our unrecognized tax benefits presented below, if recognized, would have impacted our income tax expense and our effective tax rate. We anticipate a change to our unrecognized tax benefits during 2009 to range of none to $1 million. A reconciliation of the unrecognized tax benefits (in millions) was as follows: FOR THE YEARS ENDED DECEMBER 31, ------------------- 2008 2007 ---- ---- Balance at beginning-of-year $22 $10 Increases for prior year tax positions 1 1 Increases for current year tax positions -- 11 --- --- Balance at end-of-year $23 $22 === === We recognize interest and penalties accrued, if any, related to unrecognized tax benefits as a component of tax expense. During the years ended December 31, 2008, and 2007, we recognized interest and penalty expense related to uncertain tax positions of $1 million, in each year. We recognized no interest and penalty expense related to uncertain tax positions during the year ended December 31, 2006. We had accrued interest and penalty expense related to the unrecognized tax benefits of $2 million as of December 31, 2008 and 2007, respectively. We are subject to annual tax examinations from the Internal Revenue Service ("IRS"). During the third quarter of 2008, the IRS completed its examination for tax years 2003 and 2004 resulting in a proposed assessment. We believe a portion of the assessment is inconsistent with existing law and are protesting it through the established IRS appeals process. We do not anticipate that any adjustments that might result from such audits would be material to our results of operations or financial condition. We are currently under audit by the IRS for years 2005 and 2006. The Jefferson-Pilot subsidiaries acquired in the April 2006 merger are subject to a separate IRS examination cycle. For the former Jefferson-Pilot and its subsidiaries, the IRS is examining tax year ended April 2, 2006. S-22 7. DAC, VOBA AND DSI During the fourth quarter of 2008, we recorded a decrease to income totaling $15 million, for a reversion to the mean prospective unlocking of DAC, VOBA and DSI as a result of significant and sustained declines in the equity markets during 2008. The pre-tax impact for these items is included within the prospective unlocking line items in the changes in DAC, VOBA, and DSI tables below. Changes in DAC (in millions) were as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Balance at beginning-of-period $306 $197 $ 60 $53 Cumulative effect of adoption of SOP 05-1 -- (1) -- -- Purchase accounting fair value adjustment -- -- (60) -- Merger acquired value -- -- 164 -- Amounts transferred from LNL -- 14 -- -- Deferrals 95 109 66 6 Amortization, net of interest: Prospective unlocking -- assumption changes (12) -- 1 -- Prospective unlocking -- model refinements 9 (8) (1) -- Retrospective unlocking (10) 9 (1) -- Other amortization, net of interest (36) (35) (22) (2) Adjustment related to realized gains (losses) on available-for-sale securities and derivatives 36 3 (2) -- Adjustment related to unrealized gains (losses) on available-for-sale securities and derivatives 72 18 (8) 3 ---- ---- ---- --- Balance at end-of-period $460 $306 $197 $60 ==== ==== ==== ===
Changes in VOBA (in millions) were as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Balance at beginning-of-period $493 $169 $ 12 $11 Purchase accounting adjustments -- -- 54 -- Merger acquired value -- -- 114 -- Amounts transferred from LNL -- 352 -- -- Deferrals 3 4 5 -- Amortization, net of interest: Prospective unlocking -- assumption changes 4 4 -- -- Retrospective unlocking 3 9 1 -- Other amortization (72) (70) (22) -- Accretion of interest 26 24 7 -- Adjustment related to realized gains on available-for-sale securities and derivatives 7 1 -- -- Adjustment related to unrealized gains (losses) on available-for-sale securities and derivatives 191 -- (2) 1 ---- ---- ---- --- Balance at end-of-period $655 $493 $169 $12 ==== ==== ==== ===
Estimated future amortization of VOBA, net of interest (in millions), as of December 31, 2008, was as follows: 2009 $ 46 2010 43 2011 33 2012 31 2013 29 Thereafter 282 ---- Total $464 ==== S-23 Changes in DSI (in millions) were as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Balance at beginning-of-period $14 $11 $ 2 $ 2 Purchase accounting adjustments -- -- 6 -- Deferrals 4 4 4 -- Amortization, net of interest: Prospective unlocking -- assumption changes (2) -- -- -- Other amortization, net of interest (2) (1) (1) -- --- --- --- --- Balance at end-of-period $14 $14 $11 $ 2 === === === ===
8. REINSURANCE The following summarizes reinsurance amounts (in millions) recorded on our Statements of Income:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Direct insurance premiums and fees $ 480 $ 445 $155 $ 11 Reinsurance ceded (134) (113) (39) (1) ----- ----- ---- ---- Total insurance premiums and fees, net $ 346 $ 332 $116 $ 10 ===== ===== ==== ==== Direct insurance benefits $ 395 $ 354 $125 $ 25 Reinsurance recoveries netted against benefits (167) (162) (82) (18) ----- ----- ---- ---- Total benefits, net $ 228 $ 192 $ 43 $ 7 ===== ===== ==== ====
We cede the portion of risks exceeding our retention limits to other insurers. We seek reinsurance coverage within the businesses that sell life insurance in order to limit our exposure to mortality losses and enhance our capital management. As discussed in Note 23, a portion of this reinsurance activity is with affiliated companies. Under our reinsurance program, we reinsure approximately 55% to 60% of the mortality risk on newly issued non-term life insurance contracts and approximately 40% to 45% of total mortality risk including term insurance contracts. Our policy for this program is to retain no more than $10 million on a single insured life issued on fixed and VUL insurance contracts. Additionally, the retention per single insured life for term life insurance and for corporate owned life insurance is $2 million for each type of insurance. Portions of our deferred annuity business have been reinsured on a Modco basis with other companies to limit our exposure to interest rate risks. As of December 31, 2008, the reserves associated with these reinsurance arrangements totaled $6 million. To cover products other than life insurance, we acquire other insurance coverages with retentions and limits. For details on the reinsurance assumption from LNL, which was effective March 1, 2007, see Note 3. Reinsurance contracts do not relieve an insurer from its primary obligation to policyholders. Therefore, the failure of a reinsurer to discharge its reinsurance obligations could result in a loss to us. We regularly evaluate the financial condition of our reinsurers and monitor concentrations of credit risk related to reinsurance activities. S-24 9. GOODWILL AND SPECIFICALLY IDENTIFIABLE INTANGIBLE ASSETS The changes in the carrying amount of goodwill (in millions) by reportable segment were as follows: FOR THE YEAR ENDED DECEMBER 31, 2008 -------------------------------------- BALANCE AT PURCHASE BEGINNING- ACCOUNTING BALANCE AT OF-YEAR ADJUSTMENTS END-OF-YEAR ---------- ----------- ----------- Retirement Solutions: Annuities $ 26 $-- $ 26 Insurance Solutions: Life Insurance 136 -- 136 ---- --- ---- Total goodwill $162 $-- $162 ==== === ==== FOR THE YEAR ENDED DECEMBER 31, 2007 -------------------------------------- BALANCE AT PURCHASE BEGINNING- ACCOUNTING BALANCE AT OF-YEAR ADJUSTMENTS END-OF-YEAR ---------- ----------- ----------- Retirement Solutions: Annuities $ 27 $(1) $ 26 Insurance Solutions: Life Insurance 137 (1) 136 ---- --- ---- Total goodwill $164 $(2) $162 ==== === ==== The purchase accounting adjustments above relate to income tax deductions recognized when stock options attributable to mergers were exercised or the release of unrecognized tax benefits acquired through mergers. We performed a Step 1 goodwill impairment analysis on all of our reporting units. The Step 1 analysis for the reporting units within our Insurance Solutions and Retirement Solutions segments utilized primarily a discounted cash flow valuation technique. The discounted cash flow analysis required us to make judgments about revenues, earnings projections, growth rates and discount rates. We also considered other valuation techniques such as an analysis of peer companies and market participants. In the valuation process, we gave consideration to the current economic and market conditions. We also updated our October 1 analysis of goodwill impairment to reflect fourth quarter results and forecasts as of December 31, 2008, due to sharp declines in the equity markets and our stock price in the fourth quarter. In determining the estimated fair value of our reporting units, we incorporated consideration of discounted cash flow calculations, peer company price-to-earnings multiples, the level of our own share price and assumptions that market participants would make in valuing our reporting units. Our fair value estimations were based primarily on an in-depth analysis of future cash flows and relevant discount rates, which considered market participant inputs (income approach). For our other reporting units, we used other available information including market data obtained through strategic reviews and other analysis to support our Step 1 conclusions. All of our reporting units passed the Step 1 analysis. Additionally, while the Step 1 analysis of our Insurance Solutions - Life reporting unit indicated that its fair value exceeded its carrying value, the margin above carrying value was relatively small. Therefore, we concluded that we should perform additional analysis for our Insurance Solutions - Life reporting unit under the Step 2 requirements of SFAS 142. In our Step 2 analysis, we estimated the implied fair value of the reporting unit's goodwill as determined by allocating the reporting unit's fair value determined in Step 1 to all of its net assets (recognized and unrecognized) as if the reporting unit had been acquired in a business combination at the date of the impairment test. We utilized very detailed forecasts of cash flows and market observable inputs in determining a fair value of the net assets for each of the reporting units similar to what would be estimated in a business combination between market participants. The implied fair value of goodwill for Insurance Solutions - Life was higher than its carrying amount; therefore, the goodwill for this reporting unit was not impaired. S-25 The gross carrying amount and accumulated amortization (in millions) for the major specifically identifiable intangible asset class by reportable segment was as follows:
AS OF DECEMBER 31, ------------------------------------------------- 2008 2007 ----------------------- ----------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION -------- ------------ -------- ------------ Insurance Solutions -- Life Insurance: Sales force $7 $1 $7 $--
Future estimated amortization of the specifically identifiable intangible asset was immaterial as of December 31, 2008. 10. GUARANTEED BENEFIT FEATURES We issue variable annuity contracts through our separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (traditional variable annuities). We also issue variable annuity and life contracts through separate accounts that include various types of GDB, GWB and GIB features. The GDB features include those where we contractually guarantee to the contract holder either: return of no less than total deposits made to the contract less any partial withdrawals ("return of net deposits"); total deposits made to the contract less any partial withdrawals plus a minimum return ("minimum return"); or the highest contract value on any contract anniversary date through age 80 minus any payments or withdrawals following the contract anniversary ("anniversary contract value"). Certain features of these guarantees are considered embedded derivatives and are recorded in future contract benefits on our Balance Sheets at fair value under SFAS 133 and SFAS 157. Other guarantees that are not considered embedded derivatives meet the criteria as insurance benefits and are accounted for under the valuation techniques included in SOP 03-1. Still other guarantees contain characteristics of both an embedded derivative and an insurance benefit and are accounted for under an approach that weights these features and their associated reserves accordingly based on their hybrid nature. Effective January 1, 2008, we adopted SFAS 157, which affected the valuation of our embedded derivatives. See Note 20 for details on the adoption of SFAS 157. We use derivative instruments to hedge our exposure to the risks and earnings volatility that result from the embedded derivatives for living benefits in certain of our variable annuity products. The change in fair value of these instruments tends to move in the opposite direction of the change in fair value of the embedded derivatives. The net impact of these changes is reported as GLB, which is reported as a component of realized gain (loss) on our Statements of Income and is discussed in Note 14. Information on the GDB features outstanding (dollars in millions) was as follows (our variable contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive): AS OF DECEMBER 31, ------------------- 2008 2007 -------- -------- RETURN OF NET DEPOSITS Total account value $1,265 $1,499 Net amount at risk(1) 222 3 Average attained age of contract holders 52 years 51 years MINIMUM RETURN Average attained age of contract holders 77 years 76 years Guaranteed minimum return 5% 5% ANNIVERSARY CONTRACT VALUE Total account value $ 731 $1,050 Net amount at risk(1) 355 11 Average attained age of contract holders 64 years 64 years ---------- (1) Represents the amount of death benefit in excess of the account balance. The increase in net amount of risk when comparing December 31, 2008, to December 31, 2007, was attributable primarily to the decline in equity markets and associated reduction in the account values. The determination of GDB liabilities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The following summarizes the balances of and changes in the liabilities for GDB (in millions), which were recorded in future contract benefits on our Balance Sheets: FOR THE YEARS ENDED DECEMBER 31, ------------------- 2008 2007 2006 ---- ---- ---- Balance at beginning-of-year $ 1 $ 1 $-- Changes in reserves 9 -- 1 Benefits paid (2) -- -- --- --- --- Balance at end-of-year $ 8 $ 1 $ 1 === === === The changes to the benefit reserves amounts above are reflected in benefits on our Statements of Income. S-26 Account balances of variable annuity contracts with guarantees (in millions) were invested in separate account investment options as follows: AS OF DECEMBER 31, ------------------ 2008 2007 ------ ------ ASSET TYPE Domestic equity $ 670 $1,118 International equity 276 232 Bonds 219 253 Money market 213 206 ------ ------ Total $1,378 $1,809 ====== ====== Percent of total variable annuity separate account values 89% 85% Future contract benefits also include reserves for our products with secondary guarantees for our products sold through our Insurance Solutions - Life Insurance segment. These UL and VUL products with secondary guarantees represented approximately 15% of permanent life insurance in force as of December 31, 2008, and approximately 80% of sales for these products in 2008. 11. OTHER CONTRACT HOLDER FUNDS Details of other contract holder funds (in millions) were as follows: AS OF DECEMBER 31, ------------------ 2008 2007 ------ ------ Account values and other contract holder funds $4,628 $4,613 Deferred front-end loads 65 48 Contract holder dividends payable 164 165 Premium deposit funds 12 13 Undistributed earnings on participating business (3) 26 ------ ------ Total other contract holder funds $4,866 $4,865 ====== ====== As of December 31, 2008 and 2007, participating policies comprised approximately 4% of the face amount of insurance in force, and dividend expenses were $29 million, $25 million and $5 million for the years ended December 31, 2008, 2007 and 2006, respectively. 12. CONTINGENCIES AND COMMITMENTS CONTINGENCIES REGULATORY AND LITIGATION MATTERS Federal and state regulators continue to focus on issues relating to fixed and variable insurance products, including, but not limited to, suitability, replacements and sales to seniors. Like others in the industry, we have received inquiries including requests for information regarding sales to seniors from the Financial Industry Regulatory Authority, and we have responded to these inquiries. We continue to cooperate fully with such authority. In the ordinary course of its business, we are involved in various pending or threatened legal proceedings, including purported class actions, arising from the conduct of business. In some instances, these proceedings include claims for unspecified or substantial punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief. After consultation with legal counsel and a review of available facts, it is management's opinion that these proceedings, after consideration of any reserves and rights to indemnification, ultimately will be resolved without materially affecting our financial position. However, given the large and indeterminate amounts sought in certain of these proceedings and the inherent difficulty in predicting the outcome of such legal proceedings, it is possible that an adverse outcome in certain matters could be material to our operating results for any particular reporting period. VULNERABILITY FROM CONCENTRATIONS As of December 31, 2008, we did not have a concentration of business transactions with a particular customer or lender or sources of supply of labor or services used in the business. However, we do have a concentration in market and geographic area in which business is conducted. For the year ended December 31, 2008, approximately 81% of the premiums, on the basis of SAP, were generated in New York. OTHER CONTINGENCY MATTERS State guaranty funds assess insurance companies to cover losses to contract holders of insolvent or rehabilitated companies. Mandatory assessments may be partially recovered through a reduction in future premium taxes in some states. As of December 31, 2008 and 2007, we have not accrued for expected assessments. S-27 13. STOCKHOLDER'S EQUITY STOCKHOLDER'S EQUITY All authorized and issued shares of LLANY are owned by LNL. ACCUMULATED OCI The following summarizes the components and changes in accumulated OCI (in millions):
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- UNREALIZED GAINS (LOSS) ON AVAILABLE-FOR-SALE SECURITIES Balance at beginning-of-period $ (8) $ 14 $ 3 $ 10 Other comprehensive income (loss): Unrealized holding gains (losses) arising during the year (758) (67) 33 (16) Change in DAC, VOBA and other contract holder funds 337 18 (15) 3 Income tax (expense) benefit 156 15 (8) 6 Less: Reclassification adjustment for losses included in net income (147) (23) -- -- Associated amortization of DAC, VOBA, DSI, DFEL and changes in other contract holder funds 51 4 (2) -- Income tax benefit 34 7 1 -- ----- ---- ---- ---- Balance at end-of-period $(211) $ (8) $ 14 $ 3 ===== ==== ==== ==== UNREALIZED GAINS ON DERIVATIVE INSTRUMENTS Balance at beginning-of-period $ 1 $ -- $ -- $ -- Other comprehensive income (loss): Unrealized holding gains arising during the year -- 5 -- -- Change in DAC, VOBA and other contract holder funds -- (3) -- -- Income tax expense -- (1) -- -- ----- ---- ---- ---- Balance at end-of-period $ 1 $ 1 $ -- $ -- ===== ==== ==== ====
14. REALIZED LOSS Details underlying realized loss (in millions) reported on our Statements of Income were as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Total realized loss on investments and certain derivative instruments, excluding trading securities(1) $(96) $(19) $(1) $-- Loss on certain reinsurance derivative/trading securities(2) (1) -- -- -- Guaranteed living benefits: Gross -- (11) -- -- Associated amortization expense of DAC, VOBA, DSI and DFEL (1) 5 -- -- ---- ---- --- --- Total realized loss $(98) $(25) $(1) $-- ==== ==== === ===
---------- (1) See "Realized Loss Related to Investments" section in Note 4 for detail. (2) Represents changes in the fair value of total return swaps (embedded derivatives) related to various modified coinsurance and coinsurance with funds withheld reinsurance arrangements that have contractual returns related to various assets and liabilities associated with these arrangements. Changes in the fair value of these derivatives are offset by the change in fair value of trading securities in the portfolios that support these arrangements. S-28 15. UNDERWRITING, ACQUISITION, INSURANCE AND OTHER EXPENSES Details underlying underwriting, acquisition, insurance and other expenses (in millions) were as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Commissions $ 84 $100 $ 67 $ 4 General and administrative expenses 66 64 38 4 DAC and VOBA deferrals and interest, net of amortization (10) (46) (34) (4) Taxes, licenses and fees 16 10 6 2 ---- ---- ---- --- Total $156 $128 $ 77 $ 6 ==== ==== ==== ===
16. PENSION, HEALTH CARE AND LIFE INSURANCE BENEFIT PLANS LNC maintains qualified funded defined benefit pension plans in which many of our employees, including those of LLANY, are participants. LNC also maintains non-qualified, unfunded defined benefit pension plans for certain employees, and certain employees and certain retired employees of acquired companies. In addition, for certain employees LNC has supplemental retirement plans that provide defined pension benefits in excess of limits imposed by federal tax law. All of LNC's U.S. defined benefit pension plans were "frozen" as of either December 31, 1994, or December 31, 2007, or earlier. For their frozen plans, there are no new participants and no future accruals of benefits from the date of the freeze. The eligibility requirements for each plan are described in each plan document and vary for each plan based on completion of a specified period of continuous service or date of hire, subject to age limitations. The frozen pension plan benefits are calculated either on a traditional or cash balance formula. Those formulas are based upon years of credited service and eligible earnings as defined in each plan document. The traditional formula provides benefits stated in terms of a single life annuity payable at age 65. Under the cash balance formula benefits are stated as a lump sum hypothetical account balance. That account balance equals the sum of the employee's accumulated annual benefit credits plus interest credits. Benefit credits, which are based on years of service and base salary plus bonus, ceased as of the date the plan was frozen. Interest credits continue until the employee's benefit is paid. LNC also sponsors voluntary employees' beneficiary association ("VEBA") trust that provides postretirement medical, dental and life insurance benefits to retired full-time employees and agents who, depending on the plan, have worked for us for 10 years and attained age 55 (age 60 for agents). VEBAs are a special type of tax-exempt trust used to provide employee benefits and also are subject to preferential tax treatment under the Internal Revenue Code. Medical and dental benefits are available to spouses and other eligible dependents of retired employees and agents. Retirees may be required to contribute toward the cost of these benefits. Eligibility and the amount of required contribution for these benefits varies based upon a variety of factors incluing years of service and year of retirement. Effective January 1, 2008, the postretirement plan providing benefits to former employees of Jefferson-Pilot was amended such that only employees who had attained age 55 with a minimum of 10 years of service by December 31, 2007, and who later retire on or after age 60 with 15 years of service will be eligible to receive life insurance benefits when they retire. 17. 401(k), MONEY PURCHASE AND PROFIT SHARING PLANS LNC sponsors a contributory defined contribution plan or a 401(k) plan for our eligible employees, including those of LLANY. LNL sponsors a number of contributory defined plans for agents only, including those of LLANY. These plans include a 401(k) plan for eligible agents and a defined contribution money purchase plan for eligible agents of the former Jefferson-Pilot. LNL also sponsors a money purchase plan for LNL agents that was frozen in 2004. LNC makes contributions and matching contributions to each of the active plans in accordance with the plan document and various limitations under Section 401(a) of the Internal Revenue Code of 1986, as amended. S-29 The expenses (in millions) for the 401(k) and profit sharing plans were as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Total expenses for the 401(k) and profit sharing plans $2 $1 $-- $--
DEFERRED COMPENSATION PLANS LNC sponsors the Deferred Compensation & Supplemental/Excess Retirement Plan (the "DC SERP") for certain U.S. employees, including those of LLANY, and deferred compensation plans for certain agents, including those of LLANY. THE DEFERRED COMPENSATION PLAN FOR CERTAIN U.S. EMPLOYEES Certain U.S. employees may participate in the DC SERP. All participants may elect to defer payment of a portion of their compensation as defined by the plan. DC SERP participants may select from a menu of "phantom" investment options (identical to those offered under our qualified savings plans) used as investment measures for calculating the investment return notionally credited to their deferrals. Under the terms of the DC SERP, LNC agrees to pay out amounts based upon the aggregate performance of the investment measures selected by the participant. LNC makes matching contributions to these plans based upon amounts placed into the deferred compensation plans by individuals after participants have exceeded applicable limits of the Internal Revenue Code. The amount of our contribution is calculated in accordance with the plan document, which is similar to our 401(k) plans. Our expense for these plans was not significant for the years ended December 31, 2008, 2007 and 2006. The terms of the DC SERP provide that plan participants who select our stock as the measure for their investment return will receive shares of LNC stock in settlement of this portion of their accounts at the time of distribution. In addition, participants are precluded from diversifying any portion of their deferred compensation plan account that has been credited to the stock unit fund. Consequently, changes in value of our stock do not affect the expenses associated with this portion of the deferred compensation plan. DEFERRED COMPENSATION PLANS FOR CERTAIN AGENTS LNC also sponsors a deferred compensation plan for certain eligible agents. Plan participants receive contributions based on their earnings. Plan participants may select from a menu of "phantom" investment options used as investment measures for calculating the investment return notionally credited to their deferrals. Under the terms of these plans, LNC agrees to pay out amounts based upon the aggregate performance of the investment measures selected by the participant. LLANY agents invest in phantom investments that mirror those offered to qualified plan participants. Jefferson-Pilot agents invest in a different line up of "phantom" investments. Our expense for these plans was not significant for the years ended December 31, 2008, 2007 and 2006. 18. STOCK-BASED INCENTIVE COMPENSATION PLANS Our employees are included in LNC's various incentive plans that provide for the issuance of stock options, stock incentive awards, stock appreciation rights ("SARs"), restricted stock awards, performance shares (performance-vested shares as opposed to time-vested shares) and deferred stock units - also referred to as "restricted stock units." LNC has a policy of issuing new shares to satisfy option exercises. Total compensation expense for stock-based awards to our employees was not material for the years ended December 31, 2008, 2007 and 2006. 19. STATUTORY INFORMATION AND RESTRICTIONS We prepare financial statements in accordance with SAP prescribed or permitted by the New York Department of Insurance, which may vary materially from GAAP. Prescribed SAP includes the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners ("NAIC") as well as state laws, regulations and administrative rules. Permitted SAP encompasses all accounting practices not so prescribed. The principal differences between statutory financial statements and financial statements prepared in accordance with GAAP are that statutory financial statements do not reflect DAC, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contract holder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. Specified statutory information (in millions) was as follows: AS OF DECEMBER 31, ------------------ 2008 2007 ---- ---- Capital and surplus $795 $833 S-30 PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Net loss $(95) $(188) $(26) $(1) Our state of domicile, New York, has adopted a certain prescribed accounting practice that differs from those found in NAIC SAP. This prescribed practice is the use of continuous Commissioners Annuity Reserve Valuation Method ("CARVM") in the calculation of reserves. We also have several accounting practices permitted by our state of domicile that differ from those found in NAIC SAP. Specifically, these are the use of a more conservative valuation interest rate on certain annuities as of December 31, 2008 and 2007, the use of less conservative mortality tables on certain life insurance products as of December 31, 2008. The effects on statutory surplus compared to NAIC statutory surplus from the use of these prescribed and permitted practices (in millions) were as follows: AS OF DECEMBER 31, ------------------ 2008 2007 ---- ---- Calculation of reserves using continuous CARVM $(10) $(10) A new statutory reserving standard (commonly called "VACARVM") has been developed by the NAIC replacing current statutory reserve practices for variable annuities with guaranteed benefits, such as GWBs. The effective date for VACARVM is December 31, 2009. Based upon the level of variable annuity account values as of December 31, 2008, we estimate that VACARVM would have decreased our statutory capital by $40 to $60 million. The actual impact of the adoption will be dependent upon account values and conditions that exist as of December 31, 2009. We plan to utilize existing affiliate reinsurance structures, as well as pursue additional third-party reinsurance arrangements, to lessen any negative impact on statutory capital and dividend capacity. However, additional statutory reserves could lead to lower risk-based capital ("RBC") ratios and potentially reduce future dividend capacity from our insurance subsidiaries. Prior to 2007, JPLA and predecessor LLANY prepared and filed separate statutory basis financial statements with the Insurance Departments of their states of domicile, New Jersey and New York, respectively. JPLA was redomiciled from New Jersey to New York, and predecessor LLANY was merged with and into JPLA in April 2007 and renamed LLANY. LLANY is subject to certain insurance department regulatory restrictions as to the transfer of funds and the payment of dividends to LNL. Dividends cannot be declared by state of New York life insurance companies without 30-day notice to the Superintendent, who may disapprove. Dividends are paid as declared by its Board of Directors. Within these limitations, there are no restrictions placed on the portion of company profits that may be paid as ordinary dividends to stockholders. No dividends were declared in 2008 or 2007. We expect we could pay dividends of approximately $13 million in 2009 after approval from the Superintendent. However, if current conditions do not improve we believe this dividend capacity will decline. 20. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and estimated fair values of our financial instruments (in millions) were as follows:
AS OF DECEMBER 31, --------------------------------------------------------- 2008 2007 --------------------------- --------------------------- CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE -------------- ---------- -------------- ---------- ASSETS Available-for-sale securities: Fixed maturities $ 5,159 $ 5,159 $ 5,759 $ 5,759 Equity 2 2 2 2 Mortgage loans on real estate 294 285 260 266 Other investments 2 2 3 3 Cash and invested cash 55 55 129 129 Separate account assets 1,690 1,690 2,284 2,284 LIABILITIES Future contract benefits: Remaining guaranteed interest and similar contracts -- -- (46) (46) Embedded derivative instruments -- living benefits (liabilities) contra liabilities (124) (124) (12) (12) Other contract holder funds: Account value of certain investment contracts (1,171) (1,287) (1,240) (1,213) Reinsurance related derivative liabilities (1) (1) -- --
S-31 See Note 1 for discussion of the methodologies and assumptions used to determine the fair value of financial instruments carried at fair value. The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments. MORTGAGE LOANS ON REAL ESTATE The fair value of mortgage loans on real estate is established using a discounted cash flow method based on credit rating, maturity and future income. The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt service coverage, loan to value, quality of tenancy, borrower and payment record. The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's market price, or the fair value of the collateral if the loan is collateral dependent. OTHER INVESTMENTS AND CASH AND INVESTED CASH The carrying value of our assets classified as other investments and cash and invested cash on our Balance Sheets approximates their fair value. Other investments include limited partnership and other privately held investments that are accounted for using the equity method of accounting. FUTURE CONTRACT BENEFITS AND OTHER CONTRACT HOLDER FUNDS Future contract benefits and other contract holder funds on our Balance Sheets include account values of investment contracts and certain guaranteed interest contracts. The fair value of the investment contracts is based on their approximate surrender value at the balance sheet date. The fair value for the remaining guaranteed interest and similar contracts are estimated using discounted cash flow calculations at the balance sheet date. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE See "Summary of Significant Accounting Policies" in Note 1 and "SFAS 157 - FAIR VALUE MEASUREMENTS" in Note 2 for discussions of the methodologies and assumptions used to determine the fair value of our financial instruments carried at fair value. The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the SFAS 157 fair value hierarchy levels described in Note 2:
AS OF DECEMBER 31, 2008 ----------------------------------------------- QUOTED PRICES IN ACTIVE MARKETS FOR SIGNIFICANT SIGNIFICANT IDENTICAL OBSERVABLE UNOBSERVABLE TOTAL ASSETS INPUTS INPUTS FAIR (LEVEL 1) (LEVEL 2) (LEVEL 3) VALUE --------- ----------- ------------ ------ ASSETS Investments: Available-for-sale securities: Fixed maturities $40 $4,832 $ 287 $5,159 Equity 2 -- -- 2 Cash and invested cash -- 55 -- 55 Separate account assets -- 1,690 -- 1,690 --- ------ ----- ------ Total assets $42 $6,577 $ 287 $6,906 === ====== ===== ====== LIABILITIES Future contract benefits: Embedded derivative instruments -- living benefits liabilities $-- $ -- $(124) $ (124) Reinsurance related derivative assets -- (1) -- (1) --- ------ ----- ------ Total liabilities $-- $ (1) $(124) $ (125) === ====== ===== ======
We did not have any assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2008. S-32 The following table summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. This information excludes any impact of amortization on DAC, VOBA, DSI and DFEL. When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. Certain securities trade in less liquid or illiquid markets with limited or no pricing information, and the determination of fair value for these securities is inherently more difficult. However, Level 3 fair value investments may include, in addition to the unobservable or Level 3 inputs, observable components (that is, components that are actively quoted or can be validated to market-based sources). The gains and losses in the table below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.
FOR THE YEAR ENDED DECEMBER 31, 2008 ------------------------------------------------------------------- SALES, TRANSFERS ITEMS PURCHASES, IN OR BEGINNING INCLUDED GAINS MATURITIES, OUT OF ENDING FAIR IN NET (LOSSES) SETTLEMENTS, LEVEL 3, FAIR VALUE INCOME IN OCI CALLS, NET NET(1) VALUE --------- -------- -------- ------------ --------- ------ Investments: Available-for-sale securities: Fixed maturities $372 $ (20) $(51) $(12) $(2) $ 287 Future contract benefits: Embedded derivative instruments -- living benefits liabilities (17) (100) -- (7) -- (124) ---- ----- ---- ---- --- ----- Total, net $355 $(120) $(51) $(19) $(2) $ 163 ==== ===== ==== ==== === =====
---------- (1) Transfers in or out of Level 3 for available-for-sale and trading securities are displayed at amortized cost at the beginning of the period. For available-for-sale securities, the difference between beginning of period amortized cost and beginning of period fair value was included in OCI and earnings, respectively, in prior periods. The following table provides the components of the items included in net income, excluding any impact of amortization on DAC, VOBA, DSI and DFEL and changes in future contract benefits, (in millions) as reported in the table above:
FOR THE YEAR ENDED DECEMBER 31, 2008 ---------------------------------------------------------------- GAINS (LOSSES) FROM OTHER- SALES, UNREALIZED (AMORTIZATION) THAN- MATURITIES, HOLDING ACCRETION, TEMPORARY SETTLEMENTS, GAINS NET IMPAIRMENT CALLS (LOSSES)(3) TOTAL -------------- ---------- ------------ ----------- ----- Investments: Available-for-sale securities: Fixed maturities(1) $2 $(22) $-- $ -- $ (20) Future contract benefits: Embedded derivative instruments -- living benefits liabilities(2) -- -- -- (100) (100) --- ---- --- ----- ----- Total, net $2 $(22) $-- $(100) $(120) === ==== === ===== =====
---------- (1) Amortization and accretion, net and unrealized holding losses are included in net investment income on our Statements of Income. All other amounts are included in realized loss on our Statements of Income. (2) All amounts are included in realized loss on our Statements of Income. (3) This change in unrealized gains or losses relates to assets and liabilities that we still held as of December 31, 2008. S-33 The fair value of available-for-sale fixed maturity securities (in millions) classified within Level 3 of the fair value hierarchy was as follows: AS OF DECEMBER 31, 2008 ----------------------- FAIR % OF TOTAL VALUE FAIR VALUE ----- ---------- Corporate bonds $114 39.7% Asset-backed securities 19 6.6% Commercial mortgage-backed securities 42 14.6% Collateralized mortgage obligations 22 7.7% Municipals 37 12.9% Government and government agencies 47 16.4% Redeemable preferred stock 6 2.1% ---- ----- Total fixed maturity available-for-sale securities $287 100.0% ==== ===== AS OF DECEMBER 31, 2007 ----------------------- FAIR % OF TOTAL VALUE FAIR VALUE ----- ---------- Corporate bonds $119 32.0% Asset-backed securities 62 16.7% Commercial mortgage-backed securities 60 16.1% Collateralized mortgage obligations 42 11.3% Municipals 38 10.2% Government and government agencies 51 13.7% ---- ----- Total fixed maturity available-for-sale securities $372 100.0% ==== ===== 21. SEGMENT INFORMATION On July 21, 2008, we announced the realignment of our segments under our former Employer Markets and Individual Markets operating businesses into two new operating businesses - Retirement Solutions and Insurance Solutions. We believe the new structure more closely aligns with consumer needs and should lead to more coordinated product development and greater effectiveness across the enterprise. The segment changes are in accordance with the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," and reflect the manner in which we are organized for purposes of making operating decisions and assessing performance. Accordingly, we have restated results from prior periods in a consistent manner with our realigned segments. Under our newly realigned segments, we report the results of the Executive Benefits business, which as of June 30, 2008, was part of the Retirement Products segment, in the Life Insurance segment. We do not view these changes to our segment reporting as material to our financial statements. We provide products and services in two operating businesses: Retirement Solutions and Insurance Solutions, and report results through four business segments. We also have Other Operations, which includes the financial data for operations that are not directly related to the business segments. Our reporting segments reflect the manner by which our chief operating decision makers view and manage the business. The following is a brief description of these segments and Other Operations. RETIREMENT SOLUTIONS The Retirement Solutions business provides its products through two segments: Annuities and Defined Contribution. The Retirement Solutions - Annuities segment provides tax-deferred investment growth and lifetime income opportunities for its clients by offering individual fixed annuities, including indexed annuities and variable annuities. The Retirement Solutions - Defined Contribution segment provides employer-sponsored variable and fixed annuities and mutual-fund based programs in the 401(k), 403(b) and 457 marketplaces. INSURANCE SOLUTIONS The Insurance Solutions business provides its products through two segments: Life Insurance and Group Protection. The Insurance Solutions - Life Insurance segment offers wealth protection and transfer opportunities through term insurance, a linked-benefit product (which is a UL policy linked with riders that provide for long-term care costs) and both single and survivorship versions of UL and VUL, including corporate-owned UL and VUL insurance and bank-owned UL and VUL insurance products. The Insurance Solutions - Group Protection segment offers group life, disability and dental insurance to employers, and its products are marketed primarily through a national distribution system of regional group offices. These offices develop business through employee benefit brokers, third-party administrators and other employee benefit firms. OTHER OPERATIONS Other Operations includes investments related to excess capital, other corporate investments and benefit plan net assets. Beginning with the quarter ended June 30, 2008, we changed our definitions of segment operating revenues and income from operations to better reflect: the underlying economics of our variable and indexed annuities that employ derivative instruments to hedge policy benefits; and the manner in which management evaluates that business. Our change in the definition of income from operations is primarily the result of our S-34 adoption of SFAS 157 during the first quarter of 2008 (see Note 2). Under the fair value measurement provisions of SFAS 157, we are required to measure the fair value of these annuities from an "exit price" perspective, (i.e., the exchange price between market participants to transfer the liability). We, therefore, must include margins that a market participant buyer would require as well as a factor for non-performance risk related to our credit quality. We do not believe that these factors relate to the economics of the underlying business and do not reflect the manner in which management evaluates the business. The items that are now excluded from our operating results that were previously included are as follows: GLB net derivatives results; indexed annuity forward-starting option; and GDB derivatives results. For more information regarding this change, see LNC's current report on Form 8-K dated July 16, 2008. We continue to exclude the effects of any realized gain (loss) on investments from segment operating revenues and income from operations as we believe that such items are not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in many instances, decisions regarding these items do not necessarily relate to the operations of the individual segments. We believe that our new definitions of operating revenues and income (loss) from operations will provide investors with a more valuable measure of our performance because it better reveals trends in our business. Segment operating revenues and income (loss) from operations are internal measures used by our management and Board of Directors to evaluate and assess the results of our segments. Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable: - Realized gains and losses associated with the following ("excluded realized gain (loss)"): - Sale or disposal of securities; - Impairments of securities; - Change in the fair value of embedded derivatives within certain reinsurance arrangements and the change in the fair value of related trading securities; - Change in the fair value of the embedded derivatives of our GLBs within our variable annuities net of the change in the fair value of the derivatives we own to hedge the changes in the embedded derivative; - Net difference between the benefit ratio unlocking of SOP 03-1 reserves on our GDB riders within our variable annuities and the change in the fair value of the derivatives excluding our expected cost of purchasing the hedging instruments; and - Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products as required under SFAS 133 and 157. - Income (loss) from the initial adoption of changes in accounting principles; - Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance; - Losses on early retirement of debt, including subordinated debt; - Losses from the impairment of intangible assets; and - Income (loss) from discontinued operations. Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable: - Excluded realized gain (loss); - Amortization of deferred gains arising from the reserve changes on business sold through reinsurance; and - Revenue adjustments from the initial impact of the adoption of changes in accounting principles. Operating revenues and income (loss) from operations do not replace revenues and net income as the GAAP measures of our results of operations. S-35 Segment information (in millions) was as follows:
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- REVENUES Operating revenues: Retirement Solutions: Annuities $ 96 $110 $ 64 $12 Defined Contribution 52 54 40 -- ----- ---- ---- --- Total Retirement Solutions 148 164 104 12 ----- ---- ---- --- Insurance Solutions: Life Insurance 531 481 152 12 Group Protection 39 29 15 4 ----- ---- ---- --- Total Insurance Solutions 570 510 167 16 ----- ---- ---- --- Other Operations 25 19 6 1 Excluded realized gain (loss), pre-tax (100) (25) (1) -- ----- ---- ---- --- Total revenues $ 643 $668 $276 $29 ===== ==== ==== ===
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- NET INCOME Income (loss) from operations: Retirement Solutions: Annuities $ 3 $ 19 $13 $ 1 Defined Contribution 4 3 2 -- ---- ---- --- --- Total Retirement Solutions 7 22 15 1 ---- ---- --- --- Insurance Solutions: Life Insurance 75 82 21 2 Group Protection 2 1 2 -- ---- ---- --- --- Total Insurance Solutions 77 83 23 2 ---- ---- --- --- Other Operations 17 13 4 -- Excluded realized gain (loss), after-tax (65) (16) -- -- ---- ---- --- --- Net income $ 36 $102 $42 $ 3 ==== ==== === ===
S-36
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- NET INVESTMENT INCOME Retirement Solutions: Annuities $ 57 $ 58 $ 45 $12 Defined Contribution 48 49 37 -- ---- ---- ---- --- Total Retirement Solutions 105 107 82 12 ---- ---- ---- --- Insurance Solutions: Life Insurance 262 233 75 6 Group Protection 3 2 1 -- ---- ---- ---- --- Total Insurance Solutions 265 235 76 6 ---- ---- ---- --- Other Operations 25 19 3 1 ---- ---- ---- --- Total net investment income $395 $361 $161 $19 ==== ==== ==== ===
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- AMORTIZATION OF DAC AND VOBA, NET OF INTEREST Retirement Solutions: Annuities $ 31 $12 $ 8 $ 1 Defined Contribution 5 5 4 -- ---- --- --- --- Total Retirement Solutions 36 17 12 1 ---- --- --- --- Insurance Solutions: Life Insurance 51 49 25 1 Group Protection 1 1 -- -- ---- --- --- --- Total Insurance Solutions 52 50 25 1 ---- --- --- --- Other Operations -- -- -- -- ---- --- --- --- Total amortization of DAC and VOBA, net of interest $ 88 $67 $37 $ 2 ==== === === ===
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- FEDERAL INCOME TAX EXPENSE (BENEFIT) Retirement Solutions: Annuities $ (3) $ 7 $ 5 $ 1 Defined Contribution 2 1 1 -- ---- --- --- --- Total Retirement Solutions (1) 8 6 1 ---- --- --- --- Insurance Solutions: Life Insurance 40 45 11 1 Group Protection 1 1 1 -- ---- --- --- --- Total Insurance Solutions 41 46 12 1 ---- --- --- --- Other Operations 9 7 1 -- Realized loss (35) (9) -- -- ---- --- --- --- Total federal income tax expense $ 14 $52 $19 $ 2 ==== === === ===
S-37 AS OF DECEMBER 31, ------------------ 2008 2007 ------ ------- ASSETS Retirement Solutions: Annuities $2,632 $ 3,059 Defined Contribution 1,055 1,267 ------ ------- Total Retirement Solutions 3,687 4,326 ------ ------- Insurance Solutions: Life Insurance 5,671 5,561 Group Protection 57 5 ------ ------- Total Insurance Solutions 5,728 5,566 ------ ------- Other Operations 266 584 ------ ------- Total $9,681 $10,476 ====== ======= 22. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION The following summarizes our supplemental cash flow data (in millions):
PERIOD FROM PERIOD FROM FOR THE FOR THE APRIL 3 JANUARY 1 YEAR ENDED YEAR ENDED THROUGH THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, APRIL 2, 2008 2007 2006 2006 ------------ ------------ ------------ ----------- Income taxes paid (received) $40 $ (7) $11 $ (3) === ======= === ======= Significant non-cash investing and financing transactions: Business combinations: Fair value of assets acquired (includes cash and invested cash) $-- $ (1) $-- $ 1,482 Fair value of liabilities assumed -- -- -- (1,249) --- ------- --- ------- Total purchase price $-- $ (1) $-- $ 233 === ======= === ======= Sale of stockholder's equity: Carrying value of assets $-- $ -- $-- $ 1,447 Carrying value of liabilities -- -- -- (1,236) --- ------- --- ------- Total sale of stockholder's equity $-- $ -- $-- $ 211 === ======= === ======= Reinsurance assumption from LNL: Assets contributed $-- $ 3,488 $-- $ -- Liabilities contributed -- (2,784) -- -- --- ------- --- ------- Total capital contribution $-- $ 704 $-- $ -- === ======= === =======
S-38 23. TRANSACTIONS WITH AFFILIATES Transactions with affiliates (in millions) recorded on our financial statements were as follows: AS OF DECEMBER 31, ------------------ 2008 2007 ---- ---- Assets with affiliates: Service agreement receivable(1) $ 1 $(18) Liabilities with affiliates: Reinsurance future contract benefits on ceded reinsurance contracts(2) 107 34 FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 2008 2007 2006 Revenues with affiliates: ---- ---- ---- Premiums paid on ceded reinsurance contracts(3) $(15) $(12) $(6) Fees for management of general account(4) (4) (4) (1) Benefits and expenses with affiliates: Service agreement payments(5) 59 54 20 ---------- (1) Reported in other assets on our Balance Sheets. (2) Reported in future contract benefits on our Balance Sheets. (3) Reported in insurance premiums on our Statements of Income. (4) Reported in net investment income on our Statement of Income. (5) Reported in underwriting, acquisition, insurance and other expenses on our Statements of Income. SERVICE AGREEMENT In accordance with service agreements with LNL and certain of its affiliates for personnel and facilities usage, general management services and investment management services, we receive services from and provide services to affiliated companies and also receive an allocation of corporate overhead from LNC. Corporate overhead expenses are assigned based on specific methodologies for each function. The majority of the expenses are assigned based on the following methodologies: assets by product, assets under management, weighted number of policy applications, weighted policies in force, and sales. FEES FOR MANAGEMENT OF GENERAL ACCOUNT Delaware Management Holdings Inc. ("DMH"), a wholly owned subsidiary of LNC, is responsible for the management of our general account investments. CEDED REINSURANCE CONTRACTS We cede business to two affiliated companies, LNL and Lincoln National Reinsurance Company (Barbados) Ltd. SENIOR PROMISSORY NOTE As of December 31, 2008 and 2007, we held no securities of LNC or its affiliates. As of December 31, 2006, we held an LNC Senior Promissory Note with a carrying amount of $6 million, which matured in 2007 and bore an interest rate of 5.25%. S-39 LINCOLN NEW YORK ACCOUNT N FOR VARIABLE ANNUITIES N-1 LINCOLN NEW YORK ACCOUNT N FOR VARIABLE ANNUITIES STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2008
MORTALITY & EXPENSE CONTRACT CONTRACT GUARANTEE PURCHASES REDEMPTIONS CHARGES DUE FROM DUE TO PAYABLE TO LINCOLN LIFE & LINCOLN LIFE & LINCOLN LIFE & ANNUITY ANNUITY ANNUITY COMPANY COMPANY COMPANY SUBACCOUNT INVESTMENTS OF NEW YORK TOTAL ASSETS OF NEW YORK OF NEW YORK NET ASSETS ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Capital Appreciation $ 181,183 $ -- $ 181,183 $ -- $ 7 $ 181,176 AIM V.I. Capital Appreciation Class II 80,201 -- 80,201 -- 3 80,198 AIM V.I. Core Equity 560,751 -- 560,751 -- 22 560,729 AIM V.I. Core Equity Class II 36,380 -- 36,380 -- 1 36,379 AIM V.I. International Growth 178,498 -- 178,498 -- 7 178,491 AIM V.I. International Growth Class II 171,189 -- 171,189 -- 7 171,182 ABVPSF Global Technology Class B 1,422,189 -- 1,422,189 -- 63 1,422,126 ABVPSF Growth and Income Class B 6,545,920 -- 6,545,920 42 285 6,545,593 ABVPSF International Value Class B 6,298,703 -- 6,298,703 90 285 6,298,328 ABVPSF Large Cap Growth Class B 802,643 -- 802,643 -- 34 802,609 ABVPSF Small/Mid Cap Value Class B 3,564,962 -- 3,564,962 15 156 3,564,791 American Century VP Inflation Protection Class 2 16,553,309 69,495 16,622,804 -- 727 16,622,077 American Funds Global Growth Class 2 11,333,195 3,571 11,336,766 -- 526 11,336,240 American Funds Global Small Capitalization Class 2 7,814,669 -- 7,814,669 714 352 7,813,603 American Funds Growth Class 2 65,532,892 -- 65,532,892 19,567 2,929 65,510,396 American Funds Growth-Income Class 2 65,118,329 -- 65,118,329 33,803 2,920 65,081,606 American Funds International Class 2 32,606,519 2,186 32,608,705 -- 1,469 32,607,236 Delaware VIPT Capital Reserves Service Class 1,855,057 -- 1,855,057 -- 81 1,854,976 Delaware VIPT Diversified Income Service Class 19,411,338 -- 19,411,338 233 857 19,410,248 Delaware VIPT Emerging Markets Service Class 8,986,677 -- 8,986,677 705 404 8,985,568 Delaware VIPT High Yield 628,732 -- 628,732 -- 24 628,708 Delaware VIPT High Yield Service Class 8,670,991 -- 8,670,991 50 373 8,670,568 Delaware VIPT REIT 756,348 -- 756,348 -- 28 756,320 Delaware VIPT REIT Service Class 8,055,844 -- 8,055,844 4 347 8,055,493 Delaware VIPT Small Cap Value 880,307 -- 880,307 -- 33 880,274 Delaware VIPT Small Cap Value Service Class 11,839,392 -- 11,839,392 155 534 11,838,703 Delaware VIPT Trend 401,932 -- 401,932 -- 15 401,917 Delaware VIPT Trend Service Class 2,905,390 -- 2,905,390 10,080 128 2,895,182 Delaware VIPT U.S. Growth Service Class 1,437,519 -- 1,437,519 14 61 1,437,444 Delaware VIPT Value 316,043 -- 316,043 -- 12 316,031 Delaware VIPT Value Service Class 6,481,819 -- 6,481,819 12 284 6,481,523 DWS VIP Equity 500 Index 2,872,961 -- 2,872,961 -- 121 2,872,840 DWS VIP Equity 500 Index Service Class 3,199,167 29 3,199,196 -- 139 3,199,057 DWS VIP Small Cap Index 674,509 -- 674,509 18 27 674,464 DWS VIP Small Cap Index Service Class 1,833,565 -- 1,833,565 -- 84 1,833,481 Fidelity VIP Contrafund Service Class 2 26,184,193 6,508 26,190,701 -- 1,182 26,189,519 Fidelity VIP Equity-Income 667,708 -- 667,708 -- 25 667,683 Fidelity VIP Equity-Income Service Class 2 2,067,374 -- 2,067,374 5 88 2,067,281 Fidelity VIP Growth 193,974 -- 193,974 -- 7 193,967 Fidelity VIP Growth Service Class 2 2,239,474 -- 2,239,474 1,502 96 2,237,876 Fidelity VIP Mid Cap Service Class 2 11,953,448 4,664 11,958,112 -- 536 11,957,576 Fidelity VIP Overseas 118,644 -- 118,644 -- 4 118,640 Fidelity VIP Overseas Service Class 2 3,816,374 -- 3,816,374 2 164 3,816,208 FTVIPT Franklin Income Securities Class 2 16,200,736 -- 16,200,736 275 737 16,199,724 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 5,416,108 -- 5,416,108 56 248 5,415,804 FTVIPT Mutual Shares Securities Class 2 10,808,485 -- 10,808,485 134 487 10,807,864 FTVIPT Templeton Global Income Securities Class 2 13,021,065 -- 13,021,065 45 592 13,020,428
See accompanying notes. N-2
MORTALITY & EXPENSE CONTRACT CONTRACT GUARANTEE PURCHASES REDEMPTIONS CHARGES DUE FROM DUE TO PAYABLE TO LINCOLN LIFE & LINCOLN LIFE & LINCOLN LIFE & ANNUITY ANNUITY ANNUITY COMPANY COMPANY COMPANY SUBACCOUNT INVESTMENTS OF NEW YORK TOTAL ASSETS OF NEW YORK OF NEW YORK NET ASSETS ------------------------------------------------------------------------------------------------------------------------------------ FTVIPT Templeton Growth Securities Class 2 $ 5,040,715 $ -- $ 5,040,715 $ 35 $ 226 $ 5,040,454 Janus Aspen Series Balanced Service Shares 924,295 10 924,305 -- 40 924,265 Janus Aspen Series Mid Cap Growth Service Shares 592,822 -- 592,822 -- 25 592,797 Janus Aspen Series Worldwide Growth Service Shares 16,489 -- 16,489 -- 1 16,488 Lincoln VIPT Baron Growth Opportunities Service Class 3,672,606 -- 3,672,606 143 167 3,672,296 Lincoln VIPT Capital Growth Service Class 558,180 -- 558,180 -- 24 558,156 Lincoln VIPT Cohen & Steers Global Real Estate Service Class 2,289,993 -- 2,289,993 5 99 2,289,889 Lincoln VIPT Columbia Value Opportunities Service Class 340,408 -- 340,408 -- 15 340,393 Lincoln VIPT Delaware Bond 14,988,387 -- 14,988,387 119 632 14,987,636 Lincoln VIPT Delaware Bond Service Class 31,293,698 5,369 31,299,067 -- 1,387 31,297,680 Lincoln VIPT Delaware Growth and Income Service Class 699,647 -- 699,647 -- 30 699,617 Lincoln VIPT Delaware Social Awareness 737,205 -- 737,205 -- 30 737,175 Lincoln VIPT Delaware Social Awareness Service Class 2,187,180 -- 2,187,180 24 90 2,187,066 Lincoln VIPT Delaware Special Opportunities Service Class 358,110 -- 358,110 -- 16 358,094 Lincoln VIPT FI Equity-Income Service Class 1,117,185 -- 1,117,185 -- 51 1,117,134 Lincoln VIPT Janus Capital Appreciation 121,274 -- 121,274 -- 5 121,269 Lincoln VIPT Janus Capital Appreciation Service Class 953,057 -- 953,057 3 43 953,011 Lincoln VIPT Marsico International Growth Service Class 1,283,650 -- 1,283,650 730 58 1,282,862 Lincoln VIPT MFS Value Service Class 2,386,873 6,437 2,393,310 -- 104 2,393,206 Lincoln VIPT Mid-Cap Value Service Class 1,099,740 3,990 1,103,730 -- 50 1,103,680 Lincoln VIPT Mondrian International Value 2,168,727 -- 2,168,727 14,401 91 2,154,235 Lincoln VIPT Mondrian International Value Service Class 7,326,737 -- 7,326,737 17 325 7,326,395 Lincoln VIPT Money Market 10,008,399 77,379 10,085,778 -- 415 10,085,363 Lincoln VIPT Money Market Service Class 24,571,005 -- 24,571,005 79,096 1,103 24,490,806 Lincoln VIPT SSgA Bond Index Service Class 4,107,127 5,364 4,112,491 -- 177 4,112,314 Lincoln VIPT SSgA Developed International 150 Service Class 569,327 -- 569,327 -- 25 569,302 Lincoln VIPT SSgA Emerging Markets 100 Service Class 448,298 -- 448,298 -- 19 448,279 Lincoln VIPT SSgA International Index Service Class 686,300 -- 686,300 -- 29 686,271 Lincoln VIPT SSgA Large Cap 100 Service Class 1,151,040 -- 1,151,040 -- 50 1,150,990 Lincoln VIPT SSgA S&P 500 Index 230,938 -- 230,938 -- 9 230,929 Lincoln VIPT SSgA S&P 500 Index Service Class 5,327,424 -- 5,327,424 -- 226 5,327,198 Lincoln VIPT SSgA Small-Cap Index Service Class 1,868,967 -- 1,868,967 9 78 1,868,880 Lincoln VIPT SSgA Small-Mid Cap 200 Service Class 273,119 -- 273,119 -- 11 273,108 Lincoln VIPT T. Rowe Price Growth Stock Service Class 672,091 -- 672,091 -- 31 672,060
See accompanying notes. N-3
MORTALITY & EXPENSE CONTRACT CONTRACT GUARANTEE PURCHASES REDEMPTIONS CHARGES DUE FROM DUE TO PAYABLE TO LINCOLN LIFE & LINCOLN LIFE & LINCOLN LIFE & ANNUITY ANNUITY ANNUITY COMPANY COMPANY COMPANY SUBACCOUNT INVESTMENTS OF NEW YORK TOTAL ASSETS OF NEW YORK OF NEW YORK NET ASSETS ------------------------------------------------------------------------------------------------------------------------------------ Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth $ 68,300 $-- $ 68,300 $ -- $ 3 $ 68,297 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class 930,755 -- 930,755 5 42 930,708 Lincoln VIPT Templeton Growth Service Class 2,478,583 -- 2,478,583 21 112 2,478,450 Lincoln VIPT Turner Mid-Cap Growth Service Class 697,807 -- 697,807 719 32 697,056 Lincoln VIPT UBS Global Asset Allocation 395,678 -- 395,678 -- 16 395,662 Lincoln VIPT UBS Global Asset Allocation Service Class 2,778,058 -- 2,778,058 -- 123 2,777,935 Lincoln VIPT Wilshire 2010 Profile Service Class 499,536 -- 499,536 -- 24 499,512 Lincoln VIPT Wilshire 2020 Profile Service Class 237,165 -- 237,165 -- 12 237,153 Lincoln VIPT Wilshire 2030 Profile Service Class 356,023 -- 356,023 -- 15 356,008 Lincoln VIPT Wilshire 2040 Profile Service Class 109,947 -- 109,947 -- 5 109,942 Lincoln VIPT Wilshire Aggressive Profile Service Class 2,576,272 -- 2,576,272 -- 113 2,576,159 Lincoln VIPT Wilshire Conservative Profile Service Class 5,123,965 -- 5,123,965 -- 229 5,123,736 Lincoln VIPT Wilshire Moderate Profile Service Class 26,821,553 -- 26,821,553 1,175 1,158 26,819,220 Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class 11,503,835 -- 11,503,835 59 516 11,503,260 MFS VIT Core Equity Service Class 76,059 -- 76,059 -- 3 76,056 MFS VIT Growth 142,584 -- 142,584 -- 6 142,578 MFS VIT Growth Service Class 199,976 -- 199,976 -- 8 199,968 MFS VIT Total Return 1,381,333 -- 1,381,333 -- 53 1,381,280 MFS VIT Total Return Service Class 12,219,288 -- 12,219,288 71 544 12,218,673 MFS VIT Utilities 656,046 -- 656,046 -- 25 656,021 MFS VIT Utilities Service Class 8,760,202 -- 8,760,202 1,701 390 8,758,111 NB AMT Mid-Cap Growth 3,961,818 -- 3,961,818 18 174 3,961,626 NB AMT Regency 4,097,242 -- 4,097,242 9 178 4,097,055 Putnam VT Growth & Income Class IB 71,889 -- 71,889 -- 3 71,886 Putnam VT Health Sciences Class IB 105,405 -- 105,405 -- 4 105,401
See accompanying notes. N-4 [THIS PAGE INTENTIONALLY LEFT BLANK] STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2008
DIVIDENDS FROM MORTALITY AND NET INVESTMENT EXPENSE INVESTMENT SUBACCOUNT INCOME GUARANTEE CHARGES INCOME (LOSS) ---------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation $ -- $ (4,259) $ (4,259) AIM V.I. Capital Appreciation Class II -- (1,801) (1,801) AIM V.I. Core Equity 16,159 (12,430) 3,729 AIM V.I. Core Equity Class II 899 (660) 239 AIM V.I. International Growth 1,543 (5,280) (3,737) AIM V.I. International Growth Class II 1,117 (4,276) (3,159) ABVPSF Global Technology Class B -- (32,992) (32,992) ABVPSF Growth and Income Class B 154,301 (141,965) 12,336 ABVPSF International Value Class B 81,252 (151,007) (69,755) ABVPSF Large Cap Growth Class B -- (21,907) (21,907) ABVPSF Small/Mid Cap Value Class B 18,379 (69,403) (51,024) American Century VP Inflation Protection Class 2 860,993 (281,246) 579,747 American Funds Global Growth Class 2 282,849 (240,625) 42,224 American Funds Global Small Capitalization Class 2 -- (208,204) (208,204) American Funds Growth Class 2 799,446 (1,544,799) (745,353) American Funds Growth-Income Class 2 1,562,918 (1,441,246) 121,672 American Funds International Class 2 905,168 (723,773) 181,395 Delaware VIPT Capital Reserves Service Class 69,746 (25,793) 43,953 Delaware VIPT Diversified Income Service Class 728,899 (321,067) 407,832 Delaware VIPT Emerging Markets Service Class 183,438 (230,080) (46,642) Delaware VIPT High Yield 123,360 (17,533) 105,827 Delaware VIPT High Yield Service Class 926,157 (175,399) 750,758 Delaware VIPT REIT 31,807 (17,888) 13,919 Delaware VIPT REIT Service Class 256,685 (197,504) 59,181 Delaware VIPT Small Cap Value 13,374 (21,657) (8,283) Delaware VIPT Small Cap Value Service Class 70,417 (254,805) (184,388) Delaware VIPT Trend -- (11,080) (11,080) Delaware VIPT Trend Service Class -- (72,406) (72,406) Delaware VIPT U.S. Growth Service Class -- (29,101) (29,101) Delaware VIPT Value 14,814 (6,560) 8,254 Delaware VIPT Value Service Class 233,057 (139,418) 93,639 DWS VIP Equity 500 Index 109,705 (67,339) 42,366 DWS VIP Equity 500 Index Service Class 101,256 (72,496) 28,760 DWS VIP Small Cap Index 17,454 (16,211) 1,243 DWS VIP Small Cap Index Service Class 36,959 (45,026) (8,067) Fidelity VIP Contrafund Service Class 2 301,420 (565,142) (263,722) Fidelity VIP Equity-Income 24,678 (16,628) 8,050 Fidelity VIP Equity-Income Service Class 2 70,100 (47,739) 22,361 Fidelity VIP Growth 2,486 (6,108) (3,622) Fidelity VIP Growth Service Class 2 21,237 (56,158) (34,921) Fidelity VIP Mid Cap Service Class 2 35,019 (240,582) (205,563) Fidelity VIP Overseas 4,623 (2,744) 1,879 Fidelity VIP Overseas Service Class 2 136,492 (87,047) 49,445 FTVIPT Franklin Income Securities Class 2 1,039,137 (313,856) 725,281 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 -- (121,437) (121,437) FTVIPT Mutual Shares Securities Class 2 426,727 (218,149) 208,578 FTVIPT Templeton Global Income Securities Class 2 413,642 (185,298) 228,344 FTVIPT Templeton Growth Securities Class 2 138,218 (125,235) 12,983 Janus Aspen Series Balanced Service Shares 23,171 (14,515) 8,656 Janus Aspen Series Mid Cap Growth Service Shares 588 (15,307) (14,719) Janus Aspen Series Worldwide Growth Service Shares 260 (416) (156) Lincoln VIPT Baron Growth Opportunities Service Class -- (73,023) (73,023) Lincoln VIPT Capital Growth Service Class -- (11,109) (11,109) Lincoln VIPT Cohen & Steers Global Real Estate Service Class 31,178 (38,076) (6,898) Lincoln VIPT Columbia Value Opportunities Service Class 644 (4,040) (3,396) Lincoln VIPT Delaware Bond 771,489 (290,062) 481,427 Lincoln VIPT Delaware Bond Service Class 1,461,911 (509,419) 952,492
See accompanying notes. N-6
TOTAL NET INCREASE NET DIVIDENDS NET NET CHANGE (DECREASE) REALIZED FROM REALIZED IN UNREALIZED IN NET ASSETS GAIN (LOSS) NET REALIZED GAIN (LOSS) APPRECIATION OR RESULTING ON GAIN ON ON DEPRECIATION FROM SUBACCOUNT INVESTMENTS INVESTMENTS INVESTMENTS ON INVESTMENTS OPERATIONS ------------------------------------------------------------------------------------------------------------------------------------ AIM V.I. Capital Appreciation $ (4,446) $ -- $ (4,446) $ (143,092) $ (151,797) AIM V.I. Capital Appreciation Class II (1,373) -- (1,373) (60,989) (64,163) AIM V.I. Core Equity 12,573 -- 12,573 (297,408) (281,106) AIM V.I. Core Equity Class II 219 -- 219 (16,773) (16,315) AIM V.I. International Growth 67,676 3,731 71,407 (256,769) (189,099) AIM V.I. International Growth Class II 23,124 3,246 26,370 (156,029) (132,818) ABVPSF Global Technology Class B (89,451) -- (89,451) (1,178,476) (1,300,919) ABVPSF Growth and Income Class B (373,649) 1,592,065 1,218,416 (5,896,098) (4,665,346) ABVPSF International Value Class B (472,297) 581,302 109,005 (6,678,925) (6,639,675) ABVPSF Large Cap Growth Class B (32,226) -- (32,226) (678,991) (733,124) ABVPSF Small/Mid Cap Value Class B (146,216) 432,864 286,648 (2,108,518) (1,872,894) American Century VP Inflation Protection Class 2 (187,316) -- (187,316) (1,171,687) (779,256) American Funds Global Growth Class 2 (221,053) 1,217,136 996,083 (8,002,619) (6,964,312) American Funds Global Small Capitalization Class 2 (549,227) 1,774,637 1,225,410 (10,080,505) (9,063,299) American Funds Growth Class 2 (1,477,069) 10,766,335 9,289,266 (60,445,882) (51,901,969) American Funds Growth-Income Class 2 (1,649,507) 5,888,400 4,238,893 (45,503,237) (41,142,672) American Funds International Class 2 (546,228) 6,099,201 5,552,973 (29,915,912) (24,181,544) Delaware VIPT Capital Reserves Service Class (40,904) -- (40,904) (54,539) (51,490) Delaware VIPT Diversified Income Service Class 3,381 266,623 270,004 (2,072,893) (1,395,057) Delaware VIPT Emerging Markets Service Class (71,865) 2,253,670 2,181,805 (11,654,378) (9,519,215) Delaware VIPT High Yield (67,483) -- (67,483) (327,334) (288,990) Delaware VIPT High Yield Service Class (392,793) -- (392,793) (3,400,174) (3,042,209) Delaware VIPT REIT (111,488) 494,296 382,808 (855,179) (458,452) Delaware VIPT REIT Service Class (1,350,396) 4,627,166 3,276,770 (7,853,398) (4,517,447) Delaware VIPT Small Cap Value 6,440 117,174 123,614 (597,715) (482,384) Delaware VIPT Small Cap Value Service Class (534,520) 1,016,428 481,908 (5,610,150) (5,312,630) Delaware VIPT Trend 26,408 168,844 195,252 (652,435) (468,263) Delaware VIPT Trend Service Class (153,240) 912,073 758,833 (3,320,509) (2,634,082) Delaware VIPT U.S. Growth Service Class 3,566 48,737 52,303 (1,107,382) (1,084,180) Delaware VIPT Value (18,903) 42,532 23,629 (226,930) (195,047) Delaware VIPT Value Service Class (444,906) 752,954 308,048 (3,994,040) (3,592,353) DWS VIP Equity 500 Index 100,540 -- 100,540 (2,085,031) (1,942,125) DWS VIP Equity 500 Index Service Class 1,918 -- 1,918 (2,071,905) (2,041,227) DWS VIP Small Cap Index (37,084) 110,988 73,904 (486,616) (411,469) DWS VIP Small Cap Index Service Class (156,367) 282,628 126,261 (1,186,633) (1,068,439) Fidelity VIP Contrafund Service Class 2 (1,417,276) 895,032 (522,244) (18,186,328) (18,972,294) Fidelity VIP Equity-Income (82,884) 1,385 (81,499) (547,117) (620,566) Fidelity VIP Equity-Income Service Class 2 (125,950) 3,230 (122,720) (1,537,428) (1,637,787) Fidelity VIP Growth 22,476 -- 22,476 (250,535) (231,681) Fidelity VIP Growth Service Class 2 (26,819) -- (26,819) (2,077,696) (2,139,436) Fidelity VIP Mid Cap Service Class 2 (461,595) 2,067,631 1,606,036 (8,802,575) (7,402,102) Fidelity VIP Overseas 29,228 29,902 59,130 (169,640) (108,631) Fidelity VIP Overseas Service Class 2 (129,199) 680,456 551,257 (3,716,619) (3,115,917) FTVIPT Franklin Income Securities Class 2 (830,412) 435,110 (395,302) (7,404,700) (7,074,721) FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 (207,401) 938,437 731,036 (4,474,383) (3,864,784) FTVIPT Mutual Shares Securities Class 2 (490,963) 606,948 115,985 (6,487,460) (6,162,897) FTVIPT Templeton Global Income Securities Class 2 33,524 -- 33,524 138,712 400,580 FTVIPT Templeton Growth Securities Class 2 (294,396) 544,665 250,269 (4,350,358) (4,087,106) Janus Aspen Series Balanced Service Shares 21,289 60,733 82,022 (260,874) (170,196) Janus Aspen Series Mid Cap Growth Service Shares 58,956 54,669 113,625 (598,444) (499,538) Janus Aspen Series Worldwide Growth Service Shares 578 -- 578 (16,866) (16,444) Lincoln VIPT Baron Growth Opportunities Service Class (97,211) 249,602 152,391 (2,201,597) (2,122,229) Lincoln VIPT Capital Growth Service Class (10,779) -- (10,779) (344,588) (366,476) Lincoln VIPT Cohen & Steers Global Real Estate Service Class (93,476) -- (93,476) (1,293,730) (1,394,104) Lincoln VIPT Columbia Value Opportunities Service Class (33,795) 156,610 122,815 (289,056) (169,637) Lincoln VIPT Delaware Bond (341,467) 6,841 (334,626) (1,038,063) (891,262) Lincoln VIPT Delaware Bond Service Class (249,567) 12,029 (237,538) (2,347,934) (1,632,980)
N-7
DIVIDENDS FROM MORTALITY AND NET INVESTMENT EXPENSE INVESTMENT SUBACCOUNT INCOME GUARANTEE CHARGES INCOME (LOSS) ---------------------------------------------------------------------------------------------------------------- Lincoln VIPT Delaware Growth and Income Service Class $ 8,867 $ (12,990) $ (4,123) Lincoln VIPT Delaware Social Awareness 9,062 (16,647) (7,585) Lincoln VIPT Delaware Social Awareness Service Class 17,127 (45,909) (28,782) Lincoln VIPT Delaware Special Opportunities Service Class 3,782 (6,104) (2,322) Lincoln VIPT FI Equity-Income Service Class 19,607 (20,525) (918) Lincoln VIPT Janus Capital Appreciation 1,176 (2,597) (1,421) Lincoln VIPT Janus Capital Appreciation Service Class 6,038 (17,678) (11,640) Lincoln VIPT Marsico International Growth Service Class 16,747 (25,995) (9,248) Lincoln VIPT MFS Value Service Class 24,003 (30,848) (6,845) Lincoln VIPT Mid-Cap Value Service Class 1,158 (18,579) (17,421) Lincoln VIPT Mondrian International Value 149,361 (48,733) 100,628 Lincoln VIPT Mondrian International Value Service Class 457,155 (156,449) 300,706 Lincoln VIPT Money Market 162,133 (108,019) 54,114 Lincoln VIPT Money Market Service Class 379,044 (306,440) 72,604 Lincoln VIPT SSgA Bond Index Service Class 15,266 (14,963) 303 Lincoln VIPT SSgA Developed International 150 Service Class 3,726 (1,380) 2,346 Lincoln VIPT SSgA Emerging Markets 100 Service Class 2,136 (1,248) 888 Lincoln VIPT SSgA International Index Service Class 4,526 (2,464) 2,062 Lincoln VIPT SSgA Large Cap 100 Service Class 3,601 (4,640) (1,039) Lincoln VIPT SSgA S&P 500 Index 8,629 (2,588) 6,041 Lincoln VIPT SSgA S&P 500 Index Service Class 157,523 (49,979) 107,544 Lincoln VIPT SSgA Small-Cap Index Service Class 14,688 (18,635) (3,947) Lincoln VIPT SSgA Small-Mid Cap 200 Service Class 1,426 (1,381) 45 Lincoln VIPT T. Rowe Price Growth Stock Service Class -- (10,714) (10,714) Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth -- (1,674) (1,674) Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class -- (20,965) (20,965) Lincoln VIPT Templeton Growth Service Class 56,901 (43,643) 13,258 Lincoln VIPT Turner Mid-Cap Growth Service Class -- (15,206) (15,206) Lincoln VIPT UBS Global Asset Allocation 35,138 (8,518) 26,620 Lincoln VIPT UBS Global Asset Allocation Service Class 225,370 (47,988) 177,382 Lincoln VIPT Wilshire 2010 Profile Service Class 7,142 (8,215) (1,073) Lincoln VIPT Wilshire 2020 Profile Service Class 2,314 (2,727) (413) Lincoln VIPT Wilshire 2030 Profile Service Class 2,371 (4,680) (2,309) Lincoln VIPT Wilshire 2040 Profile Service Class 216 (3,378) (3,162) Lincoln VIPT Wilshire Aggressive Profile Service Class 9,578 (47,418) (37,840) Lincoln VIPT Wilshire Conservative Profile Service Class 94,858 (75,643) 19,215 Lincoln VIPT Wilshire Moderate Profile Service Class 555,335 (505,049) 50,286 Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class 107,198 (223,972) (116,774) MFS VIT Core Equity Service Class 505 (1,955) (1,450) MFS VIT Growth 541 (3,347) (2,806) MFS VIT Growth Service Class -- (4,434) (4,434) MFS VIT Total Return 61,619 (26,923) 34,696 MFS VIT Total Return Service Class 427,875 (243,983) 183,892 MFS VIT Utilities 18,845 (16,433) 2,412 MFS VIT Utilities Service Class 153,349 (196,489) (43,140) NB AMT Mid-Cap Growth -- (97,684) (97,684) NB AMT Regency 76,998 (105,756) (28,758) Putnam VT Growth & Income Class IB 2,188 (1,643) 545 Putnam VT Health Sciences Class IB -- (1,973) (1,973)
See accompanying notes. N-8
DIVIDENDS TOTAL NET FROM NET REALIZED NET REALIZED GAIN (LOSS) REALIZED GAIN (LOSS) ON GAIN ON ON SUBACCOUNT INVESTMENTS INVESTMENTS INVESTMENTS --------------------------------------------------------------------------------------------------------- Lincoln VIPT Delaware Growth and Income Service Class $ (9,259) $ 90,802 $ 81,543 Lincoln VIPT Delaware Social Awareness 26,345 64,364 90,709 Lincoln VIPT Delaware Social Awareness Service Class 13,877 183,468 197,345 Lincoln VIPT Delaware Special Opportunities Service Class (18,483) 33,557 15,074 Lincoln VIPT FI Equity-Income Service Class (25,872) 116,085 90,213 Lincoln VIPT Janus Capital Appreciation 7,678 -- 7,678 Lincoln VIPT Janus Capital Appreciation Service Class (5,218) -- (5,218) Lincoln VIPT Marsico International Growth Service Class (148,093) 163,024 14,931 Lincoln VIPT MFS Value Service Class (65,521) 46,837 (18,684) Lincoln VIPT Mid-Cap Value Service Class (153,267) 102,429 (50,838) Lincoln VIPT Mondrian International Value (14,503) 209,659 195,156 Lincoln VIPT Mondrian International Value Service Class 1,078 641,934 643,012 Lincoln VIPT Money Market (1) 29 28 Lincoln VIPT Money Market Service Class (1) 79 78 Lincoln VIPT SSgA Bond Index Service Class 2,446 -- 2,446 Lincoln VIPT SSgA Developed International 150 Service Class (7,568) -- (7,568) Lincoln VIPT SSgA Emerging Markets 100 Service Class (6,727) -- (6,727) Lincoln VIPT SSgA International Index Service Class (8,572) -- (8,572) Lincoln VIPT SSgA Large Cap 100 Service Class (17,475) -- (17,475) Lincoln VIPT SSgA S&P 500 Index (62,704) -- (62,704) Lincoln VIPT SSgA S&P 500 Index Service Class (109,155) -- (109,155) Lincoln VIPT SSgA Small-Cap Index Service Class (83,336) 110,670 27,334 Lincoln VIPT SSgA Small-Mid Cap 200 Service Class (48,791) -- (48,791) Lincoln VIPT T. Rowe Price Growth Stock Service Class (61,706) -- (61,706) Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth 1,244 -- 1,244 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class (84,418) -- (84,418) Lincoln VIPT Templeton Growth Service Class (148,424) 119,685 (28,739) Lincoln VIPT Turner Mid-Cap Growth Service Class (36,127) 165,502 129,375 Lincoln VIPT UBS Global Asset Allocation (5,859) 49,670 43,811 Lincoln VIPT UBS Global Asset Allocation Service Class (40,652) 295,783 255,131 Lincoln VIPT Wilshire 2010 Profile Service Class (2,861) 395 (2,466) Lincoln VIPT Wilshire 2020 Profile Service Class 1,417 214 1,631 Lincoln VIPT Wilshire 2030 Profile Service Class (67,296) 477 (66,819) Lincoln VIPT Wilshire 2040 Profile Service Class (43,880) 159 (43,721) Lincoln VIPT Wilshire Aggressive Profile Service Class (56,560) 85,705 29,145 Lincoln VIPT Wilshire Conservative Profile Service Class (28,278) 46,311 18,033 Lincoln VIPT Wilshire Moderate Profile Service Class (439,787) 717,362 277,575 Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class (310,519) 264,749 (45,770) MFS VIT Core Equity Service Class 2,902 -- 2,902 MFS VIT Growth 25,326 -- 25,326 MFS VIT Growth Service Class 14,576 -- 14,576 MFS VIT Total Return 1,524 122,048 123,572 MFS VIT Total Return Service Class (328,156) 933,016 604,860 MFS VIT Utilities 40,535 195,075 235,610 MFS VIT Utilities Service Class (199,470) 1,866,798 1,667,328 NB AMT Mid-Cap Growth 172,988 -- 172,988 NB AMT Regency (128,962) 14,226 (114,736) Putnam VT Growth & Income Class IB (4,918) 18,817 13,899 Putnam VT Health Sciences Class IB 3,478 1,332 4,810 NET CHANGE IN UNREALIZED APPRECIATION NET INCREASE OR (DECREASE) DEPRECIATION IN NET ASSETS ON RESULTING SUBACCOUNT INVESTMENTS FROM OPERATIONS -------------------------------------------------------------------------------------------------- Lincoln VIPT Delaware Growth and Income Service Class $ (450,047) $ (372,627) Lincoln VIPT Delaware Social Awareness (521,102) (437,978) Lincoln VIPT Delaware Social Awareness Service Class (1,405,684) (1,237,121) Lincoln VIPT Delaware Special Opportunities Service Class (182,769) (170,017) Lincoln VIPT FI Equity-Income Service Class (683,119) (593,824) Lincoln VIPT Janus Capital Appreciation (94,917) (88,660) Lincoln VIPT Janus Capital Appreciation Service Class (590,412) (607,270) Lincoln VIPT Marsico International Growth Service Class (1,129,900) (1,124,217) Lincoln VIPT MFS Value Service Class (810,054) (835,583) Lincoln VIPT Mid-Cap Value Service Class (593,526) (661,785) Lincoln VIPT Mondrian International Value (1,762,275) (1,466,491) Lincoln VIPT Mondrian International Value Service Class (5,455,432) (4,511,714) Lincoln VIPT Money Market -- 54,142 Lincoln VIPT Money Market Service Class 5 72,687 Lincoln VIPT SSgA Bond Index Service Class 152,573 155,322 Lincoln VIPT SSgA Developed International 150 Service Class (18,229) (23,451) Lincoln VIPT SSgA Emerging Markets 100 Service Class (29,278) (35,117) Lincoln VIPT SSgA International Index Service Class (76,270) (82,780) Lincoln VIPT SSgA Large Cap 100 Service Class (160,239) (178,753) Lincoln VIPT SSgA S&P 500 Index (100,248) (156,911) Lincoln VIPT SSgA S&P 500 Index Service Class (1,740,919) (1,742,530) Lincoln VIPT SSgA Small-Cap Index Service Class (719,841) (696,454) Lincoln VIPT SSgA Small-Mid Cap 200 Service Class (7,203) (55,949) Lincoln VIPT T. Rowe Price Growth Stock Service Class (288,072) (360,492) Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth (53,596) (54,026) Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class (617,424) (722,807) Lincoln VIPT Templeton Growth Service Class (1,311,958) (1,327,439) Lincoln VIPT Turner Mid-Cap Growth Service Class (691,638) (577,469) Lincoln VIPT UBS Global Asset Allocation (284,619) (214,188) Lincoln VIPT UBS Global Asset Allocation Service Class (1,627,469) (1,194,956) Lincoln VIPT Wilshire 2010 Profile Service Class (123,672) (127,211) Lincoln VIPT Wilshire 2020 Profile Service Class (59,308) (58,090) Lincoln VIPT Wilshire 2030 Profile Service Class (121,460) (190,588) Lincoln VIPT Wilshire 2040 Profile Service Class (43,654) (90,537) Lincoln VIPT Wilshire Aggressive Profile Service Class (1,530,446) (1,539,141) Lincoln VIPT Wilshire Conservative Profile Service Class (1,090,460) (1,053,212) Lincoln VIPT Wilshire Moderate Profile Service Class (10,659,040) (10,331,179) Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class (5,600,219) (5,762,763) MFS VIT Core Equity Service Class (58,886) (57,434) MFS VIT Growth (123,769) (101,249) MFS VIT Growth Service Class (140,066) (129,924) MFS VIT Total Return (640,064) (481,796) MFS VIT Total Return Service Class (4,762,705) (3,973,953) MFS VIT Utilities (768,023) (530,001) MFS VIT Utilities Service Class (7,137,579) (5,513,391) NB AMT Mid-Cap Growth (3,402,422) (3,327,118) NB AMT Regency (3,508,832) (3,652,326) Putnam VT Growth & Income Class IB (63,829) (49,385) Putnam VT Health Sciences Class IB (26,063) (23,226)
N-9 STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2007 AND 2008
AIM V.I. AIM V.I. CAPITAL AIM V.I. CAPITAL APPRECIATION AIM V.I. CORE EQUITY APPRECIATION CLASS II CORE EQUITY CLASS II SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 647,668 $229,910 $1,414,490 $ 45,400 Changes From Operations: - Net investment income (loss) (7,112) (2,505) (6,023) (191) - Net realized gain (loss) on investments 16,627 1,766 59,557 206 - Net change in unrealized appreciation or depreciation on investments 43,811 16,570 32,258 2,853 --------- -------- ---------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 53,326 15,831 85,792 2,868 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,450 -- 800 4,080 - Contract withdrawals and transfers to annuity reserves (233,451) (9,416) (291,749) (987) - Contract transfers (63,759) (82,622) (135,717) 886 --------- -------- ---------- -------- (295,760) (92,038) (426,666) 3,979 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- 6,511 -- - Annuity Payments -- -- (310) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- (65) -- --------- -------- ---------- -------- -- -- 6,136 -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (295,760) (92,038) (420,530) 3,979 --------- -------- ---------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS (242,434) (76,207) (334,738) 6,847 --------- -------- ---------- -------- NET ASSETS AT DECEMBER 31, 2007 405,234 153,703 1,079,752 52,247 Changes From Operations: - Net investment income (loss) (4,259) (1,801) 3,729 239 - Net realized gain (loss) on investments (4,446) (1,373) 12,573 219 - Net change in unrealized appreciation or depreciation on investments (143,092) (60,989) (297,408) (16,773) --------- -------- ---------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (151,797) (64,163) (281,106) (16,315) Changes From Unit Transactions: Accumulation Units: - Contract purchases 467 -- 249 1,266 - Contract withdrawals and transfers to annuity reserves (35,242) (9,342) (212,605) (1,724) - Contract transfers (37,486) -- (25,012) 905 --------- -------- ---------- -------- (72,261) (9,342) (237,368) 447 Annuity Reserves: - Annuity Payments -- -- (537) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- (12) -- --------- -------- ---------- -------- -- -- (549) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (72,261) (9,342) (237,917) 447 --------- -------- ---------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS (224,058) (73,505) (519,023) (15,868) --------- -------- ---------- -------- NET ASSETS AT DECEMBER 31, 2008 $ 181,176 $ 80,198 $ 560,729 $ 36,379 ========= ======== ========== ========
See accompanying notes. N-10
AIM V.I. ABVPSF ABVPSF ABVPSF AIM V.I. INTERNATIONAL GLOBAL GROWTH INTERNATIONAL INTERNATIONAL GROWTH TECHNOLOGY AND INCOME VALUE GROWTH CLASS II CLASS B CLASS B CLASS B SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 615,202 $ 382,627 $ 1,725,587 $10,766,591 $ 1,306,888 Changes From Operations: - Net investment income (loss) (6,383) (4,667) (31,623) (46,506) (37,742) - Net realized gain (loss) on investments 119,100 27,818 66,604 789,729 182,134 - Net change in unrealized appreciation or depreciation on investments (35,247) 23,738 292,573 (385,971) (198,735) --------- --------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 77,470 46,889 327,554 357,252 (54,343) Changes From Unit Transactions: Accumulation Units: - Contract purchases 38 103 228,177 1,094,182 5,715,488 - Contract withdrawals and transfers to annuity reserves (116,635) (23,240) (271,839) (749,337) (267,600) - Contract transfers (64,738) (9,742) 564,206 141,529 2,475,139 --------- --------- ----------- ----------- ----------- (181,335) (32,879) 520,544 486,374 7,923,027 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- -- - Annuity Payments -- -- -- (563) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- 29 -- --------- --------- ----------- ----------- ----------- -- -- -- (534) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (181,335) (32,879) 520,544 485,840 7,923,027 --------- --------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (103,865) 14,010 848,098 843,092 7,868,684 --------- --------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2007 511,337 396,637 2,573,685 11,609,683 9,175,572 Changes From Operations: - Net investment income (loss) (3,737) (3,159) (32,992) 12,336 (69,755) - Net realized gain (loss) on investments 71,407 26,370 (89,451) 1,218,416 109,005 - Net change in unrealized appreciation or depreciation on investments (256,769) (156,029) (1,178,476) (5,896,098) (6,678,925) --------- --------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (189,099) (132,818) (1,300,919) (4,665,346) (6,639,675) Changes From Unit Transactions: Accumulation Units: - Contract purchases 178 110 103,757 518,166 3,022,127 - Contract withdrawals and transfers to annuity reserves (140,045) (33,706) (207,499) (1,063,163) (230,307) - Contract transfers (3,880) (59,041) 253,102 146,766 970,611 --------- --------- ----------- ----------- ----------- (143,747) (92,637) 149,360 (398,231) 3,762,431 Annuity Reserves: - Annuity Payments -- -- -- (531) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- 18 -- --------- --------- ----------- ----------- ----------- -- -- -- (513) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (143,747) (92,637) 149,360 (398,744) 3,762,431 --------- --------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (332,846) (225,455) (1,151,559) (5,064,090) (2,877,244) --------- --------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2008 $ 178,491 $ 171,182 $ 1,422,126 $ 6,545,593 $ 6,298,328 ========= ========= =========== =========== =========== AMERICAN ABVPSF ABVPSF CENTURY VP LARGE CAP SMALL/MID CAP INFLATION AMERICAN FUNDS GROWTH VALUE PROTECTION GLOBAL GROWTH CLASS B CLASS B CLASS 2 CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 2,256,152 $ 3,056,392 $13,804,770 $ 9,204,327 Changes From Operations: - Net investment income (loss) (33,277) (36,169) 434,418 152,371 - Net realized gain (loss) on investments 55,674 328,999 (60,261) 627,329 - Net change in unrealized appreciation or depreciation on investments 232,393 (392,813) 725,223 583,873 ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 254,790 (99,983) 1,099,380 1,363,573 Changes From Unit Transactions: Accumulation Units: - Contract purchases 6,796 1,530,559 1,379,828 3,985,786 - Contract withdrawals and transfers to annuity reserves (305,462) (378,710) (1,324,539) (490,041) - Contract transfers (35,171) 110,489 50,711 1,248,888 ----------- ----------- ----------- ----------- (333,837) 1,262,338 106,000 4,744,633 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- (3,670) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- 150 -- ----------- ----------- ----------- ----------- -- -- (3,520) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (333,837) 1,262,338 102,480 4,744,633 ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (79,047) 1,162,355 1,201,860 6,108,206 ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2007 2,177,105 4,218,747 15,006,630 15,312,533 Changes From Operations: - Net investment income (loss) (21,907) (51,024) 579,747 42,224 - Net realized gain (loss) on investments (32,226) 286,648 (187,316) 996,083 - Net change in unrealized appreciation or depreciation on investments (678,991) (2,108,518) (1,171,687) (8,002,619) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (733,124) (1,872,894) (779,256) (6,964,312) Changes From Unit Transactions: Accumulation Units: - Contract purchases 12,567 990,636 2,108,852 2,887,487 - Contract withdrawals and transfers to annuity reserves (446,982) (235,682) (1,709,738) (758,604) - Contract transfers (206,957) 463,984 1,999,124 859,136 ----------- ----------- ----------- ----------- (641,372) 1,218,938 2,398,238 2,988,019 Annuity Reserves: - Annuity Payments -- -- (3,710) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- 175 -- ----------- ----------- ----------- ----------- -- -- (3,535) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (641,372) 1,218,938 2,394,703 2,988,019 ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,374,496) (653,956) 1,615,447 (3,976,293) ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2008 $ 802,609 $ 3,564,791 $16,622,077 $11,336,240 =========== =========== =========== ===========
N-11
AMERICAN AMERICAN FUNDS AMERICAN FUNDS AMERICAN GLOBAL SMALL FUNDS GROWTH- FUNDS CAPITALIZATION GROWTH INCOME INTERNATIONAL CLASS 2 CLASS 2 CLASS 2 CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 9,674,755 $ 80,438,587 $ 79,559,863 $ 36,443,544 Changes From Operations: - Net investment income (loss) 175,188 (740,889) 1,359 14,951 - Net realized gain (loss) on investments 1,440,551 8,262,950 4,329,807 3,424,742 - Net change in unrealized appreciation or depreciation on investments 270,098 1,271,413 (1,902,775) 3,492,225 ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,885,837 8,793,474 2,428,391 6,931,918 Changes From Unit Transactions: Accumulation Units: - Contract purchases 3,549,684 23,153,862 20,678,809 9,806,009 - Contract withdrawals and transfers to annuity reserves (1,073,326) (7,303,787) (6,441,115) (2,581,134) - Contract transfers 1,218,505 1,810,747 1,843,248 831,853 ------------ ------------ ------------ ------------ 3,694,863 17,660,822 16,080,942 8,056,728 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- 8,449 8,613 -- - Annuity Payments -- (2,091) (1,893) (2,090) - Receipt (reimbursement) of mortality guarantee adjustment -- (6) (26) 95 ------------ ------------ ------------ ------------ -- 6,352 6,694 (1,995) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 3,694,863 17,667,174 16,087,636 8,054,733 ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 5,580,700 26,460,648 18,516,027 14,986,651 ------------ ------------ ------------ ------------ NET ASSETS AT DECEMBER 31, 2007 15,255,455 106,899,235 98,075,890 51,430,195 Changes From Operations: - Net investment income (loss) (208,204) (745,353) 121,672 181,395 - Net realized gain (loss) on investments 1,225,410 9,289,266 4,238,893 5,552,973 - Net change in unrealized appreciation or depreciation on investments (10,080,505) (60,445,882) (45,503,237) (29,915,912) ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (9,063,299) (51,901,969) (41,142,672) (24,181,544) Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,857,928 15,222,325 12,029,932 7,108,717 - Contract withdrawals and transfers to annuity reserves (783,577) (7,099,075) (5,273,351) (2,713,540) - Contract transfers 547,096 2,391,973 1,393,600 965,202 ------------ ------------ ------------ ------------ 1,621,447 10,515,223 8,150,181 5,360,379 Annuity Reserves: - Annuity Payments -- (2,129) (1,821) (1,854) - Receipt (reimbursement) of mortality guarantee adjustment -- 36 28 60 ------------ ------------ ------------ ------------ -- (2,093) (1,793) (1,794) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,621,447 10,513,130 8,148,388 5,358,585 ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (7,441,852) (41,388,839) (32,994,284) (18,822,959) ------------ ------------ ------------ ------------ NET ASSETS AT DECEMBER 31, 2008 $ 7,813,603 $ 65,510,396 $ 65,081,606 $ 32,607,236 ============ ============ ============ ============
See accompanying notes. N-12
DELAWARE DELAWARE DELAWARE VIPT VIPT VIPT DELAWARE CAPITAL DIVERSIFIED EMERGING DELAWARE VIPT RESERVES INCOME MARKETS VIPT HIGH YIELD SERVICE CLASS SERVICE CLASS SERVICE CLASS HIGH YIELD SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 571,124 $12,025,261 $ 9,627,921 $1,702,644 $10,723,799 Changes From Operations: - Net investment income (loss) 19,434 151,672 (37,617) 89,776 532,857 - Net realized gain (loss) on investments (2,086) 131,910 1,439,795 31,940 79,675 - Net change in unrealized appreciation or depreciation on investments (1,771) 549,032 2,567,987 (96,988) (542,213) ---------- ----------- ------------ ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 15,577 832,614 3,970,165 24,728 70,319 Changes From Unit Transactions: Accumulation Units: - Contract purchases 127,259 4,184,928 3,492,352 2,181 2,434,718 - Contract withdrawals and transfers to annuity reserves (282,607) (1,367,328) (821,040) (128,159) (858,714) - Contract transfers 100,045 3,134,153 523,657 4,976 (332,914) ---------- ----------- ------------ ---------- ----------- (55,303) 5,951,753 3,194,969 (121,002) 1,243,090 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- -- - Annuity Payments -- (2,966) (1,200) (390) -- - Receipt (reimbursement) of mortality guarantee adjustment -- 118 51 20 -- ---------- ----------- ------------ ---------- ----------- -- (2,848) (1,149) (370) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (55,303) 5,948,905 3,193,820 (121,372) 1,243,090 ---------- ----------- ------------ ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (39,726) 6,781,519 7,163,985 (96,644) 1,313,409 ---------- ----------- ------------ ---------- ----------- NET ASSETS AT DECEMBER 31, 2007 531,398 18,806,780 16,791,906 1,606,000 12,037,208 Changes From Operations: - Net investment income (loss) 43,953 407,832 (46,642) 105,827 750,758 - Net realized gain (loss) on investments (40,904) 270,004 2,181,805 (67,483) (392,793) - Net change in unrealized appreciation or depreciation on investments (54,539) (2,072,893) (11,654,378) (327,334) (3,400,174) ---------- ----------- ------------ ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (51,490) (1,395,057) (9,519,215) (288,990) (3,042,209) Changes From Unit Transactions: Accumulation Units: - Contract purchases 353,577 2,598,507 2,711,994 993 878,874 - Contract withdrawals and transfers to annuity reserves (306,534) (1,533,963) (1,038,570) (144,281) (921,899) - Contract transfers 1,328,025 936,718 40,447 (544,662) (281,406) ---------- ----------- ------------ ---------- ----------- 1,375,068 2,001,262 1,713,871 (687,950) (324,431) Annuity Reserves: - Annuity Payments -- (2,870) (1,022) (369) -- - Receipt (reimbursement) of mortality guarantee adjustment -- 133 28 17 -- ---------- ----------- ------------ ---------- ----------- -- (2,737) (994) (352) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,375,068 1,998,525 1,712,877 (688,302) (324,431) ---------- ----------- ------------ ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,323,578 603,468 (7,806,338) (977,292) (3,366,640) ---------- ----------- ------------ ---------- ----------- NET ASSETS AT DECEMBER 31, 2008 $1,854,976 $19,410,248 $ 8,985,568 $ 628,708 $ 8,670,568 ========== =========== ============ ========== =========== DELAWARE VIPT DELAWARE DELAWARE SMALL CAP DELAWARE VIPT REIT VIPT SMALL CAP VALUE VIPT REIT SERVICE CLASS VALUE SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 3,218,141 $17,301,594 $ 3,285,327 $14,272,750 Changes From Operations: - Net investment income (loss) 3,911 (87,566) (23,082) (226,633) - Net realized gain (loss) on investments 845,176 3,471,790 545,236 1,341,688 - Net change in unrealized appreciation or depreciation on investments (1,193,291) (6,149,373) (694,142) (2,591,709) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (344,204) (2,765,149) (171,988) (1,476,654) Changes From Unit Transactions: Accumulation Units: - Contract purchases 10,855 1,718,093 8,801 4,082,131 - Contract withdrawals and transfers to annuity reserves (638,778) (1,211,045) (541,571) (968,488) - Contract transfers (560,185) (569,855) (485,223) 184,190 ----------- ----------- ----------- ----------- (1,188,108) (62,807) (1,017,993) 3,297,833 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- (2,473) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- 20 -- ----------- ----------- ----------- ----------- -- -- (2,453) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,188,108) (62,807) (1,020,446) 3,297,833 ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,532,312) (2,827,956) (1,192,434) 1,821,179 ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2007 1,685,829 14,473,638 2,092,893 16,093,929 Changes From Operations: - Net investment income (loss) 13,919 59,181 (8,283) (184,388) - Net realized gain (loss) on investments 382,808 3,276,770 123,614 481,908 - Net change in unrealized appreciation or depreciation on investments (855,179) (7,853,398) (597,715) (5,610,150) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (458,452) (4,517,447) (482,384) (5,312,630) Changes From Unit Transactions: Accumulation Units: - Contract purchases 5,384 135,965 1,282 1,884,948 - Contract withdrawals and transfers to annuity reserves (263,776) (911,999) (546,935) (960,708) - Contract transfers (212,665) (1,124,664) (182,652) 133,164 ----------- ----------- ----------- ----------- (471,057) (1,900,698) (728,305) 1,057,404 Annuity Reserves: - Annuity Payments -- -- (1,946) -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- 16 -- ----------- ----------- ----------- ----------- -- -- (1,930) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (471,057) (1,900,698) (730,235) 1,057,404 ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (929,509) (6,418,145) (1,212,619) (4,255,226) ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2008 $ 756,320 $ 8,055,493 $ 880,274 $11,838,703 =========== =========== =========== ===========
N-13
DELAWARE DELAWARE VIPT DELAWARE VIPT TREND U.S. GROWTH DELAWARE VIPT TREND SERVICE CLASS SERVICE CLASS VIPT VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $1,725,117 $ 5,587,281 $ 2,125,204 $ 848,542 Changes From Operations: - Net investment income (loss) (21,016) (93,821) (33,934) 2,878 - Net realized gain (loss) on investments 229,139 342,635 61,247 116,044 - Net change in unrealized appreciation or depreciation on investments (68,803) 248,482 193,900 (137,980) ---------- ----------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 139,320 497,296 221,213 (19,058) Changes From Unit Transactions: Accumulation Units: - Contract purchases 7,629 494,905 92,834 3,742 - Contract withdrawals and transfers to annuity reserves (283,417) (388,317) (185,280) (215,086) - Contract transfers (273,590) (511,573) 8,124 (10,154) ---------- ----------- ----------- --------- (549,378) (404,985) (84,322) (221,498) Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments (381) -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment 21 -- -- -- ---------- ----------- ----------- --------- (360) -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (549,738) (404,985) (84,322) (221,498) ---------- ----------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (410,418) 92,311 136,891 (240,556) ---------- ----------- ----------- --------- NET ASSETS AT DECEMBER 31, 2007 1,314,699 5,679,592 2,262,095 607,986 Changes From Operations: - Net investment income (loss) (11,080) (72,406) (29,101) 8,254 - Net realized gain (loss) on investments 195,252 758,833 52,303 23,629 - Net change in unrealized appreciation or depreciation on investments (652,435) (3,320,509) (1,107,382) (226,930) ---------- ----------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (468,263) (2,634,082) (1,084,180) (195,047) Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,964 258,321 91,662 1,501 - Contract withdrawals and transfers to annuity reserves (318,348) (395,783) (144,910) (70,606) - Contract transfers (127,791) (12,866) 312,777 (27,803) ---------- ----------- ----------- --------- (444,175) (150,328) 259,529 (96,908) Annuity Reserves: - Annuity Payments (356) -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment 12 -- -- -- ---------- ----------- ----------- --------- (344) -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (444,519) (150,328) 259,529 (96,908) ---------- ----------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (912,782) (2,784,410) (824,651) (291,955) ---------- ----------- ----------- --------- NET ASSETS AT DECEMBER 31, 2008 $ 401,917 $ 2,895,182 $ 1,437,444 $ 316,031 ========== =========== =========== =========
See accompanying notes. N-14
DWS VIP DWS VIP DELAWARE VIPT DWS VIP EQUITY 500 DWS VIP SMALL CAP VALUE EQUITY 500 INDEX SMALL CAP INDEX SERVICE CLASS INDEX SERVICE CLASS INDEX SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 8,327,048 $ 6,258,091 $ 5,699,773 $1,723,028 $ 2,736,835 Changes From Operations: - Net investment income (loss) (34,796) 1,600 (19,617) (10,255) (35,109) - Net realized gain (loss) on investments 411,749 327,026 212,926 174,035 220,641 - Net change in unrealized appreciation or depreciation on investments (917,174) (89,758) 6,193 (223,215) (327,696) ----------- ----------- ----------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (540,221) 238,868 199,502 (59,435) (142,164) Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,303,905 68,740 278,083 19,733 474,588 - Contract withdrawals and transfers to annuity reserves (475,863) (603,704) (356,733) (326,861) (122,985) - Contract transfers 672,944 (173,982) 187,739 (24,995) 325,532 ----------- ----------- ----------- ---------- ----------- 2,500,986 (708,946) 109,089 (332,123) 677,135 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- -- - Annuity Payments -- (121,922) (973) -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- (96) 37 -- -- ----------- ----------- ----------- ---------- ----------- -- (122,018) (936) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 2,500,986 (830,964) 108,153 (332,123) 677,135 ----------- ----------- ----------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,960,765 (592,096) 307,655 (391,558) 534,971 ----------- ----------- ----------- ---------- ----------- NET ASSETS AT DECEMBER 31, 2007 10,287,813 5,665,995 6,007,428 1,331,470 3,271,806 Changes From Operations: - Net investment income (loss) 93,639 42,366 28,760 1,243 (8,067) - Net realized gain (loss) on investments 308,048 100,540 1,918 73,904 126,261 - Net change in unrealized appreciation or depreciation on investments (3,994,040) (2,085,031) (2,071,905) (486,616) (1,186,633) ----------- ----------- ----------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (3,592,353) (1,942,125) (2,041,227) (411,469) (1,068,439) Changes From Unit Transactions: Accumulation Units: - Contract purchases 840,492 12,860 155,610 1,542 20,342 - Contract withdrawals and transfers to annuity reserves (507,993) (466,622) (359,474) (101,834) (142,914) - Contract transfers (546,436) (300,373) (562,540) (145,245) (247,314) ----------- ----------- ----------- ---------- ----------- (213,937) (754,135) (766,404) (245,537) (369,886) Annuity Reserves: - Annuity Payments -- (96,922) (767) -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- 27 27 -- -- ----------- ----------- ----------- ---------- ----------- -- (96,895) (740) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (213,937) (851,030) (767,144) (245,537) (369,886) ----------- ----------- ----------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (3,806,290) (2,793,155) (2,808,371) (657,006) (1,438,325) ----------- ----------- ----------- ---------- ----------- NET ASSETS AT DECEMBER 31, 2008 $ 6,481,523 $ 2,872,840 $ 3,199,057 $ 674,464 $ 1,833,481 =========== =========== =========== ========== =========== FIDELITY VIP FIDELITY VIP CONTRAFUND EQUITY-INCOME SERVICE FIDELITY VIP SERVICE FIDELITY VIP CLASS 2 EQUITY-INCOME CLASS 2 GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 22,724,482 $ 2,040,786 $ 4,277,123 $ 632,974 Changes From Operations: - Net investment income (loss) (221,388) 5,113 (2,961) (3,801) - Net realized gain (loss) on investments 9,091,917 227,787 428,504 21,510 - Net change in unrealized appreciation or depreciation on investments (4,885,722) (220,847) (438,049) 130,715 ------------ ----------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 3,984,807 12,053 (12,506) 148,424 Changes From Unit Transactions: Accumulation Units: - Contract purchases 9,953,259 10,188 74,861 10,132 - Contract withdrawals and transfers to annuity reserves (1,151,953) (236,773) (415,397) (91,137) - Contract transfers 1,444,731 (81,488) (115,729) (22,651) ------------ ----------- ----------- --------- 10,246,037 (308,073) (456,265) (103,656) Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ------------ ----------- ----------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 10,246,037 (308,073) (456,265) (103,656) ------------ ----------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 14,230,844 (296,020) (468,771) 44,768 ------------ ----------- ----------- --------- NET ASSETS AT DECEMBER 31, 2007 36,955,326 1,744,766 3,808,352 677,742 Changes From Operations: - Net investment income (loss) (263,722) 8,050 22,361 (3,622) - Net realized gain (loss) on investments (522,244) (81,499) (122,720) 22,476 - Net change in unrealized appreciation or depreciation on investments (18,186,328) (547,117) (1,537,428) (250,535) ------------ ----------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (18,972,294) (620,566) (1,637,787) (231,681) Changes From Unit Transactions: Accumulation Units: - Contract purchases 6,749,548 1,168 30,110 230 - Contract withdrawals and transfers to annuity reserves (1,830,595) (332,749) (180,054) (252,324) - Contract transfers 3,287,534 (124,936) 46,660 -- ------------ ----------- ----------- --------- 8,206,487 (456,517) (103,284) (252,094) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ------------ ----------- ----------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 8,206,487 (456,517) (103,284) (252,094) ------------ ----------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (10,765,807) (1,077,083) (1,741,071) (483,775) ------------ ----------- ----------- --------- NET ASSETS AT DECEMBER 31, 2008 $ 26,189,519 $ 667,683 $ 2,067,281 $ 193,967 ============ =========== =========== =========
N-15
FIDELITY VIP FIDELITY VIP FIDELITY VIP GROWTH MID CAP OVERSEAS SERVICE SERVICE FIDELITY VIP SERVICE CLASS 2 CLASS 2 OVERSEAS CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------ NET ASSETS AT JANUARY 1, 2007 $ 2,894,690 $ 7,076,892 $ 393,029 $ 5,470,236 Changes From Operations: - Net investment income (loss) (42,009) (116,694) 7,431 87,800 - Net realized gain (loss) on investments 113,997 765,117 88,019 573,887 - Net change in unrealized appreciation or depreciation on investments 693,305 429,518 (51,824) 192,186 ----------- ----------- --------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 765,293 1,077,941 43,626 853,873 Changes From Unit Transactions: Accumulation Units: - Contract purchases 718,543 4,037,705 -- 533,624 - Contract withdrawals and transfers to annuity reserves (200,708) (466,360) (35,782) (306,460) - Contract transfers 170,495 2,224,936 (89,077) 358,423 ----------- ----------- --------- ----------- 688,330 5,796,281 (124,859) 585,587 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ----------- ----------- --------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 688,330 5,796,281 (124,859) 585,587 ----------- ----------- --------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,453,623 6,874,222 (81,233) 1,439,460 ----------- ----------- --------- ----------- NET ASSETS AT DECEMBER 31, 2007 4,348,313 13,951,114 311,796 6,909,696 Changes From Operations: - Net investment income (loss) (34,921) (205,563) 1,879 49,445 - Net realized gain (loss) on investments (26,819) 1,606,036 59,130 551,257 - Net change in unrealized appreciation or depreciation on investments (2,077,696) (8,802,575) (169,640) (3,716,619) ----------- ----------- --------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (2,139,436) (7,402,102) (108,631) (3,115,917) Changes From Unit Transactions: Accumulation Units: - Contract purchases 399,137 3,888,025 19 214,123 - Contract withdrawals and transfers to annuity reserves (246,112) (596,130) (13,061) (273,853) - Contract transfers (124,026) 2,116,669 (71,483) 82,159 ----------- ----------- --------- ----------- 28,999 5,408,564 (84,525) 22,429 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ----------- ----------- --------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 28,999 5,408,564 (84,525) 22,429 ----------- ----------- --------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (2,110,437) (1,993,538) (193,156) (3,093,488) ----------- ----------- --------- ----------- NET ASSETS AT DECEMBER 31, 2008 $ 2,237,876 $11,957,576 $ 118,640 $ 3,816,208 =========== =========== ========= ===========
See accompanying notes. N-16
FTVIPT FTVIPT FRANKLIN FTVIPT FTVIPT FTVIPT FRANKLIN SMALL-MID CAP MUTUAL TEMPLETON TEMPLETON INCOME GROWTH SHARES GLOBAL INCOME GROWTH SECURITIES SECURITIES SECURITIES SECURITIES SECURITIES CLASS 2 CLASS 2 CLASS 2 CLASS 2 CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 4,058,043 $ 5,063,038 $ 3,357,415 $ 2,762,547 $ 8,917,851 Changes From Operations: - Net investment income (loss) 135,853 (98,947) (24,485) 38,366 (25,478) - Net realized gain (loss) on investments 59,998 586,383 258,095 23,769 671,491 - Net change in unrealized appreciation or depreciation on investments (287,220) (79,943) (419,208) 306,942 (602,852) ----------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (91,369) 407,493 (185,598) 369,077 43,161 Changes From Unit Transactions: Accumulation Units: - Contract purchases 10,153,662 2,136,334 7,172,495 2,790,298 1,684,044 - Contract withdrawals and transfers to annuity reserves (288,934) (478,112) (154,301) (267,565) (616,692) - Contract transfers 3,686,922 749,470 2,663,319 1,422,581 (20,973) ----------- ----------- ----------- ----------- ----------- 13,551,650 2,407,692 9,681,513 3,945,314 1,046,379 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- -- - Annuity Payments -- (1,753) -- -- (1,958) - Receipt (reimbursement) of mortality guarantee adjustment -- (1) -- -- (1) ----------- ----------- ----------- ----------- ----------- -- (1,754) -- -- (1,959) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 13,551,650 2,405,938 9,681,513 3,945,314 1,044,420 ----------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 13,460,281 2,813,431 9,495,915 4,314,391 1,087,581 ----------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2007 17,518,324 7,876,469 12,853,330 7,076,938 10,005,432 Changes From Operations: - Net investment income (loss) 725,281 (121,437) 208,578 228,344 12,983 - Net realized gain (loss) on investments (395,302) 731,036 115,985 33,524 250,269 - Net change in unrealized appreciation or depreciation on investments (7,404,700) (4,474,383) (6,487,460) 138,712 (4,350,358) ----------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (7,074,721) (3,864,784) (6,162,897) 400,580 (4,087,106) Changes From Unit Transactions: Accumulation Units: - Contract purchases 5,098,342 1,114,591 2,922,436 3,407,550 133,376 - Contract withdrawals and transfers to annuity reserves (793,087) (490,396) (368,493) (610,007) (440,061) - Contract transfers 1,450,866 781,293 1,563,488 2,745,367 (569,725) ----------- ----------- ----------- ----------- ----------- 5,756,121 1,405,488 4,117,431 5,542,910 (876,410) Annuity Reserves: - Annuity Payments -- (1,369) -- -- (1,462) - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- -- (1,369) -- -- (1,462) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 5,756,121 1,404,119 4,117,431 5,542,910 (877,872) ----------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,318,600) (2,460,665) (2,045,466) 5,943,490 (4,964,978) ----------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2008 $16,199,724 $ 5,415,804 $10,807,864 $13,020,428 $ 5,040,454 =========== =========== =========== =========== =========== JANUS JANUS LINCOLN VIPT JANUS ASPEN SERIES ASPEN SERIES BARON ASPEN SERIES MID CAP WORLDWIDE GROWTH BALANCED SERVICE GROWTH GROWTH OPPORTUNITIES SHARES SERVICE SHARES SERVICE SHARES SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $1,116,877 $1,093,216 $ 38,141 $ 164,253 Changes From Operations: - Net investment income (loss) 6,847 (17,903) (404) (20,986) - Net realized gain (loss) on investments 59,427 59,421 275 53,771 - Net change in unrealized appreciation or depreciation on investments 24,075 168,777 3,080 (159,548) ---------- ---------- -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 90,349 210,295 2,951 (126,763) Changes From Unit Transactions: Accumulation Units: - Contract purchases 26,384 4,260 -- 2,515,406 - Contract withdrawals and transfers to annuity reserves (289,979) (96,044) (57) (12,475) - Contract transfers 86,944 49,434 49 980,599 ---------- ---------- -------- ----------- (176,651) (42,350) (8) 3,483,530 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ---------- ---------- -------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (176,651) (42,350) (8) 3,483,530 ---------- ---------- -------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (86,302) 167,945 2,943 3,356,767 ---------- ---------- -------- ----------- NET ASSETS AT DECEMBER 31, 2007 1,030,575 1,261,161 41,084 3,521,020 Changes From Operations: - Net investment income (loss) 8,656 (14,719) (156) (73,023) - Net realized gain (loss) on investments 82,022 113,625 578 152,391 - Net change in unrealized appreciation or depreciation on investments (260,874) (598,444) (16,866) (2,201,597) ---------- ---------- -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (170,196) (499,538) (16,444) (2,122,229) Changes From Unit Transactions: Accumulation Units: - Contract purchases 3,540 1,244 -- 1,754,121 - Contract withdrawals and transfers to annuity reserves (157,377) (155,084) (24,910) (101,382) - Contract transfers 217,723 (14,986) 16,758 620,766 ---------- ---------- -------- ----------- 63,886 (168,826) (8,152) 2,273,505 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ---------- ---------- -------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 63,886 (168,826) (8,152) 2,273,505 ---------- ---------- -------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (106,310) (668,364) (24,596) 151,276 ---------- ---------- -------- ----------- NET ASSETS AT DECEMBER 31, 2008 $ 924,265 $ 592,797 $ 16,488 $ 3,672,296 ========== ========== ======== ===========
N-17
LINCOLN VIPT LINCOLN VIPT COHEN & COLUMBIA LINCOLN VIPT STEERS GLOBAL VALUE LINCOLN CAPITAL GROWTH REAL ESTATE OPPORTUNITIES VIPT CORE SERVICE CLASS SERVICE CLASS SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ -- $ -- $ -- $ 244,225 Changes From Operations: - Net investment income (loss) (1,718) (3,313) 67 (1,244) - Net realized gain (loss) on investments (56) (176) (55) 15,726 - Net change in unrealized appreciation or depreciation on investments 387 (156,548) (6,750) (13,228) --------- ----------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,387) (160,037) (6,738) 1,254 Changes From Unit Transactions: Accumulation Units: - Contract purchases 203,857 1,149,427 95,998 2 - Contract withdrawals and transfers to annuity reserves (1,180) (6,711) (1,128) (2,034) - Contract transfers 458,719 609,264 51,361 (243,447) --------- ----------- --------- --------- 661,396 1,751,980 146,231 (245,479) Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- ----------- --------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 661,396 1,751,980 146,231 (245,479) --------- ----------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 660,009 1,591,943 139,493 (244,225) --------- ----------- --------- --------- NET ASSETS AT DECEMBER 31, 2007 660,009 1,591,943 139,493 -- Changes From Operations: - Net investment income (loss) (11,109) (6,898) (3,396) -- - Net realized gain (loss) on investments (10,779) (93,476) 122,815 -- - Net change in unrealized appreciation or depreciation on investments (344,588) (1,293,730) (289,056) -- --------- ----------- --------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (366,476) (1,394,104) (169,637) -- Changes From Unit Transactions: Accumulation Units: - Contract purchases 252,651 969,391 89,406 -- - Contract withdrawals and transfers to annuity reserves (21,257) (72,279) (66,680) -- - Contract transfers 33,229 1,194,938 347,811 -- --------- ----------- --------- --------- 264,623 2,092,050 370,537 -- Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- ----------- --------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 264,623 2,092,050 370,537 -- --------- ----------- --------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (101,853) 697,946 200,900 -- --------- ----------- --------- --------- NET ASSETS AT DECEMBER 31, 2008 $ 558,156 $ 2,289,889 $ 340,393 $ -- ========= =========== ========= =========
See accompanying notes. N-18
LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT DELAWARE LINCOLN VIPT DELAWARE LINCOLN VIPT DELAWARE GROWTH DELAWARE SOCIAL DELAWARE BOND AND INCOME SOCIAL AWARENESS BOND SERVICE CLASS SERVICE CLASS AWARENESS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $23,405,615 $25,953,247 $ 480,883 $1,467,851 $ 3,435,147 Changes From Operations: - Net investment income (loss) 757,804 904,803 (2,975) (10,251) (32,831) - Net realized gain (loss) on investments (30,359) (21,793) 4,933 57,603 91,571 - Net change in unrealized appreciation or depreciation on investments 132,265 89,801 9,516 (25,032) (18,270) ----------- ----------- --------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 859,710 972,811 11,474 22,320 40,470 Changes From Unit Transactions: Accumulation Units: - Contract purchases 259,022 4,381,790 119,803 11,166 128,088 - Contract withdrawals and transfers to annuity reserves (2,275,713) (1,871,915) (18,544) (109,575) (163,507) - Contract transfers 6,346 157,136 183,022 (37,105) (90,216) ----------- ----------- --------- ---------- ----------- (2,010,345) 2,667,011 284,281 (135,514) (125,635) Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- 12,240 -- - Annuity Payments (802) (1,531) -- (572) -- - Receipt (reimbursement) of mortality guarantee adjustment 44 61 -- (116) -- ----------- ----------- --------- ---------- ----------- (758) (1,470) -- 11,552 -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (2,011,103) 2,665,541 284,281 (123,962) (125,635) ----------- ----------- --------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,151,393) 3,638,352 295,755 (101,642) (85,165) ----------- ----------- --------- ---------- ----------- NET ASSETS AT DECEMBER 31, 2007 22,254,222 29,591,599 776,638 1,366,209 3,349,982 Changes From Operations: - Net investment income (loss) 481,427 952,492 (4,123) (7,585) (28,782) - Net realized gain (loss) on investments (334,626) (237,538) 81,543 90,709 197,345 - Net change in unrealized appreciation or depreciation on investments (1,038,063) (2,347,934) (450,047) (521,102) (1,405,684) ----------- ----------- --------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (891,262) (1,632,980) (372,627) (437,978) (1,237,121) Changes From Unit Transactions: Accumulation Units: - Contract purchases 67,775 5,704,997 164,030 1,666 261,666 - Contract withdrawals and transfers to annuity reserves (4,340,551) (2,287,469) (20,280) (137,657) (145,036) - Contract transfers (2,101,789) (77,062) 151,856 (54,099) (42,425) ----------- ----------- --------- ---------- ----------- (6,374,565) 3,340,466 295,606 (190,090) 74,205 Annuity Reserves: - Annuity Payments (805) (1,475) -- (946) -- - Receipt (reimbursement) of mortality guarantee adjustment 46 70 -- (20) -- ----------- ----------- --------- ---------- ----------- (759) (1,405) -- (966) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (6,375,324) 3,339,061 295,606 (191,056) 74,205 ----------- ----------- --------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS (7,266,586) 1,706,081 (77,021) (629,034) (1,162,916) ----------- ----------- --------- ---------- ----------- NET ASSETS AT DECEMBER 31, 2008 $14,987,636 $31,297,680 $ 699,617 $ 737,175 $ 2,187,066 =========== =========== ========= ========== =========== LINCOLN VIPT DELAWARE LINCOLN VIPT SPECIAL LINCOLN VIPT FI LINCOLN VIPT GROWTH OPPORTUNITIES EQUITY-INCOME GROWTH OPPORTUNITIES SERVICE CLASS SERVICE CLASS SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------------ NET ASSETS AT JANUARY 1, 2007 $ -- $ 576,465 $ 45,555 $ 488,316 Changes From Operations: - Net investment income (loss) (69) (3,661) (413) (3,906) - Net realized gain (loss) on investments 2,434 78,902 6,065 28,222 - Net change in unrealized appreciation or depreciation on investments (8,459) (77,897) (960) (3,787) --------- ---------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (6,094) (2,656) 4,692 20,529 Changes From Unit Transactions: Accumulation Units: - Contract purchases 194,619 510,568 20,870 33,554 - Contract withdrawals and transfers to annuity reserves (2,178) (74,995) (580) (4,963) - Contract transfers 77,447 153,945 (70,537) (537,436) --------- ---------- -------- --------- 269,888 589,518 (50,247) (508,845) Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- ---------- -------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 269,888 589,518 (50,247) (508,845) --------- ---------- -------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 263,794 586,862 (45,555) (488,316) --------- ---------- -------- --------- NET ASSETS AT DECEMBER 31, 2007 263,794 1,163,327 -- -- Changes From Operations: - Net investment income (loss) (2,322) (918) -- -- - Net realized gain (loss) on investments 15,074 90,213 -- -- - Net change in unrealized appreciation or depreciation on investments (182,769) (683,119) -- -- --------- ---------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (170,017) (593,824) -- -- Changes From Unit Transactions: Accumulation Units: - Contract purchases 179,802 354,277 -- -- - Contract withdrawals and transfers to annuity reserves (4,055) (33,585) -- -- - Contract transfers 88,570 226,939 -- -- --------- ---------- -------- --------- 264,317 547,631 -- -- Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- ---------- -------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 264,317 547,631 -- -- --------- ---------- -------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 94,300 (46,193) -- -- --------- ---------- -------- --------- NET ASSETS AT DECEMBER 31, 2008 $ 358,094 $1,117,134 $ -- $ -- ========= ========== ======== =========
N-19
LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT JANUS MARSICO JANUS CAPITAL INTERNATIONAL LINCOLN VIPT CAPITAL APPRECIATION GROWTH MFS VALUE APPRECIATION SERVICE CLASS SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 239,491 $ 380,140 $ -- $ -- Changes From Operations: - Net investment income (loss) (2,996) (8,875) (360) 320 - Net realized gain (loss) on investments 17,298 9,372 1,455 460 - Net change in unrealized appreciation or depreciation on investments 27,376 96,642 23,469 (3,055) --------- ---------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 41,678 97,139 24,564 (2,275) Changes From Unit Transactions: Accumulation Units: - Contract purchases 1 415,173 441,259 538,246 - Contract withdrawals and transfers to annuity reserves (45,493) (24,448) (26,923) (11,801) - Contract transfers (6,838) 155,647 475,032 476,351 --------- ---------- ----------- ---------- (52,330) 546,372 889,368 1,002,796 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- ---------- ----------- ---------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (52,330) 546,372 889,368 1,002,796 --------- ---------- ----------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (10,652) 643,511 913,932 1,000,521 --------- ---------- ----------- ---------- NET ASSETS AT DECEMBER 31, 2007 228,839 1,023,651 913,932 1,000,521 Changes From Operations: - Net investment income (loss) (1,421) (11,640) (9,248) (6,845) - Net realized gain (loss) on investments 7,678 (5,218) 14,931 (18,684) - Net change in unrealized appreciation or depreciation on investments (94,917) (590,412) (1,129,900) (810,054) --------- ---------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (88,660) (607,270) (1,124,217) (835,583) Changes From Unit Transactions: Accumulation Units: - Contract purchases -- 434,315 884,930 1,647,502 - Contract withdrawals and transfers to annuity reserves (18,585) (44,345) (47,775) (37,157) - Contract transfers (325) 146,660 655,992 617,923 --------- ---------- ----------- ---------- (18,910) 536,630 1,493,147 2,228,268 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- ---------- ----------- ---------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (18,910) 536,630 1,493,147 2,228,268 --------- ---------- ----------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (107,570) (70,640) 368,930 1,392,685 --------- ---------- ----------- ---------- NET ASSETS AT DECEMBER 31, 2008 $ 121,269 $ 953,011 $ 1,282,862 $2,393,206 ========= ========== =========== ==========
See accompanying notes. N-20
LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT MONDRIAN MID-CAP MONDRIAN INTERNATIONAL LINCOLN VIPT VALUE INTERNATIONAL VALUE SERVICE LINCOLN VIPT MONEY MARKET SERVICE CLASS VALUE CLASS MONEY MARKET SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------------------------ NET ASSETS AT JANUARY 1, 2007 $ -- $ 3,753,593 $ 9,644,132 $ 6,753,083 $10,633,856 Changes From Operations: - Net investment income (loss) (3,818) 18,382 27,352 216,116 374,148 - Net realized gain (loss) on investments (2,857) 234,635 671,530 -- -- - Net change in unrealized appreciation or depreciation on investments (91,067) 109,875 238,401 -- -- ---------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (97,742) 362,892 937,283 216,116 374,148 Changes From Unit Transactions: Accumulation Units: - Contract purchases 742,526 9,411 1,945,249 8,457 8,696,921 - Contract withdrawals and transfers to annuity reserves (13,501) (259,376) (680,388) (2,046,894) (3,120,625) - Contract transfers 303,422 175,961 50,564 1,357,845 (361,538) ---------- ----------- ----------- ----------- ----------- 1,032,447 (74,004) 1,315,425 (680,592) 5,214,758 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- -- - Annuity Payments -- -- (1,170) -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- 46 -- -- ---------- ----------- ----------- ----------- ----------- -- -- (1,124) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,032,447 (74,004) 1,314,301 (680,592) 5,214,758 ---------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 934,705 288,888 2,251,584 (464,476) 5,588,906 ---------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2007 934,705 4,042,481 11,895,716 6,288,607 16,222,762 Changes From Operations: - Net investment income (loss) (17,421) 100,628 300,706 54,114 72,604 - Net realized gain (loss) on investments (50,838) 195,156 643,012 28 78 - Net change in unrealized appreciation or depreciation on investments (593,526) (1,762,275) (5,455,432) -- 5 ---------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (661,785) (1,466,491) (4,511,714) 54,142 72,687 Changes From Unit Transactions: Accumulation Units: - Contract purchases 439,258 8,567 690,268 19,906 7,476,603 - Contract withdrawals and transfers to annuity reserves (49,217) (311,135) (592,007) (4,608,249) (3,108,873) - Contract transfers 440,719 (119,187) (154,970) 8,330,957 3,827,627 ---------- ----------- ----------- ----------- ----------- 830,760 (421,755) (56,709) 3,742,614 8,195,357 Annuity Reserves: - Annuity Payments -- -- (931) -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- 33 -- -- ---------- ----------- ----------- ----------- ----------- -- -- (898) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 830,760 (421,755) (57,607) 3,742,614 8,195,357 ---------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 168,975 (1,888,246) (4,569,321) 3,796,756 8,268,044 ---------- ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2008 $1,103,680 $ 2,154,235 $ 7,326,395 $10,085,363 $24,490,806 ========== =========== =========== =========== =========== LINCOLN LINCOLN LINCOLN LINCOLN VIPT VIPT SSgA VIPT SSgA VIPT SSgA SSgA BOND DEVELOPED EMERGING INTERNATIONAL INDEX INTERNATIONAL 150 MARKETS 100 INDEX SERVICE CLASS SERVICE CLASS SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ -- $ -- $ -- $ -- Changes From Operations: - Net investment income (loss) -- -- -- -- - Net realized gain (loss) on investments -- -- -- -- - Net change in unrealized appreciation or depreciation on investments -- -- -- -- ---------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS -- -- -- -- Changes From Unit Transactions: Accumulation Units: - Contract purchases -- -- -- -- - Contract withdrawals and transfers to annuity reserves -- -- -- -- - Contract transfers -- -- -- -- ---------- -------- -------- -------- -- -- -- -- Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ---------- -------- -------- -------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS -- -- -- -- ---------- -------- -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS -- -- -- -- ---------- -------- -------- -------- NET ASSETS AT DECEMBER 31, 2007 -- -- -- -- Changes From Operations: - Net investment income (loss) 303 2,346 888 2,062 - Net realized gain (loss) on investments 2,446 (7,568) (6,727) (8,572) - Net change in unrealized appreciation or depreciation on investments 152,573 (18,229) (29,278) (76,270) ---------- -------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 155,322 (23,451) (35,117) (82,780) Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,562,142 400,078 280,623 459,612 - Contract withdrawals and transfers to annuity reserves (38,540) (3,748) (4,239) (5,775) - Contract transfers 1,433,390 196,423 207,012 315,214 ---------- -------- -------- -------- 3,956,992 592,753 483,396 769,051 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ---------- -------- -------- -------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 3,956,992 592,753 483,396 769,051 ---------- -------- -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 4,112,314 569,302 448,279 686,271 ---------- -------- -------- -------- NET ASSETS AT DECEMBER 31, 2008 $4,112,314 $569,302 $448,279 $686,271 ========== ======== ======== ========
N-21
LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT SSgA SSgA LINCOLN VIPT SSgA SMALL-CAP LARGE CAP 100 SSgA S&P 500 INDEX INDEX SERVICE CLASS S&P 500 INDEX SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ -- $ -- $ -- $ -- Changes From Operations: - Net investment income (loss) -- 839 3,813 (936) - Net realized gain (loss) on investments -- 15 (61) (3,154) - Net change in unrealized appreciation or depreciation on investments -- 296 (34,040) (26,578) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS -- 1,150 (30,288) (30,668) Changes From Unit Transactions: Accumulation Units: - Contract purchases -- -- 1,326,453 400,511 - Contract withdrawals and transfers to annuity reserves -- -- (7,457) (4,690) - Contract transfers -- 135,270 509,381 159,502 ----------- ----------- ----------- ----------- -- 135,270 1,828,377 555,323 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ----------- ----------- ----------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS -- 135,270 1,828,377 555,323 ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS -- 136,420 1,798,089 524,655 ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2007 -- 136,420 1,798,089 524,655 Changes From Operations: - Net investment income (loss) (1,039) 6,041 107,544 (3,947) - Net realized gain (loss) on investments (17,475) (62,704) (109,155) 27,334 - Net change in unrealized appreciation or depreciation on investments (160,239) (100,248) (1,740,919) (719,841) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (178,753) (156,911) (1,742,530) (696,454) Changes From Unit Transactions: Accumulation Units: - Contract purchases 570,638 -- 2,242,807 686,366 - Contract withdrawals and transfers to annuity reserves (35,386) (115,719) (148,986) (102,664) - Contract transfers 794,491 367,139 3,177,818 1,456,977 ----------- ----------- ----------- ----------- 1,329,743 251,420 5,271,639 2,040,679 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- ----------- ----------- ----------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,329,743 251,420 5,271,639 2,040,679 ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,150,990 94,509 3,529,109 1,344,225 ----------- ----------- ----------- ----------- NET ASSETS AT DECEMBER 31, 2008 $ 1,150,990 $ 230,929 $ 5,327,198 $ 1,868,880 =========== =========== =========== ===========
See accompanying notes. N-22
LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT T. ROWE PRICE SSgA LINCOLN VIPT T. ROWE PRICE STRUCTURED LINCOLN VIPT SMALL-MID T. ROWE PRICE STRUCTURED MID-CAP TEMPLETON CAP 200 GROWTH STOCK MID-CAP GROWTH GROWTH SERVICE CLASS SERVICE CLASS GROWTH SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ -- $ -- $ 86,560 $ 486,207 $ -- Changes From Operations: - Net investment income (loss) -- (159) (1,742) (10,176) 16,696 - Net realized gain (loss) on investments -- (20) 762 21,004 (59) - Net change in unrealized appreciation or depreciation on investments -- (2,703) 11,239 46,636 (44,868) -------- --------- -------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS -- (2,882) 10,259 57,464 (28,231) Changes From Unit Transactions: Accumulation Units: - Contract purchases -- 79,328 19,487 589,937 1,838,698 - Contract withdrawals and transfers to annuity reserves -- (655) (191) (23,629) (5,003) - Contract transfers -- 10,477 21,570 138,991 405,107 -------- --------- -------- ---------- ----------- -- 89,150 40,866 705,299 2,238,802 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- -- - Annuity Payments -- -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- -- -------- --------- -------- ---------- ----------- -- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS -- 89,150 40,866 705,299 2,238,802 -------- --------- -------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS -- 86,268 51,125 762,763 2,210,571 -------- --------- -------- ---------- ----------- NET ASSETS AT DECEMBER 31, 2007 -- 86,268 137,685 1,248,970 2,210,571 Changes From Operations: - Net investment income (loss) 45 (10,714) (1,674) (20,965) 13,258 - Net realized gain (loss) on investments (48,791) (61,706) 1,244 (84,418) (28,739) - Net change in unrealized appreciation or depreciation on investments (7,203) (288,072) (53,596) (617,424) (1,311,958) -------- --------- -------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (55,949) (360,492) (54,026) (722,807) (1,327,439) Changes From Unit Transactions: Accumulation Units: - Contract purchases 181,650 717,933 -- 308,876 1,209,872 - Contract withdrawals and transfers to annuity reserves (2,108) (21,350) (232) (178,632) (110,692) - Contract transfers 149,515 249,701 (15,130) 274,301 496,138 -------- --------- -------- ---------- ----------- 329,057 946,284 (15,362) 404,545 1,595,318 Annuity Reserves: - Annuity Payments -- -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- -- -------- --------- -------- ---------- ----------- -- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 329,057 946,284 (15,362) 404,545 1,595,318 -------- --------- -------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 273,108 585,792 (69,388) (318,262) 267,879 -------- --------- -------- ---------- ----------- NET ASSETS AT DECEMBER 31, 2008 $273,108 $ 672,060 $ 68,297 $ 930,708 $ 2,478,450 ======== ========= ======== ========== =========== LINCOLN VIPT LINCOLN VIPT TURNER LINCOLN VIPT UBS LINCOLN VIPT MID-CAP UBS GLOBAL ASSET WILSHIRE 2010 GROWTH GLOBAL ASSET ALLOCATION PROFILE SERVICE CLASS ALLOCATION SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ -- $ 684,302 $ 1,794,675 $ -- Changes From Operations: - Net investment income (loss) (3,533) 1,155 (2,546) (407) - Net realized gain (loss) on investments 875 43,366 130,802 (12) - Net change in unrealized appreciation or depreciation on investments 27,571 (10,869) (37,059) (70) --------- --------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 24,913 33,652 91,197 (489) Changes From Unit Transactions: Accumulation Units: - Contract purchases 572,535 -- 775,038 -- - Contract withdrawals and transfers to annuity reserves (7,283) (25,807) (171,402) (2,849) - Contract transfers 225,614 (10,422) 252,365 303,277 --------- --------- ----------- --------- 790,866 (36,229) 856,001 300,428 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- --------- ----------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 790,866 (36,229) 856,001 300,428 --------- --------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 815,779 (2,577) 947,198 299,939 --------- --------- ----------- --------- NET ASSETS AT DECEMBER 31, 2007 815,779 681,725 2,741,873 299,939 Changes From Operations: - Net investment income (loss) (15,206) 26,620 177,382 (1,073) - Net realized gain (loss) on investments 129,375 43,811 255,131 (2,466) - Net change in unrealized appreciation or depreciation on investments (691,638) (284,619) (1,627,469) (123,672) --------- --------- ----------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (577,469) (214,188) (1,194,956) (127,211) Changes From Unit Transactions: Accumulation Units: - Contract purchases 418,873 1 884,525 331,976 - Contract withdrawals and transfers to annuity reserves (81,213) (48,691) (108,097) (131,711) - Contract transfers 121,086 (23,185) 454,590 126,519 --------- --------- ----------- --------- 458,746 (71,875) 1,231,018 326,784 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- --------- --------- ----------- --------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 458,746 (71,875) 1,231,018 326,784 --------- --------- ----------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS (118,723) (286,063) 36,062 199,573 --------- --------- ----------- --------- NET ASSETS AT DECEMBER 31, 2008 $ 697,056 $ 395,662 $ 2,777,935 $ 499,512 ========= ========= =========== =========
N-23
LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT WILSHIRE WILSHIRE 2020 WILSHIRE 2030 WILSHIRE 2040 AGGRESSIVE PROFILE PROFILE PROFILE PROFILE SERVICE CLASS SERVICE CLASS SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ -- $ -- $ -- $ 1,423,209 Changes From Operations: - Net investment income (loss) (26) (4) (4) (16,859) - Net realized gain (loss) on investments 290 -- -- 103,039 - Net change in unrealized appreciation or depreciation on investments 241 172 (75) 77,913 -------- --------- -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 505 168 (79) 164,093 Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,318 7,503 4 750,928 - Contract withdrawals and transfers to annuity reserves (313) -- (1) (13,111) - Contract transfers 6,386 -- 5,027 178,215 -------- --------- -------- ----------- 8,391 7,503 5,030 916,032 Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- -------- --------- -------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 8,391 7,503 5,030 916,032 -------- --------- -------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 8,896 7,671 4,951 1,080,125 -------- --------- -------- ----------- NET ASSETS AT DECEMBER 31, 2007 8,896 7,671 4,951 2,503,334 Changes From Operations: - Net investment income (loss) (413) (2,309) (3,162) (37,840) - Net realized gain (loss) on investments 1,631 (66,819) (43,721) 29,145 - Net change in unrealized appreciation or depreciation on investments (59,308) (121,460) (43,654) (1,530,446) -------- --------- -------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (58,090) (190,588) (90,537) (1,539,141) Changes From Unit Transactions: Accumulation Units: - Contract purchases 227,729 487,565 47,039 1,034,614 - Contract withdrawals and transfers to annuity reserves (55,449) (1,978) (14,632) (110,236) - Contract transfers 114,067 53,338 163,121 687,588 -------- --------- -------- ----------- 286,347 538,925 195,528 1,611,966 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- -------- --------- -------- ----------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 286,347 538,925 195,528 1,611,966 -------- --------- -------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS 228,257 348,337 104,991 72,825 -------- --------- -------- ----------- NET ASSETS AT DECEMBER 31, 2008 $237,153 $ 356,008 $109,942 $ 2,576,159 ======== ========= ======== ===========
See accompanying notes. N-24
LINCOLN VIPT LINCOLN VIPT LINCOLN VIPT WILSHIRE WILSHIRE WILSHIRE MODERATELY CONSERVATIVE MODERATE AGGRESSIVE MFS VIT PROFILE PROFILE PROFILE CORE EQUITY MFS VIT SERVICE CLASS SERVICE CLASS SERVICE CLASS SERVICE CLASS GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 2,522,673 $ 19,091,944 $ 8,377,196 $181,962 $ 391,285 Changes From Operations: - Net investment income (loss) 9,280 (69,863) (9,696) (2,624) (5,185) - Net realized gain (loss) on investments 73,739 361,096 349,303 15,805 44,778 - Net change in unrealized appreciation or depreciation on investments 103,674 1,320,051 404,929 4,086 25,681 ----------- ------------ ----------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 186,693 1,611,284 744,536 17,267 65,274 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,051,332 7,913,851 5,237,440 1,640 5,015 - Contract withdrawals and transfers to annuity reserves (217,584) (753,457) (221,430) (32,547) (101,073) - Contract transfers 799,265 2,995,598 698,261 (12,328) (28,626) ----------- ------------ ----------- -------- --------- 1,633,013 10,155,992 5,714,271 (43,235) (124,684) Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- -- -- -- - Annuity Payments -- -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- -- ----------- ------------ ----------- -------- --------- -- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,633,013 10,155,992 5,714,271 (43,235) (124,684) ----------- ------------ ----------- -------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,819,706 11,767,276 6,458,807 (25,968) (59,410) ----------- ------------ ----------- -------- --------- NET ASSETS AT DECEMBER 31, 2007 4,342,379 30,859,220 14,836,003 155,994 331,875 Changes From Operations: - Net investment income (loss) 19,215 50,286 (116,774) (1,450) (2,806) - Net realized gain (loss) on investments 18,033 277,575 (45,770) 2,902 25,326 - Net change in unrealized appreciation or depreciation on investments (1,090,460) (10,659,040) (5,600,219) (58,886) (123,769) ----------- ------------ ----------- -------- --------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,053,212) (10,331,179) (5,762,763) (57,434) (101,249) Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,677,191 5,361,585 2,142,853 59 120 - Contract withdrawals and transfers to annuity reserves (583,738) (1,989,825) (848,797) (11,029) (71,094) - Contract transfers 741,116 2,919,419 1,135,964 (11,534) (17,074) ----------- ------------ ----------- -------- --------- 1,834,569 6,291,179 2,430,020 (22,504) (88,048) Annuity Reserves: - Annuity Payments -- -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment -- -- -- -- -- ----------- ------------ ----------- -------- --------- -- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,834,569 6,291,179 2,430,020 (22,504) (88,048) ----------- ------------ ----------- -------- --------- TOTAL INCREASE (DECREASE) IN NET ASSETS 781,357 (4,040,000) (3,332,743) (79,938) (189,297) ----------- ------------ ----------- -------- --------- NET ASSETS AT DECEMBER 31, 2008 $ 5,123,736 $ 26,819,220 $11,503,260 $ 76,056 $ 142,578 =========== ============ =========== ======== ========= MFS VIT MFS VIT GROWTH MFS VIT TOTAL RETURN MFS VIT SERVICE CLASS TOTAL RETURN SERVICE CLASS UTILITIES SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------ NET ASSETS AT JANUARY 1, 2007 $ 546,371 $ 2,969,465 $13,943,010 $1,806,179 Changes From Operations: - Net investment income (loss) (7,690) 34,604 99,639 (6,348) - Net realized gain (loss) on investments 64,395 178,020 527,400 420,720 - Net change in unrealized appreciation or depreciation on investments 20,155 (130,545) (334,731) (82,675) --------- ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 76,860 82,079 292,308 331,697 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,507 10,152 3,035,092 432 - Contract withdrawals and transfers to annuity reserves (27,190) (450,153) (1,191,397) (262,987) - Contract transfers (221,559) (133,488) 1,076,651 (439,250) --------- ----------- ----------- ---------- (247,242) (573,489) 2,920,346 (701,805) Annuity Reserves: - Transfer from accumulation units and between subaccounts -- -- 24,080 -- - Annuity Payments -- (2,884) (1,137) -- - Receipt (reimbursement) of mortality guarantee adjustment -- (2) (236) -- --------- ----------- ----------- ---------- -- (2,886) 22,707 -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (247,242) (576,375) 2,943,053 (701,805) --------- ----------- ----------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (170,382) (494,296) 3,235,361 (370,108) --------- ----------- ----------- ---------- NET ASSETS AT DECEMBER 31, 2007 375,989 2,475,169 17,178,371 1,436,071 Changes From Operations: - Net investment income (loss) (4,434) 34,696 183,892 2,412 - Net realized gain (loss) on investments 14,576 123,572 604,860 235,610 - Net change in unrealized appreciation or depreciation on investments (140,066) (640,064) (4,762,705) (768,023) --------- ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (129,924) (481,796) (3,973,953) (530,001) Changes From Unit Transactions: Accumulation Units: - Contract purchases 4,804 412 623,770 173 - Contract withdrawals and transfers to annuity reserves (25,398) (419,059) (879,123) (304,310) - Contract transfers (25,503) (191,001) (728,350) 54,088 --------- ----------- ----------- ---------- (46,097) (609,648) (983,703) (250,049) Annuity Reserves: - Annuity Payments -- (2,446) (1,993) -- - Receipt (reimbursement) of mortality guarantee adjustment -- 1 (49) -- --------- ----------- ----------- ---------- -- (2,445) (2,042) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (46,097) (612,093) (985,745) (250,049) --------- ----------- ----------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS (176,021) (1,093,889) (4,959,698) (780,050) --------- ----------- ----------- ---------- NET ASSETS AT DECEMBER 31, 2008 $ 199,968 $ 1,381,280 $12,218,673 $ 656,021 ========= =========== =========== ==========
N-25
PUTNAM VT PUTNAM VT MFS VIT NB AMT GROWTH & HEALTH UTILITIES MID-CAP NB AMT INCOME SCIENCES SERVICE CLASS GROWTH REGENCY CLASS IB CLASS IB SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2007 $ 7,935,472 $ 6,801,153 $ 8,887,907 $114,877 $189,090 Changes From Operations: - Net investment income (loss) (94,760) (127,564) (107,787) (419) (1,884) - Net realized gain (loss) on investments 1,035,949 482,415 508,651 21,624 13,450 - Net change in unrealized appreciation or depreciation on investments 1,281,690 1,065,241 (232,168) (32,245) (22,543) ----------- ----------- ----------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,222,879 1,420,092 168,696 (11,040) (10,977) Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,518,997 737,950 636,820 157 2,609 - Contract withdrawals and transfers to annuity reserves (829,450) (651,483) (737,817) (1,352) (8,116) - Contract transfers 1,023,452 (432,087) (501,813) 27,387 (13,115) ----------- ----------- ----------- -------- -------- 2,712,999 (345,620) (602,810) 26,192 (18,622) Annuity Reserves: - Transfer from accumulation units and between subaccounts 27,854 -- -- -- -- - Annuity Payments (1,371) -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment (294) -- -- -- -- ----------- ----------- ----------- -------- -------- 26,189 -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 2,739,188 (345,620) (602,810) 26,192 (18,622) ----------- ----------- ----------- -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS 4,962,067 1,074,472 (434,114) 15,152 (29,599) ----------- ----------- ----------- -------- -------- NET ASSETS AT DECEMBER 31, 2007 12,897,539 7,875,625 8,453,793 130,029 159,491 Changes From Operations: - Net investment income (loss) (43,140) (97,684) (28,758) 545 (1,973) - Net realized gain (loss) on investments 1,667,328 172,988 (114,736) 13,899 4,810 - Net change in unrealized appreciation or depreciation on investments (7,137,579) (3,402,422) (3,508,832) (63,829) (26,063) ----------- ----------- ----------- -------- -------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,513,391) (3,327,118) (3,652,326) (49,385) (23,226) Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,763,537 84,345 80,766 156 301 - Contract withdrawals and transfers to annuity reserves (883,382) (449,210) (425,190) (6,224) (55,550) - Contract transfers 496,252 (222,016) (359,988) (2,690) 24,385 ----------- ----------- ----------- -------- -------- 1,376,407 (586,881) (704,412) (8,758) (30,864) Annuity Reserves: - Annuity Payments (2,394) -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustment (50) -- -- -- -- ----------- ----------- ----------- -------- -------- (2,444) -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,373,963 (586,881) (704,412) (8,758) (30,864) ----------- ----------- ----------- -------- -------- TOTAL INCREASE (DECREASE) IN NET ASSETS (4,139,428) (3,913,999) (4,356,738) (58,143) (54,090) ----------- ----------- ----------- -------- -------- NET ASSETS AT DECEMBER 31, 2008 $ 8,758,111 $ 3,961,626 $ 4,097,055 $ 71,886 $105,401 =========== =========== =========== ======== ========
See accompanying notes. N-26 NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 1. ACCOUNTING POLICIES AND ACCOUNT INFORMATION THE VARIABLE ACCOUNT: Lincoln New York Separate Account N for Variable Annuities (Variable Account) is a segregated investment account of Lincoln Life & Annuity Company of New York (the Company) and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended, as a unit investment trust. The Variable Account consists of fourteen products. The available contracts are as follows: - Lincoln ChoicePlus - Lincoln ChoicePlus II - Lincoln ChoicePlus Access - Lincoln ChoicePlus II Access - Lincoln ChoicePlus II Advance - Lincoln ChoicePlus II Bonus - Lincoln ChoicePlus Assurance A Share - Lincoln ChoicePlus Assurance B Share - Lincoln ChoicePlus Assurance Bonus - Lincoln ChoicePlus Assurance C Share - Lincoln ChoicePlus Assurance L Share - Lincoln ChoicePlus Design - Lincoln ChoicePlus Assurance A Class - Lincoln ChoicePlus Assurance B Class The assets of the Variable Account are owned by the Company. The Variable Account's assets support the annuity contracts and may not be used to satisfy liabilities arising from any other business of the Company. BASIS OF PRESENTATION: The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for unit investment trusts. INVESTMENTS: The assets of the Variable Account are divided into variable subaccounts, each of which may be invested in shares of one hundred ten available mutual funds (the Funds) of seventeen diversified open-end management investment companies, each Fund with its own investment objective. The Funds are: AIM Variable Insurance Funds (AIM V.I.): AIM V.I. Capital Appreciation Fund AIM V.I. Capital Appreciation Class II Fund AIM V.I. Core Equity Fund AIM V.I. Core Equity Class II Fund AIM V.I. International Growth Fund AIM V.I. International Growth Class II Fund AllianceBernstein Variable Products Series Fund, Inc. (ABVPSF): ABVPSF Global Technology Class B Fund ABVPSF Growth and Income Class B Fund ABVPSF International Value Class B Fund ABVPSF Large Cap Growth Class B Fund ABVPSF Small/Mid Cap Value Class B Fund American Century Variable Portfolios, Inc. (American Century VP): American Century VP Inflation Protection (Class 2) American Funds Insurance Series (American Funds): American Funds Global Growth Class 2 Fund American Funds Global Small Capitalization Class 2 Fund American Funds Growth Class 2 Fund American Funds Growth-Income Class 2 Fund American Funds International Class 2 Fund Delaware VIP Trust (Delaware VIPT)*: Delaware VIPT Capital Reserves Service Class Series Delaware VIPT Diversified Income Service Class Series Delaware VIPT Emerging Markets Service Class Series Delaware VIPT High Yield Series Delaware VIPT High Yield Service Class Series Delaware VIPT REIT Series Delaware VIPT REIT Service Class Series Delaware VIPT Small Cap Value Series Delaware VIPT Small Cap Service Class Series Delaware VIPT Trend Series Delaware VIPT Trend Service Class Series Delaware VIPT U.S. Growth Service Class Series Delaware VIPT Value Series Delaware VIPT Value Service Class Series DWS Scudder VIP Funds (DWS VIP): DWS VIP Equity 500 Index Fund DWS VIP Equity 500 Index Service Class Fund DWS VIP Small Cap Index Fund DWS VIP Small Cap Index Service Class Fund Fidelity Variable Insurance Products Fund (Fidelity VIP): Fidelity VIP Contrafund Service Class 2 Portfolio Fidelity VIP Equity-Income Portfolio Fidelity VIP Equity-Income Service Class 2 Portfolio Fidelity VIP Growth Portfolio Fidelity VIP Growth Service Class 2 Portfolio Fidelity VIP Mid Cap Service Class 2 Portfolio Fidelity VIP Overseas Portfolio Fidelity VIP Overseas Service Class 2 Portfolio Franklin Templeton Variable Insurance Products Trust (FTVIPT): FTVIPT Franklin Income Securities Class 2 Fund FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 Fund FTVIPT Mutual Shares Securities Class 2 Fund FTVIPT Templeton Global Income Securities Class 2 Fund FTVIPT Templeton Growth Securities Class 2 Fund N-27 Goldman Sachs Variable Insurance Trust (Goldman Sachs VIT): Goldman Sachs VIT Growth & Income Service Class Fund** Janus Aspen Series: Janus Aspen Series Balanced Service Shares Portfolio Janus Aspen Series Mid Cap Growth Service Shares Portfolio Janus Aspen Series Worldwide Growth Service Shares Portfolio Lincoln Variable Insurance Products Trust (Lincoln VIPT)*: Lincoln VIPT Baron Growth Opportunities Service Class Fund Lincoln VIPT Capital Growth Service Class Fund Lincoln VIPT Cohen & Steers Global Real Estate Service Class Fund Lincoln VIPT Columbia Value Opportunities Service Class Fund Lincoln VIPT Delaware Bond Fund Lincoln VIPT Delaware Bond Service Class Fund Lincoln VIPT Delaware Growth and Income Service Class Fund Lincoln VIPT Delaware Social Awareness Fund Lincoln VIPT Delaware Social Awareness Service Class Fund Lincoln VIPT Delaware Special Opportunities Service Class Fund Lincoln VIPT FI Equity-Income Service Class Fund Lincoln VIPT Janus Capital Appreciation Fund Lincoln VIPT Janus Capital Appreciation Service Class Fund Lincoln VIPT Marsico International Growth Service Class Fund Lincoln VIPT MFS Value Service Class Fund Lincoln VIPT Mid-Cap Value Service Class Fund Lincoln VIPT Mondrian International Value Fund Lincoln VIPT Mondrian International Value Service Class Fund Lincoln VIPT Money Market Fund Lincoln VIPT Money Market Service Class Fund Lincoln VIPT SSgA Bond Index Service Class Fund Lincoln VIPT SSgA Developed International 150 Service Class Fund Lincoln VIPT SSgA Emerging Markets 100 Service Class Fund Lincoln VIPT SSgA International Index Service Class Fund Lincoln VIPT SSgA Large Cap 100 Service Class Fund Lincoln VIPT SSgA S&P 500 Index Fund Lincoln VIPT SSgA S&P 500 Index Service Class Fund Lincoln VIPT SSgA Small-Cap Index Service Class Fund Lincoln VIPT SSgA Small-Mid Cap 200 Service Class Fund Lincoln VIPT T. Rowe Price Growth Stock Service Class Fund Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Fund Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class Fund Lincoln VIPT Templeton Growth Service Class Fund Lincoln VIPT Turner Mid-Cap Growth Service Class Fund Lincoln VIPT UBS Global Asset Allocation Fund Lincoln VIPT UBS Global Asset Allocation Service Class Fund Lincoln VIPT Wilshire 2010 Profile Service Class Fund Lincoln VIPT Wilshire 2020 Profile Service Class Fund Lincoln VIPT Wilshire 2030 Profile Service Class Fund Lincoln VIPT Wilshire 2040 Profile Service Class Fund Lincoln VIPT Wilshire Aggressive Profile Service Class Fund Lincoln VIPT Wilshire Conservative Profile Service Class Fund Lincoln VIPT Wilshire Moderate Profile Service Class Fund Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class Fund Lord Abbett Securities Trust (Lord Abbett): Lord Abbett All Value Class VC Fund** MFS Variable Insurance Trust (MFS VIT): MFS VIT Core Equity Service Class Series MFS VIT Growth Series MFS VIT Growth Service Class Series MFS VIT Total Return Series MFS VIT Total Return Service Class Series MFS VIT Utilities Series MFS VIT Utilities Service Class Series Neuberger Berman Advisers Management Trust (NB AMT): NB AMT Mid-Cap Growth Portfolio NB AMT Regency Portfolio Oppenheimer Variable Account Funds (Oppenheimer): Oppenheimer Global Securities Service Class Fund/VA** Putnam Variable Trust (Putnam VT): Putnam VT Growth & Income Class IB Fund Putnam VT Health Sciences Class IB Fund Van Kampen Universal Institutional Funds (Van Kampen): Van Kampen Capital Growth Class II Portfolio** * Denotes an affiliate of Lincoln Life & Annuity Company of New York. ** Available funds with no money invested at December 31, 2008. N-28 Investments in the Funds are stated at the closing net asset value per share on December 31, 2008, which approximates fair value. The difference between cost and net asset value is reflected as unrealized appreciation or depreciation of investments. Effective January 1, 2008, the Variable Account adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value as the price that the Variable Account would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a framework for measuring fair value and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity's own assessment regarding the assumptions market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The Variable Account's investments in the Funds are assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below. Level 1 - inputs to the valuation methodology are quoted prices in active markets Level 2 - inputs to the valuation methodology are observable, directly or indirectly Level 3 - inputs to the valuation methodology are unobservable and reflect assumptions on the part of the reporting entity The Separate Account's investments in the Funds are valued within the above FAS 157 fair value hierarchy as Level 2. Net asset value is quoted by the Funds as derived by the fair value of the Funds underlying investments. The Funds are not considered Level 1 as they are not traded in the open market; rather the Company sells and redeems shares at net asset value with the Funds. Adoption of FAS 157 had no effect on the recorded amounts of the Funds in the Variable Account. Investment transactions are accounted for on a trade date basis. The cost of investments sold is determined by the average cost method. DIVIDENDS: Dividends paid to the Variable Account are automatically reinvested in shares of the Funds on the payable date. Dividend income is recorded on the ex-dividend date. FEDERAL INCOME TAXES: Operations of the Variable Account form a part of and are taxed with operations of the Company, which is taxed as a "life insurance company" under the Internal Revenue Code. The Variable Account will not be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended. Under current federal income tax law, no federal income taxes are payable with respect to the Variable Account's net investment income and the net realized gain on investments. ANNUITY RESERVES: Reserves on contracts not involving life contingencies are calculated using an assumed investment rate of 3%, 4%, or 5%. Reserves on contracts involving life contingencies are calculated using a modification of the 1971 Individual Annuitant Mortality Table and an assumed investment rate of 3%, 4%, or 5%. NEW INVESTMENT FUNDS AND FUND NAME CHANGES: During 2007, the Lincoln VIPT Capital Growth Service Class Fund, the Lincoln VIPT Cohen & Steers Global Real Estate Service Class Fund, the Lincoln VIPT Delaware Special Opportunities Service Class Fund, the Lincoln VIPT Marsico International Growth Service Class Fund, the Lincoln VIPT MFS Value Service Class Fund, the Lincoln VIPT Mid-Cap Growth Service Class Fund, the Lincoln VIPT Mid-Cap Value Service Class Fund, the Lincoln VIPT S&P 500 Index Fund, the Lincoln VIPT S&P 500 Index Service Class Fund, the Lincoln VIPT Small-Cap Index Service Class Fund, the Lincoln VIPT T. Rowe Price Growth Stock Service Class Fund, the Lincoln VIPT Templeton Growth Service Class Fund, the Lincoln VIPT Value Opportunities Service Class Fund, the Lincoln VIPT Wilshire 2010 Profile Service Class Fund, the Lincoln VIPT Wilshire 2020 Profile Service Class Fund, the Lincoln VIPT Wilshire 2030 Profile Service Class Fund and the Lincoln VIPT Wilshire 2040 Profile Service Class Fund became available as investment options for Account Contract owners. Accordingly, the 2007 statement of changes in net assets and total return and investment income ratios in note 3 for these subaccounts are for the period from the commencement of operations to December 31, 2007. N-29 Also during 2007 the following funds changed their names:
PREVIOUS FUND NAME NEW FUND NAME ---------------------------------------------------------------------------------------------------------------------------------- Baron Capital Asset Fund Lincoln VIPT Baron Growth Opportunities Service Class Fund Lincoln VIPT Bond Fund Lincoln VIPT Delaware Bond Fund Lincoln VIPT Bond Service Class Fund Lincoln VIPT Delaware Bond Service Class Fund Lincoln VIPT Growth and Income Service Class Fund Lincoln VIPT Delaware Growth and Income Service Class Fund Lincoln VIPT Social Awareness Fund Lincoln VIPT Delaware Social Awareness Fund Lincoln VIPT Social Awareness Service Class Fund Lincoln VIPT Delaware Social Awareness Service Class Fund Lincoln VIPT Special Opportunities Service Class Fund Lincoln VIPT Delaware Special Opportunities Service Class Fund Lincoln VIPT Equity-Income Service Class Fund Lincoln VIPT FI Equity-Income Service Class Fund Lincoln VIPT Capital Appreciation Fund Lincoln VIPT Janus Capital Appreciation Fund Lincoln VIPT Capital Appreciation Service Class Fund Lincoln VIPT Janus Capital Appreciation Service Class Fund Lincoln VIPT International Fund Lincoln VIPT Mondrian International Value Fund Lincoln VIPT International Service Class Fund Lincoln VIPT Mondrian International Value Service Class Fund Lincoln VIPT Aggressive Growth Fund Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Fund Lincoln VIPT Aggressive Growth Service Class Fund Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class Fund Lincoln VIPT Global Asset Allocation Fund Lincoln VIPT UBS Global Asset Allocation Fund Lincoln VIPT Global Asset Allocation Service Class Fund Lincoln VIPT UBS Global Asset Allocation Service Class Fund Lincoln VIPT Aggressive Profile Service Class Fund Lincoln VIPT Wilshire Aggressive Profile Service Class Fund Lincoln VIPT Conservative Profile Service Class Fund Lincoln VIPT Wilshire Conservative Profile Service Class Fund Lincoln VIPT Moderate Profile Service Class Fund Lincoln VIPT Wilshire Moderate Profile Service Class Fund Lincoln VIPT Moderately Aggressive Profile Service Class Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class Fund Fund MFS VIT Capital Opportunities Service Class Fund MFS VIT Core Equity Service Class Fund
Also during 2007, the Lincoln VIPT Core Fund, the Lincoln VIPT Core Service Class Fund, the Lincoln VIPT Growth Fund, the Lincoln VIPT Growth Service Class Fund and the Lincoln VIPT Growth Opportunities Fund ceased to be available as investment options to Variable Account Contract owners. During 2007, the Lincoln Variable Insurance Products Trust (Lincoln VIPT) acquired the Baron Capital Asset Fund and renamed the fund Lincoln VIPT Baron Growth Opportunities Fund. This fund acquisition had no impact on the units outstanding or the unit prices to the Variable Account Contract owner. During 2008, the Goldman Sachs VIT Growth & Income Service Class, the Lincoln VIPT SSgA Bond Index Service Class Fund, the Lincoln VIPT SSgA Developed International 150 Service Class Fund, the Lincoln VIPT SSgA Emerging Markets 100 Service Class Fund, the Lincoln VIPT SSgA International Index Service Class Fund, the Lincoln VIPT SSgA Large Cap 100 Service Class Fund, the Lincoln VIPT SSgA Small-Mid Cap 200 Service Class Fund, the Lord Abbett All Value Class VC Fund, the Oppenheimer Global Securities Service Class Fund and the Van Kampen Capital Growth Class II Portfolio became available as investment options for Account Contract owners. Accordingly, the 2008 statement of operations and statements of changes in net assets and total return and investment income ratios in note 3 for these subaccounts are for the period from the commencement of operations to December 31, 2008. During 2008 the Lincoln VIPT Value Opportunities Service Class Fund changed its name to the Lincoln VIPT Columbia Value Opportunities Service Class Fund, the Lincoln VIPT S&P 500 Index Fund changed its name to the Lincoln VIPT SSgA S&P 500 Index Fund, the Lincoln VIPT S&P 500 Index Service Class Fund changed its name to the Lincoln VIPT SSgA S&P 500 Index Service Class Fund, the Lincoln VIPT Small-Cap Index Service Class Fund changed its name to the Lincoln VIPT SSgA Small-Cap Index Service Class Fund, the Lincoln VIPT Mid-Cap Growth Service Class Fund changed its name to the Lincoln VIPT Turner Mid-Cap Growth Service Class Fund, the MFS VIT Emerging Growth Series changed its name to the MFS VIT Growth Series and the MFS VIT Emerging Growth Service Class Series changed its name to the MFS VIT Growth Service Class Series. 2. MORTALITY AND EXPENSE GUARANTEES AND OTHER TRANSACTIONS WITH AFFILIATES Amounts are paid to the Company for mortality and expense guarantees at a percentage of each Fund's average daily net assets within the Variable Account. The rates are as follows for the fourteen contract types: - Lincoln ChoicePlus at a daily rate of .0038356% to .0064384% (1.40% to 2.35% on an annual basis) - Lincoln ChoicePlus II at a daily rate of .0034247% to .0064384% (1.25% to 2.35% on an annual basis) - Lincoln ChoicePlus Access at a daily rate of .0038356% to .0071233% (1.40% to 2.60% on an annual basis) N-30 - Lincoln ChoicePlus II Access at a daily rate of .0038356% to .0071233% (1.40% to 2.60% on an annual basis) - Lincoln ChoicePlus II Advance at a daily rate of .0038356% to .0072603% (1.40% to 2.65% on an annual basis) - Lincoln ChoicePlus II Bonus at a daily rate of .0038356% to .0069863% (1.40% to 2.55% on an annual basis) - Lincoln ChoicePlus Assurance A Share at a daily rate of .0016438% to .0049315% (.60% to 1.80% on an annual basis) - Lincoln ChoicePlus Assurance B Share at a daily rate of .0034247% to .0067123% (1.25% to 2.45% on an annual basis) - Lincoln ChoicePlus Assurance Bonus at a daily rate of .0038356% to .0078082% (1.40% to 2.85% on an annual basis) - Lincoln ChoicePlus Assurance C Share at a daily rate of .0038356% to .0078082% (1.40% to 2.85% on an annual basis) - Lincoln ChoicePlus Assurance L Share at a daily rate of .0038356% to .0076712% (1.40% to 2.80% on an annual basis) - Lincoln ChoicePlus Design at a daily rate of .0030137% to .0075342% (1.10% to 2.75% on an annual basis) - Lincoln ChoicePlus Assurance A Class at a daily rate of .0016438% to .0049315% (.60% to 1.80% on an annual basis) - Lincoln ChoicePlus Assurance B Class at a daily rate of .0034247% to .0067123% (1.25% to 2.45% on an annual basis) Contract charges and surrender charges for the years ended December 31, 2008 and 2007 were $712,635 and $603,773, respectively. For the Assurance A Share and Assurance A Class products, a front-end load or sales charge is applied as a percentage (5.75% maximum) to all gross purchase payments. The sales charge percentage decreases as the value accumulated under certain of the owner's investment increases. For the year ending December 31, 2008, sales charges amounted to $58,901. There were no sales charges for the year ended December 31, 2007. The Company is responsible for all sales, general and administrative expenses applicable to the Variable Account. 3. FINANCIAL HIGHLIGHTS A summary of the fee rates, unit values, units outstanding, net assets and total return and investment income ratios for variable annuity contracts as of and for each year or period in the five years ended December 31, 2008 follows.
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION 2008 1.40% 1.65% $ 3.10 $ 3.57 53,514 $ 181,176 -43.44% -43.29% 0.00% 2007 1.40% 1.65% 5.47 6.30 67,058 405,234 10.18% 10.46% 0.00% 2006 4/28/06 1.40% 1.65% 4.97 5.71 116,072 647,668 -1.38% -1.22% 0.06% AIM V.I. CAPITAL APPRECIATION CLASS II 2008 1.25% 1.70% 7.04 9.73 10,047 80,198 -43.60% -43.34% 0.00% 2007 1.25% 1.70% 12.48 17.23 10,820 153,703 9.85% 10.35% 0.00% 2006 4/28/06 1.25% 1.70% 11.36 15.67 17,186 229,910 -1.59% -1.29% 0.00% AIM V.I. CORE EQUITY 2008 1.40% 2.15% 5.52 8.57 95,576 560,729 -31.63% -31.11% 1.90% 2007 1.40% 2.15% 8.03 8.64 126,614 1,079,752 6.35% 6.61% 0.97% 2006 4/28/06 1.40% 1.65% 7.55 8.10 177,097 1,414,490 7.96% 8.14% 0.52% AIM V.I. CORE EQUITY CLASS II 2008 1.40% 1.60% 8.55 11.29 4,155 36,379 -31.44% -31.30% 1.93% 2007 1.40% 1.60% 12.45 16.47 4,100 52,246 6.16% 6.38% 1.02% 2006 4/28/06 1.40% 1.60% 11.70 15.52 3,781 45,400 7.83% 7.97% 0.54% AIM V.I. INTERNATIONAL GROWTH 2008 1.40% 1.65% 7.52 8.57 21,030 178,491 -41.36% -41.21% 0.41% 2007 1.40% 1.65% 12.83 14.58 35,278 511,337 12.84% 13.12% 0.35% 2006 1.40% 1.65% 12.88 12.88 47,940 615,202 26.45% 26.45% 0.98% 2005 1.40% 1.40% 10.19 10.19 54,004 550,266 16.29% 16.29% 0.72% 2004 1.40% 1.65% 8.76 8.76 51,346 449,530 22.28% 22.28% 0.63%
N-31
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- AIM V.I. INTERNATIONAL GROWTH CLASS II 2008 1.40% 1.70% $12.90 $15.59 11,997 $ 171,182 -41.55% -41.37% 0.40% 2007 1.35% 1.70% 22.07 26.65 16,233 396,637 12.52% 12.91% 0.37% 2006 1.35% 1.70% 19.62 23.66 17,638 382,627 25.72% 26.10% 1.02% 2005 1.40% 1.70% 15.60 18.80 15,551 268,354 15.72% 16.07% 0.65% 2004 1.40% 1.70% 13.48 16.23 12,922 195,966 21.62% 21.99% 0.55% ABVPSF GLOBAL TECHNOLOGY CLASS B 2008 1.25% 2.80% 2.70 10.69 255,641 1,422,126 -48.92% -48.11% 0.00% 2007 1.25% 2.80% 5.23 20.68 266,476 2,573,684 17.64% 18.35% 0.00% 2006 1.30% 1.90% 4.43 17.52 247,607 1,725,587 6.34% 6.98% 0.00% 2005 1.30% 1.90% 4.16 16.42 261,454 1,584,256 1.90% 2.21% 0.00% 2004 1.40% 1.70% 4.08 16.10 263,995 1,308,015 3.32% 3.63% 0.00% ABVPSF GROWTH AND INCOME CLASS B 2008 1.15% 2.55% 6.73 10.89 725,854 6,545,593 -42.19% -41.37% 1.74% 2007 1.15% 2.55% 12.00 18.65 750,307 11,609,684 2.32% 3.56% 1.18% 2006 1.25% 2.45% 11.73 18.08 712,281 10,766,591 14.15% 15.53% 1.17% 2005 1.25% 2.45% 11.55 15.70 673,438 8,857,692 2.83% 3.30% 1.27% 2004 1.25% 1.70% 11.22 15.25 579,554 7,289,970 9.35% 9.73% 0.71% ABVPSF INTERNATIONAL VALUE CLASS B 2008 0.65% 2.55% 5.48 5.71 1,116,025 6,298,328 -54.46% -53.82% 0.90% 2007 1.15% 2.55% 12.24 12.38 746,451 9,175,571 3.52% 4.27% 0.87% 2006 7/20/06 1.25% 1.95% 11.82 11.87 110,355 1,306,888 4.12% 22.59% 0.00% ABVPSF LARGE CAP GROWTH CLASS B 2008 1.40% 1.70% 4.04 9.38 137,530 802,609 -40.84% -40.66% 0.00% 2007 1.25% 1.70% 6.82 15.84 241,648 2,177,105 11.70% 12.20% 0.00% 2006 1.25% 1.70% 6.10 14.17 284,267 2,256,152 -2.32% -1.88% 0.00% 2005 1.25% 1.70% 6.24 14.49 354,911 2,886,857 12.91% 13.42% 0.00% 2004 1.25% 1.70% 5.53 12.82 376,666 2,605,328 6.52% 6.84% 0.00% ABVPSF SMALL/MID CAP VALUE CLASS B 2008 0.65% 2.65% 7.01 14.01 354,669 3,564,791 -37.37% -36.48% 0.43% 2007 1.15% 2.55% 11.85 22.15 254,035 4,218,746 -0.43% 0.27% 0.69% 2006 1.25% 2.35% 11.90 22.17 167,934 3,056,392 12.05% 12.78% 0.23% 2005 1.25% 1.90% 16.18 19.73 123,990 2,181,882 4.84% 5.20% 0.53% 2004 1.35% 1.70% 15.40 18.80 71,614 1,272,675 17.07% 17.42% 0.07% AMERICAN CENTURY VP INFLATION PROTECTION CLASS 2 2008 0.75% 2.65% 9.93 11.03 1,548,195 16,622,077 -4.17% -2.72% 4.85% 2007 1.15% 2.65% 10.36 11.35 1,348,687 15,006,631 6.64% 8.15% 4.56% 2006 1.25% 2.65% 9.75 10.49 1,333,328 13,804,770 -0.83% 0.32% 3.34% 2005 1.25% 2.40% 10.39 10.44 1,185,739 12,312,453 -0.15% 0.20% 4.63% 2004 5/24/04 1.35% 1.70% 10.40 10.42 540,280 5,625,666 1.10% 5.07% 2.15% AMERICAN FUNDS GLOBAL GROWTH CLASS 2 2008 0.75% 2.80% 7.60 10.44 1,129,386 11,336,240 -40.00% -39.09% 2.01% 2007 1.15% 2.65% 14.95 17.16 918,991 15,312,533 12.07% 13.42% 2.96% 2006 1.25% 2.45% 13.48 15.13 622,543 9,204,327 18.16% 18.93% 0.87% 2005 1.25% 1.90% 12.63 12.70 304,358 3,834,879 12.15% 12.55% 0.56% 2004 6/4/04 1.35% 1.70% 11.26 11.29 58,313 657,067 9.41% 12.55% 0.02% AMERICAN FUNDS GLOBAL SMALL CAPITALIZATION CLASS 2 2008 0.65% 2.80% 6.29 15.65 637,442 7,813,603 -54.81% -54.03% 0.00% 2007 1.10% 2.80% 17.12 34.21 563,595 15,255,455 18.43% 19.92% 3.04% 2006 1.25% 2.50% 14.49 28.62 437,693 9,674,755 21.17% 22.51% 0.47% 2005 1.25% 2.35% 12.45 23.45 370,544 6,477,424 23.24% 23.79% 0.95% 2004 1.25% 1.70% 10.10 19.01 236,099 3,082,585 18.84% 19.26% 0.00% AMERICAN FUNDS GROWTH CLASS 2 2008 0.75% 2.80% 6.03 11.98 6,816,758 65,510,396 -45.52% -44.61% 0.86% 2007 1.15% 2.80% 10.95 21.73 6,154,509 106,899,235 9.41% 10.95% 0.84% 2006 1.25% 2.65% 9.90 19.65 5,195,894 80,438,587 7.55% 8.85% 0.91% 2005 1.25% 2.45% 9.14 18.12 3,741,990 52,203,956 14.23% 14.75% 0.78% 2004 1.25% 1.70% 7.99 15.84 2,767,613 31,762,290 10.60% 10.99% 0.22%
N-32
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- AMERICAN FUNDS GROWTH-INCOME CLASS 2 2008 0.65% 2.85% $ 6.95 $11.50 6,931,147 $ 65,081,606 -39.48% -38.56% 1.79% 2007 1.15% 2.65% 12.05 18.79 6,307,570 98,075,890 2.30% 3.74% 1.63% 2006 1.25% 2.65% 11.82 18.18 5,223,829 79,559,863 12.41% 13.77% 1.77% 2005 1.25% 2.45% 12.45 16.04 3,761,285 51,322,429 4.05% 4.52% 1.52% 2004 1.25% 1.70% 11.96 15.40 2,727,912 35,617,516 8.51% 8.89% 1.11% AMERICAN FUNDS INTERNATIONAL CLASS 2 2008 0.90% 2.80% 7.28 15.99 2,656,473 32,607,236 -43.72% -42.76% 2.05% 2007 1.10% 2.80% 13.28 28.07 2,417,904 51,430,194 16.88% 18.53% 1.65% 2006 1.25% 2.65% 11.25 23.76 2,039,633 36,443,544 16.10% 17.50% 1.86% 2005 1.25% 2.45% 9.62 20.29 1,542,457 22,930,653 19.46% 19.99% 1.81% 2004 1.25% 1.70% 8.05 16.97 1,076,497 12,377,222 17.31% 17.72% 1.65% DELAWARE VIPT CAPITAL RESERVES SERVICE CLASS 2008 0.65% 1.95% 10.09 10.33 181,814 1,854,976 -2.57% -1.93% 4.40% 2007 1.30% 1.95% 10.36 10.53 50,939 531,398 2.22% 2.89% 4.56% 2006 1.25% 1.95% 10.16 10.24 55,920 571,124 2.47% 2.98% 4.33% 2005 6/24/05 1.30% 1.80% 9.91 9.94 26,441 262,401 -0.89% 0.32% 2.00% DELAWARE VIPT DIVERSIFIED INCOME SERVICE CLASS 2008 0.75% 2.85% 9.96 11.32 1,774,133 19,410,248 -7.25% -5.99% 3.65% 2007 1.15% 2.50% 10.74 12.06 1,602,126 18,806,780 4.76% 6.08% 2.62% 2006 1.25% 2.50% 10.27 11.37 1,077,327 12,025,261 5.02% 6.23% 1.25% 2005 1.25% 2.40% 10.62 10.70 780,127 8,262,946 -2.27% -1.82% 0.57% 2004 5/24/04 1.25% 1.70% 10.87 10.90 281,559 3,063,394 2.33% 8.82% 0.00% DELAWARE VIPT EMERGING MARKETS SERVICE CLASS 2008 0.75% 2.80% 5.75 19.54 841,109 8,985,568 -53.02% -52.24% 1.32% 2007 1.15% 2.80% 20.03 41.11 715,425 16,791,906 35.16% 36.79% 1.33% 2006 1.25% 2.45% 14.89 30.18 523,453 9,627,921 24.12% 25.24% 0.91% 2005 1.25% 2.15% 16.95 24.19 323,279 5,186,074 24.97% 25.41% 0.07% 2004 5/26/04 1.35% 1.70% 13.56 19.35 67,159 915,132 6.70% 34.45% 0.00% DELAWARE VIPT HIGH YIELD 2008 1.40% 2.15% 8.39 10.56 59,710 628,708 -25.79% -25.23% 9.89% 2007 1.40% 2.15% 11.30 14.12 113,806 1,606,000 0.61% 1.37% 6.74% 2006 1.40% 2.15% 11.23 13.93 122,300 1,702,644 10.05% 10.88% 6.66% 2005 1.40% 2.15% 12.56 12.56 130,131 1,633,842 2.15% 2.15% 7.37% 2004 1.40% 1.40% 12.30 12.30 177,600 2,184,219 12.66% 12.66% 8.12% DELAWARE VIPT HIGH YIELD SERVICE CLASS 2008 0.75% 2.50% 8.01 13.29 799,471 8,670,568 -26.29% -25.29% 8.38% 2007 1.15% 2.50% 11.15 17.87 804,971 12,037,209 0.01% 1.27% 6.14% 2006 1.25% 2.50% 11.16 17.71 706,679 10,723,799 9.48% 10.80% 6.16% 2005 1.25% 2.45% 12.15 16.04 598,754 8,313,823 1.60% 2.06% 5.87% 2004 1.25% 1.70% 11.95 15.77 435,913 6,060,928 12.10% 12.49% 5.70% DELAWARE VIPT REIT 2008 1.40% 2.15% 7.22 16.62 45,860 756,320 -36.45% -35.97% 2.50% 2007 1.40% 2.15% 11.36 25.95 65,083 1,685,828 -15.77% -15.14% 1.55% 2006 1.40% 2.15% 13.49 30.58 105,365 3,218,141 29.81% 30.79% 1.87% 2005 1.40% 2.15% 23.38 23.38 116,422 2,718,946 5.68% 5.68% 1.96% 2004 1.40% 1.40% 22.13 22.13 128,768 2,849,213 29.55% 29.55% 2.00% DELAWARE VIPT REIT SERVICE CLASS 2008 1.25% 2.65% 7.02 14.65 669,511 8,055,493 -36.98% -36.09% 2.13% 2007 1.25% 2.65% 11.20 23.02 759,282 14,473,637 -16.26% -15.24% 1.10% 2006 1.25% 2.45% 13.38 27.27 755,788 17,301,594 29.12% 30.68% 1.54% 2005 1.25% 2.45% 16.56 20.95 619,033 11,245,488 5.06% 5.53% 1.54% 2004 1.25% 1.70% 15.74 19.93 434,732 7,766,225 28.88% 29.33% 1.44% DELAWARE VIPT SMALL CAP VALUE 2008 1.40% 2.15% 7.67 15.70 56,909 880,274 -31.37% -30.85% 0.87% 2007 1.40% 2.15% 11.18 22.70 92,807 2,092,893 -8.61% -7.92% 0.57% 2006 1.40% 2.15% 12.23 24.66 133,429 3,285,327 13.71% 14.57% 0.25% 2005 1.40% 2.15% 21.52 21.52 155,797 3,348,556 7.90% 7.90% 0.38% 2004 1.40% 1.40% 19.94 19.94 176,951 3,529,209 19.79% 19.79% 0.19%
N-33
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- DELAWARE VIPT SMALL CAP VALUE SERVICE CLASS 2008 0.75% 2.80% $ 7.43 $15.46 974,434 $ 11,838,703 -32.00% -30.94% 0.47% 2007 1.25% 2.80% 10.96 22.48 877,484 16,093,929 -9.28% -8.00% 0.25% 2006 1.25% 2.65% 12.13 24.53 707,392 14,272,750 13.13% 14.45% 0.02% 2005 1.25% 2.40% 16.88 21.52 451,485 8,245,105 7.31% 7.79% 0.13% 2004 1.25% 1.70% 15.70 20.04 252,271 4,468,994 19.12% 19.54% 0.02% DELAWARE VIPT TREND 2008 1.40% 2.15% 5.73 6.68 70,014 401,917 -47.87% -47.48% 0.00% 2007 1.40% 2.15% 10.92 10.92 120,331 1,314,699 9.21% 9.21% 0.00% 2006 1.40% 1.40% 10.00 10.00 172,576 1,725,117 6.10% 6.10% 0.00% 2005 1.40% 1.40% 9.42 9.42 209,203 1,971,080 4.39% 4.39% 0.00% 2004 1.40% 1.40% 9.03 9.03 229,628 2,072,613 11.04% 11.04% 0.00% DELAWARE VIPT TREND SERVICE CLASS 2008 1.15% 2.50% 4.61 10.09 377,620 2,895,182 -48.18% -47.46% 0.00% 2007 1.15% 2.50% 8.81 19.29 383,460 5,679,593 7.78% 9.09% 0.00% 2006 1.25% 2.45% 8.11 17.75 393,256 5,587,281 4.73% 6.00% 0.00% 2005 1.25% 2.45% 7.68 16.80 356,027 4,858,095 3.83% 4.30% 0.00% 2004 1.25% 1.70% 7.40 16.16 263,842 3,384,264 10.42% 10.81% 0.00% DELAWARE VIPT U.S. GROWTH SERVICE CLASS 2008 0.75% 2.45% 6.49 8.81 181,397 1,437,444 -44.24% -43.57% 0.00% 2007 1.25% 2.45% 11.65 15.66 156,638 2,262,096 9.66% 10.98% 0.00% 2006 1.25% 2.45% 11.14 14.16 161,058 2,125,204 -0.41% 0.79% 0.00% 2005 1.25% 2.45% 11.17 14.10 168,441 2,233,571 12.48% 12.99% 0.38% 2004 1.25% 1.70% 9.93 12.52 175,456 2,069,031 1.29% 1.64% 0.00% DELAWARE VIPT VALUE 2008 1.40% 2.15% 7.79 9.90 32,025 316,031 -34.84% -34.35% 3.24% 2007 1.40% 2.35% 15.09 15.09 41,279 607,987 -4.08% -4.08% 1.81% 2006 1.40% 1.40% 15.73 15.73 53,950 848,542 22.38% 22.38% 1.49% 2005 1.40% 1.40% 12.85 12.85 52,465 674,297 4.55% 4.55% 1.76% 2004 1.40% 1.40% 12.29 12.29 63,947 786,073 13.33% 13.33% 1.57% DELAWARE VIPT VALUE SERVICE CLASS 2008 1.15% 2.35% 7.03 12.02 644,275 6,481,523 -35.12% -34.33% 2.70% 2007 1.15% 2.40% 11.82 18.39 662,680 10,287,812 -5.25% -4.20% 1.27% 2006 1.25% 2.35% 12.47 19.26 505,269 8,327,048 20.92% 22.26% 1.23% 2005 1.25% 2.35% 12.88 15.81 326,204 4,559,725 4.01% 4.37% 1.05% 2004 1.35% 1.70% 12.37 15.18 126,727 1,716,051 12.66% 13.05% 1.31% DWS VIP EAFE EQUITY INDEX 2005 0.00% 0.00% -- -- -- -- 0.00% 0.00% 2.14% 2004 1.25% 1.70% 12.53 16.03 22,721 326,731 17.06% 17.41% 2.05% DWS VIP EAFE EQUITY INDEX SERVICE CLASS 2005 0.00% 0.00% -- -- -- -- 0.00% 0.00% 2.05% 2004 1.35% 1.70% 15.07 15.13 67,667 1,021,184 16.90% 17.19% 1.56% DWS VIP EQUITY 500 INDEX 2008 1.25% 2.35% 6.09 10.77 366,999 2,872,840 -38.61% -37.93% 2.52% 2007 1.25% 2.35% 9.86 17.42 461,475 5,665,995 3.06% 3.99% 1.55% 2006 1.25% 2.15% 9.52 16.81 537,865 6,258,091 13.06% 14.09% 1.17% 2005 1.25% 2.15% 8.38 14.79 608,855 6,139,908 2.91% 3.38% 1.55% 2004 1.25% 1.70% 8.14 14.35 729,901 6,738,285 8.73% 9.06% 1.00% DWS VIP EQUITY 500 INDEX SERVICE CLASS 2008 1.25% 2.50% 7.29 9.84 343,991 3,199,057 -38.89% -38.12% 2.22% 2007 1.25% 2.50% 11.96 15.92 401,406 6,007,428 2.54% 3.73% 1.23% 2006 1.25% 2.40% 11.66 15.36 385,552 5,699,773 12.51% 13.75% 0.85% 2005 1.30% 2.40% 13.39 13.51 313,713 4,166,348 2.66% 3.02% 1.15% 2004 1.35% 1.70% 13.04 13.12 219,450 2,870,463 8.46% 8.84% 0.55% DWS VIP SMALL CAP INDEX 2008 1.25% 2.35% 7.60 13.73 54,740 674,464 -35.66% -34.94% 1.65% 2007 1.25% 2.35% 17.94 21.18 70,714 1,331,469 -3.55% -3.12% 0.89% 2006 1.25% 1.70% 18.60 21.94 88,917 1,723,028 15.51% 16.03% 0.65% 2005 1.25% 1.70% 16.10 18.98 90,665 1,515,442 2.50% 2.96% 0.61% 2004 1.25% 1.70% 15.71 18.49 71,721 1,152,852 15.77% 16.12% 0.43%
N-34
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- DWS VIP SMALL CAP INDEX SERVICE CLASS 2008 1.25% 2.80% $ 7.41 $11.65 174,996 $ 1,833,481 -36.14% -35.14% 1.40% 2007 1.25% 2.80% 11.90 17.98 198,271 3,271,807 -4.05% -3.38% 0.59% 2006 1.25% 1.95% 12.38 18.63 159,270 2,736,835 14.93% 15.73% 0.32% 2005 1.25% 1.95% 15.97 16.11 97,600 1,493,906 2.24% 2.60% 0.36% 2004 1.35% 1.70% 15.64 15.71 41,514 649,758 15.62% 15.90% 0.09% FIDELITY VIP CONTRAFUND SERVICE CLASS 2 2008 0.65% 2.85% 7.04 11.69 2,681,682 26,189,519 -44.28% -43.32% 0.89% 2007 1.10% 2.80% 13.90 20.73 2,079,333 36,955,327 14.41% 15.85% 0.90% 2006 1.25% 2.50% 12.26 17.96 1,439,907 22,724,482 9.33% 10.05% 1.10% 2005 1.25% 1.90% 15.89 16.38 670,616 10,498,823 14.69% 15.21% 0.09% 2004 1.25% 1.70% 13.85 14.27 391,437 5,483,618 13.22% 13.73% 0.12% FIDELITY VIP EQUITY-INCOME 2008 1.40% 2.35% 8.21 8.21 81,512 667,683 -43.45% -43.45% 2.09% 2007 1.40% 1.40% 14.51 14.51 120,210 1,744,766 0.12% 0.12% 1.65% 2006 1.40% 1.40% 14.50 14.50 140,772 2,040,786 18.52% 18.52% 3.28% 2005 1.40% 1.40% 12.23 12.23 153,833 1,881,609 4.39% 4.39% 1.75% 2004 1.40% 1.40% 11.72 11.72 186,167 2,181,253 9.98% 9.98% 1.57% FIDELITY VIP EQUITY-INCOME SERVICE CLASS 2 2008 1.25% 2.45% 6.83 10.38 216,604 2,067,281 -44.20% -43.52% 2.32% 2007 1.25% 2.45% 12.25 18.44 224,248 3,808,352 -1.18% 0.01% 1.50% 2006 1.25% 2.45% 12.39 18.51 253,442 4,277,123 17.03% 18.44% 2.95% 2005 1.25% 2.45% 11.99 15.68 258,542 3,676,713 3.79% 4.26% 1.20% 2004 1.25% 1.70% 11.54 15.09 184,081 2,497,154 9.35% 9.69% 1.02% FIDELITY VIP GROWTH 2008 1.40% 2.15% 5.03 7.13 38,421 193,967 -48.29% -47.90% 0.57% 2007 1.40% 2.15% 9.65 9.65 70,056 677,742 25.20% 25.20% 0.83% 2006 1.40% 1.40% 7.71 7.71 82,129 632,974 5.36% 5.36% 0.42% 2005 1.40% 1.40% 7.31 7.31 101,264 740,718 4.33% 4.33% 0.50% 2004 1.40% 1.40% 7.01 7.01 110,633 775,676 1.94% 1.94% 0.33% FIDELITY VIP GROWTH SERVICE CLASS 2 2008 1.15% 2.25% 4.29 9.59 302,246 2,237,876 -48.33% -47.91% 0.60% 2007 1.15% 1.95% 8.28 18.49 301,473 4,348,313 24.28% 25.09% 0.36% 2006 1.25% 1.90% 6.65 14.83 244,783 2,894,690 4.78% 5.25% 0.15% 2005 1.25% 1.70% 6.34 14.14 192,859 2,306,059 3.72% 4.19% 0.22% 2004 1.25% 1.70% 6.11 13.62 140,875 1,572,046 1.38% 1.69% 0.10% FIDELITY VIP MID CAP SERVICE CLASS 2 2008 0.75% 2.80% 7.18 8.74 1,388,995 11,957,576 -41.28% -40.30% 0.24% 2007 1.15% 2.80% 14.39 14.64 962,202 13,951,114 13.11% 13.85% 0.51% 2006 1.30% 1.95% 12.74 12.86 553,398 7,076,892 10.29% 10.95% 0.09% 2005 6/20/05 1.30% 1.90% 11.55 11.59 159,943 1,849,992 2.31% 14.51% 0.00% FIDELITY VIP OVERSEAS 2008 1.40% 1.40% 7.89 7.89 15,030 118,640 -44.59% -44.59% 2.36% 2007 1.40% 1.40% 14.24 14.24 21,890 311,796 15.68% 15.68% 3.80% 2006 1.40% 1.40% 12.31 12.31 31,920 393,029 16.44% 16.44% 0.91% 2005 1.40% 1.40% 10.57 10.57 36,787 389,012 17.39% 17.39% 0.67% 2004 1.40% 1.40% 9.01 9.01 34,607 311,751 12.06% 12.06% 1.04% FIDELITY VIP OVERSEAS SERVICE CLASS 2 2008 1.15% 2.45% 7.01 14.03 324,270 3,816,208 -45.32% -44.60% 2.48% 2007 1.15% 2.45% 12.73 25.45 324,398 6,909,695 14.22% 15.60% 2.99% 2006 1.25% 2.45% 11.06 22.09 282,744 5,470,236 14.92% 16.31% 0.68% 2005 1.25% 2.45% 9.55 19.06 248,577 4,296,145 16.78% 17.31% 0.38% 2004 1.25% 1.70% 8.17 16.30 139,050 2,127,624 11.40% 11.79% 0.49% FTVIPT FRANKLIN INCOME SECURITIES CLASS 2 2008 0.75% 2.85% 7.65 8.01 2,047,115 16,199,724 -31.50% -30.43% 5.54% 2007 1.10% 2.65% 11.40 11.52 1,530,443 17,518,323 1.75% 2.42% 3.05% 2006 6/12/06 1.30% 1.95% 11.20 11.25 361,772 4,058,043 2.94% 12.62% 0.30%
N-35
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- FTVIPT FRANKLIN SMALL-MID CAP GROWTH SECURITIES CLASS 2 2008 0.65% 2.80% $ 4.75 $11.68 653,596 $ 5,415,804 -43.89% -43.21% 0.00% 2007 1.25% 2.50% 8.39 20.65 543,045 7,876,469 8.55% 9.86% 0.00% 2006 1.25% 2.45% 7.67 18.86 401,966 5,063,038 6.06% 7.34% 0.00% 2005 1.25% 2.45% 7.17 17.63 368,110 3,967,452 3.02% 3.38% 0.00% 2004 1.35% 1.70% 6.96 17.10 310,692 2,932,428 9.65% 10.09% 0.00% FTVIPT MUTUAL SHARES SECURITIES CLASS 2 2008 0.65% 2.80% 6.95 7.17 1,526,955 10,807,864 -38.63% -37.83% 3.26% 2007 1.15% 2.45% 11.41 11.54 1,121,020 12,853,330 1.50% 2.21% 1.34% 2006 6/7/06 1.25% 1.95% 11.25 11.29 298,033 3,357,415 3.32% 14.10% 0.00% FTVIPT TEMPLETON GLOBAL INCOME SECURITIES CLASS 2 2008 0.65% 2.80% 11.99 12.67 1,043,672 13,020,428 3.27% 4.99% 3.68% 2007 1.15% 2.80% 11.65 12.08 591,791 7,076,938 8.10% 9.62% 2.53% 2006 1.25% 2.65% 10.91 11.01 252,285 2,762,547 10.65% 11.31% 2.89% 2005 6/30/05 1.30% 1.90% 9.86 9.89 62,092 613,397 -1.37% 0.65% 0.00% FTVIPT TEMPLETON GROWTH SECURITIES CLASS 2 2008 1.25% 2.55% 7.17 11.55 522,721 5,040,454 -43.78% -43.04% 1.82% 2007 1.25% 2.55% 12.80 20.35 588,977 10,005,431 -0.08% 1.08% 1.38% 2006 1.25% 2.40% 12.81 20.20 522,713 8,917,851 18.92% 20.30% 1.31% 2005 1.25% 2.40% 12.62 16.85 361,619 5,298,701 7.03% 7.51% 1.11% 2004 1.25% 1.70% 11.78 15.73 226,692 3,045,375 14.07% 14.47% 1.16% JANUS ASPEN SERIES BALANCED SERVICE SHARES 2008 1.25% 1.70% 11.96 12.47 75,551 924,265 -17.48% -17.10% 2.48% 2007 1.25% 1.70% 14.47 15.10 70,061 1,030,575 8.43% 8.92% 2.15% 2006 1.25% 1.70% 13.33 13.91 82,347 1,116,877 8.55% 9.04% 1.90% 2005 1.25% 1.70% 12.28 12.80 89,225 1,113,578 5.85% 6.32% 2.04% 2004 1.25% 1.70% 11.57 12.08 82,685 979,258 6.47% 6.84% 2.45% JANUS ASPEN SERIES MID CAP GROWTH SERVICE SHARES 2008 1.25% 1.70% 10.22 13.09 51,127 592,797 -44.80% -44.56% 0.06% 2007 1.25% 1.70% 18.52 23.69 60,422 1,261,160 19.69% 20.23% 0.07% 2006 1.25% 1.70% 15.48 19.77 62,813 1,093,216 11.40% 11.90% 0.00% 2005 1.25% 1.70% 13.89 17.73 76,467 1,180,952 10.14% 10.64% 0.00% 2004 1.25% 1.70% 12.61 16.09 125,644 1,690,903 18.45% 18.80% 0.00% JANUS ASPEN SERIES WORLDWIDE GROWTH SERVICE SHARES 2008 1.45% 1.60% 8.90 9.11 1,834 16,488 -45.69% -45.60% 0.96% 2007 1.45% 1.60% 16.37 16.77 2,474 41,084 7.63% 7.79% 0.57% 2006 1.45% 1.60% 15.20 15.58 2,473 38,141 16.07% 16.23% 1.64% 2005 1.45% 1.60% 13.08 13.42 2,496 33,141 3.90% 4.00% 1.27% 2004 1.50% 1.60% 12.92 12.92 1,900 24,377 2.87% 2.87% 0.81% LINCOLN VIPT BARON GROWTH OPPORTUNITIES SERVICE CLASS 2008 0.75% 2.55% 6.32 6.53 568,879 3,672,296 -40.67% -39.89% 0.00% 2007 1.25% 2.55% 10.75 10.86 326,226 3,521,020 1.42% 2.08% 0.00% 2006 6/22/06 1.30% 1.95% 10.60 10.64 15,481 164,253 0.79% 14.03% 0.00% LINCOLN VIPT CAPITAL GROWTH SERVICE CLASS 2008 0.75% 2.45% 6.05 6.17 90,952 558,156 -43.14% -42.46% 0.00% 2007 7/11/07 1.25% 2.45% 10.65 10.73 61,679 660,008 -0.91% 9.07% 0.00% LINCOLN VIPT COHEN & STEERS GLOBAL REAL ESTATE SERVICE CLASS 2008 1.15% 2.60% 4.65 4.71 489,716 2,289,889 -43.30% -42.84% 1.35% 2007 6/6/07 1.15% 1.95% 8.20 8.24 193,702 1,591,943 -16.26% -4.06% 0.58% LINCOLN VIPT COLUMBIA VALUE OPPORTUNITIES SERVICE CLASS 2008 1.40% 1.90% 6.06 6.09 56,185 340,393 -35.21% -35.05% 0.26% 2007 7/11/07 1.30% 1.65% 9.36 9.38 14,899 139,493 -7.59% -2.38% 0.83% LINCOLN VIPT CORE SERVICE CLASS 2006 1.30% 1.90% 11.45 11.52 21,327 244,225 11.75% 12.19% 0.74% 2005 8/8/05 1.30% 1.70% 10.24 10.27 4,013 41,169 -1.62% 1.72% 0.11%
N-36
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- LINCOLN VIPT DELAWARE BOND 2008 1.25% 2.65% $ 9.74 $14.70 1,155,221 $ 14,987,636 -5.46% -4.13% 4.02% 2007 1.25% 2.65% 10.38 15.35 1,662,099 22,254,222 3.00% 4.14% 4.82% 2006 1.25% 2.35% 10.08 14.76 1,812,483 23,405,615 2.28% 3.41% 4.43% 2005 1.25% 2.35% 10.51 14.30 1,849,427 23,305,870 0.91% 1.36% 4.16% 2004 1.25% 1.70% 10.40 14.13 1,827,895 23,313,592 3.53% 3.84% 4.12% LINCOLN VIPT DELAWARE BOND SERVICE CLASS 2008 0.65% 2.55% 9.68 10.72 3,005,756 31,297,680 -5.70% -4.46% 4.60% 2007 1.25% 2.55% 10.29 11.23 2,689,617 29,591,600 2.63% 3.86% 4.88% 2006 1.25% 2.45% 10.02 10.82 2,432,417 25,953,247 1.92% 3.10% 4.52% 2005 1.30% 2.45% 10.41 10.50 1,924,993 20,057,304 0.66% 1.01% 4.43% 2004 1.35% 1.70% 10.34 10.40 1,280,964 13,279,479 3.28% 3.64% 5.63% LINCOLN VIPT DELAWARE GROWTH AND INCOME SERVICE CLASS 2008 1.30% 2.35% 7.31 7.58 93,226 699,617 -37.49% -36.82% 1.09% 2007 1.30% 2.35% 11.82 12.00 65,174 776,638 3.86% 4.49% 1.11% 2006 1.30% 1.90% 11.42 11.49 42,082 480,883 10.18% 10.64% 1.24% 2005 7/7/05 1.30% 1.70% 10.36 10.38 27,749 287,571 0.00% 3.53% 1.52% LINCOLN VIPT DELAWARE SOCIAL AWARENESS 2008 1.25% 1.70% 10.04 12.05 66,181 737,175 -35.52% -35.23% 0.84% 2007 1.25% 1.70% 15.57 18.67 79,036 1,366,210 1.23% 1.69% 0.84% 2006 1.25% 2.45% 15.38 18.42 86,556 1,467,851 10.42% 10.91% 0.88% 2005 1.25% 1.70% 13.93 16.67 89,242 1,383,159 10.14% 10.64% 0.91% 2004 1.25% 1.70% 12.64 15.12 71,121 1,005,389 10.80% 11.14% 1.16% LINCOLN VIPT DELAWARE SOCIAL AWARENESS SERVICE CLASS 2008 0.75% 2.45% 7.49 10.85 217,703 2,187,066 -36.23% -35.45% 0.58% 2007 1.25% 2.45% 11.74 16.82 206,066 3,349,981 0.22% 1.38% 0.64% 2006 1.30% 2.45% 11.72 16.60 212,422 3,435,147 9.32% 10.58% 0.67% 2005 1.30% 2.45% 14.88 15.02 205,711 3,059,732 9.87% 10.25% 0.70% 2004 1.35% 1.70% 13.57 13.62 147,230 1,999,428 10.64% 10.91% 1.18% LINCOLN VIPT DELAWARE SPECIAL OPPORTUNITIES SERVICE CLASS 2008 1.25% 1.90% 5.65 5.71 63,135 358,094 -38.05% -37.64% 1.06% 2007 7/16/07 1.25% 1.90% 9.13 9.16 28,868 263,795 -9.30% 0.42% 0.69% LINCOLN VIPT FI EQUITY-INCOME SERVICE CLASS 2008 1.15% 2.45% 6.88 7.19 157,959 1,117,134 -39.97% -39.25% 1.64% 2007 1.25% 2.45% 11.54 11.83 99,520 1,163,327 1.83% 2.79% 1.28% 2006 1.25% 2.20% 11.39 11.51 50,474 576,465 8.90% 9.61% 1.41% 2005 6/13/05 1.25% 1.90% 10.46 10.50 14,964 156,741 -1.41% 5.71% 1.35% LINCOLN VIPT GROWTH SERVICE CLASS 2006 1/6/06 1.30% 1.90% 11.23 11.33 4,050 45,555 0.27% 12.75% 0.00% LINCOLN VIPT GROWTH OPPORTUNITIES SERVICE CLASS 2006 1.30% 1.90% 12.38 12.43 39,513 488,316 8.15% 8.47% 0.00% 2005 7/14/05 1.30% 1.60% 11.44 11.46 5,117 58,631 -1.60% 7.74% 0.00% LINCOLN VIPT JANUS CAPITAL APPRECIATION 2008 1.25% 1.70% 8.55 10.48 13,433 121,269 -41.82% -41.56% 0.67% 2007 1.25% 1.70% 14.69 18.00 14,679 228,724 18.39% 18.92% 0.26% 2006 1.25% 1.70% 12.41 15.19 18,044 239,491 7.82% 8.31% 0.19% 2005 1.25% 1.70% 11.51 14.07 17,179 212,459 2.45% 2.91% 0.16% 2004 1.25% 1.70% 11.23 13.72 30,229 393,259 3.51% 3.82% 0.00% LINCOLN VIPT JANUS CAPITAL APPRECIATION SERVICE CLASS 2008 1.15% 1.90% 7.59 9.66 103,965 953,011 -42.08% -41.64% 0.56% 2007 1.15% 1.90% 13.42 16.59 64,821 1,023,143 17.85% 18.56% 0.08% 2006 1.30% 1.90% 13.83 14.00 27,853 380,140 7.56% 7.94% 0.00% 2005 1.35% 1.70% 12.86 12.96 23,226 299,582 2.19% 2.50% 0.05% 2004 1.40% 1.70% 12.60 12.64 14,986 189,070 3.35% 3.56% 0.00% LINCOLN VIPT MARSICO INTERNATIONAL GROWTH SERVICE CLASS 2008 0.75% 2.25% 5.56 5.63 229,810 1,282,862 -50.03% -49.63% 1.08% 2007 6/8/07 1.10% 1.90% 11.13 11.18 81,977 913,932 -5.48% 22.98% 0.80%
N-37
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- LINCOLN VIPT MFS VALUE SERVICE CLASS 2008 0.65% 2.45% $ 6.42 $ 6.51 370,870 $ 2,393,206 -33.76% -33.20% 1.26% 2007 6/26/07 1.10% 1.95% 9.69 9.74 103,062 1,000,522 -3.80% 5.03% 0.91% LINCOLN VIPT MID-CAP VALUE SERVICE CLASS 2008 1.15% 1.95% 5.00 5.06 219,819 1,103,680 -42.00% -41.53% 0.11% 2007 6/6/07 1.15% 1.95% 8.62 8.66 108,268 934,705 -13.49% 1.46% 0.28% LINCOLN VIPT MONDRIAN INTERNATIONAL VALUE 2008 1.25% 2.45% 9.44 16.92 133,119 2,154,235 -38.19% -37.44% 4.74% 2007 1.25% 2.45% 24.39 27.14 156,638 4,042,481 9.61% 10.10% 2.00% 2006 1.25% 1.70% 22.22 24.73 158,474 3,753,593 27.82% 28.39% 2.96% 2005 1.25% 1.70% 17.36 19.33 162,047 2,983,478 10.65% 11.15% 2.54% 2004 1.25% 1.70% 15.99 17.45 84,565 1,390,089 18.90% 19.26% 1.38% LINCOLN VIPT MONDRIAN INTERNATIONAL VALUE SERVICE CLASS 2008 1.25% 2.80% 9.34 15.17 541,088 7,326,395 -38.37% -37.60% 4.75% 2007 1.25% 2.50% 15.15 24.34 535,964 11,895,717 8.46% 9.83% 1.86% 2006 1.25% 2.50% 13.98 22.18 465,653 9,644,132 26.55% 28.01% 2.83% 2005 1.30% 2.45% 17.18 17.34 397,354 6,673,564 10.37% 10.75% 2.15% 2004 1.35% 1.70% 15.59 15.66 217,818 3,399,633 18.73% 19.02% 1.38% LINCOLN VIPT MONEY MARKET 2008 1.25% 2.45% 10.49 11.40 920,631 10,085,363 -0.13% 1.07% 2.22% 2007 1.25% 2.45% 10.51 11.30 567,676 6,288,606 2.41% 3.66% 4.85% 2006 1.25% 2.45% 10.20 10.92 635,790 6,753,083 2.44% 3.38% 4.57% 2005 1.25% 2.15% 9.91 10.58 715,510 7,330,561 1.06% 1.51% 2.77% 2004 1.25% 1.70% 9.81 10.43 550,705 5,650,428 -0.82% -0.52% 0.87% LINCOLN VIPT MONEY MARKET SERVICE CLASS 2008 0.75% 2.80% 10.34 10.85 2,317,934 24,490,806 -0.38% 0.82% 1.98% 2007 1.25% 2.45% 10.33 10.75 1,538,687 16,222,762 2.17% 3.35% 4.58% 2006 1.30% 2.45% 10.08 10.40 1,041,596 10,633,856 1.89% 3.07% 4.42% 2005 1.30% 2.45% 9.89 9.98 497,665 4,935,919 0.80% 1.16% 2.58% 2004 1.35% 1.70% 9.83 9.87 264,218 2,598,857 -0.97% -0.72% 0.77% LINCOLN VIPT SSgA BOND INDEX SERVICE CLASS 2008 7/7/08 1.25% 2.55% 10.41 10.48 393,102 4,112,314 2.70% 6.05% 0.76% LINCOLN VIPT SSgA DEVELOPED INTERNATIONAL 150 SERVICE CLASS 2008 7/16/08 1.25% 2.55% 6.23 6.27 90,944 569,302 -33.94% 20.38% 1.96% LINCOLN VIPT SSgA EMERGING MARKETS 100 SERVICE CLASS 2008 7/16/08 1.25% 2.55% 6.02 6.06 74,056 448,279 -39.37% 21.11% 1.23% LINCOLN VIPT SSgA INTERNATIONAL INDEX SERVICE CLASS 2008 7/7/08 1.25% 2.55% 6.36 6.41 107,278 686,271 -33.64% 18.08% 1.41% LINCOLN VIPT SSgA LARGE CAP 100 SERVICE CLASS 2008 7/16/08 1.25% 2.55% 6.94 6.99 165,085 1,150,990 -30.68% 11.67% 0.58% LINCOLN VIPT SSgA S&P 500 INDEX 2008 1.40% 2.15% 7.10 7.10 32,633 230,929 -38.07% -38.07% 4.78% 2007 8/29/07 1.40% 1.40% 11.47 11.47 11,896 136,420 0.43% 0.43% 1.08% LINCOLN VIPT SSgA S&P 500 INDEX SERVICE CLASS 2008 1.15% 2.55% 6.91 7.06 761,531 5,327,198 -38.53% -38.16% 5.05% 2007 4/27/07 1.30% 1.90% 11.25 11.42 158,805 1,798,089 -2.95% 1.07% 1.52% LINCOLN VIPT SSgA SMALL-CAP INDEX SERVICE CLASS 2008 1.15% 2.60% 5.90 5.97 315,131 1,868,880 -35.38% -34.89% 1.26% 2007 6/6/07 1.15% 1.90% 9.13 9.17 57,359 524,655 -10.18% 1.20% 0.62% LINCOLN VIPT SSgA SMALL-MID CAP 200 SERVICE CLASS 2008 7/16/08 1.25% 2.55% 7.19 7.24 37,800 273,108 -32.73% 25.69% 0.76% LINCOLN VIPT T. ROWE PRICE GROWTH STOCK SERVICE CLASS 2008 0.75% 1.90% 5.64 5.69 118,843 672,060 -43.08% -42.74% 0.00% 2007 8/7/07 1.30% 1.90% 9.91 9.94 8,694 86,268 -4.44% 1.29% 0.19%
N-38
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- LINCOLN VIPT T. ROWE PRICE STRUCTURED MID-CAP GROWTH 2008 1.40% 2.35% $ 7.25 $11.08 6,888 $ 68,297 -44.11% -43.57% 0.00% 2007 1.40% 2.35% 16.04 19.68 7,894 137,685 11.67% 12.01% 0.00% 2006 1.40% 1.70% 14.36 17.60 5,539 86,560 7.43% 7.76% 0.00% 2005 1.40% 1.70% 13.37 16.37 4,833 70,947 7.96% 8.17% 0.00% 2004 1.50% 1.70% 12.38 15.15 3,073 41,660 11.75% 11.86% 0.00% LINCOLN VIPT T. ROWE PRICE STRUCTURED MID-CAP GROWTH SERVICE CLASS 2008 1.10% 1.90% 6.90 10.10 98,002 930,708 -44.00% -43.54% 0.00% 2007 1.10% 1.90% 13.24 17.94 74,170 1,248,970 11.17% 11.84% 0.00% 2006 1.30% 1.90% 15.84 16.04 32,798 486,207 7.16% 7.52% 0.00% 2005 1.35% 1.70% 14.83 14.92 8,012 119,067 7.81% 8.10% 0.00% 2004 1.35% 1.60% 13.79 13.80 7,056 97,203 11.79% 11.83% 0.00% LINCOLN VIPT TEMPLETON GROWTH SERVICE CLASS 2008 0.75% 2.50% 5.96 6.02 414,443 2,478,450 -39.07% -38.70% 2.15% 2007 6/5/07 1.30% 1.90% 9.78 9.81 225,785 2,210,571 -3.38% 3.58% 2.46% LINCOLN VIPT TURNER MID-CAP GROWTH SERVICE CLASS 2008 1.15% 1.95% 5.37 5.49 128,783 697,056 -50.41% -50.01% 0.00% 2007 6/8/07 1.15% 1.95% 10.82 10.98 74,933 815,779 -1.77% 10.12% 0.00% LINCOLN VIPT UBS GLOBAL ASSET ALLOCATION 2008 1.25% 2.45% 7.97 11.19 37,992 395,662 -34.84% -34.05% 6.34% 2007 1.25% 2.45% 15.49 17.02 43,064 681,725 4.58% 5.05% 1.68% 2006 1.25% 1.70% 14.82 16.26 45,161 684,302 12.58% 13.09% 1.46% 2005 1.25% 1.70% 13.16 14.43 34,226 461,997 5.00% 5.48% 1.74% 2004 1.25% 1.70% 12.53 13.02 15,894 203,138 11.63% 11.97% 1.99% LINCOLN VIPT UBS GLOBAL ASSET ALLOCATION SERVICE CLASS 2008 1.30% 2.85% 7.87 10.35 294,315 2,777,935 -35.07% -34.25% 7.85% 2007 1.30% 2.55% 12.36 15.74 182,399 2,741,872 4.12% 4.74% 1.57% 2006 1.30% 1.90% 11.86 15.04 122,353 1,794,675 12.19% 12.75% 2.11% 2005 1.30% 1.80% 13.26 13.33 24,563 316,778 4.84% 5.05% 1.26% 2004 1.40% 1.60% 12.69 12.69 2,647 33,564 11.69% 11.69% 1.53% LINCOLN VIPT WILSHIRE 2010 PROFILE SERVICE CLASS 2008 1.30% 2.25% 7.71 7.71 64,209 499,512 -25.79% -25.79% 1.70% 2007 10/17/07 2.25% 2.25% 10.40 10.40 28,852 299,940 0.06% 0.06% 0.32% LINCOLN VIPT WILSHIRE 2020 PROFILE SERVICE CLASS 2008 1.30% 1.90% 7.39 7.39 32,242 237,153 -28.19% -28.19% 1.55% 2007 6/26/07 1.55% 1.55% 10.29 10.29 865 8,896 1.76% 1.76% 0.33% LINCOLN VIPT WILSHIRE 2030 PROFILE SERVICE CLASS 2008 1.30% 1.90% 7.09 7.09 50,346 356,008 -31.85% -31.85% 0.81% 2007 12/14/07 1.30% 1.30% 10.41 10.41 737 7,668 0.86% 0.86% 0.00% LINCOLN VIPT WILSHIRE 2040 PROFILE SERVICE CLASS 2008 1.60% 1.90% 6.46 6.46 17,041 109,942 -36.77% -36.77% 0.11% 2007 12/11/07 1.65% 1.65% 10.21 10.21 484 4,947 -0.69% -0.69% 0.00% LINCOLN VIPT WILSHIRE AGGRESSIVE PROFILE SERVICE CLASS 2008 1.30% 1.95% 7.83 8.02 325,144 2,576,159 -41.77% -41.38% 0.33% 2007 1.25% 1.95% 13.47 13.69 184,558 2,503,334 8.66% 9.37% 0.72% 2006 1.25% 1.90% 12.39 12.52 114,279 1,423,209 14.07% 14.81% 0.59% 2005 8/3/05 1.25% 1.90% 10.87 10.91 26,484 288,325 0.27% 6.74% 0.00% LINCOLN VIPT WILSHIRE CONSERVATIVE PROFILE SERVICE CLASS 2008 1.25% 2.85% 8.93 9.44 550,326 5,123,736 -20.90% -19.66% 2.06% 2007 1.25% 2.80% 11.56 11.74 373,405 4,342,379 5.48% 6.12% 1.90% 2006 1.30% 1.90% 10.97 11.06 229,373 2,522,673 7.12% 7.66% 1.67% 2005 6/17/05 1.30% 1.80% 10.24 10.27 82,124 842,274 -0.13% 2.90% 0.00% LINCOLN VIPT WILSHIRE MODERATE PROFILE SERVICE CLASS 2008 1.15% 2.85% 8.39 9.01 3,014,242 26,819,220 -28.87% -27.65% 1.74% 2007 1.15% 2.85% 12.07 12.47 2,497,429 30,859,218 6.31% 7.65% 1.31% 2006 1.25% 2.50% 11.46 11.57 1,656,668 19,091,944 9.66% 10.32% 0.84% 2005 6/15/05 1.30% 1.90% 10.45 10.49 813,776 8,526,260 -0.01% 4.40% 0.00%
N-39
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- LINCOLN VIPT WILSHIRE MODERATELY AGGRESSIVE PROFILE SERVICE CLASS 2008 1.30% 2.80% $ 8.05 $ 8.50 1,371,009 $ 11,503,260 -35.42% -34.44% 0.79% 2007 1.25% 2.80% 12.57 12.98 1,154,194 14,836,004 6.84% 8.18% 1.52% 2006 1.25% 2.50% 11.88 11.99 701,596 8,377,196 11.71% 12.38% 0.99% 2005 6/6/05 1.30% 1.90% 10.63 10.67 220,517 2,348,676 -0.06% 6.56% 0.00% MFS VIT CORE EQUITY SERVICE CLASS 2008 1.40% 2.35% 7.27 10.68 8,254 76,056 -40.74% -40.17% 0.42% 2007 1.25% 2.35% 12.27 17.89 9,937 155,980 8.30% 9.49% 0.10% 2006 1.25% 2.35% 12.56 16.40 12,844 181,962 11.59% 12.09% 0.17% 2005 1.25% 1.70% 11.25 14.68 13,595 176,689 -0.25% 0.21% 0.54% 2004 1.25% 1.70% 11.28 14.70 14,641 186,966 10.20% 10.53% 0.17% MFS VIT GROWTH 2008 1.40% 2.15% 4.72 8.50 29,618 142,578 -38.75% -38.29% 0.23% 2007 1.40% 2.15% 7.65 7.65 42,747 331,875 19.49% 19.49% 0.00% 2006 1.40% 1.40% 6.40 6.40 61,149 391,285 6.39% 6.39% 0.00% 2005 1.40% 1.40% 6.01 6.01 72,474 435,889 7.67% 7.67% 0.00% 2004 1.40% 1.40% 5.59 5.59 80,210 448,038 11.39% 11.39% 0.00% MFS VIT GROWTH SERVICE CLASS 2008 1.25% 1.90% 9.22 12.01 17,947 199,968 -38.60% -38.32% 0.00% 2007 1.25% 1.70% 6.61 19.54 21,690 375,989 18.84% 19.38% 0.00% 2006 1.25% 1.70% 5.56 16.42 36,408 546,371 5.80% 6.17% 0.00% 2005 1.35% 1.70% 5.25 15.51 42,570 598,976 7.09% 7.46% 0.00% 2004 1.35% 1.70% 4.90 14.47 29,418 355,223 10.82% 11.15% 0.00% MFS VIT TOTAL RETURN 2008 1.40% 2.15% 8.60 11.52 120,074 1,381,280 -23.79% -23.22% 3.22% 2007 1.40% 2.35% 15.00 15.00 165,761 2,475,171 2.77% 2.77% 2.64% 2006 1.40% 1.40% 14.60 14.60 203,443 2,969,465 10.34% 10.34% 2.46% 2005 1.40% 1.40% 13.23 13.23 241,998 3,201,232 1.39% 1.39% 2.12% 2004 1.40% 1.40% 13.05 13.05 288,367 3,762,326 9.77% 9.77% 1.73% MFS VIT TOTAL RETURN SERVICE CLASS 2008 0.75% 2.85% 8.33 11.25 1,166,594 12,218,673 -24.47% -23.29% 2.86% 2007 1.25% 2.80% 11.13 14.72 1,244,701 17,178,371 1.42% 2.64% 2.24% 2006 1.25% 2.45% 10.98 14.39 1,024,207 13,943,010 8.92% 10.24% 1.99% 2005 1.25% 2.45% 12.26 13.10 715,636 8,990,562 0.87% 1.32% 1.73% 2004 1.25% 1.70% 12.13 12.97 493,994 6,197,884 9.16% 9.65% 1.41% MFS VIT UTILITIES 2008 1.40% 1.40% 12.26 12.26 53,498 656,021 -38.54% -38.54% 1.61% 2007 1.40% 1.40% 19.95 19.95 71,980 1,436,070 26.12% 26.12% 0.96% 2006 1.40% 1.40% 15.82 15.82 114,177 1,806,179 29.44% 29.44% 2.01% 2005 1.40% 1.40% 12.22 12.22 125,403 1,532,577 15.21% 15.21% 0.62% 2004 1.40% 1.40% 10.61 10.61 143,351 1,520,581 28.39% 28.39% 1.50% MFS VIT UTILITIES SERVICE CLASS 2008 1.15% 2.60% 8.88 22.04 634,382 8,758,111 -39.38% -38.52% 1.30% 2007 1.15% 2.55% 17.60 36.01 540,313 12,897,540 24.85% 25.97% 0.73% 2006 1.25% 2.15% 14.03 28.69 405,976 7,935,472 28.50% 29.33% 1.78% 2005 1.25% 1.90% 10.89 22.26 279,641 4,534,706 14.61% 15.12% 0.40% 2004 1.25% 1.70% 9.50 19.40 86,253 1,230,761 27.66% 28.23% 1.08% NB AMT MID-CAP GROWTH 2008 1.25% 2.55% 8.21 12.19 388,501 3,961,626 -44.80% -44.07% 0.00% 2007 1.25% 2.55% 14.91 21.87 426,933 7,875,625 19.56% 21.01% 0.00% 2006 1.25% 2.45% 12.49 18.14 437,587 6,801,153 12.03% 13.27% 0.00% 2005 1.25% 2.35% 13.37 16.07 314,248 4,547,495 11.82% 12.33% 0.00% 2004 1.25% 1.70% 11.96 14.35 228,006 2,976,224 14.35% 14.75% 0.00% NB AMT REGENCY 2008 1.25% 2.65% 6.31 11.00 443,184 4,097,055 -47.19% -46.49% 1.19% 2007 1.25% 2.55% 11.97 20.64 484,103 8,453,793 0.75% 2.02% 0.43% 2006 1.25% 2.50% 11.89 20.30 500,622 8,887,907 8.47% 9.79% 0.42% 2005 1.25% 2.45% 17.02 18.56 428,821 7,283,705 10.11% 10.61% 0.10% 2004 1.25% 1.70% 15.44 16.83 197,933 3,184,231 20.30% 20.72% 0.03%
N-40
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM INVESTMENT COMMENCEMENT FEE FEE UNIT UNIT UNITS TOTAL TOTAL INCOME SUBACCOUNT YEAR DATE(1) RATE(2) RATE(2) VALUE(3) VALUE(3) OUTSTANDING NET ASSETS RETURN(4) RETURN(4) RATIO(5) ---------------------------------------------------------------------------------------------------------------------------------- PUTNAM VT GROWTH & INCOME CLASS IB 2008 1.40% 1.70% $ 7.76 $ 9.76 8,118 $ 71,886 -39.74% -39.55% 2.16% 2007 1.40% 1.70% 12.88 16.18 8,889 130,017 -7.62% -7.34% 1.32% 2006 1.40% 1.70% 13.94 17.49 7,028 114,877 13.96% 14.30% 1.50% 2005 1.40% 1.70% 12.23 15.33 7,055 101,125 3.46% 3.77% 1.52% 2004 1.40% 1.70% 11.82 14.81 7,739 105,318 9.24% 9.56% 1.64% PUTNAM VT HEALTH SCIENCES CLASS IB 2008 1.40% 1.70% 9.08 10.75 11,152 105,401 -18.47% -18.23% 0.00% 2007 1.40% 1.70% 11.14 13.17 13,837 159,490 -2.28% -1.98% 0.89% 2006 1.40% 1.70% 11.40 13.46 15,830 189,090 1.06% 1.36% 0.35% 2005 1.40% 1.70% 11.28 13.31 23,498 280,413 11.29% 11.62% 0.05% 2004 1.40% 1.70% 10.14 11.95 18,327 192,981 5.32% 5.63% 0.18%
(1) Reflects less than a full year of activity. Funds were first received in this option on the commencement date noted or the option was inactive at the date funds were received. (2) These amounts represent the annualized minimum and maximum contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying funds have been excluded. (3) As the unit value is presented as a range of minimum to maximum values, for only those subaccounts which existed for the entire year, some individual contract unit values may not be within the ranges presented as a result of partial year activity. (4) These amounts represent the total return, including changes in value of mutual funds, and reflect deductions for all items included in the fee rate. The total return does not include contract charges deducted directly from policy account values. The total return is not annualized. As the total return is presented as a range of minimum to maximum values, for only those subaccounts which existed for the entire year, some individual contract total returns may not be within the ranges presented as a result of partial year activity. (5) These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense guarantee charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. Investment income ratios are not annualized. Note: Fee rate, unit value and total return minimum and maximum are the same where there is only one active contract level charge for the subaccount. 4. PURCHASES AND SALES OF INVESTMENTS The aggregate cost of investments purchased and the aggregate proceeds from investments sold were as follows for 2008.
AGGREGATE AGGREGATE COST OF PROCEEDS SUBACCOUNT PURCHASES FROM SALES ---------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation $ 759 $ 77,321 AIM V.I. Capital Appreciation Class II -- 11,160 AIM V.I. Core Equity 28,809 263,435 AIM V.I. Core Equity Class II 2,867 2,186 AIM V.I. International Growth 56,217 201,328 AIM V.I. International Growth Class II 6,357 98,951 ABVPSF Global Technology Class B 778,482 659,064 ABVPSF Growth and Income Class B 3,186,499 1,982,787 ABVPSF International Value Class B 5,805,675 1,441,313 ABVPSF Large Cap Growth Class B 68,671 732,512 ABVPSF Small/Mid Cap Value Class B 2,404,195 827,774 American Century VP Inflation Protection Class 2 10,696,898 7,793,671
N-41
AGGREGATE AGGREGATE COST OF PROCEEDS SUBACCOUNT PURCHASES FROM SALES ---------------------------------------------------------------------------------------- American Funds Global Growth Class 2 $ 7,058,072 $ 2,779,497 American Funds Global Small Capitalization Class 2 6,569,670 3,387,222 American Funds Growth Class 2 34,713,168 13,966,910 American Funds Growth-Income Class 2 26,886,239 12,564,914 American Funds International Class 2 19,315,294 7,636,946 Delaware VIPT Capital Reserves Service Class 3,326,124 1,907,095 Delaware VIPT Diversified Income Service Class 9,070,695 6,222,186 Delaware VIPT Emerging Markets Service Class 7,871,074 3,977,984 Delaware VIPT High Yield 192,102 774,738 Delaware VIPT High Yield Service Class 3,573,389 3,148,429 Delaware VIPT REIT 581,237 545,080 Delaware VIPT REIT Service Class 6,187,775 3,404,468 Delaware VIPT Small Cap Value 162,751 784,686 Delaware VIPT Small Cap Value Service Class 5,202,040 3,317,015 Delaware VIPT Trend 168,707 455,600 Delaware VIPT Trend Service Class 1,756,432 1,057,980 Delaware VIPT U.S. Growth Service Class 591,088 312,249 Delaware VIPT Value 143,600 189,785 Delaware VIPT Value Service Class 2,710,340 2,079,814 DWS VIP Equity 500 Index 176,121 985,386 DWS VIP Equity 500 Index Service Class 1,095,905 1,835,104 DWS VIP Small Cap Index 163,055 296,505 DWS VIP Small Cap Index Service Class 721,340 817,283 Fidelity VIP Contrafund Service Class 2 13,545,473 4,635,740 Fidelity VIP Equity-Income 61,092 508,350 Fidelity VIP Equity-Income Service Class 2 426,960 505,118 Fidelity VIP Growth 2,275 258,063 Fidelity VIP Growth Service Class 2 892,076 896,997 Fidelity VIP Mid Cap Service Class 2 9,247,908 1,941,987 Fidelity VIP Overseas 65,994 118,770 Fidelity VIP Overseas Service Class 2 1,701,934 950,582 FTVIPT Franklin Income Securities Class 2 10,907,734 3,932,225 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 3,672,307 1,430,098 FTVIPT Mutual Shares Securities Class 2 6,902,413 1,925,272 FTVIPT Templeton Global Income Securities Class 2 9,773,560 4,002,663 FTVIPT Templeton Growth Securities Class 2 1,534,261 1,883,630 Janus Aspen Series Balanced Service Shares 341,763 208,589 Janus Aspen Series Mid Cap Growth Service Shares 98,815 227,843 Janus Aspen Series Worldwide Growth Service Shares 17,043 25,355 Lincoln VIPT Baron Growth Opportunities Service Class 3,023,932 520,250 Lincoln VIPT Capital Growth Service Class 300,209 46,764 Lincoln VIPT Cohen & Steers Global Real Estate Service Class 2,544,574 459,545 Lincoln VIPT Columbia Value Opportunities Service Class 630,566 106,818 Lincoln VIPT Delaware Bond 2,124,907 8,014,169 Lincoln VIPT Delaware Bond Service Class 12,165,456 7,845,121 Lincoln VIPT Delaware Growth and Income Service Class 462,943 80,730 Lincoln VIPT Delaware Social Awareness 102,896 237,350 Lincoln VIPT Delaware Social Awareness Service Class 677,122 443,995 Lincoln VIPT Delaware Special Opportunities Service Class 454,084 158,553 Lincoln VIPT FI Equity-Income Service Class 756,310 93,679 Lincoln VIPT Janus Capital Appreciation 20,443 40,797 Lincoln VIPT Janus Capital Appreciation Service Class 657,966 127,321 Lincoln VIPT Marsico International Growth Service Class 2,064,397 416,807 Lincoln VIPT MFS Value Service Class 2,661,710 393,039 Lincoln VIPT Mid-Cap Value Service Class 1,284,513 372,829 Lincoln VIPT Mondrian International Value 455,906 553,430 Lincoln VIPT Mondrian International Value Service Class 2,906,922 2,024,784 Lincoln VIPT Money Market 10,378,930 6,659,976 Lincoln VIPT Money Market Service Class 20,870,237 12,524,252 Lincoln VIPT SSgA Bond Index Service Class 4,589,061 636,953 Lincoln VIPT SSgA Developed International 150 Service Class 627,434 32,310
N-42
AGGREGATE AGGREGATE COST OF PROCEEDS SUBACCOUNT PURCHASES FROM SALES --------------------------------------------------------------------------------------- Lincoln VIPT SSgA Emerging Markets 100 Service Class $ 510,669 $ 26,366 Lincoln VIPT SSgA International Index Service Class 812,358 41,216 Lincoln VIPT SSgA Large Cap 100 Service Class 1,446,478 117,724 Lincoln VIPT SSgA S&P 500 Index 435,533 178,079 Lincoln VIPT SSgA S&P 500 Index Service Class 6,215,229 836,062 Lincoln VIPT SSgA Small-Cap Index Service Class 2,438,699 291,281 Lincoln VIPT SSgA Small-Mid Cap 200 Service Class 527,015 197,902 Lincoln VIPT T. Rowe Price Growth Stock Service Class 1,056,594 121,004 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth 425 17,476 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class 619,684 236,225 Lincoln VIPT Templeton Growth Service Class 2,185,528 451,244 Lincoln VIPT Turner Mid-Cap Growth Service Class 823,139 213,463 Lincoln VIPT UBS Global Asset Allocation 89,169 84,824 Lincoln VIPT UBS Global Asset Allocation Service Class 1,981,292 277,399 Lincoln VIPT Wilshire 2010 Profile Service Class 540,424 214,350 Lincoln VIPT Wilshire 2020 Profile Service Class 344,026 57,867 Lincoln VIPT Wilshire 2030 Profile Service Class 681,403 144,296 Lincoln VIPT Wilshire 2040 Profile Service Class 325,628 133,099 Lincoln VIPT Wilshire Aggressive Profile Service Class 1,847,073 187,465 Lincoln VIPT Wilshire Conservative Profile Service Class 3,027,614 1,127,880 Lincoln VIPT Wilshire Moderate Profile Service Class 11,102,630 4,043,302 Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class 5,377,616 2,801,137 MFS VIT Core Equity Service Class 6,334 30,306 MFS VIT Growth 3,754 94,641 MFS VIT Growth Service Class 41,576 92,147 MFS VIT Total Return 215,840 672,059 MFS VIT Total Return Service Class 2,944,667 2,860,682 MFS VIT Utilities 393,560 446,263 MFS VIT Utilities Service Class 6,498,564 3,303,139 NB AMT Mid-Cap Growth 512,511 1,198,089 NB AMT Regency 609,724 1,334,975 Putnam VT Growth & Income Class IB 21,149 10,559 Putnam VT Health Sciences Class IB 26,181 57,702
5. INVESTMENTS The following is a summary of investments owned at December 31, 2008.
NET SHARES ASSET FAIR VALUE SUBACCOUNT OWNED VALUE OF SHARES COST OF SHARES ---------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation 10,727 $16.89 $ 181,183 $ 282,672 AIM V.I. Capital Appreciation Class II 4,828 16.61 80,201 125,685 AIM V.I. Core Equity 28,392 19.75 560,751 714,690 AIM V.I. Core Equity Class II 1,854 19.62 36,380 46,803 AIM V.I. International Growth 9,158 19.49 178,498 153,193 AIM V.I. International Growth Class II 8,902 19.23 171,189 179,192 ABVPSF Global Technology Class B 133,289 10.67 1,422,189 2,251,563 ABVPSF Growth and Income Class B 504,697 12.97 6,545,920 11,116,884 ABVPSF International Value Class B 576,277 10.93 6,298,703 13,074,067 ABVPSF Large Cap Growth Class B 44,517 18.03 802,643 1,038,467 ABVPSF Small/Mid Cap Value Class B 361,192 9.87 3,564,962 5,650,592 American Century VP Inflation Protection Class 2 1,672,051 9.90 16,553,309 17,356,364 American Funds Global Growth Class 2 816,513 13.88 11,333,195 17,328,483 American Funds Global Small Capitalization Class 2 708,492 11.03 7,814,669 15,266,165 American Funds Growth Class 2 1,969,729 33.27 65,532,892 109,827,158 American Funds Growth-Income Class 2 2,700,885 24.11 65,118,329 100,522,222 American Funds International Class 2 2,674,858 12.19 32,606,519 49,754,607 Delaware VIPT Capital Reserves Service Class 203,183 9.13 1,855,057 1,910,503 Delaware VIPT Diversified Income Service Class 2,109,928 9.20 19,411,338 20,276,810 Delaware VIPT Emerging Markets Service Class 799,526 11.24 8,986,677 15,781,245
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NET SHARES ASSET FAIR VALUE SUBACCOUNT OWNED VALUE OF SHARES COST OF SHARES ---------------------------------------------------------------------------------------------------------------------- Delaware VIPT High Yield 151,868 $ 4.14 $ 628,732 $ 800,595 Delaware VIPT High Yield Service Class 2,099,514 4.13 8,670,991 11,789,874 Delaware VIPT REIT 113,908 6.64 756,348 1,530,978 Delaware VIPT REIT Service Class 1,216,895 6.62 8,055,844 17,908,866 Delaware VIPT Small Cap Value 47,227 18.64 880,307 1,143,902 Delaware VIPT Small Cap Value Service Class 636,869 18.59 11,839,392 18,232,456 Delaware VIPT Trend 24,198 16.61 401,932 640,452 Delaware VIPT Trend Service Class 178,903 16.24 2,905,390 5,036,585 Delaware VIPT U.S. Growth Service Class 289,822 4.96 1,437,519 1,982,835 Delaware VIPT Value 24,633 12.83 316,043 435,189 Delaware VIPT Value Service Class 505,997 12.81 6,481,819 9,963,711 DWS VIP Equity 500 Index 300,834 9.55 2,872,961 3,582,096 DWS VIP Equity 500 Index Service Class 335,342 9.54 3,199,167 4,332,018 DWS VIP Small Cap Index 78,159 8.63 674,509 1,023,292 DWS VIP Small Cap Index Service Class 212,711 8.62 1,833,565 3,018,823 Fidelity VIP Contrafund Service Class 2 1,729,471 15.14 26,184,193 47,960,947 Fidelity VIP Equity-Income 50,661 13.18 667,708 1,136,917 Fidelity VIP Equity-Income Service Class 2 159,029 13.00 2,067,374 3,591,477 Fidelity VIP Growth 8,244 23.53 193,974 281,343 Fidelity VIP Growth Service Class 2 96,074 23.31 2,239,474 3,283,069 Fidelity VIP Mid Cap Service Class 2 659,683 18.12 11,953,448 20,063,340 Fidelity VIP Overseas 9,749 12.17 118,644 150,657 Fidelity VIP Overseas Service Class 2 316,187 12.07 3,816,374 5,878,553 FTVIPT Franklin Income Securities Class 2 1,428,636 11.34 16,200,736 23,757,869 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 460,945 11.75 5,416,108 9,168,122 FTVIPT Mutual Shares Securities Class 2 917,528 11.78 10,808,485 17,512,970 FTVIPT Templeton Global Income Securities Class 2 761,466 17.10 13,021,065 12,448,585 FTVIPT Templeton Growth Securities Class 2 614,721 8.20 5,040,715 8,365,441 Janus Aspen Series Balanced Service Shares 38,918 23.75 924,295 977,808 Janus Aspen Series Mid Cap Growth Service Shares 28,639 20.70 592,822 716,862 Janus Aspen Series Worldwide Growth Service Shares 863 19.10 16,489 22,257 Lincoln VIPT Baron Growth Opportunities Service Class 212,105 17.32 3,672,606 6,025,450 Lincoln VIPT Capital Growth Service Class 34,843 16.02 558,180 902,381 Lincoln VIPT Cohen & Steers Global Real Estate Service Class 498,258 4.60 2,289,993 3,740,271 Lincoln VIPT Columbia Value Opportunities Service Class 49,899 6.82 340,408 636,214 Lincoln VIPT Delaware Bond 1,283,472 11.68 14,988,387 16,426,473 Lincoln VIPT Delaware Bond Service Class 2,678,567 11.68 31,293,698 34,054,912 Lincoln VIPT Delaware Growth and Income Service Class 33,375 20.96 699,647 1,096,701 Lincoln VIPT Delaware Social Awareness 32,901 22.41 737,205 912,900 Lincoln VIPT Delaware Social Awareness Service Class 97,690 22.39 2,187,180 2,890,399 Lincoln VIPT Delaware Special Opportunities Service Class 14,864 24.09 358,110 549,338 Lincoln VIPT FI Equity-Income Service Class 119,205 9.37 1,117,185 1,865,961 Lincoln VIPT Janus Capital Appreciation 8,571 14.15 121,274 141,029 Lincoln VIPT Janus Capital Appreciation Service Class 67,650 14.09 953,057 1,395,627 Lincoln VIPT Marsico International Growth Service Class 155,068 8.28 1,283,650 2,390,081 Lincoln VIPT MFS Value Service Class 137,755 17.33 2,386,873 3,199,982 Lincoln VIPT Mid-Cap Value Service Class 135,838 8.10 1,099,740 1,784,333 Lincoln VIPT Mondrian International Value 162,537 13.34 2,168,727 2,822,520 Lincoln VIPT Mondrian International Value Service Class 549,025 13.35 7,326,737 9,940,706 Lincoln VIPT Money Market 1,000,840 10.00 10,008,399 10,008,399 Lincoln VIPT Money Market Service Class 2,457,100 10.00 24,571,005 24,571,000 Lincoln VIPT SSgA Bond Index Service Class 399,954 10.27 4,107,127 3,954,554 Lincoln VIPT SSgA Developed International 150 Service Class 100,695 5.65 569,327 587,556 Lincoln VIPT SSgA Emerging Markets 100 Service Class 76,267 5.88 448,298 477,576 Lincoln VIPT SSgA International Index Service Class 115,093 5.96 686,300 762,570 Lincoln VIPT SSgA Large Cap 100 Service Class 175,357 6.56 1,151,040 1,311,279 Lincoln VIPT SSgA S&P 500 Index 37,027 6.24 230,938 330,890 Lincoln VIPT SSgA S&P 500 Index Service Class 853,344 6.24 5,327,424 7,102,383 Lincoln VIPT SSgA Small-Cap Index Service Class 163,614 11.42 1,868,967 2,615,386 Lincoln VIPT SSgA Small-Mid Cap 200 Service Class 39,918 6.84 273,119 280,322 Lincoln VIPT T. Rowe Price Growth Stock Service Class 63,268 10.62 672,091 962,866
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NET SHARES ASSET FAIR VALUE SUBACCOUNT OWNED VALUE OF SHARES COST OF SHARES ---------------------------------------------------------------------------------------------------------------------- Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth 8,884 $ 7.69 $ 68,300 $ 91,597 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class 122,775 7.58 930,755 1,454,188 Lincoln VIPT Templeton Growth Service Class 127,966 19.37 2,478,583 3,835,409 Lincoln VIPT Turner Mid-Cap Growth Service Class 117,318 5.95 697,807 1,361,874 Lincoln VIPT UBS Global Asset Allocation 45,512 8.69 395,678 629,176 Lincoln VIPT UBS Global Asset Allocation Service Class 319,464 8.70 2,778,058 4,325,184 Lincoln VIPT Wilshire 2010 Profile Service Class 63,208 7.90 499,536 623,278 Lincoln VIPT Wilshire 2020 Profile Service Class 31,404 7.55 237,165 296,232 Lincoln VIPT Wilshire 2030 Profile Service Class 48,750 7.30 356,023 477,311 Lincoln VIPT Wilshire 2040 Profile Service Class 16,339 6.73 109,947 153,676 Lincoln VIPT Wilshire Aggressive Profile Service Class 312,920 8.23 2,576,272 3,859,132 Lincoln VIPT Wilshire Conservative Profile Service Class 540,845 9.47 5,123,965 5,956,221 Lincoln VIPT Wilshire Moderate Profile Service Class 2,955,869 9.07 26,821,553 34,551,952 Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class 1,331,617 8.64 11,503,835 15,910,936 MFS VIT Core Equity Service Class 7,370 10.32 76,059 89,483 MFS VIT Growth 9,128 15.62 142,584 146,756 MFS VIT Growth Service Class 13,011 15.37 199,976 224,452 MFS VIT Total Return 89,581 15.42 1,381,333 1,675,222 MFS VIT Total Return Service Class 801,791 15.24 12,219,288 16,109,723 MFS VIT Utilities 35,967 18.24 656,046 798,468 MFS VIT Utilities Service Class 486,408 18.01 8,760,202 12,756,188 NB AMT Mid-Cap Growth 245,466 16.14 3,961,818 4,788,510 NB AMT Regency 476,423 8.60 4,097,242 6,919,914 Putnam VT Growth & Income Class IB 6,268 11.47 71,889 136,005 Putnam VT Health Sciences Class IB 9,565 11.02 105,405 117,655
6. CHANGES IN UNITS OUTSTANDING The change in units outstanding for the year ended December 31, 2008 is as follows:
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation 189 (13,733) (13,544) AIM V.I. Capital Appreciation Class II -- (773) (773) AIM V.I. Core Equity 2,199 (33,237) (31,038) AIM V.I. Core Equity Class II 193 (138) 55 AIM V.I. International Growth 3,820 (18,068) (14,248) AIM V.I. International Growth Class II 99 (4,335) (4,236) ABVPSF Global Technology Class B 73,975 (84,810) (10,835) ABVPSF Growth and Income Class B 136,849 (161,302) (24,453) ABVPSF International Value Class B 535,450 (165,876) 369,574 ABVPSF Large Cap Growth Class B 7,655 (111,773) (104,118) ABVPSF Small/Mid Cap Value Class B 157,635 (57,001) 100,634 American Century VP Inflation Protection Class 2 936,222 (736,714) 199,508 American Funds Global Growth Class 2 417,969 (207,574) 210,395 American Funds Global Small Capitalization Class 2 242,354 (168,507) 73,847 American Funds Growth Class 2 1,826,516 (1,164,267) 662,249 American Funds Growth-Income Class 2 1,698,978 (1,075,401) 623,577 American Funds International Class 2 757,634 (519,065) 238,569 Delaware VIPT Capital Reserves Service Class 312,978 (182,103) 130,875 Delaware VIPT Diversified Income Service Class 731,721 (559,714) 172,007 Delaware VIPT Emerging Markets Service Class 338,383 (212,699) 125,684 Delaware VIPT High Yield 6,472 (60,568) (54,096) Delaware VIPT High Yield Service Class 229,445 (234,945) (5,500) Delaware VIPT REIT 2,789 (22,012) (19,223) Delaware VIPT REIT Service Class 98,843 (188,614) (89,771) Delaware VIPT Small Cap Value 2,933 (38,831) (35,898) Delaware VIPT Small Cap Value Service Class 300,864 (203,914) 96,950 Delaware VIPT Trend 3,596 (53,913) (50,317) Delaware VIPT Trend Service Class 84,844 (90,684) (5,840) Delaware VIPT U.S. Growth Service Class 50,548 (25,789) 24,759
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UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------- Delaware VIPT Value 6,616 (15,870) (9,254) Delaware VIPT Value Service Class 142,574 (160,979) (18,405) DWS VIP Equity 500 Index 7,921 (102,397) (94,476) DWS VIP Equity 500 Index Service Class 83,283 (140,698) (57,415) DWS VIP Small Cap Index 2,391 (18,365) (15,974) DWS VIP Small Cap Index Service Class 29,537 (52,812) (23,275) Fidelity VIP Contrafund Service Class 2 953,492 (351,143) 602,349 Fidelity VIP Equity-Income 2,904 (41,602) (38,698) Fidelity VIP Equity-Income Service Class 2 31,410 (39,054) (7,644) Fidelity VIP Growth -- (31,635) (31,635) Fidelity VIP Growth Service Class 2 87,233 (86,460) 773 Fidelity VIP Mid Cap Service Class 2 600,977 (174,184) 426,793 Fidelity VIP Overseas 2,471 (9,331) (6,860) Fidelity VIP Overseas Service Class 2 63,259 (63,387) (128) FTVIPT Franklin Income Securities Class 2 941,144 (424,472) 516,672 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 231,280 (120,729) 110,551 FTVIPT Mutual Shares Securities Class 2 629,423 (223,488) 405,935 FTVIPT Templeton Global Income Securities Class 2 793,561 (341,680) 451,881 FTVIPT Templeton Growth Securities Class 2 71,711 (137,967) (66,256) Janus Aspen Series Balanced Service Shares 20,373 (14,883) 5,490 Janus Aspen Series Mid Cap Growth Service Shares 3,528 (12,823) (9,295) Janus Aspen Series Worldwide Growth Service Shares 1,513 (2,153) (640) Lincoln VIPT Baron Growth Opportunities Service Class 295,782 (53,129) 242,653 Lincoln VIPT Capital Growth Service Class 33,638 (4,365) 29,273 Lincoln VIPT Cohen & Steers Global Real Estate Service Class 361,650 (65,636) 296,014 Lincoln VIPT Columbia Value Opportunities Service Class 54,526 (13,240) 41,286 Lincoln VIPT Delaware Bond 119,826 (626,704) (506,878) Lincoln VIPT Delaware Bond Service Class 1,048,569 (732,430) 316,139 Lincoln VIPT Delaware Growth and Income Service Class 34,880 (6,828) 28,052 Lincoln VIPT Delaware Social Awareness 2,110 (14,965) (12,855) Lincoln VIPT Delaware Social Awareness Service Class 41,465 (29,828) 11,637 Lincoln VIPT Delaware Special Opportunities Service Class 55,338 (21,071) 34,267 Lincoln VIPT FI Equity-Income Service Class 67,228 (8,789) 58,439 Lincoln VIPT Janus Capital Appreciation 1,540 (2,786) (1,246) Lincoln VIPT Janus Capital Appreciation Service Class 48,048 (8,904) 39,144 Lincoln VIPT Marsico International Growth Service Class 203,000 (55,167) 147,833 Lincoln VIPT MFS Value Service Class 316,316 (48,508) 267,808 Lincoln VIPT Mid-Cap Value Service Class 170,353 (58,802) 111,551 Lincoln VIPT Mondrian International Value 5,047 (28,566) (23,519) Lincoln VIPT Mondrian International Value Service Class 116,638 (111,514) 5,124 Lincoln VIPT Money Market 990,715 (637,760) 352,955 Lincoln VIPT Money Market Service Class 2,030,143 (1,250,896) 779,247 Lincoln VIPT SSgA Bond Index Service Class 469,933 (76,831) 393,102 Lincoln VIPT SSgA Developed International 150 Service Class 98,548 (7,604) 90,944 Lincoln VIPT SSgA Emerging Markets 100 Service Class 80,412 (6,356) 74,056 Lincoln VIPT SSgA International Index Service Class 115,746 (8,468) 107,278 Lincoln VIPT SSgA Large Cap 100 Service Class 184,967 (19,882) 165,085 Lincoln VIPT SSgA S&P 500 Index 45,772 (25,035) 20,737 Lincoln VIPT SSgA S&P 500 Index Service Class 704,492 (101,766) 602,726 Lincoln VIPT SSgA Small-Cap Index Service Class 304,192 (46,420) 257,772 Lincoln VIPT SSgA Small-Mid Cap 200 Service Class 63,521 (25,721) 37,800 Lincoln VIPT T. Rowe Price Growth Stock Service Class 129,628 (19,479) 110,149 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth 35 (1,041) (1,006) Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class 43,211 (19,379) 23,832 Lincoln VIPT Templeton Growth Service Class 256,493 (67,835) 188,658 Lincoln VIPT Turner Mid-Cap Growth Service Class 76,452 (22,602) 53,850 Lincoln VIPT UBS Global Asset Allocation 394 (5,466) (5,072) Lincoln VIPT UBS Global Asset Allocation Service Class 130,503 (18,587) 111,916 Lincoln VIPT Wilshire 2010 Profile Service Class 56,641 (21,284) 35,357 Lincoln VIPT Wilshire 2020 Profile Service Class 36,891 (5,514) 31,377 Lincoln VIPT Wilshire 2030 Profile Service Class 70,936 (21,327) 49,609 Lincoln VIPT Wilshire 2040 Profile Service Class 36,429 (19,872) 16,557
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UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------- Lincoln VIPT Wilshire Aggressive Profile Service Class 157,036 (16,450) 140,586 Lincoln VIPT Wilshire Conservative Profile Service Class 276,593 (99,672) 176,921 Lincoln VIPT Wilshire Moderate Profile Service Class 878,966 (362,153) 516,813 Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class 469,324 (252,509) 216,815 MFS VIT Core Equity Service Class 408 (2,091) (1,683) MFS VIT Growth 530 (13,659) (13,129) MFS VIT Growth Service Class 3,476 (7,219) (3,743) MFS VIT Total Return 2,277 (47,964) (45,687) MFS VIT Total Return Service Class 140,939 (219,046) (78,107) MFS VIT Utilities 9,418 (27,900) (18,482) MFS VIT Utilities Service Class 260,611 (166,542) 94,069 NB AMT Mid-Cap Growth 37,317 (75,749) (38,432) NB AMT Regency 46,362 (87,281) (40,919) Putnam VT Growth & Income Class IB 11 (782) (771) Putnam VT Health Sciences Class IB 2,434 (5,119) (2,685)
The change in units outstanding for the year ended December 31, 2007 is as follows:
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation 2,735 (51,749) (49,014) AIM V.I. Capital Appreciation Class II -- (6,366) (6,366) AIM V.I. Core Equity 5,889 (56,372) (50,483) AIM V.I. Core Equity Class II 397 (78) 319 AIM V.I. International Growth 1,530 (14,192) (12,662) AIM V.I. International Growth Class II 1,581 (2,986) (1,405) ABVPSF Global Technology Class B 104,702 (85,833) 18,869 ABVPSF Growth and Income Class B 158,618 (120,592) 38,026 ABVPSF International Value Class B 717,191 (81,095) 636,096 ABVPSF Large Cap Growth Class B 4,596 (47,215) (42,619) ABVPSF Small/Mid Cap Value Class B 133,715 (47,614) 86,101 American Century VP Inflation Protection Class 2 412,635 (397,276) 15,359 American Funds Global Growth Class 2 379,321 (82,873) 296,448 American Funds Global Small Capitalization Class 2 239,620 (113,718) 125,902 American Funds Growth Class 2 1,942,932 (984,317) 958,615 American Funds Growth-Income Class 2 1,948,981 (865,240) 1,083,741 American Funds International Class 2 778,042 (399,771) 378,271 Delaware VIPT Capital Reserves Service Class 53,540 (58,521) (4,981) Delaware VIPT Diversified Income Service Class 735,109 (210,310) 524,799 Delaware VIPT Emerging Markets Service Class 322,173 (130,201) 191,972 Delaware VIPT High Yield 9,309 (17,803) (8,494) Delaware VIPT High Yield Service Class 270,255 (171,963) 98,292 Delaware VIPT REIT 5,009 (45,291) (40,282) Delaware VIPT REIT Service Class 213,429 (209,935) 3,494 Delaware VIPT Small Cap Value 7,636 (48,258) (40,622) Delaware VIPT Small Cap Value Service Class 344,840 (174,748) 170,092 Delaware VIPT Trend 12,268 (64,513) (52,245) Delaware VIPT Trend Service Class 72,419 (82,215) (9,796) Delaware VIPT U.S. Growth Service Class 15,282 (19,702) (4,420) Delaware VIPT Value 15,212 (27,883) (12,671) Delaware VIPT Value Service Class 277,121 (119,710) 157,411 DWS VIP Equity 500 Index 30,690 (107,080) (76,390) DWS VIP Equity 500 Index Service Class 117,034 (101,180) 15,854 DWS VIP Small Cap Index 4,577 (22,780) (18,203) DWS VIP Small Cap Index Service Class 54,925 (15,924) 39,001 Fidelity VIP Contrafund Service Class 2 861,308 (221,882) 639,426 Fidelity VIP Equity-Income 9,270 (29,832) (20,562) Fidelity VIP Equity-Income Service Class 2 17,133 (46,327) (29,194) Fidelity VIP Growth 2,256 (14,329) (12,073) Fidelity VIP Growth Service Class 2 107,990 (51,300) 56,690 Fidelity VIP Mid Cap Service Class 2 529,206 (120,402) 408,804 Fidelity VIP Overseas 1,300 (11,330) (10,030)
N-47
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Service Class 2 79,973 (38,319) 41,654 FTVIPT Franklin Income Securities Class 2 1,300,316 (131,645) 1,168,671 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 242,668 (101,589) 141,079 FTVIPT Mutual Shares Securities Class 2 876,514 (53,527) 822,987 FTVIPT Templeton Global Income Securities Class 2 387,138 (47,632) 339,506 FTVIPT Templeton Growth Securities Class 2 176,390 (110,126) 66,264 Janus Aspen Series Balanced Service Shares 9,137 (21,423) (12,286) Janus Aspen Series Mid Cap Growth Service Shares 5,548 (7,939) (2,391) Janus Aspen Series Worldwide Growth Service Shares 20 (19) 1 Lincoln VIPT Baron Growth Opportunities Service Class 317,672 (6,927) 310,745 Lincoln VIPT Capital Growth Service Class 62,315 (636) 61,679 Lincoln VIPT Cohen & Steers Global Real Estate Service Class 198,375 (4,673) 193,702 Lincoln VIPT Core Service Class 54 (21,381) (21,327) Lincoln VIPT Delaware Bond 129,536 (279,920) (150,384) Lincoln VIPT Delaware Bond Service Class 779,144 (521,944) 257,200 Lincoln VIPT Delaware Growth and Income Service Class 25,069 (1,977) 23,092 Lincoln VIPT Delaware Social Awareness 3,485 (11,005) (7,520) Lincoln VIPT Delaware Social Awareness Service Class 15,778 (22,134) (6,356) Lincoln VIPT Delaware Special Opportunities Service Class 29,106 (238) 28,868 Lincoln VIPT FI Equity-Income Service Class 66,500 (17,454) 49,046 Lincoln VIPT Growth Service Class 4,775 (8,825) (4,050) Lincoln VIPT Growth Opportunities Service Class 4,015 (43,528) (39,513) Lincoln VIPT Janus Capital Appreciation 748 (4,113) (3,365) Lincoln VIPT Janus Capital Appreciation Service Class 40,084 (3,116) 36,968 Lincoln VIPT Marsico International Growth Service Class 85,236 (3,259) 81,977 Lincoln VIPT MFS Value Service Class 105,635 (2,573) 103,062 Lincoln VIPT Turner Mid-Cap Growth Service Class 78,189 (3,256) 74,933 Lincoln VIPT Mid-Cap Value Service Class 112,495 (4,227) 108,268 Lincoln VIPT Mondrian International Value 17,155 (18,991) (1,836) Lincoln VIPT Mondrian International Value Service Class 157,727 (87,416) 70,311 Lincoln VIPT Money Market 320,152 (388,266) (68,114) Lincoln VIPT Money Market Service Class 1,865,439 (1,368,348) 497,091 Lincoln VIPT SSgA S&P 500 Index 11,896 -- 11,896 Lincoln VIPT SSgA S&P 500 Index Service Class 161,562 (2,757) 158,805 Lincoln VIPT SSgA Small-Cap Index Service Class 62,907 (5,548) 57,359 Lincoln VIPT T. Rowe Price Growth Stock Service Class 8,758 (64) 8,694 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth 2,429 (74) 2,355 Lincoln VIPT T. Rowe Price Structured Mid-Cap Growth Service Class 50,348 (8,976) 41,372 Lincoln VIPT Templeton Growth Service Class 228,323 (2,538) 225,785 Lincoln VIPT UBS Global Asset Allocation 3,420 (5,517) (2,097) Lincoln VIPT UBS Global Asset Allocation Service Class 92,215 (32,169) 60,046 Lincoln VIPT Columbia Value Opportunities Service Class 15,015 (116) 14,899 Lincoln VIPT Wilshire 2010 Profile Service Class 29,127 (275) 28,852 Lincoln VIPT Wilshire 2020 Profile Service Class 2,661 (1,796) 865 Lincoln VIPT Wilshire 2030 Profile Service Class 737 -- 737 Lincoln VIPT Wilshire 2040 Profile Service Class 484 -- 484 Lincoln VIPT Wilshire Aggressive Profile Service Class 109,525 (39,246) 70,279 Lincoln VIPT Wilshire Conservative Profile Service Class 220,134 (76,102) 144,032 Lincoln VIPT Wilshire Moderate Profile Service Class 1,078,951 (238,190) 840,761 Lincoln VIPT Wilshire Moderately Aggressive Profile Service Class 683,909 (231,311) 452,598 MFS VIT Core Equity Service Class 102 (3,009) (2,907) MFS VIT Growth 3,808 (22,210) (18,402) MFS VIT Growth Service Class 2,102 (16,820) (14,718) MFS VIT Total Return 9,613 (47,295) (37,682) MFS VIT Total Return Service Class 388,956 (168,462) 220,494 MFS VIT Utilities 4,175 (46,372) (42,197) MFS VIT Utilities Service Class 214,161 (79,824) 134,337 NB AMT Mid-Cap Growth 79,277 (89,931) (10,654) NB AMT Regency 82,818 (99,337) (16,519) Putnam VT Growth & Income Class IB 1,937 (76) 1,861 Putnam VT Health Sciences Class IB 15,261 (17,254) (1,993)
N-48 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors of Lincoln Life & Annuity Company of New York and Contract Owners of Lincoln New York Account N for Variable Annuities We have audited the accompanying statement of assets and liabilities of Lincoln New York Account N for Variable Annuities ("Variable Account"), comprised of the subaccounts described in Note 1, as of December 31, 2008, the related statement of operations for the year or period then ended, and the related statements of changes in net assets for each of the two years in the period then ended, or for those sub-accounts operating for portions of such periods as disclosed in the financial statements. These financial statements are the responsibility of the Variable Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Variable Account's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Variable Account's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of investments owned as of December 31, 2008, by correspondence with the fund companies, or their transfer agents, as applicable. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of each of the respective subaccounts constituting Lincoln New York Account N for Variable Annuities at December 31, 2008, the results of their operations for the year or period then ended, and the changes in their net assets for the periods described above, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Philadelphia, Pennsylvania March 20, 2009 N-49 Lincoln New York Account N for Variable Annuities PART C - OTHER INFORMATION Item 24. Financial Statements and Exhibits (a) List of Financial Statements 1. Part A The Table of Condensed Financial Information is included in Part A of this Registration Statement. 2. Part B The following financial statements for the Variable Account are included in Part B of this Registration Statement: Statement of Assets and Liabilities - December 31, 2008 Statement of Operations - Year ended December 31, 2008 Statements of Changes in Net Assets - Years ended December 31, 2008 and 2007 Notes to Financial Statements - December 31, 2008 Report of Independent Registered Public Accounting Firm 3. Part B The following financial statements for Lincoln Life & Annuity Company of New York are included in Part B of this Registration Statement: Balance Sheets - Years ended December 31, 2008 and 2007 Statements of Income - Years ended December 31, 2008, 2007, and 2006 Statements of Shareholder's Equity - Years ended December 31, 2008, 2007, and 2006 Statements of Cash Flows - Years ended December 31, 2008, 2007, and 2006 Notes to Financial Statements - December 31, 2008 Report of Independent Registered Public Accounting Firm (b) List of Exhibits (1) (a) Resolution of Board of Directors and Memorandum authorizing establishment of the Variable Account are incorporated herein by reference to Registration Statement on Form N-4 (File No. 333-93875) filed on December 30, 1999. (b) Amendment to that Certain Memorandum incorporated herein by reference to Registration Statement on Form N-4 (File No. 333-93875) filed on December 30, 1999. (c) Amendment No. 2 to that Certain Memorandum incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-37982 filed on September 8, 2000. (2) Not Applicable (3) (a) Principal Underwriting Agreement dated May 1, 2007 between Lincoln Financial Distributors, Inc. and Lincoln Life & Annuity Company of New York incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-145531) filed on November 16, 2007. (b) Standard Selling Group Agreement incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-93875) filed on April 27, 2000. (c) Selling Group Agreement for ChoicePlus Assurance incorporated herein by reference to Post-Effective Amendment No. 5 (File No. 333-91182) filed on April 21, 2004. (d) ChoicePlus Selling Agreement NY incorporated herein by reference to Post-Effective Amendment No. 5 (File No. 333-91182) filed on April 21, 2004. (4) (a) ChoicePlus II Bonus Variable Annuity Contract incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-91182) filed on September 18, 2002. (b) Persistency Credit Rider incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-91182) filed on September 18, 2002. (c) Bonus Credit Rider incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-91182) filed on September 18, 2002. (d) IRA Contract Amendment incorporated herein by reference to Post-Effective Amendment No. 3 (File No. 333-91182) filed on April 17, 2003. (e) Roth IRA Endorsement incorporated herein by reference to Post-Effective Amendment No. 3 (File No. 333-91182) filed on April 17, 2003. (f) Variable Annuity Income Rider (I4LA-Q) incorporated herein by reference to Post-Effective Amendment No. 3 (File No. 333-91182) filed on April 17, 2003. (g) Variable Annuity Income Rider (I4LA-NQ) incorporated herein by reference to Post-Effective Amendment No. 3 (File No. 333-98112) filed on April 17, 2003. (h) Variable Annuity Rider (32793-BNY) incorporated herein by reference to Post-Effective Amendment No. 4 (File No. 333-91182) filed on September 23, 2003. (i) ChoicePlus Assurance (Bonus) Variable Annuity Contract (30070 BN5) incorporated herein by reference to Post-Effective Amendment No. 5 (File No. 333-91182) filed on April 21, 2004. (j) ChoicePlus Assurance (Bonus) Contract Specifications (CD NY CPAN) incorporated herein by reference to Post-Effective Amendment No. 5 (File No. 333-91182) filed on April 21, 2004. (k) ChoicePlus II Bonus Contract Specifications (CDNYCP2N) incorporated herein by reference to Post-Effective Amendment No. 5 (File No. 333-91182) filed on April 21, 2004. (l) DCA Fixed Account Allocations (NYNGV) incorporated herein by reference to Post-Effective Amendment No. 5 (File No. 333-91182) filed on April 21, 2004. (m) Form of Variable Annuity Rider (32793HWM-N-NB-NY 4/04) incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-91182) filed on December 20, 2004. (n) Form of Contract Specifications Page for Account Value Death Benefit (CDNYCPAN 6/05) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-91182) filed on April 22, 2005. (o) Form of Variable Annuity Rider (I4LA-NQ-PR-NY 6/04) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-91182) filed on April 22, 2005. (p) Form of Variable Annuity Rider (I4LA-Q-PR-NY 6/04) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-91182) filed on April 22, 2005. (q) Form of Contract Benefit Data for GIB - Choice Plus II Bonus (CBNY-CP2BO-NQ-PR 6/04) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-91182) filed on April 22, 2005. (r) Form of Contract Benefit Data for GIB - Assurance (CBNY-CPABO-NQ-PR 6/04) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-91182) filed on April 22, 2005. (s) Form of Contract Benefit Data for GIB - Choice Plus II Bonus (CBNY-CP2BO-Q-PR 6/04) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-91182) filed on April 22, 2005. (t) Form of Contract Benefit Data for GIB - Assurance (CBNY-CPABO-Q-PR 6/04) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-91182) filed on April 22, 2005. (u) Form of Variable Annuity Income Rider (i4LA-NQ 9/05) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-35784) filed on June 20, 2005. (v) Form of Variable Annuity Income Rider (i4LA-N 9/05) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-35784) filed on June 20, 2005. (w) Form of Variable Annuity Income Rider (i4LA-NQ-PR 9/05) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-35784) filed on June 20, 2005. (x) Form of Variable Annuity Income Rider (i4LA-Q-PR 9/05) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-35784) filed on June 20, 2005. (y) Guaranteed Income Later Rider (4LATER 2/06) incorporated herein by reference to Post-Effective Amendment No. 23 (File No. 333-36316) filed on April 4, 2006. (z) Guaranteed Income Benefit Rider (GIB 1/06) incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-40937) filed on April 18, 2006. B-2 (aa) Guaranteed Income Benefit Rider (IGIB 1/06) incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-40937) filed on April 18, 2006. (bb) Contract Benefit Data (CBD 1/06) incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-40937) filed on April 18, 2006. (cc) Allocation Amendment (AR503 1/06) incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-40937) filed on April 18, 2006. (dd) Variable Annuity Payment Option Rider (I4LA-Q 1/06) incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-40937) filed on April 18, 2006. (ee) Variable Annuity Payment Option Rider (I4LA-NQ 1/06) incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-40937) filed on April 18, 2006. (ff) Variable Annuity Rider (32793 7/06 NY) incorporated herein by reference to Post-Effective Amendment No. 10 (File No. 333-91182) filed on November 7, 2006. (gg) Variable Annuity Death Benefit Rider (DB-1 1/06) incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-145531) filed on November 16, 2007. (hh) Variable Annuity Death Benefit Rider (DB-2 1/06) incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-145531) filed on November 16, 2007. (ii) Variable Annuity Death Benefit Rider (DB-3 1/06) incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-145531) filed on November 16, 2007. (jj) Variable Annuity Death Benefit Rider (DB-6 1/06) incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-145531) filed on November 16, 2007. (kk) Variable Annuity Death Benefit Rider (DB-9 1/06) incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-145531) filed on November 16, 2007. (ll) Variable Annuity Living Benefits Rider (AR-512 2/08) incorporated herein by reference to Post-Effective Amendment No. 24 (File No. 333-61554) filed on December 18, 2007. (mm) Guaranteed Income Benefit Rider (AGIB NY 10/08) incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-145531) filed on April 9, 2009. (nn) Section 403(b) Annuity Endorsement (32481NY-I-12/08) incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-145531) filed on April 9, 2009. (oo) Bonus Rider (32146 4/08 NY) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-141761) filed on April 9, 2009. (5) (a) ChoicePlus II Bonus Application incorporated herein by reference to Post-Effective Amendment No. 5 (File No. 333-91182) filed on April 21, 2004. (b) ChoicePlus Assurance (Bonus) Application (CAPBB-NY 11/07) incorporated herein by reference to Post-Effective Amendment No. 3 (File No. 333-141760) filed on April 15, 2008. (6) Articles of Incorporation and By-laws of Lincoln Life & Annuity Company of New York incorporated herein by reference to Post-Effective Amendment No. 17 on Form N-6 to Registration Statement on Form S-6 (File No. 033-77496) filed on April, 2007. (7) Automatic Indemnity Reinsurance Agreement dated December 31, 2007 incorporated herein by reference to Post-Effective Amendment No. 2 (File No. 333-145531) filed on April 9, 2008. (8) (a) Accounting and Financial Administration Services Agreement dated October 1, 2007 among Mellon Bank, N.A., The Lincoln National Life Insurance Company and Lincoln Life & Annuity Company of New York incorporated herein by reference to Registration Statement on Form N-4 (File No. 333-147673) filed on November 28, 2007. (b) Fund Participation Agreements and Amendments between Lincoln Life & Annuity Company of New York and: (i) AIM Variable Insurance Funds, Inc. incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. (ii) American Funds Insurance Series incorporated herein by reference to Post-Effective Amendment No. 26 (File No. 333-63505) filed on April 3, 2009. (iii) Delaware VIP Trust incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. B-3 (iv) Fidelity Variable Insurance Products Fund incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. (v) Franklin Templeton Variable Insurance Products Trust incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. (vi) MFS Variable Insurance Trust incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. (vii) AllianceBernstein Variable Products Series Fund incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-145531) filed on April 9, 2009. (viii) DWS Investments VIT Funds incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-141759) filed on April 15, 2009. (ix) Lincoln Variable Insurance Products Trust incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-145531) filed on April 9, 2009. (x) Neuberger Berman Advisers Management Trust incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. (xi) Putnam Variable Insurance Trust incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. (xii) Janus Aspen Series incorporated herein by reference to Post-Effective Amendment No. 2 on Form N-6 (File No. 333-141769) filed on April 2, 2008. (xiii) American Century Variable Products incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-145531) filed on April 9, 2009. (xiv) DWS Variable Series II (To Be Filed by Amendment) (xv) BlackRock Variable Series Funds, Inc. (To Be Filed by Amendment) (xvi) PIMCO Variable Insurance Trust (To Be Filed by Amendment) (c) Rule 22c-2 Agreements between Lincoln Life & Annuity Company of New York and: (i) AIM Variable Insurance Funds, Inc. incorporated herein by reference to Post-Effective Amendment No. 30 (File No. 333-36304) filed on May 29, 2008. (ii) American Funds Insurance Series incorporated herein by reference to Post-Effective Amendment No. 30 (File No. 333-36304) filed on May 29, 2008. (iii) Delaware VIP Trust incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-145531) filed on April 9, 2009. (iv) Fidelity Variable Insurance Products Trust incorporated herein by reference to Post-Effective Amendment No. 30 (File No. 333-36304) filed on May 29, 2008. (v) Franklin Templeton Variable Insurance Products Trust incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-149449) filed on November 26, 2008. (vi) MFS Variable Insurance Trust incorporated herein by reference to Post-Effective Amendment No. 30 (File No. 333-36304) filed on May 29, 2008. (vii) Lincoln Variable Insurance Products Trust incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-149449) filed on November 26, 2008. (viii) Neuberger Berman Advisers Management Trust incorporated herein by refernce to Post-Effective Amendment No. 30 (File No. 333-36304) filed on May 29, 2008. (ix) Putnam Variable Insurance Trust incorporated herein by refernce to Post-Effective Amendment No. 50 (File No. 333-141752) filed on December 12, 2008. (x) Janus Aspen Series incorporated herein by refernce to Post-Effective Amendment No. 5 (File No. 333-141752) filed on December 12, 2008. (xi) American Century Investments Variable Products incorporated herein by reference to Post-Effective Amendment No. 29 (File No. 333-61554) filed on March 16, 2009. B-4 (9) (a) Opinion and Consent of Mary Jo Ardington, Senior Counsel of The Lincoln National Life Insurance Company as to the legality of securities being issued (ChoicePlus II Bonus) incorporated herein by reference to Registration Statement on Form N-4 (File No. 333-141760) filed on April 2, 2007. (b) Opinion and Consent of Mary Jo Ardington, Senior Counsel of The Lincoln National Life Insurance Company as to the legality of securities being issued (ChoicePlus Assurance Bonus) incorporated herein by reference to Registration Statement on Form N-4 (File No. 333-141760) filed on April 2, 2007. (10) (a) Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (b) Power of Attorney - Principal Officers and Directors of Lincoln Life & Annuity Company of New York (11) Not Applicable (12) Not Applicable (13) Organizational Chart of The Lincoln National Insurance Holding Company System incorporated herein by reference to Post-Effective Amendment No. 29 (File No. 333-61554) filed on March 16, 2009. Item 25. Directors and Officers of the Depositor The following list contains the officers and directors of Lincoln Life & Annuity Company of New York who are engaged directly or indirectly in activities relating to Lincoln New York Account N for Variable Annuities as well as the contracts. The list also shows Lincoln Life & Annuity Company of New York's executive officers. B-5
Name Positions and Offices with Depositor --------------------------------- --------------------------------------------------------------- J. Patrick Barrett Director 4605 Watergap Manlius, NY 13104 Charles C. Cornelio***** Executive Vice President and Chief Administrative Officer Patrick P. Coyne*** Director Frederick J. Crawford****** Executive Vice President, Chief Financial Officer and Director Robert W. Dineen*** Director Dennis R. Glass****** President George W. Henderson, III Director Granville Capital 300 N. Greene Street Greensboro, NC 27401 Mark E. Konen***** Senior Vice President and Director M. Leanne Lachman Director 870 United Nations, Plaza, #19-E New York, NY 10017 Louis G. Marcoccia Director Senior Vice President Syracuse University Crouse-Hinds Hall, Suite 620 900 S. Crouse Ave. Syracuse, NY 13244 Patrick S. Pittard Director 20 Cates Ridge Atlanta, GA 30327 Larry A. Samplatsky**** Vice President and Chief Compliance Officer Dennis L. Schoff****** Director Robert O. Sheppard* Second Vice President and General Counsel Michael S. Smith*** Assistant Vice President and Director Rise' C.M. Taylor** Vice President and Treasurer C. Suzanne Womack ****** Second Vice President and Secretary
* Principal business address is 100 Madison Street, Suite 1860, Syracuse, NY 13202 ** Principal business address is 1300 South Clinton Street, Fort Wayne, Indiana 46802 *** Principal business address is Center Square West Tower, 1500 Market Street, Suite 2900, Philadelphia, PA 19102 **** Principal business address is 350 Church Street, Hartford, CT 06103 ***** Principal business address is 100 N. Greene Street, Greensboro, NC 27401 ****** Principal business address is Radnor Financial Center, 150 Radnor Chester Road, Radnor, PA 19087 Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant See Exhibit 13: Organizational Chart of the Lincoln National Insurance Holding Company System. Item 27. Number of Contractowners As of February 28, 2009 there were 6,697 contract owners under Account N. Item 28. Indemnification (a) Brief description of indemnification provisions. B-6 In general, Article VII of the By-Laws of Lincoln Life & Annuity Company of New York provides that Lincoln New York 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 Lincoln New York, 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 act opposed to the best interests of, Lincoln New York. Certain additional conditions apply to indemnification in criminal proceedings. In particular, separate conditions govern indemnification of directors, officers, and employees of Lincoln New York in connection with suits by, or in the right of, Lincoln New York. Please refer to Article VII of the By-Laws of Lincoln New York (Exhibit no. 6 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. Item 29. Principal Underwriter (a) Lincoln Financial Distributors, Inc. ("LFD") currently serves as Principal Underwriter for: Lincoln National Variable Annuity Fund A (Group & Individual); Lincoln National Variable Annuity Account C; Lincoln National Flexible Premium Variable Life Account D; Lincoln National Variable Annuity Account E; Lincoln National Flexible Premium Variable Life Account F; Lincoln National Flexible Premium Variable Life Account G; Lincoln National Variable Annuity Account H; Lincoln Life & Annuity Variable Annuity Account H; Lincoln Life Flexible Premium Variable Life Account J; Lincoln Life Flexible Premium Variable Life Account K; Lincoln National Variable Annuity Account L; Lincoln Life & Annuity Variable Annuity Account L; Lincoln Life Flexible Premium Variable Life Account M; Lincoln Life & Annuity Flexible Premium Variable Life Account M; Lincoln Life Variable Annuity Account N; Lincoln New York Account N for Variable Annuities; Lincoln Life Variable Annuity Account Q; Lincoln Life Flexible Premium Variable Life Account R; LLANY Separate Account R for Flexible Premium Variable Life Insurance; Lincoln Life Flexible Premium Variable Life Account S; LLANY Separate Account S for Flexible Premium Variable Life Insurance; Lincoln Life Variable Annuity Account T; Lincoln Life Variable Annuity Account W; and Lincoln Life Flexible Premium Variable Life Account Y and Lincoln Life & Annuity Flexible Premium Variable Life Account Y. (b) Officers and Directors of Lincoln Financial Distributors, Inc.:
Name Positions and Offices with Underwriter ------------------------ ------------------------------------------------ Wilford H. Fuller* President, Chief Executive Officer and Director David M. Kittredge* Senior Vice President Randal J. Freitag* Vice President and Treasurer Patrick J. Caulfield** Vice President and Chief Compliance Officer Joel Schwartz* Vice President and Director James Ryan* Vice President and Director Keith J. Ryan*** Vice President and Chief Financial Officer Linda E. Woodward*** Secretary
* Principal Business address is Radnor Financial Center, 150 Radnor Chester Road, Radnor PA 19087 ** Principal Business address is 350 Church Street, Hartford, CT 06103 *** Principal Business address is 1300 S. Clinton Street, Ft. Wayne, IN 46802 (c) N/A B-7 Item 30. Location of Accounts and Records All accounts, books, and other documents, required to be maintained by Section 31a of the 1940 Act and the Rules promulgated thereunder are maintained by The Lincoln National Life Insurance Company ("Lincoln Life"), 1300 South Clinton Street, Fort Wayne, Indiana 46802 pursuant to an administrative services agreement with Lincoln Life & Annuity Company of New York. Lincoln Life has entered into an agreement with Bank of New York Mellon, One Mellon Bank Center, 500 Grant Street, Pittsburgh, PA 15258, to provide accounting services for the VAA. Item 31. Management Services Not Applicable. Item 32. Undertakings (a) Registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted. (b) Registrant undertakes that it will include either (1) as part of any application to purchase a Certificate or an Individual Contract offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or a similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information. (c) Registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request to Lincoln New York at the address or phone number listed in the Prospectus. (d) Lincoln New York hereby represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Lincoln New York. (e) Registrant hereby represents that it is relying on the American Council of Life Insurance (avail. Nov. 28, 1988) no-action letter with respect to Contracts used in connection with retirement plans meeting the requirements of Section 403(b) of the Internal Revenue Code, and represents further that it will comply with the provisions of paragraphs (1) through (4) set forth in that no-action letter. SIGNATURES (a) As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused this Post-Effective Amendment No. 6 to the Registration Statement to be signed on its behalf, in the City of Fort Wayne, and State of Indiana on this 16th day of April, 2009. Lincoln New York Account N for Variable Annuities (Registrant) Lincoln ChoicePlus II Bonus and Lincoln ChoicePlus Assurance (Bonus) By: /s/Delson R. Campbell ------------------------------------ Delson R. Campbell Assistant Vice President, Lincoln Life & Annuity Company of New York (Title) LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK (Depositor) By: /s/Brian A. Kroll ------------------------------------ Brian A. Kroll Assistant Vice President, Lincoln Life & Annuity Company of New York (Title)
B-8 (b) As required by the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in their capacities indicated on April 16, 2009. Signature Title * President and Director ------------------------------ (Principal Executive Officer) Dennis R. Glass * Executive Vice President, Chief Financial Officer and Director ------------------------------ (Principal Financial Officer) Frederick J. Crawford * Executive Vice President and Chief Administrative Officer ------------------------------ Charles C. Cornelio * Director ------------------------------ J. Patrick Barrett * Director ------------------------------ Patrick P. Coyne * Director ------------------------------ Robert W. Dineen * Director ------------------------------ George W. Henderson, III * Senior Vice President and Director ------------------------------ Mark E. Konen * Director ------------------------------ M. Leanne Lachman * Director ------------------------------ Louis G. Marcoccia * Director ------------------------------ Patrick S. Pittard * Director ------------------------------ Dennis L. Schoff * Assistant Vice President and Director Michael S. Smith-------------------- *By:/s/Delson R. Campbell Pursuant to a Power of Attorney --------------------------- Delson R. Campbell
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