N-4/A 1 a2215028zn-4a.txt N-4/A As filed with the Securities and Exchange Commission on May 28, 2013 1933 Act Registration No. 333-186895 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 PRE-EFFECTIVE AMENDMENT NO. 1 /X/ and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / / AMENDMENT NO. 236 /X/ Lincoln New York Account N for Variable Annuities (Exact Name of Registrant) Lincoln ChoicePlus AssuranceSM (Prime) LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK (Name of Depositor) 100 Madison Street Suite 1860 Syracuse, NY 13202 (Address of Depositor's Principal Executive Offices) Depositor's Telephone Number, Including Area Code: (315) 428-8420 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: Scott C. Durocher, Esquire The Lincoln National Life Insurance Company 350 Church Street Hartford, Connecticut 06103 Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement. Title of Securities being registered: Interests in a separate account under individual flexible payment deferred variable annuity contracts. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) shall determine. Lincoln ChoicePlus AssuranceSM (Prime) 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 2348 Fort Wayne, IN 46801-2348 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 (Lincoln New York or Company). This contract is 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. However, IRAs provide tax deferral whether or not the funds are invested in an annuity contract. Further, if your contract is a Roth IRA, you generally will not pay income tax on a distribution, provided certain conditions are met. 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 over a certain period of time, or for life, subject to certain conditions. 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, subject to certain restrictions, may be made to the contract and must be at least $100 per payment ($25 if transmitted electronically), and at least $300 annually. At this time, the only fixed account available is for dollar cost averaging purposes. All Purchase Payments 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: AllianceBernstein Variable Products Series Fund (Class B): AllianceBernstein VPS Global Thematic Growth Portfolio AllianceBernstein VPS Small/Mid Cap Value Portfolio BlackRock Variable Series Funds, Inc. (Class III): BlackRock Global Allocation V.I. Fund Delaware VIP (Reg. TM) Trust (Service Class): Delaware VIP (Reg. TM) Diversified Income Series Delaware VIP (Reg. TM) Emerging Markets Series Delaware VIP (Reg. TM) Limited-Term Diversified Income Series Delaware VIP (Reg. TM) REIT Series Delaware VIP (Reg. TM) Small Cap Value Series Delaware VIP (Reg. TM) Smid Cap Growth Series Delaware VIP (Reg. TM) U.S. Growth Series Delaware VIP (Reg. TM) Value Series DWS Variable Series II (Class B): DWS Alternative Asset Allocation VIP Portfolio Fidelity (Reg. TM) Variable Insurance Products (Service Class 2): Fidelity (Reg. TM) VIP Contrafund (Reg. TM) Portfolio Fidelity (Reg. TM) VIP Growth Portfolio Fidelity (Reg. TM) VIP Mid Cap Portfolio Franklin Templeton Variable Insurance Products Trust (Class 2): FTVIPT Franklin Income Securities Fund FTVIPT Mutual Shares Securities Fund Lincoln Variable Insurance Products Trust (Service Class): LVIP Baron Growth Opportunities Fund LVIP BlackRock Emerging Markets RPM Fund LVIP BlackRock Equity Dividend RPM Fund LVIP BlackRock Inflation Protected Bond Fund LVIP Capital Growth Fund LVIP Clarion Global Real Estate Fund LVIP Columbia Small-Mid Cap Growth RPM Fund LVIP Delaware Bond Fund LVIP Delaware Diversified Floating Rate Fund LVIP Delaware Social Awareness Fund LVIP Delaware Special Opportunities Fund LVIP Dimensional Non-U.S. Equity RPM Fund LVIP Dimensional U.S. Equity RPM Fund LVIP Dimensional/Vanguard Total Bond Fund LVIP Global Income Fund 1 LVIP JPMorgan High Yield Fund LVIP JPMorgan Mid Cap Value RPM Fund LVIP MFS International Growth Fund LVIP MFS International Growth RPM Fund LVIP MFS Value Fund LVIP Mid-Cap Value Fund LVIP Mondrian International Value Fund LVIP Money Market Fund LVIP RPM BlackRock Global Allocation V.I. Fund LVIP RPM VIP Contrafund (Reg. TM) Portfolio LVIP SSgA Bond Index Fund LVIP SSgA Conservative Index Allocation Fund LVIP SSgA Conservative Structured Allocation Fund LVIP SSgA Developed International 150 Fund LVIP SSgA Emerging Markets 100 Fund LVIP SSgA Global Tactical Allocation RPM Fund LVIP SSgA International Index Fund LVIP SSgA Large Cap 100 Fund LVIP SSgA Large Cap RPM Fund LVIP SSgA Moderate Index Allocation Fund LVIP SSgA Moderate Structured Allocation Fund LVIP SSgA Moderately Aggressive Index Allocation Fund LVIP SSgA Moderately Aggressive Structured Allocation Fund LVIP SSgA S&P 500 Index Fund** LVIP SSgA Small-Cap Index Fund LVIP SSgA Small-Cap RPM Fund LVIP SSgA Small-Mid Cap 200 Fund LVIP T. Rowe Price Growth Stock Fund LVIP T. Rowe Price Structured Mid-Cap Growth Fund LVIP Templeton Growth RPM Fund LVIP UBS Large Cap Growth RPM Fund LVIP Vanguard Domestic Equity ETF Fund LVIP Vanguard International Equity ETF Fund LVIP Protected Profile Conservative Fund LVIP Protected Profile Growth Fund LVIP Protected Profile Moderate Fund Lincoln Variable Insurance Products Trust (Service Class II): LVIP American Global Growth Fund LVIP American Global Small Capitalization Fund LVIP American Growth Fund LVIP American Growth Income Fund LVIP American International Fund MFS (Reg. TM) Variable Insurance TrustSM (Service Class): MFS (Reg. TM) VIT Growth Series MFS (Reg. TM) VIT Utilities Series PIMCO Variable Insurance Trust (Advisor Class): PIMCO VIT CommodityRealReturn (Reg. TM) Strategy Portfolio Refer to the Description of the Funds section of this prospectus for specific information regarding availability of funds. ** "Standard & Poor's (Reg. TM)", "S&P 500 (Reg. TM)", "Standard & Poor's 500 (Reg. TM)" and "500" are trademarks of Standard & Poor's Financial Services, LLC, a subsidiary of The McGraw-Hill Companies, Inc. and have 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. This prospectus gives you information about the contract that you should know before you decide to buy a contract and make Purchase Payments. You should also review the prospectuses for the funds 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 contract 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 2348, Fort Wayne, IN 46801-2348, or call 1-888-868-2583. The SAI and other 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. _______, 2013 2 Table of Contents
Item Page Special Terms 4 Expense Tables 6 Summary of Common Questions 12 Lincoln Life & Annuity Company of New York 14 Variable Annuity Account (VAA) 15 Investments of the Variable Annuity Account 15 Charges and Other Deductions 20 The Contracts 26 Purchase Payments 26 Transfers On or Before the Annuity Commencement Date 28 Surrenders and Withdrawals 30 Death Benefit 31 Investment Requirements 34 Living Benefit Riders 36 Lincoln Lifetime IncomeSM Advantage 2.0 37 i4LIFE (Reg. TM) Advantage 46 Guaranteed Income Benefit with i4LIFE (Reg. TM) Advantage 50 Annuity Payouts 54 Fixed Side of the Contract 56 Distribution of the Contracts 57 Federal Tax Matters 58 Additional Information 63 Voting Rights 63 Return Privilege 63 Other Information 64 Legal Proceedings 64 Contents of the Statement of Additional Information (SAI) for Lincoln Life & Annuity Company of New York Variable Annuity Account N 65
3 Special Terms In this prospectus, the following terms have the indicated meanings: 5% Enhancement-A feature under Lincoln Lifetime IncomeSM Advantage 2.0 in which the Income Base, minus Purchase Payments received in that year, will be increased by 5%, subject to certain conditions. Access Period-Under i4LIFE (Reg. TM) Advantage, a defined period of time during which we make Regular Income Payments to you while you still have access to your Account Value. This means that you may make withdrawals, surrender the contract, and have a Death Benefit. 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 on a Valuation Date equals the total value of all of the Contractowner's Accumulation Units plus the Contractowner's value in the fixed account, reduced by 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 (other than i4LIFE (Reg. TM) Advantage). Annuity Payout-A regularly Scheduled Payment (under any of the available annuity options) that occurs after the Annuity Commencement Date (or Periodic Income Commencement Date if i4LIFE (Reg. TM) Advantage has been elected). Payments may be variable or fixed, 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. Automatic Annual Step-up-Under Lincoln Lifetime IncomeSM Advantage 2.0, the Income Base, as applicable, will automatically step-up to the Contract Value on each Benefit Year anniversary, subject to certain conditions. Beneficiary-The person you choose to receive any Death Benefit paid if you die before the Annuity Commencement Date. Benefit Year-Under Lincoln Lifetime IncomeSM Advantage 2.0, the 12-month period starting with the effective date of the rider and starting with each anniversary of the rider effective date after that. 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 referred 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. Cross-reinvestment-An optional additional service that automatically transfers the contract value in a designated variable subaccount that exceeds a baseline amount to another specific variable subaccount at specific intervals. 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. Enhancement Period-Under Lincoln Lifetime IncomeSM Advantage 2.0,, the 10-year period during which the 5% Enhancement is in effect. A new Enhancement Period will begin each time an Automatic Annual Step-up to the Contract Value occurs. Excess Withdrawals-Amounts withdrawn during a Benefit Year, as specified for each Living Benefit rider, which decrease or eliminate the guarantees under the rider. 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 Annual Income-The guaranteed periodic withdrawal amount available from the contract each year for life under Lincoln Lifetime IncomeSM Advantage 2.0. Guaranteed Annual Income Amount Annuity Payout Option-A payout option available under Lincoln Lifetime IncomeSM Advantage 2.0 in which the Contractowner (and 4 spouse if applicable) will receive annual annuity payments equal to the Guaranteed Annual Income amount for life. 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 Annuity Payout option which combines periodic variable Regular Income Payments for life and a Death Benefit with the ability to make withdrawals during a defined period, the Access Period. i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds-i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds is an optional feature under i4LIFE (Reg. TM) Advantage that provides a higher Guaranteed Income Benefit percentage if you adhere to certain Investment Requirements. Income Base-Under the Lincoln Lifetime IncomeSM Advantage 2.0, a value used to calculate the Guaranteed Annual Income amount. The amount of the Income Base varies based on when you elect the rider, and is adjusted as set forth in this prospectus. Investment Requirements-Restrictions in how you may allocate your Subaccount investments if you own certain Living Benefit riders. Lifetime Income Period-Under i4LIFE (Reg. TM) Advantage, the period of time following the Access Period during which we make Regular Income Payments to you (and Secondary Life, if applicable) for the rest of your life. During the Lifetime Income Period, you will no longer have access to your Account Value or receive a Death Benefit. Lincoln New York (we, us, our, Company)-Lincoln Life & Annuity Company of New York. Lincoln Lifetime IncomeSM Advantage 2.0-Provides minimum guaranteed periodic withdrawals and income that may increase based on automatic enhancements and age-based increases to the income amount, regardless of the investment performance of the contract and provided certain conditions are met. Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds- An optional feature under Lincoln Lifetime IncomeSM Advantage 2.0 that provides a higher Guaranteed Annual Income amount percentage if you adhere to certain Investment Requirements. 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. These riders are Lincoln Lifetime IncomeSM Advantage 2.0 and i4LIFE (Reg. TM) Advantage (with or without the Guaranteed Income Benefit). If you select a Living Benefit rider, Excess Withdrawals may have adverse effects on the benefit, and you may be subject to Investment Requirements. Periodic Income Commencement Date-The Valuation Date on which the amount of i4LIFE (Reg. TM) Advantage Regular Income Payments are determined. Purchase Payments-Amounts paid into the contract. Regular Income Payments-The variable, periodic income payments paid under i4LIFE (Reg. TM) Advantage. Secondary Life-Under i4LIFE (Reg. TM) Advantage, the person designated by the Contractowner upon whose life the Annuity Payouts will also be contingent. 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 (normally 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. 5 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 (if available) the fixed account. State premium taxes may also be deducted. CONTRACTOWNER TRANSACTION EXPENSES Accumulation Phase: Surrender charge (as a percentage of Purchase Payments surrendered/withdrawn):1......... 7.00% Transfer charge:2....................................................................... $ 25 We may also apply an Interest Adjustment to amounts being withdrawn, surrendered or transferred from a Guaranteed Period account (except for dollar cost averaging, cross-reinvestment, withdrawals up to the Regular Income Payments under i4LIFE (Reg. TM) Advantage). See Fixed Side of the Contract.
1 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 reduce or waive this charge in certain situations. See Charges and Other Deductions - Surrender Charge. 2 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. The following tables describe the fees and expenses that you will pay periodically during the time that you own the contract, not including fund fees and expenses. Only one table will apply to a given Contractowner. The tables differ based on whether the Contractowner has purchased the i4LIFE (Reg. TM) Advantage rider. o Table A reflects the expenses for a contract that has not elected the i4LIFE (Reg. TM) Advantage (Base contract). o Table B reflects the expenses for a contract that has elected the i4LIFE (Reg. TM) Advantage. o Table C reflects the expenses for a contract that has elected i4LIFE (Reg. TM) Advantage and previously purchased the Lincoln Lifetime IncomeSM Advantage 2.0. TABLE A Annual Account Fee:1...................................................................... $ 35 Separate Account Annual Expenses (as a percentage of average daily net assets in the Subaccounts):2 Account Value Death Benefit Mortality and Expense Risk Charge....................................................... 1.15% Administrative Charge................................................................... 0.10% Total Separate Account Expenses......................................................... 1.25% Guarantee of Principal Death Benefit Mortality and Expense Risk Charge....................................................... 1.20% Administrative Charge................................................................... 0.10% Total Separate Account Expenses......................................................... 1.30% Enhanced Guaranteed Minimum Death Benefit (EGMDB) Mortality and Expense Risk Charge....................................................... 1.45% Administrative Charge................................................................... 0.10% Total Separate Account Expenses......................................................... 1.55%
Single Joint Optional Living Benefit Rider Charges:3 Life Life Lincoln Lifetime IncomeSM Advantage 2.0:4, 5 Guaranteed Maximum Charge................. 2.00% 2.00% Current Charge............................ 1.05% 1.25%
6 1 The account fee will be waived if your contract value is $100,000 or more at the end of any particular contract year. This account fee will be waived after the fifteenth contract year. The account fee will also be deducted upon full surrender of the contract if the contract value is less than $100,000. 2 The mortality and expense risk charge and administrative charge together are 1.40% on and after the Annuity Commencement Date. 3 Only one Living Benefit rider may be elected from this chart. 4 As an annualized percentage of the Income Base (initial purchase payment or contract value at the time of election), as increased for subsequent purchase payments, Automatic Annual Step-ups, 5% Enhancements and decreased by Excess Withdrawals. See Charges and Other Deductions - Lincoln Lifetime IncomeSM Advantage 2.0 Charge for a discussion of these changes to the Income Base. This charge is deducted from the contract value on a quarterly basis. 5 There is no additional charge for Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds over and above the charge for Lincoln Lifetime IncomeSM Advantage 2.0. TABLE B Annual Account Fee:1...................................................... $ 35 i4LIFE (Reg. TM) Advantage without Guaranteed Income Benefit (version 4):2 Account Value Death Benefit............................................. 1.65% Guarantee of Principal Death Benefit.................................... 1.70% Enhanced Guaranteed Minimum Death Benefit (EGMDB)....................... 1.95%
Single Joint i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4):3,4 Life Life Account Value Death Benefit Guaranteed Maximum Charge.............................................. 3.65% 3.65% Current Charge......................................................... 2.30% 2.50% Guarantee of Principal Death Benefit Guaranteed Maximum Charge.............................................. 3.70% 3.70% Current Charge......................................................... 2.35% 2.55% Enhanced Guaranteed Minimum Death Benefit (EGMDB) Guaranteed Maximum Charge.............................................. 3.95% 3.95% Current Charge......................................................... 2.60% 2.80%
1 The account fee will be waived if your contract value is $100,000 or more at the end of any particular contract year. This account fee will be waived after the fifteenth contract year. The account fee will also be deducted upon full surrender of the contract if the contract value is less than $100,000. 2 As an annualized percentage of average Account Value, computed daily. This charge is assessed only on and after the effective date of i4LIFE (Reg. TM) Advantage. See Charges and Other Deductions - i4LIFE (Reg. TM) Advantage Rider Charge for further information. These charges continue during the Access Period. The i4LIFE (Reg. TM) Advantage charge is reduced to 1.65% during the Lifetime Income Period. 3 As an annualized percentage of average Account Value, computed daily. This charge is assessed only on and after the effective date of the Guaranteed Income Benefit. The current annual charge for the Guaranteed Income Benefit (version 4) is 0.65% of Account Value for the single life option and 0.85% of Account Value for the joint life option with a guaranteed maximum charge of 2.00%. These charges are added to the i4LIFE (Reg. TM) Advantage charges to comprise the total charges reflected. During the Lifetime Income Period, the Guaranteed Income Benefit charge is added to the i4LIFE (Reg. TM) Advantage charge of 1.65%. See Charges and Other Deductions - i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) Charge for further information. 4 There is no additional charge for i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds over and above the charge for i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (version 4). TABLE C Annual Account Fee:1...................................................................... $ 35 i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) for purchasers who Single Joint previously purchased Lincoln Lifetime IncomeSM Advantage 2.0: Life Life Separate Account Annual Expenses (as a percentage of average daily net assets in the Subaccounts): Account Value Death Benefit............................................................. 1.25% 1.25%
7 Guarantee of Principal Death Benefit................................. 1.30% 1.30% Enhanced Guaranteed Minimum Death Benefit (EGMDB).................... 1.55% 1.55% i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4):2 Guaranteed Maximum Charge............................................ 2.00% 2.00% Current Charge....................................................... 1.05% 1.25%
1 The account fee will be waived if your contract value is $100,000 or more at the end of any particular contract year. This account fee will be waived after the fifteenth contract year. The account fee will also be deducted upon full surrender of the contract if the contract value is less than $100,000. 2 As an annualized percentage of the greater of the Income Base (associated with Lincoln Lifetime IncomeSM Advantage 2.0) or Account Value. This charge is deducted from Account Value on a quarterly basis and only on and after the effective date of i4LIFE (Reg. TM) Advantage. In the event of an automatic step-up in the Guaranteed Income Benefit, the dollar amount of the charge will increase by a two part formula: 1) the charge will increase by the same percentage that the Guaranteed Income Benefit payment increases and 2) the dollar amount of the charge will also increase by the percentage increase, if any, to the Lincoln Lifetime IncomeSM Advantage 2.0 current charge rate. (The Lincoln Lifetime IncomeSM Advantage 2.0 charge continues to be a factor in determining the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit charge.) See Charges and Other Deductions - i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) for purchasers who previously purchased Lincoln Lifetime IncomeSM Advantage 2.0. 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, 2012. More detail concerning each fund's fees and expenses is contained in the prospectus for each fund.
Minimum Maximum --------- -------- 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)... 0.50% 2.21% Total Annual Fund Operating Expenses (after contractual waivers/ reimbursements*)...................................................... 0.50% 2.16%
The following table shows the expenses charged by each fund for the year ended December 31, 2012: (as a percentage of each fund's average net assets):
Other Management 12b-1 Fees Expenses Fees (before (before any (before any any waivers/ waivers/ waivers/ reimburse- reimburse- reimburse- ments) + ments) + ments) + AllianceBernstein VPS Global Thematic Growth Portfolio 0.75% 0.25% 0.24% AllianceBernstein VPS Small/Mid Cap Value Portfolio 0.75% 0.25% 0.07% BlackRock Global Allocation V.I. Fund(1) 0.63% 0.25% 0.26% Delaware VIP (Reg. TM) Diversified Income Series(2) 0.59% 0.30% 0.09% Delaware VIP (Reg. TM) Emerging Markets Series(2) 1.25% 0.30% 0.15% Delaware VIP (Reg. TM) Limited-Term Diversified Income Series(2) 0.48% 0.30% 0.09% Delaware VIP (Reg. TM) REIT Series(2) 0.75% 0.30% 0.09% Delaware VIP (Reg. TM) Small Cap Value Series(2) 0.73% 0.30% 0.08% Delaware VIP (Reg. TM) Smid Cap Growth Series(2) 0.75% 0.30% 0.09% Delaware VIP (Reg. TM) U.S. Growth Series(2) 0.65% 0.30% 0.09% Delaware VIP (Reg. TM) Value Series(2) 0.65% 0.30% 0.08% DWS Alternative Asset Allocation VIP Portfolio 0.34% 0.25% 0.29% Fidelity (Reg. TM) VIP Contrafund (Reg. TM) Portfolio 0.56% 0.25% 0.08% Fidelity (Reg. TM) VIP Growth Portfolio 0.56% 0.25% 0.10% Fidelity (Reg. TM) VIP Mid Cap Portfolio 0.56% 0.25% 0.09% FTVIPT Franklin Income Securities Fund 0.45% 0.25% 0.02% FTVIPT Mutual Shares Securities Fund 0.60% 0.25% 0.11% LVIP American Global Growth Fund(3) 0.53% 0.55% 0.26% LVIP American Global Small Capitalization Fund(3) 0.71% 0.55% 0.27% Total Total Total Expenses Expenses Contractual (after Acquired (before any waivers/ Contractual Fund waivers/ reimburse- waivers/ Fees and reimburse- ments reimburse- Expenses = ments) (if any) ments) AllianceBernstein VPS Global Thematic Growth Portfolio 0.00% 1.24% 0.00% 1.24% AllianceBernstein VPS Small/Mid Cap Value Portfolio 0.00% 1.07% 0.00% 1.07% BlackRock Global Allocation V.I. Fund(1) 0.01% 1.15% 0.00% 1.15% Delaware VIP (Reg. TM) Diversified Income Series(2) 0.00% 0.98% 0.00% 0.98% Delaware VIP (Reg. TM) Emerging Markets Series(2) 0.00% 1.70% 0.00% 1.70% Delaware VIP (Reg. TM) Limited-Term Diversified Income Series(2) 0.00% 0.87% 0.00% 0.87% Delaware VIP (Reg. TM) REIT Series(2) 0.00% 1.14% 0.00% 1.14% Delaware VIP (Reg. TM) Small Cap Value Series(2) 0.00% 1.11% 0.00% 1.11% Delaware VIP (Reg. TM) Smid Cap Growth Series(2) 0.00% 1.14% 0.00% 1.14% Delaware VIP (Reg. TM) U.S. Growth Series(2) 0.00% 1.04% 0.00% 1.04% Delaware VIP (Reg. TM) Value Series(2) 0.00% 1.03% 0.00% 1.03% DWS Alternative Asset Allocation VIP Portfolio 1.28% 2.16% 0.00% 2.16% Fidelity (Reg. TM) VIP Contrafund (Reg. TM) Portfolio 0.00% 0.89% 0.00% 0.89% Fidelity (Reg. TM) VIP Growth Portfolio 0.00% 0.91% 0.00% 0.91% Fidelity (Reg. TM) VIP Mid Cap Portfolio 0.00% 0.90% 0.00% 0.90% FTVIPT Franklin Income Securities Fund 0.00% 0.72% 0.00% 0.72% FTVIPT Mutual Shares Securities Fund 0.00% 0.96% 0.00% 0.96% LVIP American Global Growth Fund(3) 0.00% 1.34% 0.00% 1.34% LVIP American Global Small Capitalization Fund(3) 0.00% 1.53% 0.00% 1.53%
8
Other Management 12b-1 Fees Expenses Fees (before (before any (before any any waivers/ waivers/ waivers/ reimburse- reimburse- reimburse- ments) + ments) + ments) + LVIP American Growth Fund(3) 0.33% 0.55% 0.11% LVIP American Growth-Income Fund(3) 0.27% 0.55% 0.11% LVIP American International Fund(3) 0.49% 0.55% 0.17% LVIP Baron Growth Opportunities Fund 1.00% 0.25% 0.08% LVIP BlackRock Emerging Markets RPM Fund(4) 0.55% 0.25% 0.45% LVIP BlackRock Equity Dividend RPM Fund(5) 0.75% 0.25% 0.08% LVIP BlackRock Inflation Protected Bond Fund(6) 0.44% 0.25% 0.07% LVIP Capital Growth Fund 0.70% 0.25% 0.08% LVIP Clarion Global Real Estate Fund 0.95% 0.25% 0.12% LVIP Columbia Small-Mid Cap Growth RPM Fund(7) 0.87% 0.25% 0.15% LVIP Delaware Bond Fund 0.31% 0.35% 0.07% LVIP Delaware Diversified Floating Rate Fund 0.60% 0.25% 0.09% LVIP Delaware Social Awareness Fund 0.39% 0.35% 0.08% LVIP Delaware Special Opportunities Fund 0.40% 0.35% 0.07% LVIP Dimensional Non-U.S. Equity RPM Fund(8) 0.25% 0.25% 0.25% LVIP Dimensional U.S. Equity RPM Fund(8) 0.25% 0.25% 0.14% LVIP Dimensional/Vanguard Total Bond Fund(9) 0.25% 0.25% 0.10% LVIP Global Income Fund 0.65% 0.25% 0.11% LVIP JPMorgan High Yield Fund(10) 0.65% 0.25% 0.10% LVIP JPMorgan Mid Cap Value RPM Fund(11) 1.05% 0.25% 0.17% LVIP MFS International Growth Fund(12) 0.91% 0.25% 0.15% LVIP MFS International Growth RPM Fund 0.85% 0.25% 0.15% LVIP MFS Value Fund 0.63% 0.25% 0.06% LVIP Mid-Cap Value Fund 0.92% 0.25% 0.13% LVIP Mondrian International Value Fund 0.75% 0.25% 0.08% LVIP Money Market Fund 0.37% 0.25% 0.06% LVIP Protected Profile Conservative Fund(13) 0.25% 0.25% 0.04% LVIP Protected Profile Growth Fund(13) 0.25% 0.25% 0.02% LVIP Protected Profile Moderate Fund(13) 0.25% 0.25% 0.02% LVIP RPM BlackRock Global Allocation V.I. Fund(14) 0.75% 0.35% 0.10% LVIP RPM VIP Contrafund (Reg. TM) Portfolio(15) 0.70% 0.35% 0.16% LVIP SSgA Bond Index Fund 0.40% 0.25% 0.09% LVIP SSgA Conservative Index Allocation Fund(16) 0.25% 0.25% 0.18% LVIP SSgA Conservative Structured Allocation Fund(16) 0.25% 0.25% 0.06% LVIP SSgA Developed International 150 Fund 0.75% 0.25% 0.10% LVIP SSgA Emerging Markets 100 Fund 1.09% 0.25% 0.16% LVIP SSgA Global Tactical Allocation RPM Fund 0.25% 0.25% 0.05% LVIP SSgA International Index Fund 0.40% 0.25% 0.14% LVIP SSgA Large Cap 100 Fund 0.52% 0.25% 0.06% LVIP SSgA Large Cap RPM Fund(17) 0.70% 0.25% 0.40% LVIP SSgA Moderate Index Allocation Fund(18) 0.25% 0.25% 0.09% LVIP SSgA Moderate Structured Allocation Fund(18) 0.25% 0.25% 0.04% LVIP SSgA Moderately Aggressive Index Allocation Fund(18) 0.25% 0.25% 0.09% Total Total Total Expenses Expenses Contractual (after Acquired (before any waivers/ Contractual Fund waivers/ reimburse- waivers/ Fees and reimburse- ments reimburse- Expenses = ments) (if any) ments) LVIP American Growth Fund(3) 0.00% 0.99% 0.00% 0.99% LVIP American Growth-Income Fund(3) 0.00% 0.93% 0.00% 0.93% LVIP American International Fund(3) 0.00% 1.21% 0.00% 1.21% LVIP Baron Growth Opportunities Fund 0.00% 1.33% 0.00% 1.33% LVIP BlackRock Emerging Markets RPM Fund(4) 0.07% 1.32% -0.20% 1.12% LVIP BlackRock Equity Dividend RPM Fund(5) 0.00% 1.08% -0.07% 1.01% LVIP BlackRock Inflation Protected Bond Fund(6) 0.03% 0.79% 0.00% 0.79% LVIP Capital Growth Fund 0.00% 1.03% 0.00% 1.03% LVIP Clarion Global Real Estate Fund 0.00% 1.32% 0.00% 1.32% LVIP Columbia Small-Mid Cap Growth RPM Fund(7) 0.00% 1.27% -0.07% 1.20% LVIP Delaware Bond Fund 0.00% 0.73% 0.00% 0.73% LVIP Delaware Diversified Floating Rate Fund 0.00% 0.94% 0.00% 0.94% LVIP Delaware Social Awareness Fund 0.00% 0.82% 0.00% 0.82% LVIP Delaware Special Opportunities Fund 0.00% 0.82% 0.00% 0.82% LVIP Dimensional Non-U.S. Equity RPM Fund(8) 0.46% 1.21% -0.15% 1.06% LVIP Dimensional U.S. Equity RPM Fund(8) 0.25% 0.89% -0.04% 0.85% LVIP Dimensional/Vanguard Total Bond Fund(9) 0.17% 0.77% 0.00% 0.77% LVIP Global Income Fund 0.00% 1.01% 0.00% 1.01% LVIP JPMorgan High Yield Fund(10) 0.00% 1.00% 0.00% 1.00% LVIP JPMorgan Mid Cap Value RPM Fund(11) 0.00% 1.47% -0.09% 1.38% LVIP MFS International Growth Fund(12) 0.00% 1.31% 0.00% 1.31% LVIP MFS International Growth RPM Fund 0.96% 2.21% -0.80% 1.41% LVIP MFS Value Fund 0.00% 0.94% 0.00% 0.94% LVIP Mid-Cap Value Fund 0.00% 1.30% 0.00% 1.30% LVIP Mondrian International Value Fund 0.00% 1.08% 0.00% 1.08% LVIP Money Market Fund 0.00% 0.68% 0.00% 0.68% LVIP Protected Profile Conservative Fund(13) 0.48% 1.02% 0.00% 1.02% LVIP Protected Profile Growth Fund(13) 0.50% 1.02% 0.00% 1.02% LVIP Protected Profile Moderate Fund(13) 0.52% 1.04% 0.00% 1.04% LVIP RPM BlackRock Global Allocation V.I. Fund(14) 0.74% 1.94% -0.75% 1.19% LVIP RPM VIP Contrafund (Reg. TM) Portfolio(15) 0.64% 1.85% -0.76% 1.09% LVIP SSgA Bond Index Fund 0.00% 0.74% 0.00% 0.74% LVIP SSgA Conservative Index Allocation Fund(16) 0.36% 1.04% 0.00% 1.04% LVIP SSgA Conservative Structured Allocation Fund(16) 0.37% 0.93% 0.00% 0.93% LVIP SSgA Developed International 150 Fund 0.00% 1.10% 0.00% 1.10% LVIP SSgA Emerging Markets 100 Fund 0.00% 1.50% 0.00% 1.50% LVIP SSgA Global Tactical Allocation RPM Fund 0.32% 0.87% 0.00% 0.87% LVIP SSgA International Index Fund 0.00% 0.79% 0.00% 0.79% LVIP SSgA Large Cap 100 Fund 0.00% 0.83% 0.00% 0.83% LVIP SSgA Large Cap RPM Fund(17) 0.25% 1.60% -0.85% 0.75% LVIP SSgA Moderate Index Allocation Fund(18) 0.36% 0.95% 0.00% 0.95% LVIP SSgA Moderate Structured Allocation Fund(18) 0.37% 0.91% 0.00% 0.91% LVIP SSgA Moderately Aggressive Index Allocation Fund(18) 0.34% 0.93% 0.00% 0.93%
9
Other Management 12b-1 Fees Expenses Fees (before (before any (before any any waivers/ waivers/ waivers/ reimburse- reimburse- reimburse- ments) + ments) + ments) + LVIP SSgA Moderately Aggressive Structured Allocation Fund(18) 0.25% 0.25% 0.04% LVIP SSgA S&P 500 Index Fund 0.19% 0.25% 0.06% LVIP SSgA Small-Mid Cap 200 Fund 0.69% 0.25% 0.08% LVIP SSgA Small-Cap Index Fund 0.32% 0.25% 0.09% LVIP SSgA Small-Cap RPM Fund 0.90% 0.25% 0.40% LVIP T. Rowe Price Growth Stock Fund(19) 0.72% 0.25% 0.08% LVIP T. Rowe Price Structured Mid-Cap Growth Fund 0.73% 0.25% 0.09% LVIP Templeton Growth RPM Fund 0.73% 0.25% 0.10% LVIP UBS Large Cap Growth RPM Fund(20) 0.75% 0.25% 0.09% LVIP Vanguard Domestic Equity ETF Fund(21) 0.25% 0.25% 0.14% LVIP Vanguard International Equity ETF Fund(22) 0.25% 0.25% 0.21% MFS (Reg. TM) VIT Growth Series 0.75% 0.25% 0.07% MFS (Reg. TM) VIT Utilities Series 0.74% 0.25% 0.08% PIMCO VIT CommodityRealReturn (Reg. TM) Strategy Portfolio 0.74% 0.25% 0.11% Total Total Total Expenses Expenses Contractual (after Acquired (before any waivers/ Contractual Fund waivers/ reimburse- waivers/ Fees and reimburse- ments reimburse- Expenses = ments) (if any) ments) LVIP SSgA Moderately Aggressive Structured Allocation Fund(18) 0.39% 0.93% 0.00% 0.93% LVIP SSgA S&P 500 Index Fund 0.00% 0.50% 0.00% 0.50% LVIP SSgA Small-Mid Cap 200 Fund 0.00% 1.02% 0.00% 1.02% LVIP SSgA Small-Cap Index Fund 0.00% 0.66% 0.00% 0.66% LVIP SSgA Small-Cap RPM Fund 0.41% 1.96% -1.05% 0.91% LVIP T. Rowe Price Growth Stock Fund(19) 0.00% 1.05% 0.00% 1.05% LVIP T. Rowe Price Structured Mid-Cap Growth Fund 0.00% 1.07% 0.00% 1.07% LVIP Templeton Growth RPM Fund 0.00% 1.08% 0.00% 1.08% LVIP UBS Large Cap Growth RPM Fund(20) 0.00% 1.09% -0.11% 0.98% LVIP Vanguard Domestic Equity ETF Fund(21) 0.11% 0.75% 0.00% 0.75% LVIP Vanguard International Equity ETF Fund(22) 0.19% 0.90% 0.00% 0.90% MFS (Reg. TM) VIT Growth Series 0.00% 1.07% 0.00% 1.07% MFS (Reg. TM) VIT Utilities Series 0.00% 1.07% 0.00% 1.07% PIMCO VIT CommodityRealReturn (Reg. TM) Strategy Portfolio 0.14% 1.24% 0.00% 1.24%
(1) Other Expenses have been restated to reflect current fees. (2) The Service Class shares are subject to a 12b-1 fee of 0.30% of average daily net assets. (3) The amounts set forth under "Management Fee" and "Other Expenses" reflect the aggregate expenses of the Feeder Fund and the Master Fund. The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the Feeder Fund and does not include the fees of the Master Fund. (4) Lincoln Investment Advisors Corporation (the "adviser") has contractually agreed to waive the following portion of its advisory fee for the Fund: 0.05% of average daily net assets of the Fund. The adviser has also contractually agreed to reimburse the Fund to the extent that the Total Annual Fund Operating Expenses exceed 1.05% of average daily net assets of the Fund. Both agreements will continue at least through July 1, 2014 and cannot be terminated before that date without the mutual agreement of the Trust's board of trustees and the adviser. (5) Lincoln Investment Advisors Corporation (LIA) has contractually agreed to waive the following portion of its advisory fee for the fund: 0.03% on the first $250 million of average daily net assets of the fund; 0.08% on the next $500 million and 0.13% of average daily net assets in excess of $750 million. The agreement will continue at least through July 1, 2014. (6) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the Fund and does not include AFFE. (7) Lincoln Investment Advisors Corporation (LIA) has contractually agreed to waive the following portion of its advisory fee for the fund; 0.10% on the first $25 million of average daily net assets of the fund and 0.05% on the next $50 million of average daily net assets. The agreement will continue at least through July 1, 2014. (8) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the fund and does not include AFFE. Lincoln Investment Advisors Corporation (LIA) has contractually agreed waive the following portion of its advisory fee for the fund: 0.05% of average daily net assets of the Fund. LIA has also contractually agreed to reimburse the fund's Service Class to the extent that the Total Annual Fund Operating Expenses (excluding acquired fund fees and expenses) exceed 0.55% of average daily net assets of the fund. Both agreements will continue at least through July 1, 2014. (9) The AFFE has been restated to reflect the current expenses of the fund. The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the fund and does not include AFFE. (10) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the fund and does not include AFFE. (11) Lincoln Investment Advisors Corporation (LIA) has contractually agreed to waive the following portion of its advisory fee for the fund: 0.09% on the first $60 million of average daily net assets of the Fund. The agreement will continue at least through July 1, 2014. The Management Fee has been restated to reflect the current expenses of the fund. The Other Expenses has been restated to reflect the current expenses of the fund. (12) The Management Fee has been restated to reflect the current expenses of the fund. The Other Expenses has been restated to reflect the current expenses of the fund. (13) The AFFE has been restated to reflect the current expenses of the Fund. The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the Fund and does not include AFFE. (14) Other Expenses and AFFE are based on estimates for the current fiscal year. Lincoln Investment Advisors Corporation (LIA) has contractually agreed to waive the following portion of its advisory fee for the fund: 0.70% of average daily net assets of the fund. The agreement will continue at least through July 1, 2014. LIA has contractually agreed to reimburse the fund's Service Class to the extent that the Total Annual Fund Operating Expenses (excluding acquired fund fees and expenses) exceed 0.45% of average daily net assets of the fund. The agreement will continue at least through July 1, 2014. (15) Other Expenses and AFFE are based on estimates for the current fiscal year. Lincoln Investment Advisors Corporation (LIA) has contractually agreed to waive the following portion of its advisory fee for the fund: 0.65% of average daily net assets of the fund. The agreement will continue at least through July 1, 2014. LIA has 10 contractually agreed to reimburse the fund's Service Class to the extent that the Total Annual Fund Operating Expenses (excluding acquired fund fees and expenses) exceed 0.45% of average daily net assets of the fund. The agreement will continue at least through July 1, 2014. (16) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the fund and does not include AFFE. (17) Other Expenses and AFFE are based on estimates for the current fiscal year. Lincoln Investment Advisors Corporation (LIA) has contractually agreed to waive the following portion of its advisory fee for the fund: 0.50% of average daily net assets of the fund. The agreement will continue at least through July 1, 2014. LIA has contractually agreed to reimburse the fund's Service Class to the extent that the Total Annual Fund Operating Expenses (excluding acquired fund fees and expenses) exceed 0.50% of average daily net assets of the fund. The agreement will continue at least through July 1, 2014. (18) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the fund and does not include AFFE. (19) The Management Fee has been restated to reflect the current expenses of the fund. The Other Expenses has been restated to reflect the current expenses of the fund. (20) Lincoln Investment Advisors Corporation (LIA) has contractually agreed to waive the following portion of its advisory fee for the fund: 0.15% on the first $100 million of average daily net assets of the Fund; and 0.10% on the next $150 million of average daily net assets of the fund. The agreement will continue at least through July 1, 2014. (21) The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the fund and does not include AFFE. (22) The AFFE has been restated to reflect the current expenses of the fund. The Total Annual Fund Operating Expenses do not correlate to the ratio of expenses to the average net assets appearing in the Financial Highlights table which reflects only the operating expenses of the fund and does not include AFFE. 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") which are 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. EXAMPLES The following Examples are 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, separate account annual expenses, and fund fees and expenses. The Examples have been calculated using the fees and expenses of the funds prior to the application of any contractual waivers and/or reimbursements. The first 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 i4LIFE (Reg. TM) Advantage with the EGMDB Death Benefit and Guaranteed Income Benefit 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 ----------- --------- --------- --------- $1,316 $2,427 $3,508 $5,840
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 -------- --------- --------- --------- $616 $1,827 $3,008 $5,840
The next 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 Death Benefit and Lincoln Lifetime IncomeSM Advantage 2.0 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 ----------- --------- --------- --------- $1,279 $2,359 $3,465 $6,107
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 -------- --------- --------- --------- $579 $1,759 $2,965 $6,107
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. Different fees and expenses not reflected in the examples may be imposed 11 during a period in which Annuity Payouts are made. See The Contracts - 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? This contract is an individual deferred flexible premium variable 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 Investment Requirements? If you elect a Living Benefit rider (except i4LIFE (Reg. TM) Advantage without Guaranteed Income Benefit), you will be subject to certain requirements for your Subaccount investments, which means you may be limited in how much you can invest in certain Subaccounts. Different Investment Requirements apply to different riders. If you elect Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds or i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds, you will have more restrictive Investment Requirements. See The Contracts - Investment Requirements. What are my investment choices? You may allocate your Purchase Payments to the VAA or to the fixed account, if available. Based upon your instruction for Purchase Payments, the VAA applies your Purchase Payments 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 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 receive and the value of each Annuity Unit on payout days. See The Contracts. What charges do I pay under the contract? We apply a charge to the daily net asset value of the VAA that consists of a mortality and expense risk charge according to the Death Benefit you select. There is an administrative charge in addition to the mortality and expense risk charge. The charges for any riders applicable to your contract will also be deducted from your Contract Value, or Account Value if i4LIFE (Reg. TM) Advantage is elected. See Charges and Other Deductions. If you withdraw Purchase Payments, you pay a surrender charge from 0% to 7.00% 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. We will deduct any applicable premium tax from Purchase Payments or Contract Value, unless the governmental entity dictates otherwise, 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. 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 the contracts, see The Contracts - Distribution of the Contracts. What Purchase Payments do I make, and how often? Subject to the minimum and maximum Purchase Payment amounts, your payments are completely flexible. See The Contracts - Purchase Payments. Am I limited in the amount of Purchase Payments I can make into the contract? Yes, Purchase Payments totaling $1 million or more are subject to Home Office approval. This amount takes into consideration the total Purchase Payments for all contracts issued by the Company (or its affiliates) in which you are the Contractowner, joint owner, or Annuitant. If you elect a Living Benefit rider (other than i4LIFE (Reg. TM) Advantage), after the first anniversary of the rider effective date, once cumulative additional Purchase Payments exceed $100,000, additional Purchase Payments will be limited to $50,000 per Benefit Year. If you elect 12 i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit, no additional Purchase Payments will be allowed at any time after the Guaranteed Income Benefit has been elected. For more information about these restrictions and limitations, please see The Contracts - Purchase Payments section in this prospectus. 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 certain restrictions. Generally, transfers made before the Annuity Commencement Date are restricted to no more than twelve (12) per Contract Year. The minimum amount that can be transferred to the fixed account is $2,000 (unless the total amount in the Subaccounts is less than $2,000). If transferring funds from the fixed account to the Subaccount, you may only transfer 25% of the total value invested in the fixed account in any 12-month period. The minimum amount that may be transferred is $300. 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. For further information, see also the Fixed Side of the Contract . 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. These riders offer either an income benefit (Lincoln Lifetime IncomeSM Advantage 2.0) or a minimum Annuity Payout (i4LIFE (Reg. TM) Advantage). If you select a Living Benefit rider, Excess Withdrawals may have adverse effects on the benefit (especially during times of poor investment performance), and you will be subject to Investment Requirements (unless you elect i4LIFE (Reg. TM) Advantage without the Guaranteed Income Benefit). Excess Withdrawals under certain Living Benefit riders may result in a reduction or premature termination of those benefits or of those riders. If you are not certain how an Excess Withdrawal will reduce your future guaranteed amounts, you should contact either your registered representative or us prior to requesting a withdrawal to find out what, if any, impact the Excess Withdrawal will have on any guarantees under the Living Benefit rider. These riders are discussed in detail in this prospectus. Any guarantees under the contract that exceed your Contract Value are subject to our financial strength and claims-paying ability. What is Lincoln Lifetime IncomeSM Advantage 2.0? Lincoln Lifetime IncomeSM Advantage 2.0 is a rider that you may purchase for an additional charge and which provides on an annual basis guaranteed periodic withdrawals up to a guaranteed amount based on an Income Base, a 5% Enhancement to the Income Base (less Purchase Payments received in that year) or automatic annual step-ups to the Income Base, and age-based increases to the guaranteed periodic withdrawal amount. Withdrawals may be made up to the Guaranteed Annual Income amount as long as that amount is greater than zero. To continue these payments for life, you must elect i4LIFE (Reg. TM) Advantage or an Annuity Payout option under this contract. The Income Base is not available as a separate benefit upon death or surrender and is increased by subsequent Purchase Payments, 5% Enhancements to the Income Base (less Purchase Payments received in that year), Automatic Annual Step-ups to the Income Base and is decreased by certain withdrawals in accordance with provisions described in this prospectus. See The Contracts - Lincoln Lifetime IncomeSM Advantage 2.0. You may not simultaneously elect Lincoln Lifetime IncomeSM Advantage 2.0 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 is Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds? Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds is an optional feature under Lincoln Lifetime IncomeSM Advantage 2.0 that provides a higher Guaranteed Annual Income amount percentage if you adhere to more restrictive Investment Requirements. See The Contracts - Investment Requirements. All of the other terms and conditions of Lincoln Lifetime IncomeSM Advantage 2.0 continue to apply to Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds. What is i4LIFE (Reg. TM) Advantage? i4LIFE (Reg. TM) Advantage is an Annuity Payout option, 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) Advantage Regular Income Payments. By electing this benefit, you will be subject to Investment Requirements. See The Contracts - Investment Requirements. The Guaranteed Income Benefit is purchased when you elect i4LIFE (Reg. TM) Advantage or any time during the Access Period subject to terms and conditions at that time. The minimum floor is based on the Account Value at the time you elect i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit. Certain Living Benefit riders have features that may be used to establish the amount of the Guaranteed Income Benefit. You may use your Income Base from Lincoln Lifetime IncomeSM Advantage 2.0 to establish the 13 Guaranteed Income Benefit at the time you terminate that rider to purchase i4LIFE (Reg. TM) Advantage. See The Contracts - Living Benefit Riders - i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, and Lincoln Lifetime IncomeSM Advantage 2.0 - i4LIFE (Reg. TM) Advantage option. What is i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds? i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds is an optional feature under i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit that provides a higher initial Guaranteed Income Benefit percentage and shorter minimum required Access Period if you adhere to more restrictive Investment Requirements. See The Contracts - Investment Requirements. All other terms and conditions of i4LIFE (Reg. TM) Advantage continue to apply to i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds. 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. 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. See Return Privilege. Where may I find more information about accumulation unit values? Because the subaccounts which are available under the contracts did not begin operation before the date of this prospectus, financial information for the subaccounts is not included in this prospectus or in the SAI. 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. 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. 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 company, 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. With respect to the issuance of the contracts, Lincoln New York does not file periodic financial reports with the SEC pursuant to the exemption for life insurance companies provided under Rule 12h-7 of the Securities Exchange Act of 1934. 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. The general account is not segregated or insulated from the claims of the insurance company's creditors. Investors look to the financial strength of the insurance companies for these insurance guarantees. Therefore, guarantees provided by the insurance company as to benefits promised in the prospectus are subject to the claims paying ability of the insurance company and are subject to the risk that the insurance company may not be able to cover or may default on its obligations under those guarantees. 14 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 2348, Fort Wayne, IN 46801-2348, 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. Through its affiliates, Lincoln Financial Group offers annuities, life, group life and disability insurance, 401(k) and 403(b) plans, 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 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, 2012 financial statements of the VAA and the December 31, 2012 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. 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. 15 Investment Advisers As compensation for its services to the funds, each investment adviser for each fund receives a fee from the funds which is accrued daily and paid monthly. This fee is based on the net assets of each fund, as defined in the prospectuses for the funds. 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 0.53%, 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. 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. 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. Certain funds invest substantially all of their assets in other funds. As a result, you will pay fees and expenses at both fund levels. This will reduce your investment return. These arrangements are referred to as funds of funds or master-feeder funds. Funds of funds or master-feeder structures may have higher expenses than funds that invest directly in debt or equity securities. Certain funds may employ hedging strategies to provide for downside protection during sharp downward movements in equity markets. The cost of these hedging strategies could limit the upside participation of the fund in rising equity markets relative to other funds. The Death Benefits and Living Benefit riders offered under the contract also provide protection in the event of a market downturn. Likewise, there are additional costs associated with the Death Benefits and Living Benefit riders, which can limit the contract's upside participation in the markets. You should consult with your financial representative to determine which combination of investment choices and Death Benefit and/or rider purchases (if any) are appropriate for you. Following are brief summaries of the fund descriptions. More detailed information may be obtained from the current prospectus for each fund. You should read each fund prospectus carefully before investing. Prospectuses for each fund are available by contacting us. In addition, if you receive a summary prospectus for a fund, you may obtain a full statutory prospectus by referring to the contact information for the fund company on the cover page of the summary prospectus. Please be advised that there is no assurance that any of the funds will achieve their stated objectives. AllianceBernstein Variable Products Series Fund, advised by AllianceBernstein, L.P. o AllianceBernstein VPS Global Thematic Growth Portfolio: Long-term growth of capital. o AllianceBernstein VPS Small/Mid Cap Value Portfolio: Long-term growth of capital. BlackRock Variable Series Funds, Inc.,advised by BlackRock Advisors, LLC and subadvised by BlackRock Investment Management, LLC o BlackRock Global Allocation V.I. Fund: High total investment return. 16 Delaware VIP (Reg. TM) Trust, advised by Delaware Management Company* o Diversified Income Series: Maximum long-term total return consistent with reasonable risk. o Emerging Markets Series: Long-term capital appreciation. o Limited-Term Diversified Income Series: Maximum total return, consistent with reasonable risk. o REIT Series: Maximum long-term total return, with capital appreciation as a secondary objective. o Small Cap Value Series: Capital appreciation. o Smid Cap Growth Series: Long-term capital appreciation. o U.S. Growth Series: Long-term capital appreciation. o Value Series: Long-term capital appreciation. DWS Variable Series II, advised by Deutsche Investment Management Americas, Inc. and subadvised by RREEF America L.L.C. o DWS Alternative Asset Allocation VIP Portfolio: Capital appreciation; a fund of funds. Fidelity (Reg. TM) Variable Insurance Products, advised by Fidelity Management and Research Company and subadvised by FMR CO., Inc. o Contrafund (Reg. TM) Portfolio: Long-term capital appreciation. o Growth Portfolio: To achieve capital appreciation. o Mid Cap Portfolio: Long-term growth of capital. Franklin Templeton Variable Insurance Products Trust, advised by Franklin Advisers, Inc. for the Franklin Income Securities Fund and by Franklin Mutual Advisers, LLC for the Mutual Shares Securities Fund. o Franklin Income Securities Fund: To maximize income while maintaining prospects for capital appreciation. o Mutual Shares Securities Fund: Capital appreciation; income is a secondary consideration. Lincoln Variable Insurance Products Trust, advised by Lincoln Investment Advisors Corporation. o LVIP American Global Growth Fund: Long-term growth of capital; a master-feeder fund. o LVIP American Global Small Capitalization Fund: Long-term growth of capital; a master-feeder fund. o LVIP American Growth Fund: Growth of capital; a master-feeder fund. o LVIP American Growth-Income Fund: Long-term growth of capital and income; a master-feeder fund. o LVIP American International Fund: Long-term growth of capital; a master-feeder fund. o LVIP Baron Growth Opportunities Fund: Capital appreciation. (Subadvised by BAMCO, Inc.) o LVIP BlackRock Emerging Markets RPM Fund: To invest primarily in securities included in a broad-based emerging markets index and to seek to approximate as closely as possible, before fees and expenses, the performance of that index while seeking to control the level of portfolio volatility. (Subadvised by BlackRock Investment Management, LLC.) o LVIP BlackRock Equity Dividend RPM Fund: Reasonable income by investing primarily in income-producing equity securities. (Subadvised by BlackRock Investment Management, LLC.) o LVIP BlackRock Inflation Protected Bond Fund: To maximize real return, consistent with preservation of real capital and prudent investment management. (Subadvised by BlackRock Investment Management, LLC.) o LVIP Capital Growth Fund: Capital growth. (Subadvised by Wellington Management Company, LLP) o LVIP Clarion Global Real Estate Fund: Total return through a combination of current income and long-term capital appreciation. (Subadvised by CBRE Clarion Securities LLC) o LVIP Columbia Small-Mid Cap Growth RPM Fund: Long-term capital appreciation. (Subadvised by Columbia Management Investment Advisers, LLC) o LVIP Delaware Bond Fund: Maximum current income (yield) consistent with a prudent investment strategy. (Subadvised by Delaware Management Company)* o LVIP Delaware Diversified Floating Rate Fund: Total return. (Subadvised by Delaware Management Company)* 17 o LVIP Delaware Social Awareness Fund: To maximize long-term capital appreciation. (Subadvised by Delaware Management Company)* o LVIP Delaware Special Opportunities Fund: To maximize long-term capital appreciation. (Subadvised by Delaware Management Company)* o LVIP Dimensional Non-U.S. Equity RPM Fund: Long-term capital appreciation; a fund of funds. o LVIP Dimensional U.S. Equity RPM Fund: Long-term capital appreciation; a fund of funds. o LVIP Dimensional/Vanguard Total Bond Fund:Total return consistent with the preservation of capital. o LVIP Global Income Fund: Current income consistent with preservation of capital. (Subadvised by Mondrian Investment Partners Limited and Franklin Advisors, Inc.) o LVIP JPMorgan High Yield Fund: A high level of current income; capital appreciation is the secondary objective. (Subadvised by J.P. Morgan Investment Management, Inc.) o LVIP JPMorgan Mid Cap Value RPM Fund: Long-term capital appreciation. (Subadvised by J.P. Morgan Investment Management, Inc.) o LVIP MFS International Growth Fund: Long-term capital appreciation. (Subadvised by Massachusetts Financial Services Company) o LVIP MFS International Growth RPM Fund: Capital appreciation; a fund of funds. o LVIP MFS Value Fund: Capital appreciation. (Subadvised by Massachusetts Financial Services Company) o LVIP Mid-Cap Value Fund: Long-term capital appreciation. (Subadvised by Wellington Management Company, LLP) o LVIP Mondrian International Value Fund: Long-term capital appreciation as measured by the change in the value of fund shares over a period of three years or longer. (Subadvised by Mondrian Investment Partners Limited) o LVIP Money Market Fund: To maximize current income while maintaining a stable value of your shares (providing stability of net asset value) and preserving the value of your initial investment (preservation of capital). (Subadvised by Delaware Management Company)* o LVIP RPM BlackRock Global Allocation V.I. Fund: Capital appreciation; a fund of funds. o LIVP RPM VIP Contrafund (Reg. TM) Portfolio: Capital appreciation; a fund of funds. o LVIP SSgA Bond Index Fund: To match as closely as practicable, before fees and expenses, the performance of the Barclays Capital U.S. Aggregate Index. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Conservative Index Allocation Fund: A high level of current income, with some consideration given to growth of capital; a fund of funds. o LVIP SSgA Conservative Structured Allocation Fund: A high level of current income, with some consideration given to growth of capital; a fund of funds. o LVIP SSgA Developed International 150 Fund: To maximize long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Emerging Markets 100 Fund: To maximize long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Global Tactical Allocation RPM Fund: Long-term growth of capital; a fund of funds. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA International Index Fund: To approximate as closely as practicable, before fees and expenses, the performance of a broad market index of non-U.S. foreign securities. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Large Cap 100 Fund: To maximize long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Large Cap RPM Fund: Capital appreciation; a fund of funds. o LVIP SSgA Moderate Index Allocation Fund: A balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds. o LVIP SSgA Moderate Structured Allocation Fund: A balance between a high level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds. 18 o LVIP SSgA Moderately Aggressive Index Allocation Fund: A balance between high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds. o LVIP SSgA Moderately Aggressive Structured Allocation Fund: A balance between high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds. o LVIP SSgA S&P 500 Index Fund: To approximate as closely as practicable, before fees and expenses, the total rate of return of common stocks publicly traded in the United States, as represented by the S&P 500 Index.** (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Small-Cap Index Fund: To approximate as closely as practicable, before fees and expenses, the performance of the Russell 2000 (Reg. TM) Index*, which emphasizes stocks of small U.S. companies. (Sub-advised by SSgA Funds Management, Inc.) o LVIP SSgA Small-Cap RPM Fund: Capital appreciation; a fund of funds. o LVIP SSgA Small-Mid Cap 200 Fund: To maximize long-term capital appreciation. (Sub-advised by SSgA Funds Management, Inc.) o LVIP T. Rowe Price Growth Stock Fund: Long-term capital growth. (Subadvised by T. Rowe Price Associates, Inc.) o LVIP T. Rowe Price Structured Mid-Cap Growth Fund: To maximize capital appreciation. (Subadvised by T. Rowe Price Associates, Inc.) o LVIP Templeton Growth RPM Fund: Long-term capital growth. (Subadvised by Templeton Investment Counsel, LLC) o LVIP UBS Large Cap Growth RPM Fund: Long-term growth of capital in a manner consistent with the preservation of capital. (Subadvised by UBS Global Asset Management (Americas) Inc.) o LVIP Vanguard Domestic Equity ETF Fund: Long-term capital appreciation; a fund of funds. o LVIP Vanguard International Equity ETF Fund: Long-term capital appreciation; a fund of funds. o LVIP Protected Profile Conservative Fund: A high level of current income with some consideration given to growth of capital; a fund of funds. o LVIP Protected Profile Growth Fund: A balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds. o LVIP Protected Profile Moderate Fund: A balance between a high level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds. MFS (Reg. TM) Variable Insurance TrustSM, advised by Massachusetts Financial Services Company o Growth Series: Capital appreciation. o Utilities Series: Total return. PIMCO Variable Insurance Trust, advised by PIMCO o PIMCO VIT CommodityRealReturn (Reg. TM) Strategy Portfolio: Maximum real return. * Investments in Delaware Investments VIP Series, Delaware Funds, LVIP Delaware Funds or Lincoln Life accounts managed by Delaware Investment Advisors, a series of Delaware Management Business Trust, are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46008 583 542 and its holding companies, including their subsidiaries or related companies, and are subject to investment risk, including possible delays in prepayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Series or Funds or accounts, the repayment of capital from the Series or Funds or account, or any particular rate of return. ** "Standard & Poor's (Reg. TM)", "S&P 500 (Reg. TM)", "Standard & Poor's 500 (Reg. TM)" and "500" are trademarks of Standard & Poor's Financial Services, LLC, a subsidiary of The McGraw-Hill Companies, Inc. and have 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. 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. 19 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; 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 other electronic surrenders, withdrawals and fund transfer services. The risks we assume include: o the risk that Annuitants receiving Annuity Payouts live longer than we assumed when we calculated our guaranteed rates (these rates are incorporated in the contract and cannot be changed); 20 o the risk that guaranteed withdrawals under Lincoln Lifetime IncomeSM Advantage 2.0 will exceed the Contract Value; 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, if i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit is in effect, the required Regular 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 surrender 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. 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 For the base contract, we apply to the average daily net asset value of the Subaccounts a charge which is equal to an annual rate of:
Enhanced Guarantee of Guaranteed Minimum Principal Death Account Value Death Benefit (EGMDB) Benefit (GOP) Death Benefit ----------------------- ----------------- -------------- Mortality and expense risk charge............ 1.45% 1.20% 1.15% Administrative charge........................ 0.10% 0.10% 0.10% ---- ---- ---- Total annual charge for each subaccount...... 1.55% 1.30% 1.25%
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 below. The surrender charge is calculated separately for each Purchase Payment. The contract anniversary is the annually occurring date beginning with the effective date of the contract. For example, if the effective date of your contract is January 1, 2012, your first contract anniversary would be on January 1, 2013, your second contract anniversary would be on January 1, 2014, and so forth.
Number of contract anniversaries since Purchase Payment was invested --------------------------------------------- 0 1 2 3 4 5 6 7+ ----- ----- ----- ----- ----- ----- ----- --- Surrender charge as a percentage of the surrendered or withdrawn Purchase Payments.......................... 7 % 7 % 6 % 6 % 5 % 4 % 3 % 0
A surrender charge does not apply to: o A surrender or withdrawal of a Purchase Payment beyond the seventh 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 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, the surrender charge schedule of the original contract will continue to apply to the spouse's contract); o A surrender or withdrawal of any Purchase Payments as a result of admittance of the Contractowner into 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 of the contract as a result of the death of the Contractowner, joint owner or Annuitant, provided the Annuitant has not been changed for any reason other than the death of a prior named 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 i4LIFE (Reg. TM) 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 after the onset of a permanent and total disability of the Contractowner as defined in Section 22(e)(3) of the tax code, if the disability occurred after the effective date of the contract and before the 65th birthday of the Contractowner and has existed continuously for 12 months; 21 o A surrender or withdrawal of any Purchase Payments as a result of the diagnosis of a terminal illness that is after the effective date of the contract and results in a life expectancy of less than one year as determined by a qualified professional medical practitioner; o Withdrawals up to the Guaranteed Annual Income amount under Lincoln Lifetime IncomeSM Advantage 2.0, subject to certain conditions. For purposes of calculating the surrender charge on withdrawals, we assume that: 1. The free amount will be withdrawn from Purchase Payments on a "first in-first out (FIFO)" basis. 2. Prior to the seventh anniversary of the contract, any amount withdrawn above the free amount during a Contract Year will be withdrawn in the following order: o from Purchase Payments (on a FIFO basis) until exhausted; then o from earnings until exhausted. 3. On or after the seventh anniversary of the contract, any amount withdrawn above the free amount during a Contract Year will be withdrawn in the following order: o from Purchase Payments (on a FIFO basis) to which a surrender charge no longer applies until exhausted; then o from earnings until exhausted; then o from Purchase Payments (on a FIFO basis) to which a surrender charge still applies until exhausted. 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 an account fee of $35 from the Contract Value on each contract anniversary to compensate us for the administrative services provided to you; this $35 account fee will also be deducted from the Contract Value upon surrender. The account 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 fee of up to $25 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 2.0 Charge. While this rider is in effect, there is a charge for the Lincoln Lifetime IncomeSM Advantage 2.0. The rider charge is currently equal to an annual rate of 1.05% (0.2625% quarterly) for the Lincoln Lifetime IncomeSM Advantage 2.0 single life option and 1.25% (0.3125% quarterly) for the Lincoln Lifetime IncomeSM Advantage 2.0 joint life option. There is no additional charge for Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds over and above the charge for Lincoln Lifetime IncomeSM Advantage 2.0. The charge is applied to the Income Base (initial Purchase Payment if purchased at contract issue, or Contract Value at the time of election) as increased for subsequent Purchase Payments, Automatic Annual Step-ups, 5% Enhancements, and decreased for Excess 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 rider's effective date. 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 Income Base increases or decreases, because the charge is based on the Income Base. Refer to the Lincoln Lifetime IncomeSM Advantage 2.0 Income Base section for a discussion and example of the impact of the changes to the Income Base. The annual rider percentage charge may increase each time the Income Base increases as a result of the Automatic Annual Step-up, but the charge will never exceed the guaranteed maximum annual percentage charge of 2.00%. An Automatic Annual Step-up is a 22 feature that will increase the Income Base to equal the Contract Value on a Benefit Year anniversary if all conditions are met. The Benefit Year is a 12-month period starting with the effective date of the rider and starting with each anniversary of the rider effective date after that. 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. If you opt out of the step-up, your current charge will remain in effect and the Income Base will be returned to the prior Income Base. 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 Automatic Annual Step-up. The 5% Enhancement to the Income Base (less Purchase Payments received in that year) occurs if a 10-year Enhancement Period is in effect as described further in the Lincoln Lifetime IncomeSM Advantage 2.0 section. During the first ten Benefit Years an increase in the Income Base as a result of the 5% Enhancement will not cause an increase in the annual rider percentage charge but will increase the dollar amount of the charge. After the 10th Benefit Year anniversary the annual rider percentage charge may increase each time the Income Base increases as a result of the 5% Enhancement, but the charge will never exceed the guaranteed maximum annual percentage charge of 2.00%. If your percentage charge is increased, you may opt-out of the 5% Enhancement by giving us notice within 30 days after the Benefit Year anniversary if you do not want your percentage charge to change. If you opt out of the 5% Enhancement, your current charge will remain in effect and the Income Base will be returned to the prior Income Base. This opt-out will only apply for this particular 5% Enhancement. You will need to notify us each time thereafter (if an Enhancement would cause your percentage charge to increase) if you do not want the 5% Enhancement. The rider percentage charge will increase to the then current rider percentage charge, if after the first Benefit Year anniversary, cumulative Purchase Payments added to the contract, equal or exceed $100,000. You may not opt-out of this rider charge increase. See The Contracts - Living Benefit Riders - Lincoln Lifetime IncomeSM Advantage 2.0 - Income Base. 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 Contract Value is reduced to zero while the Contractowner is receiving a Guaranteed Annual Income, no rider charge will be deducted. i4LIFE (Reg. TM) Advantage Charge. While this rider is in effect, there is a daily charge for i4LIFE (Reg. TM) Advantage based on your Account Value. The initial Account Value is your Contract Value on the Valuation Date i4LIFE (Reg. TM) Advantage becomes effective, less any applicable premium taxes. During the Access Period, your Account Value on a Valuation Date equals the total value of all of the Contractowner's Accumulation Units plus the Contractowner's value in the fixed account, and will be reduced by Regular Income Payments and Guaranteed Income Benefit payments made, as well as withdrawals. i4LIFE (Reg. TM) Advantage provides Regular Income Payments for your life, subject to certain conditions, during two time periods: the Access Period and the Lifetime Income Period. During the Access Period, you have access to your Account Value. You select when the Access Period begins and ends at the time you elect i4LIFE (Reg. TM) Advantage. The Lifetime Income Period begins immediately after the Access Period ends. The Lifetime Income Period ends when you die (or upon the death of a Secondary Life, if any). The annual rate of the i4LIFE (Reg. TM) Advantage charge during the Access Period is: 1.65% for the i4LIFE (Reg. TM) Advantage Account Value Death Benefit; 1.70% for the i4LIFE (Reg. TM) Guarantee of Principal Death Benefit; and 1.95% for the i4LIFE (Reg. TM) Advantage EGMDB. The charge consists of a mortality and expense risk and administrative charge (charges of the Guaranteed Income Benefits are not included and are listed below. If i4LIFE (Reg. TM) Advantage is elected at issue of the contract, i4LIFE (Reg. TM) Advantage and the charge will begin on the contract's effective date. 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 and the beginning of the Access Period. Refer to the i4LIFE (Reg. TM) Advantage section for explanations of the Access Period, Account Value and Periodic Income Commencement Date. After the Access Period ends, the charge for all Death Benefit options will be 1.65%. Purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 pay different charges for i4LIFE (Reg. TM) Advantage. See the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) for purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 Charge. i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit Charge. The Guaranteed Income Benefit (version 4) which is available for purchase with i4LIFE (Reg. TM) Advantage is subject to a current annual charge of 0.65% of the Account Value (single life option), which is added to the i4LIFE (Reg. TM) Advantage charge for a total current percentage charge of the Account Value, computed daily as follows: 2.30% for the i4LIFE (Reg. TM) Advantage Account Value Death Benefit; 2.35% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit; and 2.60% for the i4LIFE (Reg. TM) Advantage EGMDB. If you elect the joint life option, the charge for the Guaranteed Income Benefit (version 4) which is purchased with i4LIFE (Reg. TM) Advantage will be subject to a current annual charge of 0.85% 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) Advantage Account Value Death Benefit; 2.55% for the i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit; and 2.80% for the i4LIFE (Reg. TM) Advantage EGMDB. These charges replace the Separate Account Annual Expenses for the base contract. There is no additional charge for i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds over and above the charge for i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (version 4). 23 The Guaranteed Income Benefit percentage charge will not change unless there is an automatic step up of the Guaranteed Income Benefit (version 4) 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 of the step-up the 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 2.00% of the Account Value. If we automatically administer the step-up for you and your percentage charge is increased, you may ask us to reverse the step-up by giving us notice within 30 days after the date on which the step-up occurred. If we receive notice of your request to reverse the step-up, on a going forward basis, we will decrease the percentage charge to the percentage charge in effect before the step-up occurred. Any increased charges paid between the time of the step-up and the date we receive your notice to reverse the step-up will not be reimbursed. After the Periodic Income Commencement Date, if the Guaranteed Income Benefit is terminated, the Guaranteed Income Benefit annual charge will also terminate but the i4LIFE (Reg. TM) Advantage charge will continue. i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) Charge for purchasers who previously purchased Lincoln Lifetime IncomeSM Advantage 2.0 . Purchasers who previously purchased Lincoln Lifetime IncomeSM Advantage 2.0 may carry over certain features of the Lincoln Lifetime IncomeSM Advantage 2.0 rider to elect i4LIFE (Reg. TM)Advantage with Guaranteed Income Benefit (version 4). If you make this election, then the current Lincoln Lifetime IncomeSM Advantage 2.0 charge will be your initial charge for i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit (version 4). This charge is in addition to the daily mortality and expense risk and administrative charge of the base contract for your Death Benefit option set out under Deductions of the VAA. The charges and calculations described earlier for i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit will not apply. For purchasers who previously purchased Lincoln Lifetime IncomeSM Advantage 2.0 , the charges for i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit (version 4) are combined into a single charge that is deducted quarterly, starting with the first three-month anniversary of the effective date of i4LIFE (Reg. TM) Advantage and every three months thereafter. The current initial charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) is equal to an annual rate of 1.05% (0.2625% quarterly) for the single life option and 1.25% (0.3125% quarterly) for the joint life option. The charge is a percentage of the greater of the Income Base or the Account Value. Refer to Lincoln Lifetime IncomeSM Advantage 2.0 for a description of the Income Base. The total annual Subaccount charges of 1.55% for the EGMDB, 1.30% for the Guarantee of Principal Death Benefit and 1.25% for the Account Value Death Benefit also apply. Purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 are guaranteed that in the future the guaranteed maximum initial charge for both i4LIFE (Reg. TM) Advantage and the Guaranteed Income Benefit (version 4) will be the guaranteed maximum charge then in effect at the time they purchase Lincoln Lifetime IncomeSM Advantage 2.0. The charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) for purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 will not change until there is an automatic step-up of the Guaranteed Income Benefit (described later in the i4LIFE (Reg. TM) Advantage section of this prospectus). At such time, the dollar amount of the charge will increase by a two part formula: 1) the charge will increase by the same percentage that the Guaranteed Income Benefit payment increased and 2) the charge will also increase by the percentage of any increase to the Lincoln Lifetime IncomeSM Advantage 2.0 current charge rate. (The Lincoln Lifetime IncomeSM Advantage 2.0 charge continues to be used as a factor in determining the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit charge.) The charge rate is based upon surrender experience, mortality experience, Contractowner investment experience, solvency and profit margins, and the goals and objectives of the Lincoln hedging experience. Significant changes in one or more of these categories could result in an increase in the charge. This means that the charge may change annually. The charge may also be reduced if a withdrawal above the Regular Income Payment is taken. The dollar amount of the rider charge will be reduced in the same proportion that the withdrawal reduced the Account Value. The annual dollar amount is divided by four (4) to determine the quarterly charge. The following example shows how the initial charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) for purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 is calculated as well as adjustments due to increases to the Guaranteed Income Benefit (version 4) and the Lincoln Lifetime IncomeSM Advantage 2.0 charge. The example is a nonqualified contract and assumes the Contractowner is 65 years old on the effective date of electing the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4). Pursuant to the provisions of the Guaranteed Income Benefit (version 4) the initial Guaranteed Income Benefit is set at 4% of the Income Base based upon the Contractowner's age (see Guaranteed Income Benefit (version 4) for a more detailed description). The example also assumes that the current charge for Lincoln Lifetime IncomeSM Advantage 2.0 is 1.05%. The first example demonstrates how the initial charge is determined for an existing contract with an Account Value and Income Base. 1/1/13 Initial i4LIFE (Reg. TM) Advantage Account Value................................... $ 100,000 1/1/13 Income Base as of the last Valuation Date under Lincoln Lifetime IncomeSM $ 125,000 Advantage 2.0 . 1/1/13 Initial Annual Charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) ($125,000 * 1.05% current charge for Lincoln Lifetime IncomeSM Advantage 2.0) (charge is assessed against the Income Base since it is larger than the Account Value)........................................................... $1,312.50 1/2/13 Amount of initial i4LIFE (Reg. TM) Advantage Regular Income Payment (an example of how the Regular Income Payment is calculated is shown in the SAI)....................................................... $ 5,066 1/2/13 Initial Guaranteed Income Benefit (4% * $125,000 Income Base) . $ 5,000
24 The next example shows how the charge will increase if the Guaranteed Income Benefit is stepped up to 75% of the Regular Income Payment. 1/2/14 Recalculated Regular Income Payment (due to market gain in Account Value)......... $ 6,900 1/2/14 New Guaranteed Income Benefit (75% * $6,900 Regular Income Payment)............... $ 5,175 1/2/14 Annual Charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) ($1,312.50 * ($5,175/$5,000)) Prior charge * [ratio of increased Guaranteed Income Benefit to prior Guaranteed Income $1,358.44 Benefit] .
If the Lincoln Lifetime IncomeSM Advantage 2.0 charge has also increased, subject to a maximum charge of 2.00%, the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) charge will increase upon a step-up. (The Lincoln Lifetime IncomeSM Advantage 2.0 charge continues to be used in the calculation of the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit charge.) Continuing the above example: 1/2/14 Annual Charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit $1,358.44 (version 4) . 1/2/15 Recalculated Regular Income Payment (due to Account Value increase)................ $ 7,400 1/2/15 New Guaranteed Income Benefit (75% * $7,400 Regular Income Payment) . $ 5,550 Assume the Lincoln Lifetime IncomeSM Advantage 2.0 charge increases from 1.05% to 1.15%. 1/2/15 Annual Charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit ($1,358.44 * ($5,550/$5,175) * (1.15%/1.05%))........................................................................... $1,595.63
The new annual charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) is $1,595.63 which is equal to the current annual charge of $1,358.44 multiplied by the percentage increase of the Guaranteed Income Benefit ($5,550/$5,175) times the percentage increase to the Lincoln Lifetime IncomeSM Advantage 2.0 current charge (1.15%/1.05%). If the Lincoln Lifetime IncomeSM Advantage 2.0 percentage charge is increased, we will notify you in writing. You may contact us in writing or at the telephone number listed on the first page of this prospectus to reverse the step-up within 30 days after the date on which the step-up occurred. If we receive this notice, we will decrease the percentage charge, on a going forward basis, to the percentage charge in effect before the step-up occurred. Any increased charges paid between the time of the step-up and the date we receive your notice to reverse the step-up will not be reimbursed. If the Guaranteed Income Benefit increased due to the step-up we would decrease the Guaranteed Income Benefit to the Guaranteed Income Benefit in effect before the step-up occurred, reduced by any Excess Withdrawals. Future step-ups as described in the rider would continue. After the Periodic Income Commencement Date, if the Guaranteed Income Benefit is terminated, i4LIFE (Reg. TM) Advantage will also be terminated and the i4LIFE (Reg. TM) Advantage and Guaranteed Income Benefit charge will cease. 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, unless the governmental entity dictates otherwise, 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 tax rates generally depend upon the law of your state of residence. The tax rates range from zero to 3.5%. Currently, there is no premium tax levied for New York residents. Other Charges and Deductions The mortality and expense risk and administrative charge of 1.40% of the value in the VAA will be assessed on all variable Annuity Payouts (except for 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. 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, 25 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. 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. The purchase of multiple contracts with identical Contractowners, Annuitants and Beneficiaries will be allowed only upon Home Office approval. When a completed application and all other information necessary for processing a purchase order is received in Good Order at our Servicing Office, an initial Purchase Payment 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 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. Do not purchase this contract if you plan to use it, or any of its riders, for speculation, arbitrage, viatical arrangement, or other similar investment scheme. The contract may not be resold, traded on any stock exchange, or sold on any secondary market. 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 You may make Purchase Payments to the contract at any time, prior to the Annuity Commencement Date, subject to certain conditions. You are not required to make any additional Purchase Payments after the initial Purchase Payment. The minimum initial Purchase Payment is $10,000. The minimum annual amount for additional Purchase Payments is $300. Please check with your registered representative about making additional Purchase Payments. The minimum payment to the contract at any one time must be at least $100 ($25 if transmitted electronically). If a Purchase Payment is submitted that does not meet the minimum amount, we will contact you to ask whether additional money will be sent, or whether we should return the Purchase Payment to you. 26 Purchase Payments totaling $1 million or more are subject to Home Office approval. This amount takes into consideration the total Purchase Payments for all contracts issued by the Company (or its affiliates) in which you are a Contractowner, joint owner, or Annuitant. If you elect a Living Benefit rider, you may be subject to further restrictions in terms of your ability to make additional Purchase Payments, as more fully described below. We may surrender your contract in accordance with New York law, if your Contract Value drops below $2,000 for any reason, including if your Contract Value drops due to the performance of the Subaccounts you selected. We will not surrender your contract if you are receiving guaranteed payments from us under one of the Living Benefit riders. 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 further limit Purchase Payments made to the contract. If you elect a Living Benefit rider (other than i4LIFE (Reg. TM) Advantage), after the first anniversary of the rider effective date, once cumulative additional Purchase Payments exceed $100,000, additional Purchase Payments will be limited to $50,000 per Benefit Year. Please see your contract or contact your registered representative for more information. If you elect i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit, no additional Purchase Payments will be allowed at any time after the Guaranteed Income Benefit has been elected. These restrictions and limitations mean that you will be limited in your ability to build your Contract Value (or account Value under i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit) and/or increase the amount of any guaranteed benefit under a Living Benefit rider by making additional Purchase Payments to the contract. You should carefully consider these limitations and restrictions, and any other limitations and restrictions of the contract, and how they may impact your long-term investment plans, especially if you intend to build Contract Value (or Account Value under i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit) by making additional Purchase Payments over a long period of time. See the Living Benefit Riders section of this prospectus for additional information on any restrictions that may apply to your Living Benefit rider. 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. 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 is $2,000. 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 in Good Order 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 registered 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 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 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 27 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 (for example, when separate account assets are less than $1,000), 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 Home Office in writing, or by fax or other electronic means. A transfer request may also be made by telephone provided the appropriate authorization is on file with us. Our address, telephone number, and Internet address are on the first page of this prospectus. Requests for transfers will be processed on the Valuation Date that they are received when they are received in Good Order at our Home Office before the end of the Valuation Date (normally 4:00 p.m., New York time). If we receive a transfer request in Good Order 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. 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 variable Subaccount(s) subject to the following restrictions: o total fixed account transfers are limited to 25% of the value of that fixed account in any 12-month period; and o the minimum amount that can be transferred is $300 or, if less, the amount in the fixed account. Because of these restrictions, it may take several years to transfer all of the Contract Value in the fixed accounts to the variable Subaccounts. You should carefully consider whether the fixed account meets your investment criteria. Transfers may be delayed as permitted by the 1940 Act. See Delay of Payments. Telephone and Electronic Transactions A surrender, withdrawal, or transfer request may be made to our Servicing Office using a fax or other electronic means. In addition, withdrawal and transfer requests may be made by telephone, subject to certain restrictions. 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 and other electronic requests will be recorded and written confirmation of all transactions 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, fax machine or other 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 request by writing to our Servicing Office. 28 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 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, first-class 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. 29 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. 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. Once elected, the fixed annuity payment is irrevocable. These provisions also apply during the i4LIFE (Reg. TM) Advantage Lifetime Income Period. See i4LIFE (Reg. TM) Advantage. 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. We reserve the right to approve all ownership and Annuitant changes. Nonqualified contracts may not be sold, discounted, or pledged as collateral for a loan or for any other purpose. Qualified contracts are not transferable unless allowed under applicable law. 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, however we reserve the right to approve all Annuitant changes. This may not be allowed if certain riders are in effect. 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 Benefits or Living Benefits. 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), fax, or other electronic means. Withdrawal requests may be made by telephone, subject to certain restrictions. All surrenders and withdrawals may be made in accordance with the rules discussed below. Surrender or withdrawal rights after the Annuity Commencement Date depend on the Annuity Payout option selected. 30 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 in Good Order at the Servicing Office. If we receive a surrender or withdrawal request in Good Order 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. 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. The tax consequences of a surrender/withdrawal are discussed later in this prospectus. 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. 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. 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 (DCA'd) is $1,500 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; 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 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. If you cancel the DCA program, your remaining Contract Value in the DCA program will be allocated to the variable Subaccounts according to your allocation instructions. 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. Withdrawals under AWS are subject to applicable surrender charges and Interest Adjustments. See Charges and Other Deductions - Surrender Charge and Fixed Side of the Contract - Interest Adjustment. The cross-reinvestment service automatically transfers the contract value in a designated variable subaccount that exceeds a baseline amount to another specific variable subaccount at specific intervals. You specify the applicable subaccounts, the baseline amount and the interval period. 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. 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 prior to the Annuity Commencement Date. Refer to your contract for the specific provisions applicable upon death.
UPON DEATH OF: AND... AND... DEATH BENEFIT PROCEEDS PASS TO: Contractowner There is a surviving joint owner The Annuitant is living or deceased joint owner
31
UPON DEATH OF: AND... 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 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 Death Benefit terminates if you elect i4LIFE (Reg. TM) Advantage or elect any other 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. 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 Guaranteed Annual Income amount under the Lincoln Lifetime IncomeSM Advantage 2.0 rider may reduce the sum of all Purchase Payments amount on a dollar for dollar basis. See The Contracts - Lincoln Lifetime IncomeSM Advantage 2.0). 32 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 and premium taxes, if any. The Guarantee of Principal Death Benefit may be discontinued 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 Guaranteed Annual Income amount under the Lincoln Lifetime IncomeSM Advantage 2.0 rider may reduce the sum of all Purchase Payments amount on a dollar for dollar basis. See The Contracts - Lincoln Lifetime IncomeSM Advantage 2.0); 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 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 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 or the Account Value Death Benefit will apply. 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. This election terminates if you elect i4LIFE (Reg. TM) Advantage (which provides a Death Benefit) or if you elect an annuitization option. 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. Pursuant to the Federal Defense of Marriage Act, same-sex marriages are not recognized for purposes of federal law. Therefore, the favorable tax treatment provided by federal tax law to an opposite-sex spouse is not available to a same-sex spouse. Same-sex spouses should consult a tax advisor prior to purchasing annuity products that provide benefits based upon status as a spouse, and prior to exercising any spousal rights under an annuity. 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 a claim submitted in Good Order. To be in Good Order, we require all the following: 1. proof (e.g. an original certified death certificate), or any other proof of death satisfactory to us, of the death; 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. Unless otherwise provided in the Beneficiary designation, one of the following procedures will take place on the death of a Beneficiary: 33 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 Death Benefit is over $10,000, the proceeds will be placed into a SecureLine (Reg. TM) account in the recipient's name as the owner of the account. SecureLine (Reg. TM) is a service we offer to help the recipient manage the Death Benefit proceeds. With SecureLine (Reg. TM), an interest bearing account is established from the proceeds payable on a policy or contract administered by us. The recipient is the owner of the account, and is the only one authorized to transfer proceeds from the account. Instead of mailing the recipient a check, we will send a checkbook so that the recipient will have access to the account by writing a check. The recipient may choose to leave the proceeds in this account, or may begin writing checks right away. If the recipient decides he or she wants the entire proceeds immediately, the recipient may write one check for the entire account balance. The recipient can write as many checks as he or she wishes. We may at our discretion set minimum withdrawal amounts per check. The total of all checks written cannot exceed the account balance. 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 may request that surrender proceeds be paid directly to him or her instead of applied to a SecureLine (Reg. TM) account. Interest credited in the SecureLine (Reg. TM) account is taxable as ordinary income in the year such interest is credited, and is not tax deferred. We recommend that the recipient consult a tax advisor to determine the tax consequences associated with the payment of interest on amounts in the SecureLine (Reg. TM) account. The balance in the recipient's SecureLine (Reg. TM) account starts earning interest the day the account is opened and will continue to earn interest until all funds are withdrawn. Interest is compounded daily and credited to the recipient's account on the last day of each month. The interest rate will be updated monthly and we may increase or decrease the rate at our discretion. The interest rate credited to the recipient's SecureLine (Reg. TM) account may be more or less than the rate earned on funds held in our general account. The interest rate offered with a SecureLine (Reg. TM) account is not necessarily that credited to the fixed account. There are no monthly fees. The recipient may be charged a fee for a stop payment or if a check is returned for insufficient funds. Investment Requirements If you elect a Living Benefit rider (except i4LIFE (Reg. TM) Advantage without Guaranteed Income Benefit), you will be subject to Investment Requirements, which means you will be limited in how much you can invest in certain Subaccounts of your contract. If you elect Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds or i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds, you will have more restrictive Investment Requirements. Currently, if you purchase i4LIFE (Reg. TM) without the Guaranteed Income Benefit, you will not be subject to any Investment Requirements, although we reserve the right to impose Investment Requirements for this rider in the future. Investment Requirements apply whether you purchase a Living Benefit rider at contract issue, or if you add a Living Benefit rider to an existing contract. You must hold the rider for a minimum period of time after election (the minimum time is specified under the Termination section of each rider). During this time, you will be required to adhere to the Investment Requirements. After this time, failure to adhere to the Investment Requirements will result in termination of the rider. We have divided the Subaccounts of your contract into groups and have specified the minimum or maximum percentages of Contract Value that must be in each group at the time you purchase the 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 (or Account Value if i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit is in effect) to allocate to individual Subaccounts within each group, but the total investment for all Subaccounts within the group must comply with the specified minimum or maximum percentages for that group. 34 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. Investment Requirements for Protected Funds Riders. If you elect Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds or i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds, you must allocate your Contract Value among one or more of the following Subaccounts.
Group 2 Investments cannot exceed 70% of Contract Value or Account Value (if i4LIFE (Reg. TM) Advantage with the Group 1 Guaranteed Income Benefit Protected Funds Investments must be at least 30% of Contract Value or Account Value (if is i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit Protected Funds if in in effect) effect) --- ------------------------------------------------------------------------------------- --------------------------------------- Delaware VIP (Reg. TM) Limited-Term Diversified Income Series LVIP Columbia Small-Mid Cap Growth RPM Fund Delaware VIP (Reg. TM) Diversified Income Series LVIP BlackRock Equity Dividend RPM Fund LVIP BlackRock Inflation Protected Bond Fund LVIP Dimensional Non-U.S. Equity RPM Fund LVIP Delaware Bond Fund LVIP Dimensional U.S. Equity RPM Fund LVIP Delaware Diversified Floating Rate Fund LVIP JPMorgan Mid Cap Value RPM Fund LVIP Dimensional / Vanguard Total Bond Fund LVIP MFS International Growth RPM Fund LVIP SSgA Bond Fund Index LVIP Protected Profile Conservative Fund LVIP Protected Profile Growth Fund LVIP Protected Profile Moderate Fund LVIP RPM BlackRock Global Allocation V.I. Fund LVIP RPM Fidelity (Reg. TM) VIP Contrafund (Reg. TM) Portfolio LVIP SSgA Global Tactical Allocation RPM Fund LVIP SSgA Large Cap RPM Fund LVIP SSgA Small-Cap RPM Fund LVIP Templeton Growth RPM Fund LVIP UBS Large Cap Growth RPM Fund
Group 3 Investments cannot exceed 10% of Contract Value or Account Value (if i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit Protected Funds is in effect) --------------------------------------------------------------------------------- LVIP BlackRock Emerging Markets RPM Fund
As an alternative to satisfy these Investment Requirements, you may allocate 100% of your Contract Value among the funds listed below. If you allocate less than 100% of Contract Value or i4LIFE (Reg. TM) Advantage Account Value among these funds, then the funds listed below that are also listed in Group 1 will be subject to Group 1 restrictions.* Any remaining funds listed below that are not listed in Group 1 will fall into Group 2 and be subject to Group 2 restrictions. All other funds not listed in the groupings above or below are not available with the Protected Funds riders. The fixed account is only available for dollar cost averaging. o Delaware VIP (Reg. TM) Diversified Income Series* o Delaware VIP (Reg. TM) Limited-Term Diversified Income Series* o LVIP BlackRock Inflation Protected Bond Fund* o LVIP Delaware Bond Fund* o LVIP Delaware Diversified Floating Rate Fund* o LVIP Dimensional / Vanguard Total Bond Fund* o LVIP Protected Profile Conservative Fund o LVIP Protected Profile Growth Fund o LVIP Protected Profile Moderate Fund o LVIP RPM BlackRock Global Allocation V.I. Fund o LVIP SSgA Bond Index Fund* o LVIP SSgA Global Tactical Allocation RPM Fund* Investment Requirements for other Living Benefit Riders. If you elect a Living Benefit rider other than Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds or i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds, you must allocate your Contract Value among one or more of the following Subaccounts only. 35
Group 2 Investments cannot exceed 70% of Contract Value Group 1 or Account Value (if Investments must be at least 30% of Contract Value or Account Value (if i4LIFE (Reg. TM) Advantage with the Guaranteed i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit if in effect) Income Benefit is in effect) ------------------ ----------------------------------------------------------------------------- ----------------------------- Delaware VIP (Reg. TM) Limited-Term Diversified Income Series Any of the funds offered under the contract, except for funds in Groups 1 and 3, and the fixed account. Delaware VIP (Reg. TM) Diversified Income Series LVIP BlackRock Inflation Protected Bond Fund LVIP Delaware Bond Fund LVIP Delaware Diversified Floating Rate Fund LVIP Dimensional / Vanguard Total Bond Fund LVIP Global Income Fund LVIP SSgA Bond Index
Group 3 Investments cannot exceed 10% of Contract Value or Account Value (if i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit is in effect) ----------------------------------------------------------------------------- AllianceBernstein VPS Global Thematic Growth Portfolio Delaware VIP (Reg. TM) Emerging Markets Series Delaware VIP (Reg. TM) REIT Series DWS Alternative Asset Allocation VIP Portfolio LVIP Clarion Global Real Estate Fund LVIP SSgA Emerging Markets 100 Fund MFS (Reg. TM) VIT Utilities Series LVIP BlackRock Emerging Markets RPM Fund
As an alternative to satisfy these Investment Requirements, you may allocate 100% of your Contract Value among the funds listed below. If you allocate less than 100% of Contract Value or i4LIFE (Reg. TM) Advantage Account Value among these funds, then the funds listed below that are also listed in Group 1 will be subject to Group 1 restrictions.* Any remaining funds listed below that are not listed in Group 1 will fall into Group 2 and be subject to Group 2 restrictions. The PIMCO VIT CommodityRealReturn (Reg. TM) Strategy Portfolio is not available with these riders. The fixed account is only available for dollar cost averaging. o BlackRock Global Allocation VI Fund o Delaware VIP (Reg. TM) Diversified Income Series* o Delaware VIP (Reg. TM) Limited-Term Diversified Income Series* o LVIP BlackRock Inflation Protected Bond Fund* o LVIP Delaware Bond Fund* o LVIP Delaware Diversified Floating Rate Fund* o LVIP Dimensional/Vanguard Total Bond Fund* o LVIP Global Income Fund* o LVIP Protected Profile Conservative Fund o LVIP Protected Profile Growth Fund o LVIP Protected Profile Moderate Fund o LVIP RPM BlackRock Global Allocation V.I. Fund o LVIP SSgA Bond Index Fund* o LVIP SSgA Global Tactical Allocation RPM Fund o LVIP SSgA Conservative Index Allocation Fund o LVIP SSgA Conservative Structured Allocation Fund o LVIP SSgA Moderate Index Allocation Fund o LVIP SSgA Moderate Structured Allocation Fund o LVIP SSgA Moderately Aggressive Index Allocation Fund o LVIP SSgA Moderately Aggressive Structured Allocation Fund Living Benefit Riders The optional Living Benefit riders offered under this variable annuity contract are described in the following sections. The riders offer either (Lincoln Lifetime IncomeSM Advantage 2.0) or an income benefit (i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit). You may not elect more than one Living Benefit rider at any one time. Upon election of a Living Benefit rider, you will be subject to Investment Requirements (unless you elect i4LIFE (Reg. TM) Advantage without the Guaranteed Income Benefit). Excess Withdrawals under certain Living Benefit riders may result in a reduction or premature termination of those benefits or of those riders. If you are not certain how an Excess Withdrawal will reduce your future guaranteed amounts, you should contact either your registered representative or us prior to requesting a withdrawal to find out what, if any, impact the Excess Withdrawal will have on any guarantees under the Living Benefit rider. Terms and conditions may change after the contract is purchased. The benefits and features of the optional Living Benefit riders are separate and distinct from the downside protection strategies that may be employed by the funds offered under this contract. The riders do not guarantee the investment results of the funds. 36 Lincoln Lifetime IncomeSM Advantage 2.0 Lincoln Lifetime IncomeSM Advantage 2.0 is a Living Benefit rider available for purchase in your contract that provides: o Guaranteed periodic withdrawals up to the Guaranteed Annual Income amount (with certain exceptions listed later, up to the contractowner's age 80 on qualified contracts and up to the contractowner's age 95 (or the younger of you and your spouse if the joint life option is elected) for nonqualified contracts) which is based upon a guaranteed Income Base (a value equal to either your initial purchase payment or contract value, if elected after the contract's effective date); o Lifetime income is available through i4LIFE (Reg. TM) Advantage or Guaranteed Annual Income Amount Annuity Payout Option which must be elected by specific ages set forth below; o A 5% Enhancement to the Income Base (less Purchase Payments received in that year) if greater than an Automatic Annual Step-up so long as no withdrawals are made in that year and the rider is within the Enhancement Period; o Automatic Annual Step-ups of the Income Base to the Contract Value if the Contract Value is equal to or greater than the Income Base after the 5% Enhancement; o Age-based increases to the Guaranteed Annual Income amount (after reaching a higher age-band and after an Automatic Annual Step-up). o An optional feature, Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds, if elected, that provides a higher Guaranteed Annual Income percentage if you adhere to additional Investment Requirements. All terms that apply to Lincoln Lifetime IncomeSM Advantage 2.0 apply to Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds except as noted. Please note any withdrawals made prior to age 55 or that exceed the Guaranteed Annual Income amount or that are not payable to the original Contractowner or original Contractowner's bank account (or to the original Annuitant or the original Annuitant's bank account, if the owner is a non-natural person) (Excess Withdrawals) may significantly reduce your Income Base as well as your Guaranteed Annual Income amount by an amount greater than the dollar amount of the Excess Withdrawal and will terminate the rider if the Income Base is reduced to zero. In order to purchase Lincoln Lifetime IncomeSM Advantage 2.0, the Purchase Payment or Contract Value (if purchased after the contract is issued) must be at least $25,000. This rider provides guaranteed, periodic withdrawals regardless of the investment performance of the contract, provided that certain conditions are met. The Contractowner, Annuitant or Secondary Life may not be changed while this rider is in effect (except if the Secondary Life assumes ownership of the contract upon death of the Contractowner), including any sale or assignment of the contract as collateral. An Income Base is used to calculate the Guaranteed Annual Income payment from your contract, but is not available as a separate benefit upon death or surrender. The Income Base is equal to the initial Purchase Payment (or Contract Value if elected after contract issue), increased by subsequent Purchase Payments, Automatic Annual Step-ups and 5% Enhancements, and decreased by Excess Withdrawals in accordance with the provisions set forth below. After the first anniversary of the rider effective date, once cumulative additional Purchase Payments exceed $100,000, additional Purchase Payments will be limited to $50,000 per Benefit Year without Home Office approval. No additional Purchase Payments are allowed if the Contract Value decreases to zero for any reason. This rider provides for guaranteed, periodic withdrawals up to the Guaranteed Annual Income amount commencing after the younger of you or your spouse (joint life option) reach age 55. The Guaranteed Annual Income payments are based upon specified percentages of the Income Base. The specified withdrawal percentages of the Income Base are age based and may increase over time. With the single life and joint life options, you may receive Guaranteed Annual Income payments for your lifetime through the election of i4LIFE (Reg. TM) Advantage or the Guaranteed Annual Income Amount Annuity Payout Option. If an election is not made, the Lincoln Lifetime IncomeSM Advantage 2.0 rider will terminate. Except as specified below, this election must be made by the contractowner's age 80 for qualified contracts and up to the contractowner's (or joint owner's if younger) age 95 for nonqualified contracts. Purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds who own their riders through the 5th Benefit Year anniversary must elect i4LIFE (Reg. TM) Advantage or the Guaranteed Annual Income Amount Annuity Payout Option prior to age 85 for qualified contracts or age 99 for nonqualified contracts. Withdrawals in excess of the Guaranteed Annual Income amount or that are made prior to age 55 or that are not payable to the original Contractowner or original Contractowner's bank account (or to the original Annuitant or the original Annuitant's bank account, if the owner is a non-natural person) (Excess Withdrawals) may significantly reduce your Income Base and your Guaranteed Annual Income payments by an amount greater than the dollar amount of the Excess Withdrawal and may terminate the rider and the contract if the Income Base is reduced to zero. Withdrawals will also negatively impact the availability of the 5% Enhancement. These options are discussed below in detail. 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. 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 2.0 and these other riders is included later in this discussion. Not all riders will be available at all times. You may consider purchasing Lincoln Lifetime IncomeSM Advantage 2.0 if you 37 want a guaranteed lifetime income payment that may grow as you get older and may increase through the Automatic Annual Step-up or 5% Enhancement. The cost of Lincoln Lifetime IncomeSM Advantage 2.0 may be higher than other Living Benefit riders that you may purchase in your contract. The age at which you may start receiving the Guaranteed Annual Income amount may be different than the ages that you may receive guaranteed payments under other riders. Availability. Lincoln Lifetime IncomeSM Advantage 2.0 or Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds is available for purchase with new and existing nonqualified and qualified (IRAs and Roth IRAs) annuity contracts. For nonqualified contracts, the Contractowner/Annuitant as well as the spouse under the joint life option must be under age 86 (age 76 for qualified contracts) at the time this rider is elected. You cannot elect the rider and any other Living Benefit rider offered at the same time. You may not elect the rider if you have also elected i4LIFE (Reg. TM) Advantage an Annuity Payout option. You must wait at least 12 months after terminating your Living Benefit rider or any other living benefits we may offer in the future before electing Lincoln Lifetime IncomeSM Advantage 2.0. See The Contracts - i4LIFE (Reg. TM) Advantage for more information. There is no guarantee that the Lincoln Lifetime IncomeSM Advantage 2.0 will be available for new purchasers in the future as we reserve the right to discontinue this benefit at any time. In addition, we may make different versions of Lincoln Lifetime IncomeSM Advantage 2.0 available to new purchasers. If you are an existing Contractowner and have elected a Living Benefit rider (other than Lincoln Lifetime IncomeSM Advantage 2.0) and wish to elect Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds, you must first terminate your existing Living Benefit rider, subject to the termination rules, before you will be able to elect Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds. For further information on termination rules, see the "Termination" section associated with your Living Benefit rider. In all cases, by terminating your existing Living Benefit rider, you will no longer be entitled to any of the benefits that have accrued under that rider. If you purchase Lincoln Lifetime IncomeSM Advantage 2.0 or Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds, you will be limited in your ability to invest within the Subaccounts offered within your contract. You will be required to adhere to Investment Requirements. If you purchase Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds, you will be subject to additional Investment Requirements over and above those for Lincoln Lifetime IncomeSM Advantage 2.0, as set forth in the Investment Requirements section of this prospectus. In addition, the fixed account is not available except for use with dollar cost averaging. See Investment Requirements for more information. 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 Home 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. Income Base. The Income Base is a value used to calculate your Guaranteed Annual Income amount. The Income Base is not available to you as a lump sum withdrawal or a Death Benefit. The initial Income Base varies based on when you elect the rider. If you elect the rider at the time you purchase the contract, the initial Income Base will equal your initial Purchase Payment. If you elect the rider after we issue the contract, the initial Income Base will equal the Contract Value on the effective date of the rider. The maximum Income Base is $10,000,000. This maximum takes into consideration the total guaranteed amounts under the Living Benefit riders of all Lincoln New York contracts (or contracts issued by our affiliates) in which you (and/or spouse if joint life option) are the covered lives. Additional Purchase Payments automatically increase the Income Base by the amount of the Purchase Payment (not to exceed the maximum Income Base); for example, a $10,000 additional Purchase Payment will increase the Income Base by $10,000. After the first anniversary of the rider effective date, once cumulative additional Purchase Payments exceed $100,000, additional Purchase Payments will be limited to $50,000 per Benefit Year without Home Office approval. If after the first Benefit Year cumulative additional Purchase Payments equal or exceed $100,000, the charge for Lincoln Lifetime IncomeSM Advantage 2.0 will change to the then current charge in effect on the next Benefit Year anniversary. Additional Purchase Payments will not be allowed if the Contract Value decreases to zero for any reason including market loss. Excess Withdrawals reduce the Income Base as discussed below. Withdrawals less than or equal to the Guaranteed Annual Income amount will not reduce the Income Base. Since the charge for the rider is based on the Income Base, the cost of the rider increases when additional Purchase Payments, Automatic Annual Step-ups and 5% Enhancements are made, and the cost decreases as Excess Withdrawals are made because these transactions all adjust the Income Base. In addition, the percentage charge may change when Automatic Annual Step-ups or 5% Enhancements occur as discussed below or additional Purchase Payments occur. See Charges and Other Deductions - Rider Charges - Lincoln Lifetime IncomeSM Advantage 2.0 Charge. 5% Enhancement. On each Benefit Year anniversary, the Income Base, minus Purchase Payments received in that year, will be increased by 5% if the Contractowner/Annuitant (as well as the spouse if the joint life option is in effect) are under age 86, if there were no withdrawals in that year and the rider is within the Enhancement Period. The Enhancement Period is a 10-year period that 38 begins on the effective date of the rider. A new Enhancement Period begins immediately following an Automatic Annual Step-up. If during any Enhancement Period there are no Automatic Annual Step-ups, the 5% Enhancements will stop at the end of the Enhancement Period and will not restart until the next Benefit Year anniversary following the Benefit Year anniversary upon which an Automatic Annual Step-up occurs. Any Purchase Payment made after the initial Purchase Payment will be added immediately to the Income Base and will result in an increased Guaranteed Annual Income amount but must be invested in the contract at least one Benefit Year before it will be used in calculating the 5% Enhancement. Any Purchase Payments made within the first 90 days after the effective date of the rider will be included in the Income Base for purposes of calculating the 5% Enhancement on the first Benefit Year anniversary. If you decline an Automatic Annual Step-up during the first 10 Benefit Years, you will continue to be eligible for the 5% Enhancements through the end of the current Enhancement Period, but the Lincoln Lifetime IncomeSM Advantage 2.0 charge could increase to the then current charge at the time of any 5% Enhancements after the 10th Benefit Year anniversary. You will have the option to opt out of the Enhancements after the 10th Benefit Year. In order to be eligible to receive further 5% Enhancements the Contractowner/Annuitant (single life option), or the Contractowner and spouse (joint life option) must still be living and be under age 86. Note: The 5% Enhancement is not available in any year there is a withdrawal from Contract Value including a Guaranteed Annual Income payment. A 5% Enhancement will occur in subsequent years 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 Income Base (assuming no withdrawals): Initial Purchase Payment = $100,000; Income Base = $100,000 Additional Purchase Payment on day 30 = $15,000; Income Base = $115,000 Additional Purchase Payment on day 95 = $10,000; Income Base = $125,000 On the first Benefit Year anniversary, the Income Base will not be less than $130,750 ($115,000 times 1.05%=$120,750 plus $10,000). The $10,000 Purchase Payment 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 (the Enhancement Period) from the effective date of the rider. A new Enhancement 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 Income Base, you will not receive the 5% Enhancement. If the Automatic Annual Step-up and the 5% Enhancement increase the Income Base to the same amount then you will receive the Automatic Annual Step-up. The 5% Enhancement or the Automatic Annual Step-up cannot increase the Income Base above the maximum Income Base of $10,000,000. You will not receive the 5% Enhancement on any Benefit Year anniversary in which there is a withdrawal, including a Guaranteed Annual Income payment from the contract during that Benefit Year. The 5% Enhancement will occur on the following Benefit Year anniversary if no further withdrawals are made from the contract and the rider is within the Enhancement Period. An example of the impact of a withdrawal on the 5% Enhancement is included in the Withdrawal Amount section below. If during the first 10 Benefit Years your Income Base is increased by the 5% Enhancement on the Benefit Year anniversary, your percentage charge for the rider will not change on the Benefit Year anniversary. However, the amount you pay for the rider will increase since the charge for the rider is based on the Income Base. After the 10th Benefit Year anniversary the annual rider percentage charge may increase to the current charge each year if the Income Base increases as a result of the 5% Enhancement, but the charge will never exceed the guaranteed maximum annual percentage charge of 2.00%. See Charges and Other Deductions - Rider Charges - Lincoln Lifetime IncomeSM Advantage 2.0 Charge. If your percentage charge for this rider is increased due to a 5% Enhancement that occurs after the 10th Benefit Year anniversary, you may opt-out of the 5% Enhancement by giving us notice in writing 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 5% Enhancement. You will need to notify us each time thereafter (if an Enhancement would cause your percentage charge to increase) if you do not want the 5% Enhancement. You may not opt-out of the 5% Enhancement if the current charge for the rider increases due to additional Purchase Payment made during that Benefit Year that exceeds the $100,000 Purchase Payment restriction after the first Benefit Year. See Income Base section for more details. Automatic Annual Step-ups of the Income Base. The Income Base will automatically step-up to the Contract Value on each Benefit Year anniversary if: a. the Contractowner/Annuitant (single life option), or the Contractowner and spouse (joint life option) are still living and under age 86; and b. the Contract Value on that Benefit Year anniversary, after the deduction of any withdrawals (including surrender charges, the rider charge and account fee), plus any Purchase Payments made on that date is equal to or greater than the Income Base after the 5% Enhancement (if any). 39 Each time the Income Base 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 - Rider Charges - Lincoln Lifetime IncomeSM Advantage 2.0 Charge. Each time the Automatic Annual Step-up occurs a new Enhancement Period starts. The Automatic Annual Step-up is available even in those years when a withdrawal has occurred. If your percentage charge for this rider is increased upon an Automatic Annual Step-up, you may opt-out of the Automatic Annual Step-up by giving us notice in writing 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. As stated above, if you decline an Automatic Annual Step-up during the first 10 Benefit Years, you will continue to be eligible for the 5% Enhancements through the end of the current Enhancement Period, but the Lincoln Lifetime IncomeSM Advantage 2.0 charge could increase to the then current charge at the time of any 5% Enhancements after the 10th Benefit Year anniversary. You will have the option to opt out of the Enhancements after the 10th Benefit Year. See the earlier Income Base section. You may not opt-out of the Automatic Annual Step-up if an additional Purchase Payment made during that Benefit Year caused the charge for the rider to increase to the current charge. 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 Contract Income Base with for Charge Value 5% Enhancement Income Base to Change ---------- ------------------ ------------- ----------- Initial Purchase Payment $50,000 . $50,000 N/A $50,000 N/A 1st Benefit Year anniversary........ $54,000 $52,500 $54,000 Yes 2nd Benefit Year anniversary........ $53,900 $56,700 $56,700 No 3rd Benefit Year anniversary........ $56,000 $59,535 $59,535 No 4th Benefit Year anniversary........ $64,000 $62,512 $64,000 Yes
On the 1st Benefit Year anniversary, the Automatic Annual Step-up increased the Income Base to the Contract Value of $54,000 since the increase in the Contract Value is greater than the 5% Enhancement amount of $2,500 (5% of $50,000). On the 2nd Benefit Year anniversary, the 5% Enhancement provided a larger increase (5% of $54,000 = $2,700). On the 3rd Benefit Year anniversary, the 5% Enhancement provided a larger increase (5% of $56,700=$2,835). On the 4th Benefit Year anniversary, the Automatic Annual Step-up to the Contract Value was greater than the 5% Enhancement amount of $2,977 (5% of $59,535). An Automatic Annual Step-up cannot increase the Income Base beyond the maximum Income Base of $10,000,000. Withdrawal Amount. You may make periodic withdrawals up to the Guaranteed Annual Income amount each Benefit Year as long as your Guaranteed Annual Income amount is greater than zero until the last day to elect either i4LIFE (Reg. TM) Advantage or the Guaranteed Annual Income Amount Annuity Payout Option set forth above. At that time, you must elect i4LIFE (Reg. TM) Advantage or the Guaranteed Annual Income Amount Annuity Payout option to continue receiving Guaranteed Annual Income payments for life. You may start taking Guaranteed Annual Income withdrawals when you (single life option) or the younger of you and your spouse (joint life option) turn age 55. The initial Guaranteed Annual Income amount is calculated when you purchase the rider. If you (or younger of you and your spouse if the joint life option is elected) are under age 55 at the time the rider is elected the initial Guaranteed Annual Income amount will be zero. If you (or the younger of you and your spouse if the joint life option is elected) are age 55 or older at the time the rider is elected the initial Guaranteed Annual Income amount will be equal to a specified percentage of the Income Base. The specified percentage of the Income Base will be based on your age (or younger of you and your spouse if the joint life option is elected). Upon your first withdrawal the Guaranteed Annual Income percentage is based on your age (single life option) or the younger of you and your spouse's age (joint life option) at the time of the withdrawal. For example, if you purchase Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds at age 60 (single life option), your Guaranteed Annual Income percentage is 4%. If you waited until you were age 70 (single life option) to make your first withdrawal your Guaranteed Annual Income percentage would be 5%. During the first Benefit Year the Guaranteed Annual Income amount is calculated using the Income Base as of the effective date of the rider (including any Purchase Payments made within the first 90 days after the effective date of the rider). After the first Benefit Year anniversary we will use the Income Base calculated on the most recent Benefit Year anniversary for calculating the Guaranteed Annual Income amount. After your first withdrawal the Guaranteed Annual Income amount percentage will only increase on a Benefit Year anniversary on or after you have reached an applicable higher age band and after there has also been an Automatic Annual Step-up. If you have reached an applicable age band and there has not also been a subsequent Automatic Annual Step-up, then the Guaranteed Annual Income amount percentage will not increase until the next Automatic Annual Step-up occurs. If you do not withdraw the entire Guaranteed Annual Income amount during a Benefit Year, there is no carryover of the remaining amount into the next Benefit Year. 40 Guaranteed Annual Income Percentages by Ages: Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds
Single Life Option Joint Life Option -------------------------------------------------- -------------------------------------------------- Age Guaranteed Annual Income (younger of you and Guaranteed Annual Income Age amount percentage your spouse's age) amount percentage -------------------- -------------------------- --------------------- ------------------------- 55 - under 591/2 3.50% 55 - under 591/2 3.50% 591/2 - 64 4.00% 591/2 - 64 4.00% 65+ 5.00% 65 - 74 4.50% 75+ 5.00%
Lincoln Lifetime IncomeSM Advantage 2.0
Single Life Option Joint Life Option -------------------------------------------------- -------------------------------------------------- Age Guaranteed Annual Income (younger of you and Guaranteed Annual Income Age amount percentage your spouse's age) amount percentage -------------------- -------------------------- --------------------- ------------------------- 55 - under 591/2 3.00% 55 - under 591/2 3.00% 591/2 - 64 3.50% 591/2 - 64 3.50% 65 - 69 4.50% 65 - 69 4.00% 70+ 5.00% 70+ 4.50%
If your Contract Value is reduced to zero because of market performance or rider charges, withdrawals equal to the Guaranteed Annual Income amount will continue automatically for your life (and your spouse's life if applicable) under the Guaranteed Annual Income Amount Annuity Payout Option. You may not withdraw the remaining Income Base in a lump sum. You will not be entitled to the Guaranteed Annual Income amount if the Income Base is reduced to zero as a result of an Excess Withdrawal. If the Income Base is reduced to zero due to an Excess Withdrawal the rider and contract will terminate. If the Contract Value is reduced to zero due to an Excess Withdrawal the rider and contract will terminate. Withdrawals equal to or less than the Guaranteed Annual Income amount will not reduce the Income Base. All withdrawals you make will decrease the Contract Value. The following example shows the calculation of the Guaranteed Annual Income amount for Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds and how withdrawals less than or equal to the Guaranteed Annual Income amount affect the Income Base and the Contract Value. The Contractowner is age 60 (4% Guaranteed Annual Income percentage for Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds single life option) on the rider's effective date, and makes an initial Purchase Payment of $200,000 into the contract: Contract Value on the rider's effective date.................... $200,000 Income Base on the rider's effective date....................... $200,000 Initial Guaranteed Annual Income amount on the rider's effective date ($200,000 x 4%) . $ 8,000 Contract Value six months after rider's effective date.......... $210,000 Income Base six months after rider's effective date............. $200,000 Withdrawal six months after rider's effective date when Contractowner is still age 60................................... $ 8,000 Contract Value after withdrawal ($210,000 - $8,000) . $202,000 Income Base after withdrawal ($200,000 - $0) . $200,000 Contract Value on first Benefit Year anniversary................ $205,000 Income Base on first Benefit Year anniversary................... $205,000 Guaranteed Annual Income amount on first Benefit Year anniversary ($205,000 x 4%) . $ 8,200
Since there was a withdrawal during the first year, the 5% Enhancement is not available, but the Automatic Annual Step-up was available and increased the Income Base to the Contract Value of $205,000. On the first anniversary of the rider's effective date, the Guaranteed Annual Income amount is $8,200 (4% x $205,000). Purchase Payments added to the contract subsequent to the initial Purchase Payment will increase the Guaranteed Annual Income amount by an amount equal to the applicable Guaranteed Annual Income amount percentage multiplied by the amount of the subsequent Purchase Payment. For example, assuming a Contractowner is age 60 (single life option), if the Guaranteed Annual Income 41 amount of $2,000 (4% of $50,000 Income Base) is in effect and an additional Purchase Payment of $10,000 is made, the new Guaranteed Annual Income amount that Benefit Year is $2,400 ($2,000 + 4% of $10,000). The Guaranteed Annual Income payment amount will be recalculated immediately after a Purchase Payment is added to the contract. After the first anniversary of the rider effective date, once cumulative additional Purchase Payments exceed $100,000, additional Purchase Payments will be limited to $50,000 per Benefit Year without Home Office approval. Additional Purchase Payments will not be allowed if the Contract Value is zero. 5% Enhancements and Automatic Annual Step-ups will increase the Income Base and thus the Guaranteed Annual Income amount. The Guaranteed Annual Income amount after the Income Base is adjusted either by a 5% Enhancement or an Automatic Annual Step-up will be equal to the adjusted Income Base multiplied by the applicable Guaranteed Annual Income percentage. Excess Withdrawals. Excess Withdrawals are the cumulative amounts withdrawn from the contract during the Benefit Year (including the current withdrawal) that exceed the Guaranteed Annual Income amount at the time of the withdrawal or are withdrawals made prior to age 55 (younger of you or your spouse for joint life) or that are not payable to the original Contractowner or original Contractowner's bank account (or to the original Annuitant or the original Annuitant's bank account, if the owner is a non-natural person). When an Excess Withdrawal occurs: 1. The Income Base is reduced by the same proportion that the Excess Withdrawal reduces the Contract Value. This means that the reduction in the Income Base could be more than the dollar amount of the withdrawal; and 2. The Guaranteed Annual Income amount will be recalculated to equal the applicable Guaranteed Annual Income amount percentage multiplied by the new (reduced) Income Base (after the pro rata reduction for the Excess Withdrawal). We will provide you with quarterly statements that will include the Guaranteed Annual Income amount (as adjusted for Guaranteed Annual Income amount payments, Excess Withdrawals and additional Purchase Payments) available to you for the Benefit Year, if applicable, in order for you to determine whether a withdrawal may be an Excess Withdrawal. We encourage you to either consult with your registered representative or call us at the number provided on the front page of this prospectus if you have questions about Excess Withdrawals. The following example demonstrates the impact of an Excess Withdrawal on the Income Base, the Guaranteed Annual Income amount and the Contract Value under Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds. The Contractowner who is age 60 (single life option) makes a $12,000 withdrawal which causes a $12,915.19 reduction in the Income Base. Prior to Excess Withdrawal: Contract Value = $60,000 Income Base = $85,000 Guaranteed Annual Income amount = $3,400 (4% of the Income Base of $85,000) After a $12,000 Withdrawal ($3,400 is within the Guaranteed Annual Income amount, $8,600 is the Excess Withdrawal): The Contract Value is reduced by the amount of the Guaranteed Annual Income amount of $3,400 and the Income Base is not reduced: Contract Value = $56,600 ($60,000 - $3,400) Income Base = $85,000 The Contract Value is also reduced by the $8,600 Excess Withdrawal and the Income Base is reduced by 15.19435%, the same proportion that the Excess Withdrawal reduced the $56,600 contract value ($8,600 - $56,600) Contract Value = $48,000 ($56,600 - $8,600) Income Base = $72,084.81 ($85,000 x 15.19435% = $12,915.19; $85,000 - $12,915.19 = $72,084.81) Guaranteed Annual Income amount = $2,883.39 (4% of $72,084.81 Income Base) On the following Benefit Year anniversary: Contract Value = $43,000 Income Base = $72,084.81 Guaranteed Annual Income amount = $2,883.39 (4% x $72,084.81) In a declining market, Excess Withdrawals may significantly reduce your Income Base as well as your Guaranteed Annual Income amount. If the Income Base is reduced to zero due to an Excess Withdrawal the rider will terminate. If the Contract Value is reduced to zero due to an Excess Withdrawal the rider and contract will terminate. Withdrawals from IRA contracts will be treated as within the Guaranteed Annual Income amount (even if they exceed the Guaranteed Annual Income amount) only if the withdrawals are taken as systematic installments of the amount needed to satisfy the required minimum distribution (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: 42 1. Lincoln's 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 the Benefit Year (except as described in the next paragraph). If your RMD withdrawals during a Benefit Year are less than the Guaranteed Annual Income amount, an additional amount up to the Guaranteed Annual Income 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 Guaranteed Annual Income amount, including amounts attributable to RMDs, will be treated as Excess Withdrawals. 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 for a discussion of the tax consequences of withdrawals. Guaranteed Annual Income Amount Annuity Payout Option. If you are required to take annuity payments because you have reached age 80 (qualified contracts) or the age 95 (nonqualified contracts) and have not elected i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4), you have the option of electing the Guaranteed Annual Income Amount Annuity Payout Option. Purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds who own their riders through the 5th Benefit Year anniversary have until age 85 (qualified contracts) or age 99 (nonqualified contracts) to elect the Guaranteed Annual Income Amount Annuity Payout Option. If the Contract Value is reduced to zero and you have a remaining Income Base, you will receive the Guaranteed Annual Income Amount Annuity Payout Option. If you are receiving the Guaranteed Annual Income Amount Annuity Payout Option, the Beneficiary may be eligible to receive final payment upon death of the single life or surviving joint life. To be eligible the Death Benefit option in effect immediately prior to the effective date of the Guaranteed Annual Income Amount Annuity Payout Option must be one of the following Death Benefits: the Guarantee of Principal Death Benefit or the EGMDB. If the Account Value Death Benefit option is in effect, the Beneficiary will not be eligible to receive the final payment(s). The Guaranteed Annual Income Amount Annuity Payout Option is an Annuity Payout option which the Contractowner (and spouse if applicable) will receive annual annuity payments equal to the Guaranteed Annual Income amount for life (this option is different from other Annuity Payout options, including i4LIFE (Reg. TM) Advantage, which are based on your Contract Value). Contractowners may decide to choose the Guaranteed Annual Income Amount Annuity Payout Option over i4LIFE (Reg. TM) Advantage if they feel this may provide a higher final payment option over time and they may place more importance on this over access to the Account 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 Guaranteed Annual Income amount for your life or the life of you and your spouse for the joint life option. The final payment is a one-time lump-sum payment. If the effective date of the rider is the same as the effective date of the contract, the final payment will be equal to the sum of all Purchase Payments, decreased by withdrawals. If the effective date of the rider is after the effective date of the contract, the final payment will be equal to the Contract Value on the effective date of the rider, increased for Purchase Payments received after the rider effective date and decreased by withdrawals. Excess Withdrawals reduce the final payment in the same proportion as the withdrawals reduce the Contract Value; withdrawals less than or equal to the Guaranteed Annual Income amount and payments under the Guaranteed Annual Income Amount Annuity Payout Option will reduce the final payment dollar for dollar. Death Prior to the Annuity Commencement Date. Lincoln Lifetime IncomeSM Advantage 2.0 has no provision for a payout of the Income Base 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 earlier in this prospectus) will be in effect. Election of Lincoln Lifetime IncomeSM Advantage 2.0 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 single life, Lincoln Lifetime IncomeSM Advantage 2.0 will end and no further Guaranteed Annual Income amounts are available (even if there was an Income Base in effect at the time of the death). If the Beneficiary elects to continue the contract after the death of the single life (through a separate provision of the contract), the Beneficiary may purchase a new Lincoln Lifetime IncomeSM Advantage 2.0 if available under the terms and charge in effect at the time of the new purchase. There is no carryover of the Income Base. Upon the first death under the joint life option, the lifetime payout of the Guaranteed Annual Income amount will continue for the life of the surviving spouse. The 5% Enhancement and Automatic Annual Step-up will continue if applicable as discussed above. Upon the death of the surviving spouse, Lincoln Lifetime IncomeSM Advantage 2.0 will end and no further Guaranteed Annual Income amounts are available (even if there was an Income Base in effect at the time of the death). 43 As an alternative, after the first death, the surviving spouse if under age 86 may choose to terminate the joint life option and purchase a new single life option, if available, under the terms and charge in effect at the time for a new purchase. In deciding whether to make this change, the surviving spouse should consider whether the change will cause the Income Base and the Guaranteed Annual Income amount to decrease. Termination. After the fifth anniversary of the effective date of the rider, the Contractowner may terminate the rider by notifying us in writing of the request to terminate or by failing to adhere to Investment Requirements. Lincoln Lifetime IncomeSM Advantage 2.0 will automatically terminate: o on the Annuity Commencement Date (except payments under the Guaranteed Annual Income Amount Annuity Payout Option will continue if applicable); or o upon the death under the single life option or the death of the surviving spouse under the joint life option; o when the Guaranteed Annual Income amount or Contract Value is reduced to zero due to an Excess Withdrawal; o upon surrender of the contract; o upon termination of the underlying annuity contract; o for qualified contracts, on the final day of the contractowner's eligibility to elect i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) or the Guaranteed Annual Income Amount Annuity Payout Option; or o for nonqualified contracts, on the final day of the contractowner's eligibility to elect i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) or the Guaranteed Annual Income Amount Annuity Payout Option. The termination will not result in any increase in Contract Value equal to the Income Base. 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 Living Benefit rider or any other living benefits we may offer in the future. i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) for purchasers who previously purchased Lincoln Lifetime IncomeSM Advantage 2.0. i4LIFE (Reg. TM) Advantage is an optional Annuity Payout rider 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 election at the time you elect i4LIFE (Reg. TM) Advantage. You cannot have both i4LIFE (Reg. TM) Advantage and Lincoln Lifetime IncomeSM Advantage 2.0 in effect on your contract at the same time. Contractowners with an active Lincoln Lifetime IncomeSM Advantage 2.0 may decide to drop Lincoln Lifetime IncomeSM Advantage 2.0 and elect i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) even if it is no longer available for sale as long as the election occurs prior to the Annuity Commencement Date. Contractowners are also guaranteed that the Guaranteed Income Benefit percentage and Access Period requirements will be at least as favorable as those in effect at the time they purchase Lincoln Lifetime IncomeSM Advantage 2.0. If the decision to drop Lincoln Lifetime IncomeSM Advantage 2.0 is made, the Contractowner can use the greater of the Lincoln Lifetime IncomeSM Advantage 2.0 Income Base reduced by all Guaranteed Annual Income payments since the last Automatic Annual Step-up (or inception date) or the Account Value immediately prior to electing i4LIFE (Reg. TM) Advantage to establish the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4). If the decision to elect i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) is made because it is the last day of the contractowner's eligibility to elect i4LIFE (Reg. TM) Advantage, the contractowner may also use the current Guaranteed Annual Income amount, if higher, to establish the initial Guaranteed Income Benefit. This decision must be made by the maximum age to elect i4LIFE (Reg. TM) Advantage, which is age 95 for nonqualified contracts and age 80 for qualified contracts. Purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds who have waited until after the 5th Benefit Year anniversary may elect i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit until age 99 for nonqualified contracts and age 85 for qualified contracts. If you choose to drop Lincoln Lifetime IncomeSM Advantage 2.0 and have the single life option, you must purchase i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) single life option. If you drop Lincoln Lifetime IncomeSM Advantage 2.0 and have the joint life option, you must purchase i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (version 4) joint life option. Contractowners with Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds must elect i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds. The minimum length of the i4LIFE (Reg. TM) Advantage Access Period will vary based upon when you purchased your Lincoln Lifetime IncomeSM Advantage 2.0 or Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds rider and how long the rider was in effect before you decided to purchase i4LIFE (Reg. TM) Advantage. These requirements are specifically listed in the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit section of this prospectus under Impacts to i4LIFE (Reg. TM) Advantage Regular Income Payments. For nonqualified contracts, the Contractowner must elect the levelized option for Regular Income Payments. While i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) is in effect, the Contractowner cannot change the payment mode elected or decrease the length of the Access Period. When deciding whether to drop Lincoln Lifetime IncomeSM Advantage 2.0 and purchase i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) you should consider that 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 Guaranteed Annual Income amounts under Lincoln Lifetime IncomeSM Advantage 2.0. You should consider electing i4LIFE (Reg. TM) Advantage when you are ready to immediately start receiving i4LIFE (Reg. TM) Advantage payments whereas with Lincoln Lifetime IncomeSM Advantage 2.0 you may defer taking withdrawals until a later date. Payments from a 44 nonqualified contract that a person receives under the i4LIFE (Reg. TM) Advantage rider are treated as "amounts received as an annuity" under section 72 of the Internal Revenue Code because the payments occur after the annuity starting date. These payments are subject to an "exclusion ratio" as provided in section 72(b) of the Code, which means a portion of each annuity payout is treated as income (taxable at ordinary income tax rates), and the remainder is treated as a nontaxable return of purchase payments. In contrast, withdrawals under Lincoln Lifetime IncomeSM Advantage 2.0 are not treated as amounts received as an annuity because they occur prior to the annuity starting date. As a result, such withdrawals are treated first as a return of any existing gain in the contract (which is the measure of the extent to which the contract value exceeds purchase payments), and then as a nontaxable return of purchase payments. The initial charge for i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) will be equal to the current annual rate in effect for your Lincoln Lifetime IncomeSM Advantage 2.0 rider. This charge is in addition to the mortality and expense risk and administrative charge for your base contract Death Benefit option. The charge is calculated based upon the greater of the value of the Income Base or Contract Value as of the last Valuation Date under Lincoln Lifetime IncomeSM Advantage 2.0 prior to election of i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4). During the Access Period, this charge is deducted from the i4LIFE (Reg. TM) Advantage Account 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 i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4). During the Lifetime Income Period, this charge is deducted annually. The initial charge may increase annually upon a step-up of the Guaranteed Income Benefit by an amount equal to the prior charge rate (or initial charge rate if the first anniversary of the rider's effective date) multiplied by the percentage increase, if any, to the Guaranteed Income Benefit and the percentage increase if any to the Lincoln Lifetime IncomeSM Advantage 2.0 current charge. If an Excess Withdrawal occurs, the charge will decrease by the same percentage as the percentage change to the Account Value. 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 2.0. 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 Lincoln Lifetime IncomeSM Advantage 2.0, withdrawals less than or equal to the Guaranteed Annual Income will reduce the sum of all Purchase Payment amounts on a dollar for dollar basis for purposes of calculating the Death Benefit under the Guarantee of Principal Death Benefit. The same also applies to the EGMDB or the EEB rider if the Death Benefit is based on the sum of all Purchase Payments, decreased by withdrawals. See The Contracts - Death Benefits. 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 while this rider is in effect. The following example demonstrates how a withdrawal will reduce the Death Benefit if both the EGMDB and Lincoln Lifetime IncomeSM Advantage 2.0 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 Guaranteed Annual Income 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 calculation as follows: a) $80,000 - $9,000 = $71,000 (Reduction $9,000) b) $100,000 - $5,000 = $95,000 (reduction by the amount of the Guaranteed Annual Income amount) ($95,000 - $5,067 = $89,933 [$95,000 times ($4,000/$75,000) = $5,067] Proportional 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 reduced the Death Benefit option proportionally. Total reduction = $16,875. Item c) provides the largest Death Benefit of $133,125. 45 i4LIFE (Reg. TM) Advantage i4LIFE (Reg. TM) Advantage 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 the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) for an additional charge. See Charges and Other Deductions - Rider Charges - i4LIFE (Reg. TM) Advantage Charge. i4LIFE (Reg. TM) Advantage is an Annuity Payout option that provides you with variable, periodic Regular Income Payments for life subject to certain conditions. These payouts are made during two time periods: an Access Period and a Lifetime Income Period. During the Access Period, you have access to your Account Value, which means you may surrender the contract, make withdrawals, and have a Death Benefit. During the Lifetime Income Period, you no longer have access to your Account Value. You choose the length of the Access Period when you select i4LIFE (Reg. TM) Advantage; the Lifetime Income Period begins immediately after the Access Period ends and continues until your death (or the death of a Secondary Life, if later). 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. You choose when you want to receive your first Regular Income Payment and the frequency with which you will receive Regular Income Payments. The initial Regular Income Payment is calculated from the Account Value on a date no more than 14 days prior to the date you select to begin receiving the Regular Income Payments. This calculation date is called the Periodic Income Commencement Date, and is the same date the Access Period begins. Regular Income Payments must begin within one year of the date you elect i4LIFE (Reg. TM) Advantage. Once they begin, Regular Income Payments will continue until the death of the Annuitant or Secondary Life, if applicable. 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 while the i4LIFE (Reg. TM) Advantage is in effect computed daily on the 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 any other Annuity Payout option under this contract is elected, by sending a written request to our Servicing Office. 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 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. i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit must be elected by age 80 on IRA contracts or age 95 on non-qualified contracts. 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 contract, unless a Guaranteed Income Benefit has been elected. If the Guaranteed Income Benefit option has been elected on an IRA contract, additional Purchase Payments may be made until the initial Guaranteed Income Benefit is calculated. Additional Purchase Payments will not be accepted after the Periodic Income Commencement Date 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, the Death Benefit option that you had previously elected will become the Death Benefit election under i4LIFE (Reg. TM) Advantage, unless you elect a less expensive Death Benefit option. 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). This is called the Lifetime Income Period. During the Lifetime Income Period, 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 the length of time between your current age and age 115 for non-qualified contracts or 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 46 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. During the Access Period, the Account Value on a Valuation Date will equal the total value of all of the Contractowner's Accumulation Units plus the Contractowner's value in 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. Once they begin, Regular Income Payments will continue until the death of the Annuitant or Secondary Life, if applicable. Regular Income Payments must begin within one year of the date you elect i4LIFE (Reg. TM) Advantage. You also select when the Access Period ends and when the Lifetime Income Period begins. You must also select 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. 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. 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, 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%. 47 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. 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 available 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 Benefit, 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 Value or Account 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 and premium taxes, if any. The following example demonstrates the impact of a proportionate withdrawal on your Death Benefit: 48 i4LIFE (Reg. TM) Advantage Guarantee of Principal Death Benefit... $200,000 Total i4LIFE (Reg. TM) Regular Income Payment..................... $ 25,000 Additional Withdrawal............................................. $ 15,000 ($15,000/$150,000=10% withdrawal) 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 only 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; 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 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 in the base contract 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 any applicable charges associated with that withdrawal and premium taxes, if any. Contracts with the i4LIFE (Reg. TM) Advantage EGMDB may elect to change to the i4LIFE (Reg. TM) Advantage Guarantee of Principal or 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 Account Value. 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 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 49 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. i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds is an optional feature available for purchase that provides a higher Guaranteed Income Benefit percentage if you adhere to certain Investment Requirements. See Investment Requirements in this prospectus for more information about the Investment Requirements applicable to i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds. You will be subject to Investment Requirements applicable to i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds for the entire time you own this rider. Failure to comply with the Investment Requirements will result in the termination of i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4). See i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit - Termination for more information. All of the other terms and conditions of i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (version 4) continue to apply to i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds. As discussed below, certain features of the Guaranteed Income Benefit may be impacted if you purchased Lincoln Lifetime IncomeSM Advantage 2.0 (income benefit rider) prior to electing i4LIFE (Reg. TM) Advantage with the Guaranteed Income Benefit (Annuity Payout rider). Additional Purchase Payments cannot be made to a contract with the Guaranteed Income Benefit. You are also limited in 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 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 Lincoln Lifetime IncomeSM Advantage 2.0 (including Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds) who decides to drop Lincoln Lifetime IncomeSM Advantage 2.0 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 2.0 rider. i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit, if available, is elected when you elect i4LIFE (Reg. TM) Advantage or during the Access Period, if still available for election, subject to terms and conditions at that time. You may choose not to purchase the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit at the time you purchase i4LIFE (Reg. TM) Advantage by indicating that you do not want the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit on the election form at the time that you purchase i4LIFE (Reg. TM) Advantage. If you intend to use the Income Base from the Lincoln Lifetime IncomeSM Advantage 2.0 to establish the Guaranteed Income Benefit, you must elect the Guaranteed Income Benefit at the time you elect i4LIFE (Reg. TM) Advantage. 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 i4LIFE (Reg. TM) Advantage - General i4LIFE (Reg. TM) Provisions for an example. Guaranteed Income Benefit (version 4). For Guaranteed Income Benefit (version 4) the initial Guaranteed Income Benefit will be an amount equal to a specified percentage of your Account Value (or Income Base or Guaranteed Amount as applicable), based on your age (or the age of the youngest life under a joint life option) at the time the Guaranteed Income Benefit is elected. The specified percentages and the corresponding age-bands for calculating the initial Guaranteed Income Benefit are outlined in the applicable table below. 50 Age-Banded Percentages for Calculating Initial Guaranteed Income Benefit for: i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds elections or for purchasers of i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds, or prior purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds.
Single Life Option Joint Life Option ----------------------------------------------- ----------------------------------------------- Age Percentage of Account (younger of you and Percentage of Account Age Value or Income Base* your spouse's age) Value or Income Base* -------------------- ----------------------- --------------------- ---------------------- Under age 40 2.50% Under age 40 2.50% 40 - 54 3.00% 40 - 54 3.00% 55 - under 591/2 3.50% 55 - under 591/2 3.50% 591/2 - 64 4.00% 591/2 - 69 4.00% 65 - 69 4.50% 70 - 74 4.50% 70 - 79 5.00% 75 - 79 5.00% 80+ 5.50% 80+ 5.50%
* Purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds may use any remaining Income Base reduced by all Guaranteed Annual Income payments since the last Automatic Annual Step-up, if any, or the rider's effective date (if there have not been any Automatic Annual Step-ups) if greater than the Account Value to establish the initial Guaranteed Income Benefit. i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit elections or for purchasers of Lincoln Lifetime IncomeSM Advantage 2.0.
Single Life Option Joint Life Option ----------------------------------------------- ----------------------------------------------- Percentage of Account Age Percentage of Account Value, Income Base or (younger of you and Value, Income Base or Age Guaranteed Amount* your spouse's age) Guaranteed Amount* -------------------- ----------------------- --------------------- ---------------------- Under age 40 2.00% Under age 40 2.00% 40 - 54 2.50% 40 - 54 2.50% 55 - under 591/2 3.00% 55 - under 591/2 3.00% 591/2 - 64 3.50% 591/2 - 69 3.50% 65 - 69 4.00% 70 - 74 4.00% 70 - 74 4.50% 75+ 4.50% 75+ 5.00%
* Purchasers of Lincoln SmartSecurity (Reg. TM) Advantage (regardless of the rider effective date) may use any remaining Guaranteed Amount (if greater than the Account Value) to calculate the initial Guaranteed Income Benefit. Purchasers of Lincoln Lifetime IncomeSM Advantage 2.0 may use any remaining Income Base reduced by all Guaranteed Annual Income payments since the last Automatic Annual Step-up or the rider's effective date (if there has not been any Automatic Annual Step-up) if greater than the Account Value to establish the initial Guaranteed Income Benefit. 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 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. 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 payment 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 payments 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. The following example illustrates how poor investment performance, which results in a Guaranteed Income Benefit payment, affects the i4LIFE (Reg. TM) Account Value: 51 i4LIFE (Reg. TM) Account Value before market decline............ $135,000 i4LIFE (Reg. TM) Account Value after market decline............. $100,000 Guaranteed Income Benefit....................................... $ 810 Regular Income Payment after market decline..................... $ 769 Account Value after market decline and Guaranteed Income Benefit payment......................................................... $ 99,190
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. The Guaranteed Income Benefit (version 4) 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. For non-qualified contracts, the step-up will occur annually on the first Valuation Date on or after each Periodic Income Commencement Date anniversary starting on the first Periodic Income Commencement Date anniversary. For qualified contracts, the step-up will occur annually on the Valuation Date of the first periodic income payment of each calendar year. The first step-up is the Valuation Date of the first periodic income payment in the next calendar year following the Periodic Income Commencement Date. The following example illustrates how the initial Guaranteed Income Benefit (version 4) is calculated for a 65-year old Contractowner with a nonqualified contract, and how a step-up would increase the Guaranteed Income Benefit in a subsequent year. The percentage of the Account Value used to calculate the initial Guaranteed Income Benefit is 4% for a 65-year old (single life) per the Age-Banded Percentages for Calculating Initial Guaranteed Income Benefit table above. The example also assumes that the Account Value has increased due to positive investment returns resulting in a higher recalculated Regular Income Payment. See The Contracts - i4LIFE (Reg. TM) Advantage - Regular Income Payments during the Access Period for a discussion of recalculation of the Regular Income Payment. 8/1/2013 Amount of initial Regular Income Payment............................. $ 4,801 8/1/2013 Account Value at election of Guaranteed Income Benefit (version 4)... $100,000 8/1/2013 Initial Guaranteed Income Benefit (4% times $100,000 Account Value) . $ 4,000 8/1/2014 Recalculated Regular Income Payment.................................. $ 6,000 8/1/2014 Guaranteed Income Benefit after step-up (75% of $6,000) . $ 4,500
The Contractowner's Guaranteed Income Benefit was increased to 75% of the recalculated Regular Income Payment. At the time of a step-up of the Guaranteed Income Benefit the i4LIFE (Reg. TM) Guaranteed Income Benefit percentage charge may increase subject to the maximum guaranteed charge of 2.00%. This means that your charge may change every year. If we automatically administer a new step-up 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 date of the step-up. If we receive notice of your request to reverse the step-up, on a going forward basis, we will decrease the percentage charge to the percentage charge in effect before the step-up occurred. Any increased charges paid between the time of the step-up and the date we receive your notice to reverse the step-up will not be reimbursed. Step-ups will continue after a request to reverse a step-up. i4LIFE (Reg. TM) Advantage charges are in addition to the Guaranteed Income Benefit charges. We will provide you with written notice when a step-up will result in an increase to the current charge so that you may give us timely notice if you wish to reverse a step-up. The next section describes certain guarantees in Living Benefit riders relating to the election of the Guaranteed Income Benefit. Lincoln Lifetime IncomeSM Advantage 2.0. Contractowners who purchase Lincoln Lifetime IncomeSM Advantage 2.0 are guaranteed the ability in the future to purchase i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) even if it is no longer available for sale. They are also guaranteed that the Guaranteed Income Benefit percentages and Access Period requirements will be at least as favorable as those available at the time they purchased Lincoln Lifetime IncomeSM Advantage 2.0. See The Contracts - Lincoln Lifetime IncomeSM Advantage 2.0. Contractowners with an active Lincoln Lifetime IncomeSM Advantage 2.0 may decide to drop Lincoln Lifetime IncomeSM Advantage 2.0 and purchase i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) in accordance with the terms set out about for i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (version 4). If this decision is made, the Contractowner can use the Lincoln Lifetime IncomeSM Advantage 2.0 Income Base reduced by all Guaranteed Annual Income payments since the last Automatic Annual Step-up or since the rider's effective date (if there has not been an Automatic Annual Step-up) if greater than the Account Value to establish the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) at the terms in effect for purchasers of this rider. If the Contractowner drops Lincoln Lifetime IncomeSM Advantage 2.0 and purchases i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit (version 4) on the last day the Contractowner is eligible to purchase i4LIFE (Reg. TM) Advantage, the Contractowner may also use the current Guaranteed Annual Income amount, if higher, to establish the initial Guaranteed Income Benefit. This decision must be made by the maximum age to elect i4LIFE (Reg. TM) Advantage, which is age 90 for nonqualified contracts and age 80 for qualified contracts. 52 Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds. Contractowners who elect Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds may decide to drop Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds and purchase i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds in accordance with the same terms set out above for i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit (version 4). If this decision is made, the Contractowner can use the greater of the Income Base under Lincoln Lifetime IncomeSM Advantage 2.0 reduced by all Guaranteed Annual Income payments since the last Automatic Annual Step-up or the Account Value to establish the Guaranteed Income Benefit under i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds. 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 Guaranteed Income Benefit (version 4) is the longer of 20 years or the difference between your age (nearest birthday) and age 100. The minimum Access Period required for i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit Protected Funds is the longer of 20 years or the difference between your age (nearest birthday) and age 90. We may change this Access Period requirement prior to election of the Guaranteed Income Benefit. Different minimum Access Period requirements apply if you use the greater of the Account Value or Income Base (less amounts paid since the last Automatic Step-up) under Lincoln Lifetime IncomeSM Advantage 2.0, Lincoln Lifetime IncomeSM Advantage 2.0 Protected Funds to calculate the Guaranteed Income Benefit as set forth below:
Minimum Access Period Elections of i4LIFE (Reg. TM) Advantage prior to the 5th Benefit Year anniversary Purchasers of Lincoln Lifetime IncomeSM Longer of 20 years or the difference Advantage 2.0 between your age and age 100 Purchasers of Lincoln Lifetime IncomeSM Longer of 20 years or the difference Advantage 2.0 Protected Funds between your age and age 90 Elections of i4LIFE (Reg. TM) Advantage on and after the 5th Benefit Year anniversary Purchasers of Lincoln Lifetime IncomeSM Longer of 20 years or the difference Advantage 2.0 between your age and age 95 Purchasers of Lincoln Lifetime IncomeSM Longer of 15 years or the difference Advantage 2.0 Protected Funds between your age and age 85
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 choose to lengthen your Access Period (which must be increased by a minimum of 5 years), your Regular Income Payment will be reduced, but the i4LIFE (Reg. TM) Advantage Guaranteed Income Benefit will not be affected. If you choose to shorten your Access Period, the i4LIFE (Reg. TM) Advantage with Guaranteed Income Benefit will terminate. 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; or o failure to comply with Investment Requirements. 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. However if you used the greater of the Account Value or Income Base under Lincoln Lifetime IncomeSM Advantage 2.0 or 4LATER (Reg. TM) Advantage Protected Funds to establish the Guaranteed Income Benefit any termination of the Guaranteed Income Benefit will also result in a termination of the i4LIFE (Reg. TM) Advantage election. 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. Availability. The contractowner must be under age 95 for nonqualified contracts and under age 80 for qualified contracts at the time this rider is elected. 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. The following example demonstrates the impact of a withdrawal on the Regular Income Payments and the Guaranteed Income Benefit payments: 53 i4LIFE (Reg. TM) Regular Income Payment before Withdrawal..... $ 1,200 Guaranteed Income Benefit before Withdrawal................... $ 900 Account Value at time of Additional Withdrawal................ $150,000 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. 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. 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 99th birthday. Your broker-dealer may recommend that you annuitize at an earlier age. As an alternative, Contractowners with Lincoln Lifetime IncomeSM Advantage 2.0 may elect the Guaranteed Annual Income 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 Guaranteed Amount Annuity Payout option, or the Guaranteed Annual Income 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. 54 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. We may require proof of age, sex, or survival of any payee upon whose age, sex, or survival payments depend. 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. 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 55 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 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 State Department of Financial Services 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 annual effective interest rate of not less than 1.50% per year on amounts held in a fixed account. 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. 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. At this time, the fixed account is available for dollar cost averaging only. Please contact your registered representative for further information. Small Contract Surrenders We may surrender your contract, in accordance with New York law 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 annuity benefit at the Annuity Commencement Date 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. We will not surrender your contract if you are receiving guaranteed payments from us under one of the Living Benefit riders. 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. If, pursuant to SEC rules, an underlying money market fund suspends payment of redemption proceeds in connection with a liquidation of the fund, we will delay payment of any transfer, partial withdrawal, surrender, loan, or Death Benefit from the money market sub-account until the fund is liquidated. 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. Abandoned Property Every state has unclaimed property laws which generally declare annuity contracts to be abandoned after a period of inactivity of three to five years from the date a benefit is due and payable. For example, if the payment of a Death Benefit has been triggered, but, if after 56 a thorough search, we are still unable to locate the Beneficiary of the Death Benefit, or the Beneficiary does not come forward to claim the Death Benefit in a timely manner, the Death Benefit will be "escheated". This means that the Death Benefit will paid to the abandoned property division or unclaimed property office of the state in which the Beneficiary or the Contractowner last resided, as shown on our books and records, or to our state of domicile. This escheatment is revocable, however, and the state is obligated to pay the Death Benefit (without interest) if your Beneficiary steps forward to claim it with the proper documentation. To prevent such escheatment, it is important that you update your Beneficiary designations, including addresses, if and as they change. You may update your Beneficiary designations by filing a written request with our Home Office. Reinvestment Privilege You may elect to make a reinvestment purchase with any part of the proceeds of a surrender/withdrawal. 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. 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). Any taxable distribution that is reinvested may still be reported as taxable. 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, Inc. ("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 broker-dealers that are unaffiliated with us. 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. You may ask your registered representative how he/she will personally be compensated, in whole or in part, for the sale of the contract to you or for any alternative proposal that may have been presented to you. You may wish to take such compensation payments into account when considering and evaluating any recommendation made to you in connection with the purchase of a contract. The following paragraphs describe how payments are made by us and the Principal Underwriter to various parties. Compensation Paid to Unaffiliated Selling Firms. No commissions are paid to any selling firms in connection with the sale of the contract. 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 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; and (5) 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 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 2012 is contained in the SAI. 57 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 material features 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 found in the Internal Revenue Code ("Code"), Treasury Regulations and applicable IRS guidance 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 Code. We may not offer nonqualified annuities for all of our annuity products. Tax Deferral On Earnings Under the Code, you are generally not subject to tax on 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 Code must treat the contract as owned by an individual). o The investments of the VAA must be "adequately diversified" in accordance with Treasury 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 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." Treasury 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 58 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 Treasury regulations so that the VAA will be considered "adequately diversified." Restrictions The Code limits your right to choose particular investments for the contract. Because the IRS has issued little 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 in an attempt to prevent you from being considered as the owner of the assets of the VAA for purposes of the Code, 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 may lose a portion of its deduction for otherwise deductible interest expenses. However, this rule does not apply to a contract owned by an entity engaged in a trade or business that covers the life of one individual who is either (i) a 20% Owner of the entity, or (ii) an officer, director, or employee of the trade or business, at the time first covered by the contract. This rule also does not apply to a contract owned by an entity engaged in a trade or business that covers the joint lives of the 20% Owner or the entity and the Owner's spouse at the time first covered by the contract. Age At Which Annuity Payouts Begin The Code does 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 contract will not be treated as an annuity for purposes of the Code. 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 under the Code and that any increase in your Contract Value will not be taxed 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 a Living Benefit rider, and if the guaranteed amount under that rider immediately before a withdrawal exceeds your Contract Value, the Code may require that you include those additional amounts in your income. Please consult your tax adviser. Taxation Of Annuity Payouts, Including Regular Income Payments The 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 the Contractowner 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. 59 Death after the Annuity Commencement Date: o If Death Benefits are received in accordance with the existing Annuity Payout option following the death of a Contractowner who is not the Annuitant, they are excludible from income in the same manner as the Annuity Payout prior to the death of the Contractowner. o If Death Benefits are received in accordance with the existing Annuity Payout option following the death of the Annuitant (whether or not the Annuitant is also the Contractowner), the Death Benefits 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 Code 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 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 Code), 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). Unearned Income Medicare Contribution Congress enacted the "Unearned Income Medicare Contribution" as a part of the Health Care and Education Reconciliation Act of 2010. This new tax, which affects individuals whose modified adjusted gross income exceeds certain thresholds, is a 3.8% tax on the lesser of (i) the individual's "unearned income", or (ii) the dollar amount by which the individual's modified adjusted gross income exceeds the applicable threshold. Unearned income includes the taxable portion of distributions that you take from your annuity contract. The tax is effective for tax years after December 31, 2012. If you take a distribution from your contract that may be subject to the tax, we will include a Distribution Code "D" in Box 7 of the Form 1099-R issued to report the distribution. Please consult your tax advisor to determine whether your annuity distributions are subject to this tax. 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 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 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 to a person 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 and other optional rider charges, 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 Code. Contracts issued to or in connection with a qualified retirement plan are called "qualified contracts." We issue contracts for use 60 with various types of qualified retirement 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 retirement plans. Persons planning to use the contract in connection with a qualified retirement plan should obtain advice from a competent tax adviser. Types of Qualified Contracts and Terms of Contracts Qualified retirement plans may 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) / (k) 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) Discontinuance of Use with Qualified Retirement Plans Beginning September 24, 2007, our individual variable annuity products are no longer available for purchase under a 403(b) plan. Beginning July 31, 2008, we do not accept additional premiums or transfers to existing 403(b) contracts. We require confirmation from your 403(b) plan sponsor that surrenders, loans or transfers you request comply with applicable tax requirements and decline requests that are not in compliance. We will defer processing payments you request until all information required under the Code 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 record keeper, and other product providers. Beginning January 1, 2012, our individual variable annuity products are no longer available for use in connection with all other qualified retirement plan accounts, with the exception of Traditional IRA, SEP IRA and Roth IRA arrangements. We will amend contracts to be used with a qualified retirement plan as generally necessary to conform to the Code's requirements for the type of plan. However, the rights of a person to any qualified retirement 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 retirement plans to the extent such terms and conditions contradict the contract, unless we consent. Tax Treatment of Qualified Contracts The Federal income tax rules applicable to qualified retirement 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 retirement plan and the participant's specific circumstances (e.g., the participant's compensation). o Minimum annual distributions are required under some qualified retirement plans once you reach age 701/2 or retire, if later as described below. o Loans are allowed under certain types of qualified retirement plans, but Federal income tax rules prohibit loans under other types of qualified retirement 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. Please note that qualified retirement plans such as 403(b) plans, 401(k) plans and IRAs generally defer taxation of contributions and earnings until distribution. As such, an annuity does not provide any additional tax deferral benefit beyond the qualified retirement plan itself. 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. 61 Required Minimum Distributions Under most qualified plans, you must begin receiving payments from the contract in certain minimum amounts by April 1 of the year following the year you attain age 70 1/2 or retire, if later. You are required to take distributions from your traditional IRAs by April 1 of the year following the year you reach age 70 1/2. 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. Treasury regulations applicable to required minimum distributions include a rule that may impact the distribution method you have chosen and the amount of your distributions. Under these 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. Federal Penalty Tax on Early Distributions from Qualified Retirement Plans The Code may impose a 10% penalty tax on an early distribution from a qualified contract that must be included in income. The 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, the 10% penalty tax will not apply to any of the following withdrawals, surrenders, or Annuity Payouts: o Distribution received on or after the Annuitant reaches 591/2 o Distribution received on or after the Annuitant's death or because of the Annuitant's disability (as defined in the Code) o Distribution received as a series of substantially equal periodic payments based on the Annuitant's life (or life expectancy), or o Distribution 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 retirement plans. However, the specific requirements of the exception may vary. Unearned Income Medicare Contribution Congress enacted the "Unearned Income Medicare Contribution" as a part of the Health Care and Education Reconciliation Act of 2010. This new tax, which affects individuals whose modified adjusted gross income exceeds certain thresholds, is a 3.8% tax on the lesser of (i) the individual's "unearned income", or (ii) the dollar amount by which the individual's modified adjusted gross income exceeds the applicable threshold. Distributions that you take from your contract are not included in the calculation of unearned income because your contract is qualified plan contract. However, the amount of any such distribution is included in determining whether you exceed the modified adjusted gross income threshold. The tax is effective for tax years after December 31, 2012. Please consult your tax advisor to determine whether your annuity distributions are subject to this tax. 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 Protection Act of 2006 (PPA) 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. Death Benefit and IRAs 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. 62 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 the Code, we are not required to 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 the Code, 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 there are any changes in the Code that require us to 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 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 Lincoln Life & Annuity Company of New York at PO Box 2348, Fort Wayne, IN 46801-2348. 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 which had been deducted. No applicable surrender charges will apply. A purchaser who participates in the VAA is subject to the risk of a market loss on the contract value during the free-look period. 63 IRA purchasers will receive the greater of Purchase Payments or Contract Value as of the Valuation Date 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 State Department of Financial Services 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 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 and otherwise, the Company and its subsidiaries or its separate accounts and Principal Underwriter may become or are involved in various pending or threatened legal proceedings, including purported class actions, arising from the conduct of its business. In some instances, the 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 the proceedings, after consideration of any reserves and rights to indemnification, ultimately will be resolved without materially affecting the consolidated financial position of the Company and its subsidiaries, or the financial position of its separate accounts or Principal Underwriter. 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 the Company's operating results for any particular reporting period. 64 Contents of the Statement of Additional Information (SAI) for Lincoln Life & Annuity Company of New York Variable Annuity Account N
Item Special Terms Services Principal Underwriter Purchase of Securities Being Offered Annuity Payouts Examples of Regular Income Payment Calculations Determination of Accumulation and Annuity Unit Value Capital Markets Advertising & Ratings More About the S&P 500 Index 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 (Prime) 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 Lincoln ChoicePlus AssuranceSM (Prime). (Please Print) Name: ------------------------------------------------------------------------- Address: ---------------------------------------------------------------------- City --------------------------------------------------- State --------- Zip --------- Mail to Lincoln Life & Annuity Company of New York, PO Box 2348, Fort Wayne, IN 46801-2348.^ 65 Lincoln ChoicePlus AssuranceSM (Prime) 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 (Prime) prospectus of Lincoln New York Account N for Variable Annuities dated _______, 2013. You may obtain a copy of the Lincoln ChoicePlus AssuranceSM (Prime) prospectus on request and without charge. Please write Lincoln Life & Annuity Company of New York, PO Box 2348, Fort Wayne, IN 46801-2348, 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 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 _______, 2013. Special Terms The special terms used in this SAI are the ones defined in the Prospectus. Services Independent Registered Public Accounting Firm Ernst & Young LLP, independent registered public accounting firm, One Commerce Square, 2005 Market Street, Suite 700, Philadelphia, Pennsylvania, 19103, has audited a) our financial statements of the Lincoln New York Account N for Variable Annuities as of December 31, 2012 and for the year then ended and the statement of changes in net assets in the year ended December 31, 2011; and b) our financial statements of Lincoln Life & Annuity Company of New York as of December 31, 2012 and 2011 and for each of the three years in the period ended December 31, 2012, which are included in this SAI and Registration Statement. The aforementioned financial statements are included herein in reliance on Ernst & Young LLP's 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 New York. 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 and/or Lincoln Financial Securities Corp. (collectively "LFN"), our affiliates. 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. LFD, acting as Principal Underwriter, paid $11,044,907, $16,649,416 and $21,994,157 to LFN and Selling Firms in 2010, 2011 and 2012, 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; 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 B-4 multiplying 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. 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% 20-year Access Period 30-Year Access Period Regular Income Payment............... $ 10,566.86 $9,974.48
A 10% withdrawal from the Account Value will reduce the Regular Income Payments by 10% to $9,510.17 with the 20-year access period and $8,977.03 with the 30-year access period. At the end of the 20-year Access Period, the remaining Account Value of $110,977.41 (assuming no withdrawals) will be used to continue the $10,566.86 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 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 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. B-5 Advertising & Ratings We may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Lincoln New York 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. Our financial strength is ranked and rated by nationally recognized independent rating agencies. The ratings do not imply approval of the product and do not refer to the performance of the product, or any separate account, including the 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. The current outlook for the insurance subsidiaries is positive for Moody's and stable for A.M. Best, Fitch, and Standard & Poor's. 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. For more information on ratings, including outlooks, see www.LincolnFinancial.com/investor. 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. In some cases, fund names and/or their objectives may include references to certain indices, such as the S&P 500 Index. Neither the contract nor the funds are 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 contract or any member of the public regarding the advisability of investing in securities generally or in the contract particularly or the ability of the S&P 500 Index to track general stock market performance. S&P's only relationship to the Licensee 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 Licensee or the contract. S&P has no obligation to take the needs of the Licensee or the owners of the contract 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 contract or the timing of the issuance or sale of the contract or in the determination or calculation of the equation by which the contract is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing or trading of the contract. 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 $1,500 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; 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 B-6 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 Surrender Charge. 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. 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, 2012 financial statements of the VAA and the December 31, 2012 financial statements of Lincoln New York appear on the following pages. B-7 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK S-1 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 S-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholder 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, 2012 and 2011, and the related statements of comprehensive income (loss), stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2012. 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, 2012 and 2011, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles. As discussed in Note 2 to the financial statements, effective January 1, 2012 and retrospectively applied to all periods presented, the Company changed its method of accounting for costs relating to the acquisition of insurance contracts. /s/ Ernst & Young LLP Philadelphia, Pennsylvania April 2, 2013 S-3 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE DATA)
AS OF DECEMBER 31, ------------------------- 2012 2011 ----------- ----------- ASSETS Investments: Available-for-sale securities, at fair value: Fixed maturity securities (amortized cost: 2012 - $6,708; 2011 - $6,660) $ 7,580 $ 7,288 Equity securities (cost: 2012 - $2; 2011 - $2) 3 3 Mortgage loans on real estate 423 264 Policy loans 399 419 Other investments - 1 --------- --------- Total investments 8,405 7,975 Cash and invested cash 54 17 Deferred acquisition costs and value of business acquired 452 521 Premiums and fees receivable 1 5 Accrued investment income 99 97 Reinsurance recoverables 536 564 Reinsurance related embedded derivatives 9 13 Goodwill 60 60 Other assets 114 92 Separate account assets 3,195 2,677 ----------- ----------- Total assets $ 12,925 $ 12,021 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES Future contract benefits $ 1,723 $ 1,676 Other contract holder funds 5,407 5,333 Other liabilities 511 422 Separate account liabilities 3,195 2,677 ----------- ----------- Total liabilities 10,836 10,108 ----------- ----------- CONTINGENCIES AND COMMITMENTS (SEE NOTE 10) STOCKHOLDER'S EQUITY Common stock - 132,000 shares authorized, issued and outstanding 941 941 Retained earnings 816 722 Accumulated other comprehensive income (loss) 332 250 ----------- ----------- Total stockholder's equity 2,089 1,913 ----------- ----------- Total liabilities and stockholder's equity $ 12,925 $ 12,021 =========== ===========
See accompanying Notes to Financial Statements S-4 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ---------- ----------- REVENUES Insurance premiums $ 139 $ 128 $ 127 Insurance fees 275 265 259 Net investment income 421 417 418 Realized gain (loss): Total other-than-temporary impairment losses on securities (22) (26) (23) Portion of loss recognized in other comprehensive income 10 7 6 ---------- ---------- ---------- Net other-than-temporary impairment losses on securities recognized in earnings (12) (19) (17) Realized gain (loss), excluding other-than-temporary impairment losses on securities (7) (8) (1) ---------- ---------- ---------- Total realized gain (loss) (19) (27) (18) ---------- ---------- ---------- Total revenues 816 783 786 ---------- ---------- ---------- EXPENSES Interest credited 207 207 207 Benefits 265 274 254 Commissions and other expenses 191 206 161 Impairment of intangibles - 102 - ---------- ---------- ---------- Total expenses 663 789 622 ---------- ---------- ---------- Income (loss) before taxes 153 (6) 164 Federal income tax expense (benefit) 59 29 53 ---------- ---------- ---------- Net income (loss) 94 (35) 111 Other comprehensive income (loss), net of tax: Unrealized gain (loss) on available-for-sale securities 83 186 91 Unrealized other-than-temporary impairment on available-for-sale securities (1) 2 1 ---------- ---------- ---------- Total other comprehensive income (loss), net of tax 82 188 92 ---------- ---------- ---------- Comprehensive income (loss) $ 176 $ 153 $ 203 ========== ========== ==========
See accompanying Notes to Financial Statements S-5 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK STATEMENTS OF STOCKHOLDER'S EQUITY (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ----------- ----------- COMMON STOCK Balance as of beginning-of-year $ 941 $ 940 $ 940 Stock compensation issued for benefit plans - 1 - ----------- ----------- ----------- Balance as of end-of-year 941 941 940 ----------- ----------- ----------- RETAINED EARNINGS Balance as of beginning-of-year 722 830 846 Cumulative effect from adoption of new accounting standards - - (47) Net income (loss) 94 (35) 111 Dividends declared - (73) (80) ----------- ----------- ----------- Balance as of end-of-year 816 722 830 ----------- ----------- ----------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance as of beginning-of-year 250 62 (30) Other comprehensive income (loss), net of tax 82 188 92 ----------- ----------- ----------- Balance as of end-of-year 332 250 62 ----------- ----------- ----------- Total stockholder's equity as of end-of-year $ 2,089 $ 1,913 $ 1,832 =========== =========== ===========
See accompanying Notes to Financial Statements S-6 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK STATEMENTS OF CASH FLOWS (IN MILLIONS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 94 $ (35) $ 111 Adjustments to reconcile net income (loss) 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 21 66 31 Change in premiums and fees receivable 4 - - Change in accrued investment income (2) (4) (1) Change in future contract benefits and other contract holder funds (178) (75) (84) Change in reinsurance related assets and liabilities 32 (79) 25 Change in federal income tax accruals 51 12 39 Realized (gain) loss 19 27 18 Impairment of intangibles - 102 - Other (13) 43 (19) ---------- ----------- ---------- Net cash provided by (used in) operating activities 28 57 120 ---------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of available-for-sale securities (664) (857) (920) Sales of available-for-sale securities 38 100 210 Maturities of available-for-sale securities 567 500 451 Purchases of other investments (335) (132) (119) Sales or maturities of other investments 197 105 135 ---------- ----------- ---------- Net cash provided by (used in) investing activities (197) (284) (243) ---------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Deposits of fixed account values, including the fixed portion of variable 611 620 583 Withdrawals of fixed account values, including the fixed portion of variable (311) (284) (346) Transfers to and from separate accounts, net (94) (68) (51) Common stock issued for benefit plans and excess tax benefits - 1 - Dividends paid - (73) (80) ---------- ----------- ---------- Net cash provided by (used in) financing activities 206 196 106 ---------- ----------- ---------- Net increase (decrease) in cash and invested cash 37 (31) (17) Cash and invested cash, as of beginning-of-year 17 48 65 ---------- ----------- ---------- Cash and invested cash, as of end-of-year $ 54 $ 17 $ 48 ========== =========== ==========
See accompanying Notes to Financial Statements S-7 LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK 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 and several U.S. territories. See Note 19 for additional information. BASIS OF PRESENTATION The accompanying financial statements are prepared in accordance with United States of America 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. 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, deferred acquisition costs ("DAC"), value of business acquired ("VOBA"), deferred sales inducements ("DSI"), goodwill, future contract benefits, other contract holder funds including deferred front-end loads ("DFEL"), pension plans, income taxes and the potential effects of resolving litigated matters. BUSINESS COMBINATIONS We use the acquisition method of accounting for all business combination transactions, and accordingly, recognize the fair values of assets acquired, liabilities assumed and any noncontrolling interests in our financial statements. The allocation of fair values may be subject to adjustment after the initial allocation for up to a one-year period as more information becomes available relative to the fair values as of the acquisition date. The financial statements include the results of operations of any acquired company since the acquisition date. FAIR VALUE MEASUREMENT Our measurement of fair value 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 our own credit risk. Our estimate of an 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"). Pursuant to the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board ("FASB") ACCOUNTING STANDARDS CODIFICATION(TM) ("ASC"), we categorize our financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique. The three-level hierarchy for fair value measurement is defined as follows: o Level 1 - inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date, except for large holdings subject to "blockage discounts" that are excluded; o 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 o 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 we make 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, the 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. 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. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, 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, which are components that are actively quoted or can be validated to market-based sources. AVAILABLE-FOR-SALE SECURITIES - FAIR VALUATION METHODOLOGIES AND ASSOCIATED INPUTS Securities classified as available-for-sale ("AFS") consist of fixed maturity and equity securities and are stated at fair value with unrealized gains and losses included within accumulated other comprehensive income (loss) ("AOCI"), net of associated DAC, VOBA, DSI, other contract holder funds and deferred income taxes. S-8 We measure the fair value of our securities classified as AFS based on assumptions used by market participants in pricing the security. 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 that utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach primarily include third-party pricing services, independent broker quotations or pricing matrices. We do not adjust prices received from third parties; however, we do 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. The observable and unobservable inputs to our valuation methodologies are based on a set of standard inputs that we generally use to evaluate all of our AFS securities. 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 private placement securities, we use pricing matrices that utilize observable pricing inputs of similar public securities and Treasury yields as inputs to the fair value measurement. Depending on the type of security or the daily market activity, standard inputs may be prioritized differently or may not be available for all AFS securities on any given day. For broker-quoted only securities, non-binding quotes from market makers or broker-dealers are obtained from sources recognized as market participants. For securities trading in less liquid or illiquid markets with limited or no pricing information, we use unobservable inputs to measure fair value. The following summarizes our fair valuation methodologies and associated inputs, which are particular to the specified security type and are in addition to the defined standard inputs to our valuation methodologies for all of our AFS securities discussed above: o Corporate bonds and U.S. Government bonds - We also use Trade Reporting and Compliance Engine(TM) reported tables for our corporate bonds and vendor trading platform data for our U.S. Government bonds. o Mortgage- and asset-backed securities - We also utilize additional inputs, which include new issues data, monthly payment informationand monthly collateral performance, including prepayments, severity, delinquencies, step-down features and over collateralization features for each of our mortgage-backed securities ("MBS"), which include collateralized mortgage obligations and mortgage pass through securities backed by residential mortgages ("RMBS"), commercial mortgage-backed securities ("CMBS") and collateralized debt obligations ("CDOs"). o State and municipal bonds - We also use additional inputs that include information from the Municipal Securities Rule Making Board, as well as material event notices, new issue data, issuer financial statements and Municipal Market Data benchmark yields for our state and municipal bonds. o Hybrid and redeemable preferred and equity securities - We also utilize additional inputs of exchange prices (underlying and common stock of the same issuer) for our hybrid and redeemable preferred and equity securities, including banking, insurance, other financial services and other securities. 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 observations of general market movements for those security classes. We have policies and procedures in place to review the process that is utilized by our third-party pricing service and the output that is provided to us by the pricing service. On a periodic basis, we test the pricing for a sample of securities to evaluate the inputs and assumptions used by the pricing service, and we perform a comparison of the pricing service output to an alternative pricing source. We also evaluate prices provided by our primary pricing service to ensure that they are not stale or unreasonable by reviewing the prices for unusual changes from period to period based on certain parameters or for lack of change from one period to the next. AFS SECURITIES - EVALUATION FOR RECOVERY OF AMORTIZED COST We regularly review our AFS securities for declines in fair value that we determine to be other-than-temporary. For an equity security, if we do not have the ability and intent to hold the security for a sufficient period of time to allow for a recovery in value, we conclude that an other-than-temporary impairment ("OTTI") has occurred and the amortized cost of the equity security is written down to the current fair value, with a corresponding charge to realized gain (loss) on our Statements of Comprehensive Income (Loss). When assessing our ability and intent to hold the equity security to recovery, we consider, among other things, the severity and duration of the decline in fair value of the equity security as well as the cause of the decline, a fundamental analysis of the liquidity, and business prospects and overall financial condition of the issuer. For our fixed maturity AFS securities (also referred to as "debt securities"), we generally consider the following to determine whether our unrealized losses are other-than-temporarily impaired: o The estimated range and average period until recovery; o The estimated range and average holding period to maturity; o Remaining payment terms of the security; o Current delinquencies and nonperforming assets of underlying collateral; o Expected future default rates; S-9 o Collateral value by vintage, geographic region, industry concentration or property type; o Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and o Contractual and regulatory cash obligations. For a debt security, if we intend to sell a security, or it is more likely than not we will be required to sell a debt security before recovery of its amortized cost basis and the fair value of the debt security is below amortized cost, we conclude that an OTTI has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized gain (loss) on our Statements of Comprehensive Income (Loss). If we do not intend to sell a debt security, or it is not more likely than not we will be required to sell a debt security before recovery of its amortized cost basis but the present value of the cash flows expected to be collected is less than the amortized cost of the debt security (referred to as the credit loss), we conclude that an OTTI has occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge to realized gain (loss) on our Statements of Comprehensive Income (Loss), as this amount is deemed the credit portion of the OTTI. The remainder of the decline to fair value is recorded in other comprehensive income ("OCI") to unrealized OTTI on AFS securities on our Statements of Stockholder's Equity, as this amount is considered a noncredit (i.e., recoverable) impairment. When assessing our intent to sell a debt security, or if it is more likely than not we will be required to sell a debt security before recovery of its cost basis, we evaluate facts and circumstances such as, but not limited to, decisions to reposition our security portfolio, sales of securities to meet cash flow needs and sales of securities to capitalize on favorable pricing. In order to determine the amount of the credit loss for a debt security, we calculate the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover. The discount rate is the effective interest rate implicit in the underlying debt security. The effective interest rate is the original yield, or the coupon if the debt security was previously impaired. See the discussion below for additional information on the methodology and significant inputs, by security type, which we use to determine the amount of a credit loss. Our conclusion that it is not more likely than not that we will be required to sell the fixed maturity AFS securities before recovery of their amortized cost basis, the estimated future cash flows are equal to or greater than the amortized cost basis of the debt securities, or we have the ability to hold the equity AFS securities for a period of time sufficient for recovery is based upon our asset-liability management process. Management considers the following as part of the evaluation: o The current economic environment and market conditions; o Our business strategy and current business plans; o The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk; o Our analysis of data from financial models and other internal and industry sources to evaluate the current effectiveness of our hedging and overall risk management strategies; o The current and expected timing of contractual maturities of our assets and liabilities, expectations of prepayments on investments and expectations for surrenders and withdrawals of life insurance policies and annuity contracts; o The capital risk limits approved by management; and o Our current financial condition and liquidity demands. To determine the recovery period of a debt security, we consider the facts and circumstances surrounding the underlying issuer including, but not limited to, the following: o Historical and implied volatility of the security; o Length of time and extent to which the fair value has been less than amortized cost; o Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area; o Failure, if any, of the issuer of the security to make scheduled payments; and o Recoveries or additional declines in fair value subsequent to the balance sheet date. In periods subsequent to the recognition of an OTTI, the AFS security is accounted for as if it had been purchased on the measurement date of the OTTI. Therefore, for the fixed maturity AFS security, the original discount or reduced premium is reflected in net investment income over the contractual term of the investment in a manner that produces a constant effective yield. To determine recovery value of a corporate bond or CDO, we perform additional analysis related to the underlying issuer including, but not limited to, the following: o Fundamentals of the issuer to determine what we would recover if they were to file bankruptcy versus the price at which the market is trading; o Fundamentals of the industry in which the issuer operates; o Earnings multiples for the given industry or sector of an industry that the underlying issuer operates within, divided by the outstanding debt to determine an expected recovery value of the security in the case of a liquidation; o Expected cash flows of the issuer (e.g., whether the issuer has cash flows in excess of what is required to fund its operations); o Expectations regarding defaults and recovery rates; o Changes to the rating of the security by a rating agency; and o Additional market information (e.g., if there has been a replacement of the corporate debt security). Each quarter we review the cash flows for the MBS to determine whether or not they are sufficient to provide for the recovery of our amortized cost. We revise our cash flow projections only for those securities that are at most risk for impairment based on current credit enhancement and trends in the underlying collateral performance. To determine recovery S-10 value of a MBS, we perform additional analysis related to the underlying issuer including, but not limited to, the following: o Discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover; o Level of creditworthiness of the home equity loans or residential mortgages that back an RMBS or commercial mortgages that back a CMBS; o Susceptibility to fair value fluctuations for changes in the interest rate environment; o Susceptibility to reinvestment risks, in cases where market yields are lower than the securities' book yield earned; o Susceptibility to reinvestment risks, in cases where market yields are higher than the book yields earned on a security; o Expectations of sale of such a security where market yields are higher than the book yields earned on a security; and o Susceptibility to variability of prepayments. When evaluating MBS and mortgage-related asset-backed securities ("ABS"), we consider a number of pool-specific factors as well as market level factors when determining whether or not the impairment on the security is temporary or other-than-temporary. The most important factor is the performance of the underlying collateral in the security and the trends of that performance in the prior periods. We use this information about the collateral to forecast the timing and rate of mortgage loan defaults, including making projections for loans that are already delinquent and for those loans that are currently performing but may become delinquent in the future. Other factors used in this analysis include type of underlying collateral (e.g., prime, Alt-A or subprime), geographic distribution of underlying loans and timing of liquidations by state. Once default rates and timing assumptions are determined, we then make assumptions regarding the severity of a default if it were to occur. Factors that impact the severity assumption include expectations for future home price appreciation or depreciation, loan size, first lien versus second lien, existence of loan level private mortgage insurance, type of occupancy and geographic distribution of loans. Once default and severity assumptions are determined for the security in question, cash flows for the underlying collateral are projected including expected defaults and prepayments. These cash flows on the collateral are then translated to cash flows on our tranche based on the cash flow waterfall of the entire capital security structure. If this analysis indicates the entire principal on a particular security will not be returned, the security is reviewed for OTTI by comparing the expected cash flows to amortized cost. To the extent that the security has already been impaired or was purchased at a discount, such that the amortized cost of the security is less than or equal to the present value of cash flows expected to be collected, no impairment is required. Otherwise, if the amortized cost of the security is greater than the present value of the cash flows expected to be collected, and the security was not purchased at a discount greater than the expected principal loss, then impairment is recognized. We further monitor the cash flows of all of our AFS securities backed by pools on an ongoing basis. We also perform detailed analysis on all of our subprime, Alt-A, non-agency residential MBS and on a significant percentage of our AFS securities backed by pools of commercial mortgages. The detailed analysis includes revising projected cash flows by updating the cash flows for actual cash received and applying assumptions with respect to expected defaults, foreclosures and recoveries in the future. These revised projected cash flows are then compared to the amount of credit enhancement (subordination) in the structure to determine whether the amortized cost of the security is recoverable. If it is not recoverable, we record an impairment of the security. 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 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 Comprehensive Income (Loss) along with mortgage loan fees, which are recorded as they are incurred. Our commercial loan portfolio is comprised of long-term loans secured by existing commercial real estate. As such, it does not exhibit risk characteristics unique to mezzanine, construction, residential, agricultural, land or other types of real estate loans. We believe all of the loans in our portfolio share three primary risks: borrower creditworthiness; sustainability of the cash flow of the property; and market risk; therefore, our methods for monitoring and assessing credit risk are consistent for our entire portfolio. 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 of each specific loan. 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. Trends in market vacancy and rental rates are incorporated into the analysis that we perform for monitored loans and may contribute to the establishment of (or an increase or decrease in) an allowance for credit losses. In addition, we review each loan individually in our commercial mortgage loan portfolio on an annual basis to identify emerging risks. We focus on properties that experienced a reduction in debt-service coverage or that have significant exposure to S-11 tenants with deteriorating credit profiles. Where warranted, we establish or increase loss reserves for a specific loan based upon this analysis. Our process for determining past due or delinquency status begins when a payment date is missed, at which time the borrower is contacted. After the grace period expiration that may last up to 10 days, we send a default notice. The default notice generally provides a short time period to cure the default. Our policy is to report loans that are 60 or more days past due, which equates to two or more payments missed, as delinquent. We do not accrue interest on 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 Comprehensive Income (Loss) when received, depending on the assessment of the collectibility of the loan. We resume accruing interest once a loan complies with all of its original terms or restructured terms. Mortgage loans deemed 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 Comprehensive Income (Loss). We measure and assess the credit quality of our mortgage loans by using loan-to-value and debt-service coverage ratios. The loan-to-value ratio compares the principal amount of the loan to the fair value at origination of the underlying property collateralizing the loan and is commonly expressed as a percentage. Loan-to-value ratios greater than 100% indicate that the principal amount is greater than the collateral value. Therefore, all else being equal, a lower loan-to-value ratio generally indicates a higher quality loan. The debt-service coverage ratio compares a property's net operating income to its debt-service payments. Debt-service coverage ratios of less than 1.0 indicate that property operations do not generate enough income to cover its current debt payments. Therefore, all else being equal, a higher debt-service coverage ratio generally indicates a higher quality loan. 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 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 Statements of Comprehensive Income (Loss) CASH AND CASH EQUIVALENTS Cash and invested cash is carried at cost and includes all highly liquid debt instruments purchased with an original maturity of three months or less. DAC, VOBA, DSI AND DFEL Acquisition costs directly related to successful contract acquisitions or renewals of UL insurance, VUL insurance, traditional life insurance, annuities and other investment contracts 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. Contract sales charges that are collected in the early years of an insurance contract are deferred (i.e., DFEL), and the unamortized balance is reported in other contract holder funds on our Balance Sheets. Both DAC and VOBA amortization, excluding amounts reported in realized gain (loss), is reported within commissions and other expenses on our Statements of Comprehensive Income (Loss). DSI amortization, excluding amounts reported in realized gain (loss), is reported in interest credited on our Statements of Comprehensive Income (Loss). The amortization of DFEL, excluding amounts reported in realized gain (loss), is reported within insurance fees on our Statements of Comprehensive Income (Loss). The methodology for determining the amortization of DAC, VOBA, DSI and DFEL varies by product type. For all insurance contracts, amortization is based on assumptions consistent with those used in the development of the underlying contract adjusted for emerging experience and expected trends. 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 40 years and 30 years, respectively, based on the expected lives of the contracts. Contract lives for fixed and variable deferred annuities are generally between 13 and 30 years, while some of our fixed multi-year guarantee products have amortization periods equal to the guarantee period. 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. Acquisition costs for all traditional contracts, including traditional life insurance contracts, such as individual whole life, group business and term life insurance, are amortized over periods of 7 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 for fixed and variable payout annuities. We account for modifications of insurance contracts that result in a substantially unchanged contract as a continuation of the replaced contract. We account for modifications of insurance S-12 contracts that result in a substantially changed contract as an extinguishment of the replaced contract. The carrying amounts of DAC, VOBA, DSI and DFEL are adjusted for the effects of realized and unrealized gains and losses on securities classified as AFS and certain derivatives and embedded derivatives. Amortization expense of DAC, VOBA, DSI and DFEL reflects an assumption 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 Comprehensive Income (Loss) reflecting the incremental effect 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). During 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 life insurance and annuity products with living benefit and death benefit guarantees. These assumptions include investment margins, mortality, retention, rider utilization and maintenance expenses (costs associated with maintaining records relating to insurance and individual and group annuity contracts, and with the processing of premium collections, deposits, withdrawals and commissions). Based on our review, the cumulative balances of DAC, VOBA, DSI and DFEL included on our Balance Sheets are adjusted with an offsetting benefit or charge to revenue or amortization expense to reflect such change related to our expectations of future EGPs ("unlocking"). We may have unlocking in other quarters as we become aware of information that warrants updating assumptions outside of our annual comprehensive review. We may also identify and implement actuarial modeling refinements that result in increases or decreases to the carrying values of DAC, VOBA, DSI, DFEL, embedded derivatives and reserves for life insurance and annuity products with living benefit and death benefit guarantees. DAC, VOBA, DSI and DFEL are reviewed 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 Comprehensive Income (Loss), respectively, because there is a right of offset. 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. Reinsurance premiums and benefits paid or provided are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, benefits and DAC are reported net of insurance ceded. GOODWILL We recognize the excess of the purchase price, plus the fair value of any noncontrolling interest in the acquiree, over the fair value of identifiable net assets acquired as goodwill. 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. We perform a two-step test in our evaluation of the carrying value of goodwill for impairment, although we do have the option to first assess qualitative factors to determine if it is necessary to complete the two-step goodwill impairment test. 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 assigning 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 Comprehensive Income (Loss). OTHER ASSETS AND OTHER LIABILITIES Other assets consist primarily of DSI, specifically identifiable intangible assets, property and equipment owned by the Company, balances associated with corporate-owned and bank-owned life insurance, certain reinsurance assets, receivables resulting from sales of securities that had not yet settled as of the balance sheet dates and other prepaid expenses. Other liabilities consist primarily of current and deferred taxes, employee benefit liabilities, certain reinsurance payables, payables resulting from purchases of securities that had not yet settled as of the balance sheet dates, and other accrued expenses. The carrying values of specifically identifiable intangible assets are reviewed at least annually for indicators of impairment in value that are other-than-temporary, 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 discounted 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 S-13 Statements of Comprehensive Income (Loss). Sales force intangibles are attributable to the value of the new business distribution system acquired through business combinations. These assets are amortized on a straight-line basis over their useful life of 25 years. Property and equipment owned for company use 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. 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. 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 guaranteed death benefit ("GDB"), guaranteed withdrawal benefit ("GWB") and guaranteed income benefit ("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"). As discussed in Note 4, certain features of these guarantees are accounted for as embedded derivative reserves, whereas other guarantees are accounted for as benefit reserves. Other guarantees contain characteristics of both and are accounted for under an approach that calculates the value of the embedded derivative reserve and the benefit reserve based on the specific characteristics of each guaranteed living benefit ("GLB") feature. 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 the value of the associated reserves. The net impact of these changes is reported as a component of realized gain (loss) on our Statements of Comprehensive Income (Loss). The "market consistent scenarios" used in the determination of the fair value of the GWB liability are similar to those used by an investment bank to value derivatives for which the pricing is not transparent and the aftermarket is nonexistent or illiquid. In our calculation, risk-neutral Monte-Carlo simulations resulting in over 38 million scenarios are utilized to value the entire block of guarantees. The market consistent scenario assumptions, as of each valuation date, are those we view to be appropriate for a hypothetical market participant. The market consistent inputs include assumptions for the capital markets (e.g., implied volatilities, correlation among indices, risk-free swap curve, etc.), policyholder behavior (e.g., policy lapse, benefit utilization, mortality, etc.), risk margins, administrative expenses and a margin for profit. We believe these assumptions are consistent with those that would be used by a market participant; however, as the related markets develop we will continue to reassess our assumptions. It is possible that different valuation techniques and assumptions could produce a materially different estimate of fair value. FUTURE CONTRACT BENEFITS AND OTHER CONTRACT HOLDER FUNDS Future contract benefits represent liability reserves that we have established and carry based on estimates of how much we will need to pay for future benefits and claims. Other contract holder funds represent liabilities for fixed account values, including the fixed portion of variable, dividends payable, premium deposit funds, undistributed earnings on participating business and other contract holder funds as well the carrying value of DFEL discussed above. 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 7.75% depending on the time of contract issue. The investment yield assumptions for immediate and deferred paid-up S-14 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 GDB features are calculated by estimating the present value of total expected benefit payments over the life of the contract from inception 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 on the liability. The change in the liability for a period is the benefit ratio multiplied by the assessments recorded for the period less GDB claims paid in the period plus interest. As experience or assumption changes result in a change in expected benefit payments or assessments, the benefit ratio is unlocked, that is, recalculated using the updated expected benefit payments and assessments over the life of the contract since inception. The revised benefit ratio is then applied to the liability calculation described above, with the resulting change in liability reported as benefit ratio unlocking. 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. As of December 31, 2012 and 2011, participating policies comprised approximately 4% of the face amount of insurance in force, and dividend expenses were $21 million, $24 million and $27 million for the years ended December 31, 2012, 2011 and 2010, respectively. 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 GLB features and remaining guaranteed interest and similar contracts that are carried at fair value, which represents approximate exit value including an estimate for our non-performance risk ("NPR"). Certain of these features have elements of both insurance benefits and embedded derivatives. Through our hybrid accounting approach, we assign benefits to the embedded derivative or insurance based on the life-contingent nature of the benefits. We classify these items in Level 3 within the hierarchy levels described above in "Fair Value Measurement." The fair value of our indexed annuity contracts is based on their approximate surrender values. 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. 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 Comprehensive Income (Loss). 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 Comprehensive Income (Loss). 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. S-15 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. NET INVESTMENT INCOME 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. For CDOs and MBS, included in the AFS fixed maturity securities portfolios, 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 retrospective effective yield is recalculated to reflect actual payments to date and a catch up adjustment is recorded in the current period. In addition, the new effective yield, which reflects anticipated future payments, is used prospectively. Any adjustments resulting from changes in effective yield are reflected in net investment income on our Statements of Comprehensive Income (Loss). REALIZED GAIN (LOSS) Realized gain (loss) on our Statements of Comprehensive Income (Loss) includes realized gains and losses from the sale of investments, write-downs for other-than-temporary impairments of investments, certain derivative and embedded derivative gains and losses, and net gains and losses on reinsurance embedded derivatives. Realized gains and losses on the sale of investments are determined using the specific identification method. 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 the general account during 2010 through 2012 ranged from 3.00% to 9.00%. 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 and living benefits, and certain annuities with life contingencies. 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 post-retirement benefit plans that are sponsored by LNC and LNL. Pursuant to the accounting rules for our obligations to employees and agents 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 based on historical and projected future rates of return on the funds 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. 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 our 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 performance or 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 within other liabilities 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 commissions and other expenses on our Statements of Comprehensive Income (Loss). 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 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. S-16 2. NEW ACCOUNTING STANDARDS ADOPTION OF NEW ACCOUNTING STANDARDS COMPREHENSIVE INCOME TOPIC In June 2011, the FASB issued (ASU) No. 2011-05, "Presentation of Comprehensive Income" ("ASU 2011-05"), with an objective of increasing the prominence of items reported in other comprehensive income ("OCI"). The amendments in ASU 2011-05 provided entities with the option to present the total of comprehensive income, the components of net income and the components of OCI in either a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB deferred certain requirements in ASU 2011-05 related to the presentation of reclassification adjustments out of accumulated OCI by issuing ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." The FASB reconsidered these presentation requirements based on input from financial statements users and preparers. The deferral did not affect the adoption of the other requirements in ASU 2011-05. We adopted the remaining provisions of ASU 2011-05 as of January 1, 2012, and have included a single continuous statement of comprehensive income. FAIR VALUE MEASUREMENTS AND DISCLOSURES TOPIC In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards" ("ASU 2011-04"), which was issued to create a consistent framework for the application of fair value measurement across jurisdictions. The amendments include wording changes to GAAP in order to clarify the FASB's intent about the application of existing fair value measurements and disclosure requirements, as well as to change a particular principle or existing requirement for measuring fair value or disclosing information about fair value measurements. There were no additional fair value measurements required upon the adoption of ASU 2011-04. We adopted the provisions of ASU 2011-04 effective January 1, 2012, and have included the additional disclosures required for fair value measurements in Note 18. FINANCIAL SERVICES - INSURANCE INDUSTRY TOPIC In October 2010, the FASB issued ASU No. 2010-26, "Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts", which clarifies the types of costs incurred by an insurance entity that can be capitalized in the acquisition of insurance contracts. Only those costs incurred that result directly from and are essential to the successful acquisition of new or renewal insurance contracts may be capitalized as deferrable acquisition costs. The determination of deferability must be made on a contract-level basis. Prior to the adoption of ASU 2010-26, we defined DAC as commissions and other costs of acquiring UL insurance, VUL insurance, traditional life insurance, annuities and other investments contracts that vary with and are related primarily to new or renewal business, regardless of whether the acquisition efforts were successful or unsuccessful. Upon the adoption of ASU 2010-26, we revised our accounting policy to only defer acquisition costs directly related to successful contract acquisitions or renewals, and excluded from DAC those costs incurred for soliciting potential customers, market research, training, administration, management of distribution and underwriting functions, unsuccessful acquisition or renewal efforts and product development. In addition, indirect acquisition costs including administrative costs, rent, depreciation, occupancy costs, equipment costs and other general overhead are excluded from DAC. The costs that are considered non-deferrable acquisition costs under ASU 2010-26 are expensed in the period incurred. We adopted the provisions of ASU 2010-26 as of January 1, 2012, and elected to retrospectively restate all prior periods presented. The following summarizes the effect of the restatement (in millions) on our previously reported Balance Sheets:
AS OF DECEMBER 31, 2011 ------------ Deferred acquisition costs and value of business acquired $ (64) Total assets (64) Other liabilities (22) Total liabilities (22) Retained earnings (53) Accumulated other comprehensive income (loss) 11 ------------ Total stockholders' equity (41)
The following summarizes the effect of the restatement (in millions) on our previously reported Income Statements:
FOR THE YEARS ENDED DECEMBER 31, -------------------------- 2011 2010 ----------- ----------- Total other-than-temporary impairment losses on securities $ (1) $ - Realized gain (loss), excluding other-than- temporary impairment losses on securities (1) - Total revenues (1) - Commissions and other expense 6 3 Total expenses 6 3 Income (loss) from continuing operations before taxes (7) (4) Federal income tax expense (benefit) (3) (2) Income (loss) from continuing operations (4) (2) ----------- ----------- Net income (loss) (4) (2)
INTANGIBLES - GOODWILL AND OTHER TOPIC In September 2011, the FASB issued ASU No. 2011-08, "Testing Goodwill for Impairment" ("ASU 2011-08"), which provides an option to first assess qualitative factors to determine if it is necessary to complete the two-step goodwill impairment test. If the assessment of relevant events and circumstances leads to a conclusion that it is not more likely than not that S-17 the fair value of a reporting unit is less than its carrying value, then performing the two-step impairment test is unnecessary. However, if a conclusion is reached otherwise, the two-step impairment test must be completed. An entity has an unconditional option to bypass the qualitative assessment for any reporting unit and proceed directly to the two-step goodwill impairment test, and resume qualitative assessment for the same reporting unit in a subsequent reporting period. We adopted the provisions of ASU 2011-08 effective January 1, 2012. The adoption did not have a material effect on our financial condition and results of operations. In July 2012, the FASB issued ASU No. 2012-02, "Testing Indefinite-Lived Intangible Assets for Impairment" ("ASU 2012-02"), which provides an option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If based on the qualitative assessment an entity determines that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the quantitative impairment test is not required. In addition, an entity has the option to bypass the qualitative assessment in any period and proceed directly to the quantitative assessment, with the option to return to the qualitative assessment in any subsequent period. We adopted the provisions of ASU 2012-02 effective October 1, 2012. The adoption did not have a material effect on our financial condition and results of operations. TRANSFERS AND SERVICING TOPIC In April 2011, the FASB issued ASU No. 2011-03, "Reconsideration of Effective Control for Repurchase Agreements" ("ASU 2011-03"), which revises the criteria for assessing effective control for repurchase agreements and other similar agreements. The determination of whether the transfer of a financial asset subject to a repurchase agreement is a sale is based, in part, on whether the entity maintains effective control over the financial asset. ASU 2011-03 remove: the criterion requiring the transferor to have the ability to repurchase or redeem the financial asset on substantially the agreed terms, even in the event of default by the transferee; and the related requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets. We adopted the provisions of ASU 2011-03 effective January 1, 2012. The adoption did not have a material effect on our financial condition and results of operations. FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS BALANCE SHEET TOPIC In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"), to address certain comparability issues between financial statements prepared in accordance with GAAP and those prepared in accordance with International Financial Reporting Standards. In January 2013, the FASB issued ASU No. 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities" ("ASU 2013-01"), to provide information regarding the scope of the disclosures required by ASU 2011-11 to the financial instruments and derivatives reported in an entity's financial statements. ASU 2011-11 will require an entity to provide enhanced disclosures about certain financial instruments and derivatives, as defined in ASU 2013-01, to enable users to understand the effects of offsetting in the financial statements as well as the effects of master netting arrangements on an entity's financial condition. The amendments in ASU 2011-11 and ASU 2013-01, are effective for annual and interim reporting periods beginning on or after January 1, 2013, with respective disclosures required for all comparative periods presented. We will adopt the requirements in ASU 2011-11 and ASU 2013-01 for the quarterly period ending March 31, 2013, and will include the required disclosures in the notes to our financial statements. COMPREHENSIVE INCOME TOPIC In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which requires enhanced reporting of such amounts either on the face of the financial statements or in the notes to the financial statements. Under ASU 2013-02, the type of reclassification out of AOCI, as defined under current GAAP, will dictate whether the disclosure must provide the effect of the reclassification on the respective financial statement line items or whether cross-referencing to other disclosures that provide additional detail about the reclassification will be required. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. We will adopt the requirements of ASU 2013-02 beginning with our financial statements for the quarterly period ending March 31, 2013, and will include the enhanced disclosures in the notes to our financial statements. 3. INVESTMENTS AFS SECURITIES Pursuant to the Fair Value Measurements and Disclosures Topic of the FASB ASC, we have categorized AFS 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 Note 1, which also includes additional disclosures regarding our fair value measurements. S-18 The amortized cost, gross unrealized gains, losses and OTTI and fair value of AFS securities (in millions) were as follows:
AS OF DECEMBER 31, 2012 -------------------------------------------------------------------- GROSS UNREALIZED AMORTIZED ---------------------------------------- FAIR COST GAINS LOSSES OTTI VALUE ----------- ----------- ---------- ----------- ---------- Fixed maturity securities: Corporate bonds $ 5,541 $ 799 $ 49 $ 11 $ 6,280 U.S. government bonds 29 7 - - 36 Foreign government bonds 44 8 - - 52 RMBS 619 59 - 8 670 CMBS 76 5 2 1 78 CDOs 15 - - - 15 State and municipal bonds 285 56 - - 341 Hybrid and redeemable preferred securities 99 13 4 - 108 ----------- ----------- ---------- ----------- ---------- Total fixed maturity securities 6,708 947 55 20 7,580 Equity securities 2 1 - - 3 ----------- ----------- ---------- ----------- ---------- Total AFS securities $ 6,710 $ 948 $ 55 $ 20 $ 7,583 =========== =========== ========== =========== ==========
AS OF DECEMBER 31, 2011 -------------------------------------------------------------------- GROSS UNREALIZED AMORTIZED ---------------------------------------- FAIR COST GAINS LOSSES OTTI VALUE ----------- ----------- ---------- ----------- ---------- Fixed maturity securities: Corporate bonds $ 5,253 $ 626 $ 84 $ 9 $ 5,786 U.S. government bonds 28 7 - - 35 Foreign government bonds 50 7 - - 57 RMBS 791 70 8 13 840 CMBS 130 5 9 - 126 CDOs 3 - - - 3 State and municipal bonds 294 37 1 - 330 Hybrid and redeemable preferred securities 111 10 10 - 111 ----------- ----------- ---------- ----------- ---------- Total fixed maturity securities 6,660 762 112 22 7,288 Equity securities 2 1 - - 3 ----------- ----------- ---------- ----------- ---------- Total AFS securities $ 6,662 $ 763 $ 112 $ 22 $ 7,291 =========== =========== ========== =========== ==========
The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of December 31, 2012, were as follows:
AMORTIZED FAIR COST VALUE ----------- ---------- Due in one year or less $ 240 $ 245 Due after one year through five years 1,134 1,263 Due after five years through ten years 1,996 2,277 Due after ten years 2,628 3,032 ----------- --------- Subtotal 5,998 6,817 ----------- --------- MBS 695 748 CDOs 15 15 ----------- --------- Total fixed maturity AFS securities $ 6,708 $ 7,580 =========== =========
Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations. S-19 The fair value and gross unrealized losses, including the portion of OTTI recognized in OCI, of AFS securities (dollars 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, 2012 ----------------------------------------------------------------------------------- LESS THAN OR EQUAL GREATER THAN TO TWELVE MONTHS TWELVE MONTHS TOTAL ------------------------- ------------------------- ------------------------- GROSS GROSS GROSS UNREALIZED UNREALIZED UNREALIZED LOSSES LOSSES LOSSES FAIR AND FAIR AND FAIR AND VALUE OTTI VALUE OTTI VALUE OTTI ----------- ---------- ----------- ---------- ----------- ---------- Fixed maturity securities: Corporate bonds $ 267 $ 14 $ 150 $ 46 $ 417 $ 60 RMBS 34 5 15 3 49 8 CMBS - 2 8 1 8 3 Hybrid and redeemable preferred securities - - 32 4 32 4 ----------- ---------- ----------- ---------- ----------- ---------- Total fixed maturity AFS securities $ 301 $ 21 $ 205 $ 54 $ 506 $ 75 =========== ========== =========== ========== =========== ========== Total number of AFS securities in an unrealized loss position 167 ==========
AS OF DECEMBER 31, 2011 ----------------------------------------------------------------------------------- LESS THAN OR EQUAL GREATER THAN TO TWELVE MONTHS TWELVE MONTHS TOTAL ------------------------- ------------------------- ------------------------- GROSS GROSS GROSS UNREALIZED UNREALIZED UNREALIZED LOSSES LOSSES LOSSES FAIR AND FAIR AND FAIR AND VALUE OTTI VALUE OTTI VALUE OTTI ----------- ---------- ----------- ---------- ----------- ---------- Fixed maturity securities: Corporate bonds $ 225 $ 17 $ 246 $ 76 $ 471 $ 93 RMBS 68 14 53 7 121 21 CMBS 8 - 19 9 27 9 CDOs 9 - 10 1 19 1 Hybrid and redeemable preferred securities 31 2 29 8 60 10 ----------- ---------- ----------- ---------- ----------- ---------- Total fixed maturity AFS securities $ 341 $ 33 $ 357 $ 101 $ 698 $ 134 =========== ========== =========== ========== =========== ========== Total number of AFS securities in an unrealized loss position 267 ==========
The fair value, gross unrealized losses, the portion of OTTI recognized in OCI (in millions) and number of AFS securities where the fair value had declined and remained below amortized cost by greater than 20% were as follows:
AS OF DECEMBER 31, 2012 -------------------------------------------------------- GROSS UNREALIZED NUMBER FAIR ------------------------- OF VALUE LOSSES OTTI SECURITIES(1) ---------- ----------- ----------- ------------- Less than six months $ 5 $ 1 $ - 3 Nine months or greater, but less than twelve months 1 - - 2 Twelve months or greater 73 43 13 42 ---------- ----------- ----------- ------------- Total $ 79 $ 44 $ 13 47 ========== =========== =========== =============
AS OF DECEMBER 31, 2011 -------------------------------------------------------- GROSS UNREALIZED NUMBER FAIR ------------------------- OF VALUE LOSSES OTTI SECURITIES(1) ---------- ----------- ----------- ------------- Less than six months $ 36 $ 8 $ 6 19 Six months or greater, but less than nine months 1 1 - 3 Nine months or greater, but less than twelve months 1 - - 2 Twelve months or greater 93 69 11 57 ---------- ----------- ----------- ------------- Total $ 131 $ 78 $ 17 81 ========== =========== =========== =============
(1) We may reflect a security in more than one aging category based on various purchase dates. S-20 We regularly review our investment holdings for OTTI. Our gross unrealized losses on AFS securities as of December 31, 2012, decreased $59 million in comparison to December 31, 2011. As discussed further below, we believe the unrealized loss position as of December 31, 2012, did not represent OTTI as we did not intend to sell these fixed maturity AFS securities, it is not more likely than not that we will be required to sell the fixed maturity AFS securities before recovery of their amortized cost basis, the estimated future cash flows were equal to or greater than the amortized cost basis of the debt securities, or we had the ability and intent to hold the equity AFS securities for a period of time sufficient for recovery. Based upon this evaluation as of December 31, 2012, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums and fees and investment income) to meet cash requirements with a prudent margin of safety without requiring the sale of our temporarily-impaired securities. As of December 31, 2012, the unrealized losses associated with our corporate bond securities were attributable primarily to securities that were backed by commercial loans and individual issuer companies. For our corporate bond securities with commercial loans as the underlying collateral, we evaluated the projected credit losses in the underlying collateral and concluded that we had sufficient subordination or other credit enhancement when compared with our estimate of credit losses for the individual security and we expected to recover the entire amortized cost for each security. For individual issuers, we performed detailed analysis of the financial performance of the issuer and determined that we expected to recover the entire amortized cost for each security. As of December 31, 2012, the unrealized losses associated with our MBS were attributable primarily to collateral losses and credit spreads. We assessed for credit impairment using a cash flow model as discussed above. The key assumptions included default rates, severities and prepayment rates. We estimated losses for a security by forecasting the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. Our forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts, sector credit ratings and other independent market data. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared to our subordination or other credit enhancement, we expected to recover the entire amortized cost basis of each security. As of December 31, 2012, the unrealized losses associated with our hybrid and redeemable preferred securities were attributable primarily to wider credit spreads caused by illiquidity in the market and subordination within the capital structure, as well as credit risk of specific issuers. For our hybrid and redeemable preferred securities, we evaluated the financial performance of the issuer based upon credit performance and investment ratings and determined we expected to recover the entire amortized cost of each security. Changes in the amount of credit loss of OTTI recognized in net income (loss) where the portion related to other factors was recognized in OCI (in millions) on fixed maturity AFS securities were as follows:
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------- 2012 2011 2010 ------------ ---------- ----------- Balance as of beginning-of-year $ 61 $ 47 $ 46 Increases attributable to: Credit losses on securities for which an OTTI was not previously recognized 9 10 1 Credit losses on securities for which an OTTI was previously recognized 5 11 9 Decreases attributable to: Securities sold (22) (7) (9) ------------ ---------- ----------- Balance as of end-of-year $ 53 $ 61 $ 47 ============ ========== ===========
During 2012, 2011 and 2010, we recorded credit losses on securities for which an OTTI was not previously recognized as we determined the cash flows expected to be collected would not be sufficient to recover the entire amortized cost basis of the debt security. The credit losses we recorded on securities for which an OTTI was not previously recognized were attributable primarily to one or a combination of the following reasons: o Failure of the issuer of the security to make scheduled payments; o Deterioration of creditworthiness of the issuer; o Deterioration of conditions specifically related to the security; o Deterioration of fundamentals of the industry in which the issuer operates; o Deterioration of fundamentals in the economy including, but not limited to, higher unemployment and lower housing prices; and o Deterioration of the rating of the security by a rating agency. We recognize the OTTI attributed to the noncredit portion as a separate component in OCI referred to as unrealized OTTI on AFS securities. 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 concentration in New York as of December 31, 2012 and 2011, which accounted for approximately 60% and 47% of mortgage loans on real estate, respectively. The following provides the composition of our mortgage loans on real estate (in millions):
AS OF DECEMBER 31, ------------------------- 2012 2011 ----------- ---------- Current $ 423 $ 263 Unamortized premium (discount) - 1 ----------- ---------- Total carrying value $ 423 $ 264 =========== ==========
S-21 There were no impaired mortgage loans on real estate as of December 31, 2012 and 2011. As described in Note 1, we use the loan-to-value and debt-service coverage ratios as credit quality indicators for our mortgage loans, which were as follows (dollars in millions):
AS OF DECEMBER 31, 2012 AS OF DECEMBER 31, 2011 --------------------------------------- ---------------------------------------- DEBT- DEBT- SERVICE SERVICE PRINCIPAL % OF COVERAGE PRINCIPAL % OF COVERAGE LOAN-TO-VALUE AMOUNT TOTAL RATIO AMOUNT TOTAL RATIO ---------- ----------- ---------- ----------- ----------- ----------- Less than 65% $ 400 94.6 % 1.86 $ 236 89.4 % 1.60 65% to 74% 12 2.8 % 1.50 24 9.1 % 1.48 75% to 100% 11 2.6 % 0.59 4 1.5 % 0.45 ---------- ----------- ----------- ------------ Total mortgage loans on real estate $ 423 100.0 % $ 264 100.0 % ========== =========== =========== ============
NET INVESTMENT INCOME The major categories of net investment income (in millions) on our Statements of Comprehensive Income (Loss) were as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ----------- ----------- Fixed maturity AFS securities $ 381 $ 382 $ 381 Mortgage loans on real estate 18 14 14 Policy loans 24 23 25 Commercial mortgage loan prepayment and bond make-whole premiums 5 5 4 Consent fees - - 1 ----------- ----------- ----------- Investment income 428 424 425 Investment expense (7) (7) (7) ----------- ----------- ----------- Net investment income $ 421 $ 417 $ 418 =========== =========== ===========
REALIZED GAIN (LOSS) RELATED TO CERTAIN INVESTMENTS The detail of the realized gain (loss) related to certain investments (in millions) was as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ----------- ----------- Fixed maturity AFS securities: Gross gains $ 1 $ 2 $ 7 Gross losses (17) (31) (29) Gain (loss) on other investments - - 1 Associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds - 3 5 ----------- ----------- ----------- Total realized gain (loss) related to certain investments $ (16) $ (26) $ (16) =========== =========== ===========
Details underlying write-downs taken as a result of OTTI (in millions) that were recognized in net income (loss) and included in realized gain (loss) on AFS securities above, and the portion of OTTI recognized in OCI (in millions) were as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- OTTI RECOGNIZED IN NET INCOME (LOSS) Corporate bonds $ (6) $ (2) $ (8) RMBS (3) (14) (12) CMBS (5) (8) (5) ---------- ----------- ---------- Gross OTTI recognized in net income (loss) (14) (24) (25) Associated amortization of DAC, VOBA, DSI and DFEL 2 5 8 ---------- ----------- ---------- Net OTTI recognized in net income (loss), pre-tax $ (12) $ (19) $ (17) ========== =========== ========== PORTION OF OTTI RECOGNIZED IN OCI Gross OTTI recognized in OCI $ 11 $ 8 $ 6 Change in DAC, VOBA, DSI and DFEL (1) (1) - ---------- ----------- ---------- Net portion of OTTI recognized in OCI, pre-tax $ 10 $ 7 $ 6 ========== =========== ==========
DETERMINATION OF CREDIT LOSSES ON CORPORATE BONDS As of December 31, 2012 and 2011, we reviewed our corporate bond and CDO portfolios for potential shortfall in contractual principal and interest based on numerous subjective and objective inputs. The factors used to determine the amount of credit loss for each individual security, include, but are not limited to, near term risk, substantial discrepancy between book and market value, sector or company-specific volatility, negative operating trends and trading levels wider than peers. S-22 DETERMINATION OF CREDIT LOSSES ON MBS As of December 31, 2012 and 2011, default rates were projected by considering underlying MBS loan performance and collateral type. Projected default rates on existing delinquencies vary between 10% to 100% depending on loan type and severity of delinquency status. In addition, we estimate the potential contributions of currently performing loans that may become delinquent in the future based on the change in delinquencies and loan liquidations experienced in the recent history. Finally, we develop a default rate timing curve by aggregating the defaults for all loans in the pool (delinquent loans, foreclosure and real estate owned and new delinquencies from currently performing loans) and the associated loan level loss severities. We use certain available loan characteristics such as lien status, loan sizes and occupancy to estimate the loss severity of loans. Second lien loans are assigned 100% severity, if defaulted. For first lien loans, we assume a minimum of 30% severity with higher severity assumed for investor properties and further housing price depreciation. INVESTMENT COMMITMENTS As of December 31, 2012, our investment commitments were $13 million, which included $8 million of private placement securities and $5 million of mortgage loans on real estate. CONCENTRATIONS OF FINANCIAL INSTRUMENTS As of December 31, 2012 and 2011, our most significant investments in one issuer were our investments in securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $392 million and $494 million, respectively, or 5% and 6% of our invested assets portfolio, respectively, and our investments in securities issued by Fannie Mae with a fair value of $184 million and $223 million, respectively, or 2% and 3% of our invested assets portfolio, respectively. These investments are included in corporate bonds in the tables above. As of December 31, 2012 and 2011, our most significant investments in one industry were our investment securities in the electric industry with a fair value of $843 million and $753 million, or 10% and 9% of our invested assets portfolio, respectively, and our investment securities in the CMO industry with a fair value of $500 million and $589 million, or 6% and 7% of our invested assets portfolio, respectively. We utilized the industry classifications to obtain the concentration of financial instruments amount; as such, this amount will not agree to the AFS securities table above. ASSETS ON DEPOSIT The Company had investment assets on deposit with regulatory agencies with a fair market value of $14 million as of December 31, 2012 and 2011. 4. DERIVATIVE INSTRUMENTS EMBEDDED DERIVATIVES We have embedded derivatives that include: GLB RESERVES EMBEDDED DERIVATIVES We transfer the liability for our GWB and GIB features to LNL, who along with an affiliate, use a hedging strategy designed to mitigate the risk and income statement volatility caused by changes in the equity markets, interest rates and volatility associated with these features. The hedging strategy is designed such that changes in the value of the hedge contracts due to changes in equity markets, interest rates and implied volatilities move in the opposite direction of changes in embedded derivative GLB reserves caused by those same factors. The hedge positions are re-balanced based upon changes in these factors as needed. While the hedge positions are actively managed, these hedge positions may not be totally effective in offsetting changes in the embedded derivative reserve due to, among other things, differences in timing between when a market exposure changes and corresponding changes to the hedge positions, extreme swings in the equity markets and interest rates, market volatility, contract holder behavior, divergence between the performance of the underlying funds and the hedging indices, divergence between the actual and expected performance of the hedge instruments and the ability to purchase hedging instruments at prices consistent with the desired risk and return trade-off. Certain features of these guarantees have elements of both insurance benefits accounted for under the Financial Services - Insurance - Claim Costs and Liabilities for Future Policy Benefits Subtopic of the FASB ASC ("benefit reserves") and embedded derivatives accounted for under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC ("embedded derivative reserves"). We calculate the value of the embedded derivative reserve and the benefit reserve based on the specific characteristics of each GLB feature. REINSURANCE RELATED EMBEDDED DERIVATIVES We have certain modified coinsurance arrangements and coinsurance with funds withheld reinsurance arrangements with embedded derivatives related to the withheld assets of the related funds. These derivatives are considered total return swaps with contractual returns that are attributable to various assets and liabilities associated with these reinsurance arrangements. S-23 We have derivative instruments with off-balance-sheet risks whose notional or contract amounts exceed the credit exposure. Outstanding derivative instruments with off-balance-sheet risks (in millions) were as follows:
AS OF DECEMBER 31, 2012 AS OF DECEMBER 31, 2011 ---------------------------------------- ---------------------------------------- FAIR VALUE FAIR VALUE NOTIONAL ------------------------- NOTIONAL ------------------------- AMOUNTS ASSET LIABILITY AMOUNTS ASSET LIABILITY ----------- ---------- ----------- ----------- ---------- ----------- Guaranteed living benefits ("GLB") reserves(1) $ - $ - $ (51) $ - $ - $ (101) Reinsurance related(2) - 9 - - 13 - ----------- --------- ----------- ----------- ---------- ----------- Total derivative instruments $ - $ 9 $ (51) $ - $ 13 $ (101) =========== ========= =========== =========== ========== ===========
(1) Reported in future contract benefits on our Balance Sheets. (2) Reported in reinsurance related embedded derivatives on our Balance Sheets. The gains (losses) on embedded derivatives not designated and not qualifying as hedging instruments (in millions), recorded within net income (loss) on our Statements of Comprehensive Income (Loss) were as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- GLB reserves(1) $ 50 $ (77) $ 8 ========== =========== ==========
(1) Reported in realized gain (loss) on our Statements of Comprehensive Income (Loss). 5. FEDERAL INCOME TAXES The federal income tax expense (benefit) on continuing operations (in millions) was as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ----------- ----------- ---------- Current $ 11 $ 19 $ 29 Deferred 48 10 24 ----------- ----------- ---------- Federal income tax expense (benefit) $ 59 $ 29 $ 53 =========== =========== ==========
A reconciliation of the effective tax rate differences (in millions) was as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ----------- ----------- ---------- Tax rate times pre-tax income $ 54 $ (2) $ 57 Effect of: Separate account dividends received deduction (5) (5) (4) Tax credits (1) (1) (1) Goodwill - 36 - Change in uncertain tax positions (4) 1 1 Other items 15 - - ----------- ----------- ---------- Federal income tax expense (benefit) $ 59 $ 29 $ 53 =========== =========== ========== Effective tax rate 38% N/M 33% =========== =========== ==========
The effective tax rate is the ratio of tax expense over pre-tax income (loss). Since the pre-tax income of $(2) million resulted in tax expense of $30 million in 2011, the effective tax rate was not meaningful. The change in uncertain tax positions relates primarily to the lapse of statute of limitations for prior year tax returns. Other items include corrections of immaterial errors in prior period financial statements. The federal income tax asset (liability) (in millions) was as follows:
AS OF DECEMBER 31, ------------------------- 2012 2011 ---------- ----------- Current $ (30) $ (27) Deferred (423) (357) ---------- ----------- Total federal income tax asset (liability) $ (453) $ (384) ========== ===========
S-24 Significant components of our deferred tax assets and liabilities (in millions) were as follows:
AS OF DECEMBER 31, ------------------------- 2012 2011 ----------- ---------- DEFERRED TAX ASSETS Future contract benefits and other contract holder funds $ 36 $ 32 Investments 4 11 Net capital loss - 6 Guarantee Assessments 6 6 Other 1 4 ----------- ---------- Total deferred tax assets 47 59 ----------- ---------- DEFERRED TAX LIABILITIES DAC 95 108 VOBA 51 70 Net unrealized gain on AFS securities 307 222 Other 17 16 ----------- ---------- Total deferred tax liabilities 470 416 ----------- ---------- Net deferred tax asset (liability) $ (423) $ (357) =========== ==========
As of December 31, 2012, the Company had $178 million of capital loss carryforwards that begin to expire in 2014. In addition, the Company had $29 million of general business credits that begin to expire in 2030. Although realization is not assured, management believes that it is more likely than not that the Company will realize the benefits of its deferred tax assets, and, accordingly, no valuation allowance has been recorded. As of December 31, 2012 and 2011, $1 million and $7 million, respectively, of our unrecognized tax benefits presented below, if recognized, would have affected our income tax expense and our effective tax rate. The Company is not aware of any events for which it is likely that unrecognized tax benefits will significantly increase or decrease within the next year. A reconciliation of the unrecognized tax benefits (in millions) was as follows:
FOR THE YEARS ENDED DECEMBER 31, ------------------------- 2012 2011 ----------- ----------- Balance as of beginning-of-year $ 22 $ 22 Increases for prior year tax positions - 1 Decreases for prior year tax positions (12) (1) Decreases for lapse of statute of limitations (2) - ----------- ----------- Balance as of end-of-year $ 8 $ 22 =========== ===========
We recognize interest and penalties accrued, if any, related to unrecognized tax benefits as a component of tax expense. For the years ended December 31, 2012, 2011 and 2010, we recognized interest and penalty expense (benefit) related to uncertain tax positions of $(3) million, $1 million and $1 million, respectively. We had accrued interest and penalty expense related to the unrecognized tax benefits of $2 million and $5 million as of December 31, 2012 and 2011, respectively. The Company is subject to examination by U.S. federal, state, local and non-U.S. income authorities. The Company is currently under examination by the IRS for tax years 2009 through 2011. The IRS concluded its examination of tax years 2007 and 2008 on January 18, 2013. The Company has protested the final assessment, which is being combined with tax years 2005 and 2006 in IRS Appeals. The IRS also completed its examination of tax years 2005 and 2006, and 2006 of the former Jefferson-Pilot Corporation ("JP") and its subsidiaries during 2010. The Company believes a portion of the 2005 through 2008 assessments is inconsistent with current laws and is using the established IRS Appeals process to attempt to settle the remaining issues. The IRS also concluded its examination of non-consolidated returns for Jefferson Pilot LifeAmerica Insurance Company for the tax years ended April 1, 2007, with agreement on all adjustments on January 18, 2013. The Company does not expect any adjustments that might result from those audits would be material to its consolidated results of operations or its financial condition. S-25 6. DAC, VOBA, DSI AND DFEL Changes in DAC (in millions) were as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- Balance as of beginning-of-year $ 321 $ 339 $ 439 Cumulative effect from adoption of new accounting standards - - (73) Deferrals 68 68 61 Amortization, net of interest: Unlocking (7) (1) (9) Other amortization, excluding unlocking, net of interest (42) (37) (35) Adjustment related to realized (gains) losses (3) 2 2 Adjustment related to unrealized (gains) losses (33) (50) (46) ---------- ----------- ---------- Balance as of end-of-year $ 304 $ 321 $ 339 ========== =========== ==========
Changes in VOBA (in millions) were as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ----------- Balance as of beginning-of-year $ 200 $ 319 $ 417 Deferrals - 1 1 Amortization: Unlocking (6) (22) 19 Other amortization, excluding unlocking (41) (51) (70) Accretion of interest(1) 17 20 22 Adjustment related to unrealized (gains) losses (22) (67) (70) ---------- ----------- ----------- Balance as of end-of-year $ 148 $ 200 $ 319 ========== =========== ===========
(1) The interest accrual rates utilized to calculate the accretion of interest ranged from 3.30% to 7.05%. Estimated future amortization of VOBA, net of interest (in millions), as of December 31, 2012, was as follows: 2013 $ 15 2014 13 2015 12 2016 11 2017 11 Changes in DSI (in millions) were as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- Balance as of beginning-of-year $ 12 $ 13 $ 16 Deferrals 1 1 3 Amortization, net of interest: Other amortization, excluding unlocking, net of interest (2) (2) (2) Adjustment related to unrealized (gains) losses (2) - (4) ---------- ----------- ---------- Balance as of end-of-year $ 9 $ 12 $ 13 ========== =========== ==========
Changes in DFEL (in millions) were as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- Balance as of beginning-of-year $ 82 $ 101 $ 87 Deferrals 29 40 35 Amortization, net of interest: Unlocking (6) (6) (1) Other amortization, excluding unlocking, net of interest (15) (11) (12) Adjustment related to unrealized (gains) losses (16) (42) (8) ---------- ----------- ---------- Balance as of end-of-year $ 74 $ 82 $ 101 ========== =========== ==========
S-26 7. REINSURANCE The following summarizes reinsurance amounts (in millions) recorded on our Statements of Comprehensive Income (Loss), excluding amounts attributable to the indemnity reinsurance transaction with Swiss Re:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- Direct insurance premiums and fees $ 578 $ 552 $ 529 Reinsurance ceded (164) (159) (143) ---------- ----------- ---------- Total insurance premiums and fees $ 414 $ 393 $ 386 ========== =========== ========== Direct insurance benefits $ 472 $ 458 $ 425 Reinsurance recoveries netted against benefits (207) (184) (171) ---------- ----------- ---------- Total benefits $ 265 $ 274 $ 254 ========== =========== ==========
Our insurance companies cede insurance to other companies. The portion of risks exceeding each company's retention limit is reinsured with other insurers. We seek reinsurance coverage within the businesses that sell life insurance and annuities in order to limit our exposure to mortality losses and enhance our capital management. Under our reinsurance program, we reinsure approximately 30% to 35% of the mortality risk on newly issued non-term life insurance contracts and approximately 25% to 30% of total mortality risk including term insurance contracts. Our policy for this program is to retain no more than $20 million on a single insured life issued on fixed, VUL and term life insurance contracts. 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, 2012, the reserves associated with these reinsurance arrangements totaled $4 million. To cover products other than life insurance, we acquire other reinsurance coverages with retentions and limits. Reinsurance contracts do not relieve an insurer from its primarily 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. 8. 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, 2012 ------------------------------------------------------- ACQUISITION CUMULATIVE BALANCE IMPAIRMENT BALANCE AS OF AS OF AS OF BEGINNING- BEGINNING- END- OF-YEAR OF-YEAR IMPAIRMENT OF-YEAR ----------- ----------- ------------ ---------- Annuities $ 26 $ - $ - $ 26 Life Insurance 136 (102) - 34 ----------- ----------- ----------- --------- Total goodwill $ 162 $ (102) $ - $ 60 =========== =========== =========== =========
FOR THE YEAR ENDED DECEMBER 31, 2011 ------------------------------------------------------- ACQUISITION CUMULATIVE BALANCE IMPAIRMENT BALANCE AS OF AS OF AS OF BEGINNING- BEGINNING- END- OF-YEAR OF-YEAR IMPAIRMENT OF-YEAR ----------- ----------- ------------ ---------- Annuities $ 26 $ - $ - $ 26 Life Insurance 136 - (102) 34 ----------- ----------- ----------- --------- Total goodwill $ 162 $ - $ (102) $ 60 =========== =========== =========== =========
We perform a Step 1 goodwill impairment analysis on all of our reporting units at least annually on October 1. To determine the implied fair value for our reporting units, we utilize primarily a discounted cash flow valuation technique ("income approach"), although limited available market data is also considered. In determining the estimated fair value, we consider discounted cash flow calculations, the level of our own share price and assumptions that market participants would make in valuing the reporting unit. This analysis requires us to make judgments about revenues, earnings projections, capital market assumptions and discount rates. As of October 1, 2012, our Annuities reporting unit passed the Step 1 analysis. Given the Step 1 results, we also performed a Step 2 analysis for our Life Insurance reporting unit. Based upon our Step 2 analysis for Life Insurance, we determined that there was no impairment due to the implied fair value of goodwill being in excess of the carrying value of goodwill. S-27 As of October 1, 2011, our Annuities reporting unit passed the Step 1 analysis. Given the Step 1 results, we also performed a Step 2 analysis for our Life Insurance reporting unit. Based upon our Step 2 analysis for Life Insurance, we recorded a goodwill impairment that was attributable primarily to marketplace dynamics and lower expectations associated with product changes that we have implemented or will implement shortly that we believe will have an unfavorable effect on our sales levels for a period of time. As of October 1, 2010, all of our reporting units passed the Step 1 analysis, and although the carrying value of the net assets was within the estimated fair value range for our Life Insurance reporting unit, we deemed it prudent to validate the carrying value of goodwill through a Step 2 analysis. In our Step 2 analysis of the Life Insurance reporting unit, we determined there was no impairment due to the implied fair value of goodwill being in excess of the carrying value of goodwill. The gross carrying amounts and accumulated amortization (in millions) for the major specifically identifiable intangible asset class by reportable segment were as follows:
AS OF DECEMBER 31, 2012 AS OF DECEMBER 31, 2011 ------------------------- ------------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION ----------- ------------- ----------- ------------ Life Insurance: Sales force $ 7 $ 2 $ 7 $ 2
Future estimated amortization of the specifically identifiable intangible assets was immaterial as of December 31, 2012. 9. GUARANTEED BENEFIT FEATURES 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, ------------------------- 2012 2011 ----------- ---------- RETURN OF NET DEPOSITS Total account value $ 2,427 $ 1,993 Net amount at risk (1) 14 47 Average attained age of contract holders 56 years 55 years MINIMUM RETURN Average attained age of contract holders 80 years 80 years Guaranteed minimum return 5 % 5 % ANNIVERSARY CONTRACT VALUE Total account value $ 990 $ 926 Net amount at risk (1) 78 116 Average attained age of contract holders 66 years 66 years
(1) Represents the amount of death benefit in excess of the account balance. The decrease in net amount at risk when comparing December 31, 2012, to December 31, 2011, was attributable primarily to the increase in equity markets during 2012. 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, --------------------------------------- 2012 2011 2010 ----------- ----------- ---------- Balance as of beginning-of-year $ 2 $ 1 $ 2 Changes in reserves 1 3 - Benefits paid (1) (2) (1) ----------- ----------- ---------- Balance as of end-of-year $ 2 $ 2 $ 1 =========== =========== ==========
S-28 Account balances of variable annuity contracts with guarantees (in millions) were invested in separate account investment options as follows:
AS OF DECEMBER 31, ------------------------- 2012 2011 ----------- ---------- ASSET TYPE Domestic equity $ 1,113 $ 962 International equity 500 424 Bonds 728 581 Money market 264 188 ----------- ---------- Total $ 2,605 $ 2,155 =========== ========== Percent of total variable annuity separate account values 90% 89%
Future contract benefits also includes reserves for our products with secondary guarantees for our products sold through our Life Insurance segment. These UL and VUL products with secondary guarantees represented 12% of permanent life insurance in force as of December 31, 2012, and 41% of total sales for these products for the year ended December 31, 2012. 10. CONTINGENCIES AND COMMITMENTS CONTINGENCIES REGULATORY AND LITIGATION MATTERS Regulatory bodies, such as state insurance departments, the SEC, Financial Industry Regulatory Authority and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, and unclaimed property laws. We are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experiences of LLANY in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law. We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated as of December 31, 2012. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known by management, management does not believe any such charges are likely to have a material adverse effect on LLANY's financial condition. For some matters, the Company is able to estimate a reasonably possible range of loss. For such matters in which a loss is probable, an accrual has been made. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. Accordingly, the estimate contained in this paragraph reflects two types of matters. For some matters included within this estimate, an accrual has been made, but there is a reasonable possibility that an exposure exists in excess of the amount accrued. In these cases, the estimate reflects the reasonably possible range of loss in excess of the accrued amount. For other matters included within this estimation, no accrual has been made because a loss, while potentially estimable, is believed to be reasonably possible but not probable. In these cases, the estimate reflects the reasonably possible loss or range of loss. For other matters, we are not currently able to estimate the reasonably possible loss or range of loss. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures S-29 and estimates of reasonably possible losses or ranges of loss based on such reviews. We are currently being audited on behalf of multiple states' treasury and controllers' offices for compliance with laws and regulations concerning the identification, reporting and escheatment of unclaimed contract benefits or abandoned funds. The audits focus on insurance company processes and procedures for identifying unreported death claims, and their use of the Social Security Master Death File to identify deceased policy and contract holders. In addition, we are the subject of multiple regulatory inquiries and examinations with a similar focus on the handling of unreported claims and abandoned property. The audits and related examination activity may result in payments to beneficiaries, escheatment of funds deemed abandoned under state laws, administrative penalties and changes in our procedures for the identification of unreported claims and handling of escheatable property. VULNERABILITY FROM CONCENTRATIONS As of December 31, 2012, 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 a market and geographic area in which business is conducted. For the year ended December 31, 2012, approximately 93% of the premiums, on the basis of statutory accounting principles ("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. We have accrued for expected assessments net of estimated future premium tax deductions of $17 million as of December 31, 2012 and 2011. 11. SHARES AND 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):
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------- 2012 2011 2010 ---------- ---------- --------- UNREALIZED GAIN (LOSS) ON AFS SECURITIES Balance as of beginning-of-year $ 258 $ 72 $ (19) Cumulative effect from adoption of new accounting standards - - 1 Unrealized holding gains (losses) arising during the year 226 366 252 Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds (139) (94) (122) Income tax benefit (expense) (14) (103) (51) Less: Reclassification adjustment for gains (losses) included in net income (loss) (16) (29) (22) Associated amortization of DAC, VOBA, DSI and DFEL - 3 5 Income tax benefit (expense) 6 9 6 ---------- ---------- --------- Balance as of end-of-year $ 341 $ 258 $ 72 ========== ========== ========= UNREALIZED OTTI ON AFS SECURITIES Balance as of beginning-of-year $ (9) $ (11) $ (12) (Increases) attributable to: Cumulative effect from adoption of new accounting standards - - (1) Gross OTTI recognized in OCI during the year (11) (8) (6) Change in DAC, VOBA, DSI and DFEL 1 1 - Income tax benefit (expense) 3 3 2 Decreases attributable to: Sales, maturities or other settlements of AFS securities 13 12 12 Change in DAC, VOBA, DSI and DFEL (3) (3) (3) Income tax benefit (expense) (4) (3) (3) ---------- ---------- --------- Balance as of end-of-year $ (10) $ (9) $ (11) ========== ========== ========= UNREALIZED GAIN (LOSS) ON DERIVATIVE INSTRUMENTS Balance as of beginning-of-year $ 1 $ 1 $ 1 ---------- ---------- --------- Balance as of end-of-year $ 1 $ 1 $ 1 ========== ========== =========
S-30 12. REALIZED GAIN (LOSS) Details underlying realized gain (loss) (in millions) reported on our Statements of Comprehensive Income (Loss) were as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ---------- Total realized gain (loss) related to certain investments(1) $ (16) $ (26) $ (16) Variable annuity net derivatives results:(2) Gross gain (loss) (1) - - Associated amortization of DAC, VOBA, DSI and DFEL (2) (1) (2) ---------- ----------- ---------- Total realized gain (loss) $ (19) $ (27) $ (18) ========== =========== ==========
(1) See "Realized Gain (Loss) Related to Certain Investments" section in Note 3. (2) Includes the net difference in the change in embedded derivative reserves of our GLB products and the change in the fair value of the derivative instruments we own to hedge GDB and GLB products, including the cost of purchasing the hedging instruments. 13. COMMISSIONS AND OTHER EXPENSES Details underlying commissions and other expenses (in millions) were as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ----------- ----------- Commissions $ 82 $ 80 $ 74 General and administrative expenses 79 68 60 DAC and VOBA deferrals and interest, net of amortization 11 22 11 Taxes, licenses and fees 19 36 16 ----------- ----------- ----------- Total $ 191 $ 206 $ 161 =========== =========== ===========
14. PENSION, POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFIT PLANS LNC and LNL maintain qualified funded defined benefit pension plans in which many of our employees are participants. LNC and LNL also maintain non-qualified, unfunded defined benefit pension plans for certain employees. In addition, for certain former employees, we have supplemental retirement plans that provide defined benefit pension benefits in excess of limits imposed by federal tax law. All of our defined benefit pension plans are frozen, and 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 and date of hire, subject to age limitations. The frozen pension plan benefits are calculated either on a traditional final pay 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. The cash balance formula provides benefits 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 dates the plan was frozen. Interest credits continue until the participant's benefit is paid. S-31 LNC and LNL also sponsor a 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 at least 10 years and attained age 55 (age 60 for agents). VEBAs are a special type of tax-exempt trust used to provide benefits that 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 including years of service and year of retirement. 15. DEFINED CONTRIBUTION AND DEFERRED COMPENSATION PLANS DEFINED CONTRIBUTION PLANS LNC and LNL sponsor defined contribution plans, which include money purchase plans, for eligible employees and agents, including those of LLANY. LNC and LNL make contributions and matching contributions to each of the active plans in accordance with the plan documents and various limitations under Section 401(a) of the Internal Revenue Code of 1986, as amended. For the years ended December 31, 2012, 2011 and 2010, expenses (income) for these plans were $3 million, $2 million and $2 million, respectively. DEFERRED COMPENSATION PLANS LNC and LNL sponsor six separate non-qualified, unfunded, deferred compensation plans for employees, agents and non-employee directors. LLANY participates in five of these deferred compensation plans. LLANY's associated liability for these plans was $2 million and $1 million as of December 31, 2012 and 2011, respectively, which is reported in other liabilities on our Balance Sheets. DEFERRED COMPENSATION PLAN FOR EMPLOYEES Participants may elect to defer a portion of their compensation as defined by the plan. Participants may select from prescribed "phantom" investment options that are used as measures for calculating the returns that are notionally credited to their accounts. Under the terms of the plan, LNC agrees to pay out amounts based upon the aggregate performance of the investment measures selected by the participants. LNC makes matching contributions based upon amounts placed into the plan by individuals after participants have exceeded applicable limits of the Internal Revenue Code. The amounts of LNC contributions are calculated in accordance with the plan document. Our expenses for this plan were less than $1 million for the years ended December 31, 2012, 2011 and 2010. DEFERRED COMPENSATION PLANS FOR AGENTS LNL sponsors three deferred compensation plans for certain eligible agents. Participants may elect to defer a portion of their compensation as defined by the respective plan. Participants may select from prescribed "phantom" investment options that are used as measures for calculating the returns that are notionally credited to their accounts. Under the terms of these plans, LNL agrees to pay out amounts based upon the aggregate performance of the investment measures selected by the participants. LNL makes matching contributions based upon amounts placed into the plans by individuals after participants have exceeded applicable limits of the Internal Revenue Code. The amounts of LNL's contributions are calculated in accordance with the plans' documents. Our expenses for these plans were not significant for the years ended December 31, 2012, 2011 and 2010. 16. STOCK-BASED INCENTIVE COMPENSATION PLANS Our employees and agents are included in LNC's two stock-based incentive plans that provide for the issuance of stock options, performance shares (performance-vested shares as opposed to time-vested shares), stock appreciation rights ("SARs"), restricted stock units and restricted stock awards ("nonvested stock"). LNC issues new shares to satisfy option exercises. Total compensation expense for stock-based incentive compensation plans was not material for the years ended December 31, 2012, 2011, and 2010. 17. 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. We are subject to the applicable laws and regulations of our state of domicile. Changes in these laws and regulations could change capital levels or capital requirements for the Company. S-32 Specified statutory information (in millions) was as follows:
AS OF DECEMBER 31, ------------------------- 2012 2011 ---------- ----------- Capital and surplus $ 648 $ 586
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2012 2011 2010 ---------- ----------- ----------- Net gain (loss) from operations, after-tax $ 82 $ (99) $ 73 Net income (loss) 74 (121) 55 Dividends to LNL - 73 80
The increase in statutory net income (loss) for the year ended December 31, 2012, from that of 2011, was primarily due to a decrease in realized losses in invested assets, an increase in favorable tax items over prior year and favorable reserve development in variable annuities due to improvements in the equity market and less volatility in the forward interest rates. The decrease in statutory net income (loss) for the year ended December 31, 2011, from that of 2010, was primarily due to an increase in reserves on variable annuity products as a result of the low interest rate environment during 2011. Our state of domicile, New York, has adopted certain prescribed accounting practices that differ from those found in NAIC SAP. These prescribed practices are the use of continuous Commissioners Annuity Reserve Valuation Method ("CARVM") in the calculation of reserves and the use of a more conservative valuation interest rate on certain annuities as of December 31, 2012 and 2011. The effects on statutory surplus compared to NAIC statutory surplus from the use of these prescribed practices (in millions) were as follows:
AS OF DECEMBER 31, ------------------------- 2012 2011 ---------- ----------- Calculation of reserves using continuous CARVM $ (2) $ (2) Conservative valuation rate on certain annuities (1) (1)
We are subject to certain insurance department regulatory restrictions as to the transfer of funds and payment of dividends to LNL. Under New York laws and regulations, we may pay dividends to LNL without prior approval from the Superintendent of the New York Department of Insurance provided such dividend, along with all other dividends paid within the preceding 12 consecutive months, would not exceed the statutory limitation. The current statutory limitation is the lesser of 10% of surplus to contract holders as of the immediately preceding calendar year-end or net gain from operations for the immediately preceding calendar year, not including realized capital gains. We expect that we could pay dividends of $65 million in 2013 without New York Department of Insurance approval. 18. 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, 2012 ------------------------------------------------------ CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----------- ---------- ----------- ---------- ASSETS AFS securities: Fixed maturity securities $ 7,580 $ 7,580 $ 7,288 $ 7,288 Equity securities 3 3 3 3 Mortgage loans on real estate 423 448 264 289 Other investments - - 1 1 Cash and invested cash 54 54 17 17 Separate account assets 3,195 3,195 2,677 2,677 LIABILITIES Future contract benefits: GLB reserves embedded derivatives (51) (51) (101) (101) Other contract holder funds: Remaining guaranteed interest and similar contracts (65) (65) (94) (94) Account values of certain investment contracts (1,374) (1,570) (1,386) (1,545)
S-33 VALUATION METHODOLOGIES AND ASSOCIATED INPUTS FOR FINANCIAL INSTRUMENTS NOT 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 on our Balance Sheets. 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. The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 2 within the fair value hierarchy. OTHER INVESTMENTS The carrying value of our assets classified as other investments approximates fair value. Other investments include LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs. The inputs used to measure the fair value of our other investments are classified as Level 3 within the fair value hierarchy. OTHER CONTRACT HOLDER FUNDS Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts. The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of 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. As of December 31, 2012 and 2011, the remaining guaranteed interest and similar contracts carrying value approximated fair value. The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date. The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy. FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2012 or 2011, and we noted no changes in our valuation methodologies between these periods. The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels described above:
AS OF DECEMBER 31, 2012 ------------------------------------------------------- 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: Fixed maturity AFS securities: Corporate bonds $ 5 $ 6,192 $ 83 $ 6,280 U.S. government bonds 34 2 - 36 Foreign government bonds - 52 - 52 RMBS - 670 - 670 CMBS - 75 3 78 CDOs - 9 6 15 State and municipal bonds - 341 - 341 Hybrid and redeemable preferred securities - 104 4 108 Equity AFS securities 3 - - 3 Cash and invested cash - 54 - 54 Separate account assets 68 3,127 - 3,195 ----------- ---------- ----------- ----------- Total assets $ 110 $ 10,626 $ 96 $ 10,832 =========== ========== =========== =========== LIABILITIES Future contract benefits: GLB reserves embedded derivatives $ - $ - $ (51) $ (51) ----------- ---------- ----------- ----------- Total liabilities $ - $ - $ (51) $ (51) =========== ========== =========== ===========
S-34
AS OF DECEMBER 31, 2011 ------------------------------------------------------- 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: Fixed maturity AFS securities: Corporate bonds $ 5 $ 5,641 $ 140 $ 5,786 U.S. government bonds 34 - 1 35 Foreign government bonds - 57 - 57 RMBS - 838 2 840 CMBS - 122 4 126 CDOs - - 3 3 State and municipal bonds - 330 - 330 Hybrid and redeemable preferred securities - 101 10 111 Equity AFS securities 3 - - 3 Cash and invested cash - 17 - 17 Separate account assets - 2,677 - 2,677 ----------- ---------- ----------- ----------- Total assets $ 42 $ 9,783 $ 160 $ 9,985 =========== ========== =========== =========== LIABILITIES Future contract benefits: GLB reserves embedded derivatives $ - $ - $ (101) $ (101) ----------- ---------- ----------- ----------- Total liabilities $ - $ - $ (101) $ (101) =========== ========== =========== ===========
The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. This summary excludes any effect of amortization of DAC, VOBA, DSI and DFEL. The gains and losses 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, 2012 ----------------------------------------------------------------------------------- PURCHASES, GAINS ISSUANCES, TRANSFERS ITEMS (LOSSES) SALES, IN OR INCLUDED IN MATURITIES, OUT BEGINNING IN OCI SETTLEMENTS, OF ENDING FAIR NET AND CALLS, LEVEL 3, FAIR VALUE INCOME OTHER(1) NET NET(2) VALUE ----------- ---------- ----------- ------------ ----------- ----------- Investments:(3) Fixed maturity AFS securities: Corporate bonds $ 140 $ 4 $ (2) $ (5) $ (54) $ 83 U.S. government bonds 1 - - (1) - - RMBS 2 - - (1) (1) - CMBS 4 (1) 1 - (1) 3 CDOs 3 - - 6 (3) 6 Hybrid and redeemable preferred securities 10 - 1 - (7) 4 Future contract benefits:(4) GLB reserves embedded derivatives (101) 50 - - - (51) ----------- ---------- ----------- ------------ ----------- ----------- Total, net $ 59 $ 53 $ - $ (1) $ (66) $ 45 =========== ========== =========== ============ =========== ===========
S-35
FOR THE YEAR ENDED DECEMBER 31, 2011 ----------------------------------------------------------------------------------- PURCHASES, GAINS ISSUANCES, TRANSFERS ITEMS (LOSSES) SALES, IN OR INCLUDED IN MATURITIES, OUT BEGINNING IN OCI SETTLEMENTS, OF ENDING FAIR NET AND CALLS, LEVEL 3, FAIR VALUE INCOME OTHER(1) NET NET(2) VALUE ----------- ---------- ----------- ------------ ----------- ----------- Investments:(3) Fixed maturity AFS securities: Corporate bonds $ 139 $ 3 $ 1 $ (7) $ 4 $ 140 U.S. government bonds 1 - - - - 1 Foreign government bonds 1 - - - (1) - RMBS 2 - - - - 2 CMBS 15 (10) 13 (14) - 4 CDOs 3 - - - - 3 Hybrid and redeemable preferred securities 4 - 3 (6) 9 10 Future contract benefits:(4) GLB reserves embedded derivatives (24) (77) - - - (101) ----------- ---------- ----------- ------------ ----------- ----------- Total, net $ 141 $ (84) $ 17 $ (27) $ 12 $ 59 =========== ========== =========== ============ =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010 ------------------------------------------------------------------------------------ PURCHASES, GAINS ISSUANCES, TRANSFERS ITEMS (LOSSES) SALES, IN OR INCLUDED IN MATURITIES, OUT BEGINNING IN OCI SETTLEMENTS, OF ENDING FAIR NET AND CALLS, LEVEL 3, FAIR VALUE INCOME OTHER(1) NET NET(2) VALUE ----------- ---------- ----------- ------------ ----------- ----------- Investments:(3) Fixed maturity AFS securities: Corporate bonds $ 160 $ 1 $ 6 $ (10) $ (18) $ 139 U.S. government bonds - - - - 1 1 Foreign government bonds - - - - 1 1 RMBS 3 - - (1) - 2 CMBS 51 (5) 12 (14) (29) 15 CDOs 3 - - - - 3 Hybrid and redeemable preferred securities 14 - (10) - - 4 Future contract benefits:(4) GLB reserves embedded derivatives (32) 8 - - - (24) ----------- ---------- ----------- ------------ ----------- ----------- Total, net $ 199 $ 4 $ 8 $ (25) $ (45) $ 141 =========== ========== =========== ============ =========== ===========
(1) The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 4). (2) Transfers in or out of Level 3 for AFS securities are displayed at amortized cost as of the beginning-of-year. For AFS securities, the difference between beginning-of-year amortized cost and beginning-of-year fair value was included in OCI and earnings, respectively, in prior years. (3) Amortization and accretion of premiums and discounts are included in net investment income on our Statements of Comprehensive Income (Loss). Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Statements of Comprehensive Income (Loss). (4) Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Statements of Comprehensive Income (Loss). S-36 The following provides the components of the items included in issuances, sales, maturities, settlements, calls, net, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits (in millions) as reported above:
FOR THE YEAR ENDED DECEMBER 31, 2012 ------------------------------------------------------------------------------------ ISSUANCES SALES MATURITIES SETTLEMENTS CALLS TOTAL ----------- ---------- ----------- ----------- ----------- ----------- Investments: Fixed maturity AFS securities: Corporate bonds $ - $ - $ - $ (3) $ (2) $ (5) U.S. government bonds - - - (1) - (1) RMBS - - (1) - - (1) CDOs 6 - - - - 6 ----------- ---------- ----------- ---------- ----------- ----------- Total, net $ 6 $ - $ (1) $ (4) $ (2) $ (1) =========== ========== =========== ========== =========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2011 ------------------------------------------------------------------------------------ ISSUANCES SALES MATURITIES SETTLEMENTS CALLS TOTAL ----------- ---------- ----------- ----------- ----------- ----------- Investments: Fixed maturity AFS securities: Corporate bonds $ 14 $ (6) $ (6) $ (8) $ (1) $ (7) CMBS - (12) - (2) - (14) Hybrid and redeemable preferred securities - (6) - - - (6) ----------- ---------- ----------- ----------- ----------- ----------- Total, net $ 14 $ (24) $ (6) $ (10) $ (1) $ (27) =========== ========== =========== =========== =========== ===========
The following summarizes changes in unrealized gains (losses) included in net income, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ---------- ----------- GLB reserves embedded derivatives(1) $ 58 $ (69) $ (16)
(1) Included in realized gain (loss) on our Statements of Comprehensive Income (Loss). The following provides the components of the transfers in and out of Level 3 (in millions) as reported above:
FOR THE YEAR ENDED DECEMBER 31, 2012 ---------------------------------------- TRANSFERS TRANSFERS IN TO OUT OF LEVEL 3 LEVEL 3 TOTAL ----------- ---------- ----------- Investments: Fixed maturity AFS securities: Corporate bonds $ 2 $ (56) $ (54) RMBS - (1) (1) CMBS - (1) (1) CDOs - (3) (3) Hybrid and redeemable preferred securities 3 (10) (7) ----------- ---------- ----------- Total, net $ 5 $ (71) $ (66) =========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2011 ---------------------------------------- TRANSFERS TRANSFERS IN TO OUT OF LEVEL 3 LEVEL 3 TOTAL ----------- ---------- ----------- Investments: Fixed maturity AFS securities: Corporate bonds $ 24 $ (20) $ 4 Foreign government bonds - (1) (1) Hybrid and redeemable preferred securities 9 - 9 ----------- ---------- ----------- Total, net $ 33 $ (21) $ 12 =========== ========== ===========
FOR THE YEAR ENDED DECEMBER 31, 2010 ---------------------------------------- TRANSFERS TRANSFERS IN TO OUT OF LEVEL 3 LEVEL 3 TOTAL ----------- ---------- ----------- Investments: Fixed maturity AFS securities: Corporate bonds $ 5 $ (23) $ (18) U.S. government bonds 1 - 1 Foreign government bonds 1 - 1 CMBS 1 (30) (29) ----------- ---------- ----------- Total, net $ 8 $ (53) $ (45) =========== ========== ===========
Transfers in and out of Level 3 are generally the result of observable market information on a security no longer being available or becoming available to our pricing vendors. For the years ended December 31, 2012, 2011 and 2010, our corporate bonds and CMBS transfers in and out were attributable S-37 primarily to the securities' observable market information no longer being available or becoming available. Transfers in and out of Levels 1 and 2 are generally the result of a change in the type of input used to measure the fair value of an asset or liability at the end of the reporting period. When quoted prices in active markets become available, transfers from Level 2 to Level 1 will result. When quoted prices in active markets become unavailable, but we are able to employ a valuation methodology using significant observable inputs, transfers from Level 1 to Level 2 will result. There were no significant transfers between Levels 1 and 2 of the fair value during 2012, 2011 and 2010. The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of December 31, 2012:
FAIR VALUATION SIGNIFICANT INPUT VALUE TECHNIQUE UNOBSERVABLE INPUTS RANGES ---------- ----------------------- -------------------------------- --------------- ASSETS Investments: Fixed maturity AFS and trading securities Corporate bonds $ 52 Discounted cash flow Liquidity/duration adjustment(1) 2.0% - 13.5% LIABILITIES Future contract benefits: GLB reserves embedded derivatives 51 Monte Carlo simulation Long-term lapse rate(2) 1.0% - 27.0% Utilization of guaranteed withdrawal(3) 90.0% - 100.0% Non-performance risk ("NPR")(4) 0.03% - 0.54% Mortality rate(5) (7) Volatility(6) 1.0% - 35.0%
(1) The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment. (2) The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range for indexed annuity contracts represents the lapse rates during the surrender charge period. (3) The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature. (4) The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract. (5) The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die. (6) The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed income assets. Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation. (7) Based on the "Annuity 2000 Mortality Table" developed by the Society of Actuaries Committee on Life Insurance Research that was adopted by the National Association of Insurance Commissioners in 1996 for our mortality input. From the table above, we have excluded Level 3 fair value measurements obtained from independent, third-party pricing sources. We do not develop the significant inputs used to measure the fair value of these assets and liabilities, and the information regarding the significant inputs is not readily available to us. Independent broker-quoted fair values are non-binding quotes developed by market makers or broker-dealers obtained from third-party sources recognized as market participants. The fair value of a broker-quoted asset or liability is based solely on the receipt of an updated quote from a single market maker or a broker-dealer recognized as a market participant as we do not adjust broker quotes when used as the fair value measurement for an asset or liability. Significant increases or decreases in any of the quotes received from a third-party broker-dealer may result in a significantly higher or lower fair value measurement. Changes in any of the significant inputs presented in the table above may result in a significant change in the fair value measurement of the asset or liability as follows: o INVESTMENTS - An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement. o GLB RESERVES EMBEDDED DERIVATIVES - An increase in our lapse rate, wait period, NPR or mortality rate inputs would result in a decrease in the fair value measurement. An increase in the percent of maximum withdrawal amount input would result in an increase in the fair value measurement. For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input will not affect the other inputs. As part of our on-going valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary. For more information, see "Summary of Significant Accounting Policies" above. S-38 19. SEGMENT INFORMATION We provide products and services and report results through our Annuities, Retirement Plan Services, Life Insurance and Group Protection 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. The Annuities segment provides tax-deferred investment growth and lifetime income opportunities for its clients by offering fixed (including indexed) and variable annuities. The Retirement Plan Services segment provides employer-sponsored defined benefit, and individual retirement accounts, as well as individual and group variable annuities, group fixed annuities and mutual-fund based programs in the retirement plan marketplace. The Life Insurance segment focus is in the creation and protection of wealth through life insurance products, including term insurance, a linked-benefit product (which is a UL policy linked with riders that provide for long-term care costs), indexed UL 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 Group Protection segment offers group non-medical insurance products, principally term life, disability and dental insurance to the employer market place through various forms of contributory and non-contributory plans. 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 includes investments related to the excess capital; other corporate investments; benefit plan net liability; the results of certain disability income business; and debt costs. 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: o Realized gains and losses associated with the following ("excluded realized gain (loss)"): - Sales or disposals of securities; - Impairments of securities; - Changes in the fair value of embedded derivatives within certain reinsurance arrangements; - Changes in the fair value of the embedded derivatives of our GLB riders accounted for at fair value, net of the change in the fair value of the derivatives we own to hedge them; 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 accounted for at fair value. o Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders; o Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; o Gains (losses) on early extinguishment of debt; o Losses from the impairment of intangible assets; o Income (loss) from discontinued operations; and o Income (loss) from the initial adoption of new accounting standards. Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable: o Excluded realized gain (loss); o Revenue adjustments from the initial adoption of new accounting standards; o Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and o Amortization of deferred gains arising from the reserve changes on business sold through reinsurance. We use our prevailing corporate federal income tax rate of 35% while taking into account any permanent differences for events recognized differently in our financial statements and federal income tax returns when reconciling our non-GAAP measures to the most comparable GAAP measure. Operating revenues and income (loss) from operations do not replace revenues and net income as the GAAP measures of our results of operations. Segment information (in millions) was as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ---------- ----------- REVENUES Operating revenues: Annuities $ 119 $ 115 $ 111 Retirement Plan Services 57 56 53 Life Insurance 577 555 563 Group Protection 82 73 62 Other Operations 4 16 18 Excluded realized gain (loss), pre-tax (23) (32) (21) ----------- ---------- ----------- Total revenues $ 816 $ 783 $ 786 =========== ========== ===========
S-39
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ---------- ----------- NET INCOME (LOSS) Income (loss) from operations: Annuities $ 24 $ 22 $ 23 Retirement Plan Services 3 4 (2) Life Insurance 94 62 94 Group Protection (4) 1 (2) Other Operations (8) (1) 11 Excluded realized gain (loss), after-tax (15) (21) (13) Impairment of intangibles, after-tax - (102) - ----------- ---------- ----------- Net income (loss) $ 94 $ (35) $ 111 =========== ========== ===========
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ---------- ----------- NET INVESTMENT INCOME Annuities $ 63 $ 66 $ 69 Retirement Plan Services 52 51 49 Life Insurance 294 278 277 Group Protection 8 6 5 Other Operations 4 16 18 ----------- ---------- ----------- Total net investment income $ 421 $ 417 $ 418 =========== ========== ===========
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ---------- ----------- AMORTIZATION OF DAC AND VOBA, NET OF INTEREST Annuities $ 13 $ 14 $ 15 Retirement Plan Services 1 1 10 Life Insurance 63 74 46 Group Protection 2 2 2 ----------- ---------- ----------- Total amortization of DAC and VOBA, net of interest $ 79 $ 91 $ 73 =========== ========== ===========
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ---------- ----------- FEDERAL INCOME TAX EXPENSE (BENEFIT) Annuities $ 7 $ 6 $ 7 Retirement Plan Services 1 2 (1) Life Insurance 48 32 50 Group Protection (1) 1 (1) Other Operations 11 (1) 6 Excluded realized gain (loss) (7) (11) (8) ----------- ---------- ----------- Total federal income tax expense (benefit) $ 59 $ 29 $ 53 =========== ========== ===========
AS OF DECEMBER 31, ------------------------- 2012 2011 ---------- ----------- ASSETS Annuities $ 4,130 $ 3,766 Retirement Plan Services 1,595 1,456 Life Insurance 6,889 6,579 Group Protection 151 122 Other Operations 160 98 ---------- ----------- Total assets $ 12,925 $ 12,021 ========== ===========
S-40 20. SUPPLEMENTAL DISCLOSURES OF CASH FLOW DATA The following summarizes our supplemental cash flow data (in millions):
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2012 2011 2010 ----------- ---------- ----------- Income taxes paid (received) $ 8 $ 17 $ 15 =========== ========== ===========
21. TRANSACTIONS WITH AFFILIATES Transactions with affiliates (in millions) recorded on our financial statements were as follows:
AS OF DECEMBER 31, ------------------------------ 2012 2011 ------------- ------------- Assets with affiliates: Service agreement receivable(1) $ 10 $ (8) Ceded reinsurance contracts(2) 73 122 Ceded reinsurance contracts(3) 9 13
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------- 2012 2011 2010 ------------- ------------- ------------- Revenues with affiliates: Premiums paid on ceded reinsurance contracts(4) $ (14) $ (17) $ (10) Fees for management of general account(5) (6) - - Benefits and expenses with affiliates: Service agreement payments(6) 74 65 57
(1) Reported in other assets on our Balance Sheets. (2) Reported in reinsurance recoverables on our Balance Sheets. (3) Reported in reinsurance related embedded derivatives on our Balance Sheets. (4) Reported in insurance premiums on our Statements of Comprehensive Income (Loss). (5) Reported in net investment income on our Statements of Comprehensive Income (Loss). (6) Reported in commissions and other expenses on our Statements of Comprehensive Income (Loss). 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 allocated based on specific methodologies for each function. The majority of the expenses are allocated based on the following methodologies: investments by product, assets under management, weighted policies in force, headcount and sales. FEES FOR MANAGEMENT OF GENERAL ACCOUNT On January 4, 2010, LNC closed on a purchase and sale agreement pursuant to which all of the outstanding capital stock of Delaware Management Holdings, Inc. ("Delaware") was sold. In addition, we entered into investment advisory agreements with Delaware, pursuant to which Delaware will continue to manage the majority of our general account insurance assets. Effective January 1, 2012, LNL entered into an Investment Advisory Agreement with Lincoln Investment Management Company ("LIMCO"), also a wholly-owned subsidiary of LNC. LIMCO provides investment advisory services to LNL and enters into sub-advisory agreements with other third-party investment advisers. CEDED REINSURANCE CONTRACTS We cede business to two affiliated companies, LNL and Lincoln National Reinsurance Company (Barbados) Ltd. S-41 LINCOLN NEW YORK ACCOUNT N FOR VARIABLE ANNUITIES N-1 LINCOLN NEW YORK ACCOUNT N FOR VARIABLE ANNUITIES STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2012
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 ----------------------------------------------------------------------------------------------------------------------------- ABVPSF Global Thematic Growth Class B $ 1,525,400 $ -- $ 1,525,400 $ 1,995 $ 204 $ 1,523,201 ABVPSF Growth and Income Class B 6,091,822 -- 6,091,822 296 799 6,090,727 ABVPSF International Value Class B 7,107,268 -- 7,107,268 6,747 945 7,099,576 ABVPSF Large Cap Growth Class B 554,177 13 554,190 -- 70 554,120 ABVPSF Small/Mid Cap Value Class B 7,265,758 6,586 7,272,344 -- 984 7,271,360 American Century VP Inflation Protection Class II 23,292,592 29,902 23,322,494 -- 3,282 23,319,212 American Funds Global Growth Class 2 13,957,644 -- 13,957,644 1,070 1,909 13,954,665 American Funds Global Small Capitalization Class 2 11,289,268 -- 11,289,268 1,513 1,436 11,286,319 American Funds Growth Class 2 70,837,697 16,641 70,854,338 -- 9,589 70,844,749 American Funds Growth-Income Class 2 67,773,190 -- 67,773,190 646 9,077 67,763,467 American Funds International Class 2 34,015,498 -- 34,015,498 9,051 4,510 34,001,937 BlackRock Global Allocation V.I. Class III 53,276,164 38,497 53,314,661 -- 7,715 53,306,946 Delaware VIP Diversified Income Service Class 54,501,886 54,325 54,556,211 -- 7,426 54,548,785 Delaware VIP Emerging Markets Service Class 18,943,389 -- 18,943,389 10,947 2,539 18,929,903 Delaware VIP High Yield Standard Class 720,631 3,445 724,076 -- 87 723,989 Delaware VIP High Yield Service Class 13,806,945 22,061 13,829,006 -- 1,864 13,827,142 Delaware VIP Limited-Term Diversified Income Service Class 24,113,802 -- 24,113,802 80,996 3,112 24,029,694 Delaware VIP REIT Standard Class 773,469 -- 773,469 -- 88 773,381 Delaware VIP REIT Service Class 11,898,302 -- 11,898,302 2,674 1,609 11,894,019 Delaware VIP Small Cap Value Standard Class 716,389 -- 716,389 1,032 81 715,276 Delaware VIP Small Cap Value Service Class 19,159,097 7,971 19,167,068 -- 2,595 19,164,473 Delaware VIP Smid Cap Growth Standard Class 386,681 309 386,990 -- 45 386,945 Delaware VIP Smid Cap Growth Service Class 8,146,385 4,614 8,150,999 -- 1,107 8,149,892 Delaware VIP U.S. Growth Service Class 5,243,142 -- 5,243,142 25,188 641 5,217,313 Delaware VIP Value Standard Class 146,653 -- 146,653 -- 17 146,636 Delaware VIP Value Service Class 8,893,759 -- 8,893,759 88 1,218 8,892,453 DWS Alternative Asset Allocation VIP Class B 2,842,263 -- 2,842,263 45 400 2,841,818 DWS Equity 500 Index VIP Class A 1,994,395 31 1,994,426 -- 256 1,994,170 DWS Equity 500 Index VIP Class B 2,055,742 -- 2,055,742 49 275 2,055,418 DWS Small Cap Index VIP Class A 471,104 9 471,113 -- 61 471,052 DWS Small Cap Index VIP Class B 1,371,098 -- 1,371,098 119 194 1,370,785 Fidelity VIP Contrafund Service Class 2 42,598,288 42,900 42,641,188 -- 5,774 42,635,414 Fidelity VIP Equity-Income Initial Class 507,175 -- 507,175 -- 57 507,118 Fidelity VIP Equity-Income Service Class 2 1,694,673 13 1,694,686 -- 218 1,694,468 Fidelity VIP Growth Initial Class 168,862 -- 168,862 -- 19 168,843 Fidelity VIP Growth Service Class 2 4,482,573 2,202 4,484,775 -- 619 4,484,156 Fidelity VIP Mid Cap Service Class 2 28,476,746 4,379 28,481,125 -- 3,878 28,477,247 Fidelity VIP Overseas Initial Class 77,582 -- 77,582 -- 9 77,573 Fidelity VIP Overseas Service Class 2 3,391,222 -- 3,391,222 829 442 3,389,951 FTVIPT Franklin Income Securities Class 2 26,788,985 18,864 26,807,849 -- 3,676 26,804,173 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 6,821,688 186 6,821,874 -- 942 6,820,932 FTVIPT Mutual Shares Securities Class 2 20,257,638 20,430 20,278,068 -- 2,559 20,275,509 FTVIPT Templeton Global Bond Securities Class 2 12,985,494 -- 12,985,494 3,320 1,821 12,980,353 FTVIPT Templeton Growth Securities Class 2 3,434,397 -- 3,434,397 51 464 3,433,882 Goldman Sachs VIT Large Cap Value Service Class 1,513,133 -- 1,513,133 333 122 1,512,678 Huntington VA Balanced 4,779 -- 4,779 -- 1 4,778 Huntington VA Dividend Capture 41,869 -- 41,869 -- 5 41,864 Invesco V.I. Core Equity Series I 224,033 -- 224,033 -- 26 224,007 Invesco V.I. Core Equity Series II 10,566 -- 10,566 -- 1 10,565 Invesco V.I. International Growth Series I 119,783 -- 119,783 -- 14 119,769
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 ----------------------------------------------------------------------------------------------------------------------------- Invesco V.I. International Growth Series II $ 62,007 $ -- $ 62,007 $ -- $ 8 $ 61,999 Invesco Van Kampen V.I. American Franchise Series I 133,800 -- 133,800 -- 18 133,782 Invesco Van Kampen V.I. American Franchise Series II 59,060 -- 59,060 -- 8 59,052 Janus Aspen Series Balanced Service Class 668,299 -- 668,299 -- 85 668,214 Janus Aspen Series Enterprise Service Class 419,348 -- 419,348 -- 52 419,296 Janus Aspen Series Worldwide Service Class 9,645 -- 9,645 -- 1 9,644 LVIP American Global Growth Service Class II 2,014,416 -- 2,014,416 105 273 2,014,038 LVIP American Global Small Capitalization Service Class II 2,533,158 -- 2,533,158 4,885 331 2,527,942 LVIP American Growth Service Class II 7,659,408 -- 7,659,408 301 1,118 7,657,989 LVIP American Growth-Income Service Class II 7,537,495 -- 7,537,495 2,233 1,106 7,534,156 LVIP American International Service Class II 4,409,065 -- 4,409,065 12,662 609 4,395,794 LVIP Baron Growth Opportunities Service Class 9,055,740 -- 9,055,740 2,485 1,288 9,051,967 LVIP BlackRock Emerging Markets Index RPM Service Class 134,799 -- 134,799 -- 17 134,782 LVIP BlackRock Equity Dividend RPM Service Class 2,453,584 109,069 2,562,653 -- 333 2,562,320 LVIP BlackRock Inflation Protected Bond Service Class 21,370,808 226,599 21,597,407 -- 2,925 21,594,482 LVIP Capital Growth Service Class 2,885,783 -- 2,885,783 467 263 2,885,053 LVIP Clarion Global Real Estate Service Class 6,689,878 -- 6,689,878 5,421 905 6,683,552 LVIP Columbia Small-Mid Cap Growth RPM Service Class 1,988,228 956 1,989,184 -- 283 1,988,901 LVIP Delaware Bond Standard Class 9,591,335 -- 9,591,335 7,814 1,254 9,582,267 LVIP Delaware Bond Service Class 70,979,219 32,830 71,012,049 -- 9,266 71,002,783 LVIP Delaware Diversified Floating Rate Service Class 8,511,543 80,551 8,592,094 -- 1,187 8,590,907 LVIP Delaware Foundation Aggressive Allocation Standard Class 280,975 -- 280,975 -- 32 280,943 LVIP Delaware Foundation Aggressive Allocation Service Class 2,403,960 -- 2,403,960 34 323 2,403,603 LVIP Delaware Growth and Income Service Class 1,619,783 -- 1,619,783 3 211 1,619,569 LVIP Delaware Social Awareness Standard Class 699,104 -- 699,104 -- 88 699,016 LVIP Delaware Social Awareness Service Class 2,601,302 -- 2,601,302 50 342 2,600,910 LVIP Delaware Special Opportunities Service Class 3,098,543 -- 3,098,543 1,590 440 3,096,513 LVIP Dimensional Non-U.S. Equity Service Class 1,690,697 -- 1,690,697 6,269 235 1,684,193 LVIP Dimensional U.S. Equity Service Class 3,053,792 -- 3,053,792 970 411 3,052,411 LVIP Dimensional/Vanguard Total Bond Service Class 9,592,869 142,825 9,735,694 -- 1,323 9,734,371 LVIP Global Income Service Class 17,743,544 5,443 17,748,987 -- 2,608 17,746,379 LVIP JPMorgan High Yield Service Class 6,758,102 -- 6,758,102 2,649 885 6,754,568 LVIP JPMorgan Mid Cap Value RPM Service Class 1,552,749 -- 1,552,749 385 216 1,552,148 LVIP MFS International Growth Service Class 4,143,716 -- 4,143,716 26,868 546 4,116,302 LVIP MFS Value Service Class 12,980,308 13,364 12,993,672 -- 1,554 12,992,118 LVIP Mid-Cap Value Service Class 3,908,449 -- 3,908,449 2,429 524 3,905,496 LVIP Mondrian International Value Standard Class 1,622,951 -- 1,622,951 12 211 1,622,728 LVIP Mondrian International Value Service Class 6,560,890 -- 6,560,890 802 905 6,559,183 LVIP Money Market Standard Class 2,581,530 37 2,581,567 -- 315 2,581,252 LVIP Money Market Service Class 17,295,146 354 17,295,500 -- 2,233 17,293,267 LVIP Protected Profile 2010 Service Class 380,738 -- 380,738 -- 48 380,690 LVIP Protected Profile 2020 Service Class 419,891 -- 419,891 -- 63 419,828
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 ----------------------------------------------------------------------------------------------------------------------------- LVIP Protected Profile 2030 Service Class $ 304,209 $ -- $ 304,209 $ -- $ 40 $ 304,169 LVIP Protected Profile 2040 Service Class 8,605 -- 8,605 -- 1 8,604 LVIP Protected Profile Conservative Service Class 51,760,414 305,570 52,065,984 -- 7,508 52,058,476 LVIP Protected Profile Growth Service Class 97,577,372 831,471 98,408,843 -- 12,804 98,396,039 LVIP Protected Profile Moderate Service Class 125,062,358 1,005,810 126,068,168 -- 17,514 126,050,654 LVIP SSgA Bond Index Service Class 37,971,596 14,221 37,985,817 -- 5,504 37,980,313 LVIP SSgA Conservative Index Allocation Service Class 3,589,628 -- 3,589,628 166 557 3,588,905 LVIP SSgA Conservative Structured Allocation Service Class 10,008,760 10,646 10,019,406 -- 1,402 10,018,004 LVIP SSgA Developed International 150 Service Class 4,988,701 -- 4,988,701 6,361 706 4,981,634 LVIP SSgA Emerging Markets 100 Service Class 7,799,760 -- 7,799,760 4,804 1,100 7,793,856 LVIP SSgA Global Tactical Allocation RPM Service Class 34,920,726 281,872 35,202,598 -- 5,212 35,197,386 LVIP SSgA International Index Service Class 8,192,621 -- 8,192,621 16,014 1,165 8,175,442 LVIP SSgA Large Cap 100 Service Class 11,081,702 -- 11,081,702 450 1,553 11,079,699 LVIP SSgA Moderate Index Allocation Service Class 9,631,364 -- 9,631,364 935 1,421 9,629,008 LVIP SSgA Moderate Structured Allocation Service Class 40,809,421 -- 40,809,421 9,095 5,566 40,794,760 LVIP SSgA Moderately Aggressive Index Allocation Service Class 6,390,604 -- 6,390,604 288 858 6,389,458 LVIP SSgA Moderately Aggressive Structured Allocation Service Class 20,146,346 -- 20,146,346 1,462 3,017 20,141,867 LVIP SSgA S&P 500 Index Standard Class 379,017 197 379,214 -- 69 379,145 LVIP SSgA S&P 500 Index Service Class 21,250,332 166,900 21,417,232 -- 2,978 21,414,254 LVIP SSgA Small-Cap Index Service Class 6,146,181 -- 6,146,181 356 853 6,144,972 LVIP SSgA Small-Mid Cap 200 Service Class 3,568,259 -- 3,568,259 1,001 495 3,566,763 LVIP T. Rowe Price Growth Stock Service Class 6,130,317 15,677 6,145,994 -- 864 6,145,130 LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class 73,691 -- 73,691 -- 11 73,680 LVIP T. Rowe Price Structured Mid-Cap Growth Service Class 4,047,886 -- 4,047,886 1,215 555 4,046,116 LVIP Templeton Growth RPM Service Class 5,767,321 73,299 5,840,620 -- 791 5,839,829 LVIP UBS Large Cap Growth RPM Standard Class 123,034 -- 123,034 -- 16 123,018 LVIP UBS Large Cap Growth RPM Service Class 2,182,727 563 2,183,290 -- 313 2,182,977 LVIP Vanguard Domestic Equity ETF Service Class 3,050,020 18,062 3,068,082 -- 403 3,067,679 LVIP Vanguard International Equity ETF Service Class 1,977,071 -- 1,977,071 6,954 270 1,969,847 Lord Abbett Fundamental Equity Class VC 71,134 -- 71,134 -- 5 71,129 MFS VIT Core Equity Service Class 62,582 -- 62,582 -- 9 62,573 MFS VIT Growth Initial Class 86,785 -- 86,785 -- 10 86,775 MFS VIT Growth Service Class 879,734 300 880,034 -- 114 879,920 MFS VIT Total Return Initial Class 554,810 -- 554,810 -- 63 554,747 MFS VIT Total Return Service Class 13,032,040 -- 13,032,040 56 1,747 13,030,237 MFS VIT Utilities Initial Class 414,613 -- 414,613 -- 47 414,566 MFS VIT Utilities Service Class 13,549,453 -- 13,549,453 771 1,814 13,546,868 NB AMT Mid Cap Growth I Class 3,178,123 -- 3,178,123 53 431 3,177,639 NB AMT Mid Cap Intrinsic Value I Class 3,647,546 -- 3,647,546 201 488 3,646,857 Oppenheimer Global Securities Service Class 223,112 -- 223,112 -- 16 223,096 PIMCO VIT CommodityRealReturn Strategy Advisor Class 3,333,068 -- 3,333,068 3 420 3,332,645 Putnam VT Global Health Care Class IB 107,130 -- 107,130 -- 14 107,116 Putnam VT Growth & Income Class IB 13,049 -- 13,049 -- 2 13,047
See accompanying notes. N-4 [THIS PAGE INTENTIONALLY LEFT BLANK] LINCOLN NEW YORK ACCOUNT N FOR VARIABLE ANNUITIES STATEMENTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2012
DIVIDENDS NET FROM MORTALITY AND INVESTMENT INVESTMENT EXPENSE INCOME SUBACCOUNT INCOME GUARANTEE CHARGES (LOSS) ---------------------------------------------------------------------------------------- ABVPSF Global Thematic Growth Class B $ -- $ (24,522) $ (24,522) ABVPSF Growth and Income Class B 86,499 (107,402) (20,903) ABVPSF International Value Class B 95,728 (115,054) (19,326) ABVPSF Large Cap Growth Class B 196 (10,011) (9,815) ABVPSF Small/Mid Cap Value Class B 21,136 (123,375) (102,239) American Century VP Inflation Protection Class II 582,706 (416,373) 166,333 American Funds Global Growth Class 2 119,929 (243,421) (123,492) American Funds Global Small Capitalization Class 2 154,352 (183,980) (29,628) American Funds Growth Class 2 563,409 (1,235,077) (671,668) American Funds Growth-Income Class 2 1,088,409 (1,160,153) (71,744) American Funds International Class 2 489,686 (568,405) (78,719) BlackRock Global Allocation V.I. Class III 775,701 (846,872) (71,171) Delaware VIP Diversified Income Service Class 1,571,031 (879,063) 691,968 Delaware VIP Emerging Markets Service Class 136,605 (298,927) (162,322) Delaware VIP High Yield Standard Class 58,901 (9,867) 49,034 Delaware VIP High Yield Service Class 1,255,705 (236,231) 1,019,474 Delaware VIP Limited-Term Diversified Income Service Class 328,495 (368,591) (40,096) Delaware VIP REIT Standard Class 12,338 (10,880) 1,458 Delaware VIP REIT Service Class 156,828 (197,950) (41,122) Delaware VIP Small Cap Value Standard Class 4,724 (10,979) (6,255) Delaware VIP Small Cap Value Service Class 67,833 (327,488) (259,655) Delaware VIP Smid Cap Growth Standard Class 1,010 (5,975) (4,965) Delaware VIP Smid Cap Growth Service Class 610 (130,291) (129,681) Delaware VIP U.S. Growth Service Class -- (73,526) (73,526) Delaware VIP Value Standard Class 3,383 (2,143) 1,240 Delaware VIP Value Service Class 185,376 (150,139) 35,237 DWS Alternative Asset Allocation VIP Class B 81,516 (45,166) 36,350 DWS Equity 500 Index VIP Class A 39,126 (33,572) 5,554 DWS Equity 500 Index VIP Class B 36,242 (37,768) (1,526) DWS Small Cap Index VIP Class A 5,298 (8,638) (3,340) DWS Small Cap Index VIP Class B 9,663 (26,587) (16,924) Fidelity VIP Contrafund Service Class 2 472,464 (716,966) (244,502) Fidelity VIP Equity-Income Initial Class 15,412 (7,204) 8,208 Fidelity VIP Equity-Income Service Class 2 48,458 (27,957) 20,501 Fidelity VIP Growth Initial Class 1,020 (2,895) (1,875) Fidelity VIP Growth Service Class 2 16,068 (67,382) (51,314) Fidelity VIP Mid Cap Service Class 2 109,927 (466,468) (356,541) Fidelity VIP Overseas Initial Class 1,453 (1,056) 397 Fidelity VIP Overseas Service Class 2 55,890 (54,289) 1,601 FTVIPT Franklin Income Securities Class 2 1,789,532 (446,145) 1,343,387 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 -- (126,391) (126,391) FTVIPT Mutual Shares Securities Class 2 411,620 (313,298) 98,322 FTVIPT Templeton Global Bond Securities Class 2 882,216 (231,146) 651,070 FTVIPT Templeton Growth Securities Class 2 75,182 (59,709) 15,473 Goldman Sachs VIT Large Cap Value Service Class 16,750 (15,127) 1,623 Huntington VA Balanced 71 (59) 12 Huntington VA Dividend Capture 1,604 (426) 1,178 Invesco V.I. Capital Appreciation Series I -- (826) (826) Invesco V.I. Capital Appreciation Series II -- (357) (357) Invesco V.I. Core Equity Series I 2,143 (3,799) (1,656) Invesco V.I. Core Equity Series II 88 (144) (56) Invesco V.I. International Growth Series I 1,672 (1,578) 94 Invesco V.I. International Growth Series II 779 (1,700) (921) Invesco Van Kampen V.I. American Franchise Series I -- (1,568) (1,568) Invesco Van Kampen V.I. American Franchise Series II -- (674) (674) Janus Aspen Series Balanced Service Class 15,911 (9,877) 6,034 Janus Aspen Series Enterprise Service Class -- (7,373) (7,373)
See accompanying notes. N-6
DIVIDENDS NET CHANGE NET INCREASE FROM TOTAL IN UNREALIZED (DECREASE) NET REALIZED NET REALIZED NET REALIZED APPRECIATION OR IN NET ASSETS GAIN (LOSS) GAIN ON GAIN (LOSS) DEPRECIATION RESULTING SUBACCOUNT ON INVESTMENTS INVESTMENTS ON INVESTMENTS ON INVESTMENTS FROM OPERATIONS ----------------------------------------------------------------------------------------------------------------------------- ABVPSF Global Thematic Growth Class B $ (29,390) $ -- $ (29,390) $ 219,235 $ 165,323 ABVPSF Growth and Income Class B (12,734) -- (12,734) 977,333 943,696 ABVPSF International Value Class B (576,822) -- (576,822) 1,431,145 834,997 ABVPSF Large Cap Growth Class B 41,151 -- 41,151 56,355 87,691 ABVPSF Small/Mid Cap Value Class B 199,303 233,795 433,098 794,074 1,124,933 American Century VP Inflation Protection Class II 514,842 573,466 1,088,308 79,044 1,333,685 American Funds Global Growth Class 2 181,882 -- 181,882 2,647,936 2,706,326 American Funds Global Small Capitalization Class 2 (91,394) -- (91,394) 1,877,030 1,756,008 American Funds Growth Class 2 1,113,518 -- 1,113,518 10,504,750 10,946,600 American Funds Growth-Income Class 2 409,422 -- 409,422 9,826,110 10,163,788 American Funds International Class 2 (600,058) -- (600,058) 5,830,006 5,151,229 BlackRock Global Allocation V.I. Class III (19,748) 174,540 154,792 3,248,947 3,332,568 Delaware VIP Diversified Income Service Class 255,781 1,660,940 1,916,721 4,704 2,613,393 Delaware VIP Emerging Markets Service Class (117,875) -- (117,875) 2,407,058 2,126,861 Delaware VIP High Yield Standard Class 5,792 -- 5,792 47,637 102,463 Delaware VIP High Yield Service Class 231,921 -- 231,921 808,752 2,060,147 Delaware VIP Limited-Term Diversified Income Service Class 46,837 174,670 221,507 18,260 199,671 Delaware VIP REIT Standard Class (11,770) -- (11,770) 122,373 112,061 Delaware VIP REIT Service Class 60,873 -- 60,873 1,597,573 1,617,324 Delaware VIP Small Cap Value Standard Class 47,027 55,762 102,789 (10,699) 85,835 Delaware VIP Small Cap Value Service Class 437,343 1,346,134 1,783,477 612,973 2,136,795 Delaware VIP Smid Cap Growth Standard Class 16,268 22,831 39,099 2,987 37,121 Delaware VIP Smid Cap Growth Service Class 180,184 413,781 593,965 109,633 573,917 Delaware VIP U.S. Growth Service Class 195,385 -- 195,385 450,483 572,342 Delaware VIP Value Standard Class 11,414 -- 11,414 7,897 20,551 Delaware VIP Value Service Class 122,940 -- 122,940 891,144 1,049,321 DWS Alternative Asset Allocation VIP Class B 8,289 20,710 28,999 105,604 170,953 DWS Equity 500 Index VIP Class A 89,968 -- 89,968 188,161 283,683 DWS Equity 500 Index VIP Class B 100,683 -- 100,683 203,854 303,011 DWS Small Cap Index VIP Class A (1,155) 141 (1,014) 70,247 65,893 DWS Small Cap Index VIP Class B 5,977 357 6,334 206,696 196,106 Fidelity VIP Contrafund Service Class 2 46,381 -- 46,381 5,789,792 5,591,671 Fidelity VIP Equity-Income Initial Class (13,606) 32,852 19,246 49,744 77,198 Fidelity VIP Equity-Income Service Class 2 (18,571) 109,699 91,128 136,019 247,648 Fidelity VIP Growth Initial Class 7,598 -- 7,598 17,274 22,997 Fidelity VIP Growth Service Class 2 184,450 -- 184,450 269,144 402,280 Fidelity VIP Mid Cap Service Class 2 355,935 2,271,970 2,627,905 820,898 3,092,262 Fidelity VIP Overseas Initial Class (598) 250 (348) 13,465 13,514 Fidelity VIP Overseas Service Class 2 (94,873) 11,094 (83,779) 646,368 564,190 FTVIPT Franklin Income Securities Class 2 (159,498) -- (159,498) 1,500,424 2,684,313 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 241,889 522,667 764,556 53,877 692,042 FTVIPT Mutual Shares Securities Class 2 (112,269) -- (112,269) 2,346,857 2,332,910 FTVIPT Templeton Global Bond Securities Class 2 329,583 22,148 351,731 667,910 1,670,711 FTVIPT Templeton Growth Securities Class 2 (232,304) -- (232,304) 852,372 635,541 Goldman Sachs VIT Large Cap Value Service Class 19,690 36,968 56,658 192,369 250,650 Huntington VA Balanced 7 21 28 222 262 Huntington VA Dividend Capture 31 -- 31 726 1,935 Invesco V.I. Capital Appreciation Series I 1,903 -- 1,903 19,261 20,338 Invesco V.I. Capital Appreciation Series II (4,912) -- (4,912) 14,202 8,933 Invesco V.I. Core Equity Series I 25,241 -- 25,241 13,700 37,285 Invesco V.I. Core Equity Series II 11 -- 11 1,083 1,038 Invesco V.I. International Growth Series I 2,332 -- 2,332 12,300 14,726 Invesco V.I. International Growth Series II 49,148 -- 49,148 (26,780) 21,447 Invesco Van Kampen V.I. American Franchise Series I (1,264) -- (1,264) (3,281) (6,113) Invesco Van Kampen V.I. American Franchise Series II (703) -- (703) (1,627) (3,004) Janus Aspen Series Balanced Service Class 10,477 41,227 51,704 9,032 66,770 Janus Aspen Series Enterprise Service Class 73,466 -- 73,466 8,554 74,647
N-7
DIVIDENDS NET FROM MORTALITY AND INVESTMENT INVESTMENT EXPENSE INCOME SUBACCOUNT INCOME GUARANTEE CHARGES (LOSS) ---------------------------------------------------------------------------------------- Janus Aspen Series Worldwide Service Class $ 73 $ (140) $ (67) LVIP American Global Growth Service Class II 18,159 (30,583) (12,424) LVIP American Global Small Capitalization Service Class II 22,753 (35,361) (12,608) LVIP American Growth Service Class II 15,305 (112,705) (97,400) LVIP American Growth-Income Service Class II 78,780 (110,540) (31,760) LVIP American International Service Class II 99,155 (66,656) 32,499 LVIP Baron Growth Opportunities Service Class 101,656 (151,056) (49,400) LVIP BlackRock Emerging Markets Index RPM Service Class 670 (177) 493 LVIP BlackRock Equity Dividend RPM Service Class 9,088 (29,641) (20,553) LVIP BlackRock Inflation Protected Bond Service Class -- (295,173) (295,173) LVIP Capital Growth Service Class -- (30,737) (30,737) LVIP Clarion Global Real Estate Service Class -- (105,554) (105,554) LVIP Columbia Small-Mid Cap Growth RPM Service Class -- (33,960) (33,960) LVIP Delaware Bond Standard Class 195,320 (167,005) 28,315 LVIP Delaware Bond Service Class 1,166,880 (1,047,436) 119,444 LVIP Delaware Diversified Floating Rate Service Class 97,028 (120,028) (23,000) LVIP Delaware Foundation Aggressive Allocation Standard Class 4,981 (4,029) 952 LVIP Delaware Foundation Aggressive Allocation Service Class 37,789 (43,568) (5,779) LVIP Delaware Growth and Income Service Class 12,562 (29,619) (17,057) LVIP Delaware Social Awareness Standard Class 5,302 (11,087) (5,785) LVIP Delaware Social Awareness Service Class 10,493 (42,104) (31,611) LVIP Delaware Special Opportunities Service Class 12,902 (46,145) (33,243) LVIP Dimensional Non-U.S. Equity Service Class 34,720 (20,750) 13,970 LVIP Dimensional U.S. Equity Service Class 25,481 (35,585) (10,104) LVIP Dimensional/Vanguard Total Bond Service Class 124,418 (122,763) 1,655 LVIP Global Income Service Class 291,751 (297,320) (5,569) LVIP JPMorgan High Yield Service Class 293,858 (92,881) 200,977 LVIP JPMorgan Mid Cap Value RPM Service Class -- (22,001) (22,001) LVIP MFS International Growth Service Class 20,156 (60,711) (40,555) LVIP MFS Value Service Class 121,840 (184,283) (62,443) LVIP Mid-Cap Value Service Class 4,947 (63,934) (58,987) LVIP Mondrian International Value Standard Class 46,277 (25,881) 20,396 LVIP Mondrian International Value Service Class 172,584 (112,464) 60,120 LVIP Money Market Standard Class 778 (44,869) (44,091) LVIP Money Market Service Class 4,114 (274,789) (270,675) LVIP Protected Profile 2010 Service Class 6,521 (6,609) (88) LVIP Protected Profile 2020 Service Class 6,588 (12,375) (5,787) LVIP Protected Profile 2030 Service Class 4,476 (5,851) (1,375) LVIP Protected Profile 2040 Service Class 102 (153) (51) LVIP Protected Profile Conservative Service Class 1,497,634 (603,821) 893,813 LVIP Protected Profile Growth Service Class 1,682,331 (810,748) 871,583 LVIP Protected Profile Moderate Service Class 2,997,017 (1,379,159) 1,617,858 LVIP SSgA Bond Index Service Class 821,902 (621,492) 200,410 LVIP SSgA Conservative Index Allocation Service Class 86,939 (56,951) 29,988 LVIP SSgA Conservative Structured Allocation Service Class 332,446 (137,961) 194,485 LVIP SSgA Developed International 150 Service Class 112,947 (79,735) 33,212 LVIP SSgA Emerging Markets 100 Service Class 177,046 (122,561) 54,485 LVIP SSgA Global Tactical Allocation RPM Service Class 997,872 (552,207) 445,665 LVIP SSgA International Index Service Class 130,970 (136,494) (5,524) LVIP SSgA Large Cap 100 Service Class 147,655 (188,321) (40,666) LVIP SSgA Moderate Index Allocation Service Class 190,436 (146,178) 44,258 LVIP SSgA Moderate Structured Allocation Service Class 1,312,357 (588,861) 723,496 LVIP SSgA Moderately Aggressive Index Allocation Service Class 120,747 (84,414) 36,333 LVIP SSgA Moderately Aggressive Structured Allocation Service Class 712,425 (322,269) 390,156 LVIP SSgA S&P 500 Index Standard Class 3,526 (8,991) (5,465) LVIP SSgA S&P 500 Index Service Class 147,501 (355,446) (207,945) LVIP SSgA Small-Cap Index Service Class 26,408 (103,401) (76,993)
See accompanying notes. N-8
DIVIDENDS NET CHANGE NET INCREASE FROM TOTAL IN UNREALIZED (DECREASE) NET REALIZED NET REALIZED NET REALIZED APPRECIATION OR IN NET ASSETS GAIN (LOSS) GAIN ON GAIN (LOSS) DEPRECIATION RESULTING SUBACCOUNT ON INVESTMENTS INVESTMENTS ON INVESTMENTS ON INVESTMENTS FROM OPERATIONS ----------------------------------------------------------------------------------------------------------------------------- Janus Aspen Series Worldwide Service Class $ 404 $ -- $ 404 $ 1,478 $ 1,815 LVIP American Global Growth Service Class II 20,453 -- 20,453 311,279 319,308 LVIP American Global Small Capitalization Service Class II (9,273) -- (9,273) 293,690 271,809 LVIP American Growth Service Class II 53,909 -- 53,909 805,190 761,699 LVIP American Growth-Income Service Class II 80,190 -- 80,190 712,151 760,581 LVIP American International Service Class II 8,240 -- 8,240 494,677 535,416 LVIP Baron Growth Opportunities Service Class 280,964 422,337 703,301 629,451 1,283,352 LVIP BlackRock Emerging Markets Index RPM Service Class 1 -- 1 5,494 5,988 LVIP BlackRock Equity Dividend RPM Service Class 25,933 -- 25,933 226,518 231,898 LVIP BlackRock Inflation Protected Bond Service Class 155,863 426,949 582,812 411,314 698,953 LVIP Capital Growth Service Class 32,850 -- 32,850 412,070 414,183 LVIP Clarion Global Real Estate Service Class 150,013 -- 150,013 1,216,090 1,260,549 LVIP Columbia Small-Mid Cap Growth RPM Service Class 16,501 -- 16,501 94,378 76,919 LVIP Delaware Bond Standard Class 241,494 236,410 477,904 9,934 516,153 LVIP Delaware Bond Service Class 524,658 1,528,249 2,052,907 717,778 2,890,129 LVIP Delaware Diversified Floating Rate Service Class (6,136) -- (6,136) 169,554 140,418 LVIP Delaware Foundation Aggressive Allocation Standard Class (3,442) -- (3,442) 33,145 30,655 LVIP Delaware Foundation Aggressive Allocation Service Class 19,330 -- 19,330 272,151 285,702 LVIP Delaware Growth and Income Service Class 49,149 1,661 50,810 188,538 222,291 LVIP Delaware Social Awareness Standard Class 22,264 48,658 70,922 28,811 93,948 LVIP Delaware Social Awareness Service Class 45,180 179,955 225,135 112,528 306,052 LVIP Delaware Special Opportunities Service Class (12,362) 318,168 305,806 27,118 299,681 LVIP Dimensional Non-U.S. Equity Service Class 3,319 3,262 6,581 144,681 165,232 LVIP Dimensional U.S. Equity Service Class 39,199 459 39,658 180,255 209,809 LVIP Dimensional/Vanguard Total Bond Service Class 64,469 14,296 78,765 36,692 117,112 LVIP Global Income Service Class (31,569) 31,031 (538) 844,274 838,167 LVIP JPMorgan High Yield Service Class 67,642 -- 67,642 396,675 665,294 LVIP JPMorgan Mid Cap Value RPM Service Class 30,026 -- 30,026 119,544 127,569 LVIP MFS International Growth Service Class 3,473 -- 3,473 615,268 578,186 LVIP MFS Value Service Class 284,347 -- 284,347 1,353,544 1,575,448 LVIP Mid-Cap Value Service Class 138,011 -- 138,011 636,187 715,211 LVIP Mondrian International Value Standard Class (32,751) -- (32,751) 136,878 124,523 LVIP Mondrian International Value Service Class (159,221) -- (159,221) 573,807 474,706 LVIP Money Market Standard Class -- 12 12 -- (44,079) LVIP Money Market Service Class -- 72 72 -- (270,603) LVIP Protected Profile 2010 Service Class 17,644 -- 17,644 23,014 40,570 LVIP Protected Profile 2020 Service Class 89,612 -- 89,612 35,018 118,843 LVIP Protected Profile 2030 Service Class 5,631 -- 5,631 17,624 21,880 LVIP Protected Profile 2040 Service Class (9) -- (9) 468 408 LVIP Protected Profile Conservative Service Class 785,047 179,392 964,439 363,192 2,221,444 LVIP Protected Profile Growth Service Class 161,536 -- 161,536 2,770,326 3,803,445 LVIP Protected Profile Moderate Service Class 651,641 -- 651,641 3,254,482 5,523,981 LVIP SSgA Bond Index Service Class 342,753 4,323 347,076 64,489 611,975 LVIP SSgA Conservative Index Allocation Service Class 17,187 1,092 18,279 128,995 177,262 LVIP SSgA Conservative Structured Allocation Service Class 31,406 17,438 48,844 202,642 445,971 LVIP SSgA Developed International 150 Service Class (16,520) -- (16,520) 518,546 535,238 LVIP SSgA Emerging Markets 100 Service Class (70,651) 704,913 634,262 18,149 706,896 LVIP SSgA Global Tactical Allocation RPM Service Class 129,305 -- 129,305 1,749,097 2,324,067 LVIP SSgA International Index Service Class 38,416 -- 38,416 1,099,070 1,131,962 LVIP SSgA Large Cap 100 Service Class 345,481 -- 345,481 736,313 1,041,128 LVIP SSgA Moderate Index Allocation Service Class 14,169 4,276 18,445 498,196 560,899 LVIP SSgA Moderate Structured Allocation Service Class 190,572 99,157 289,729 1,649,696 2,662,921 LVIP SSgA Moderately Aggressive Index Allocation Service Class 16,924 4,249 21,173 418,269 475,775 LVIP SSgA Moderately Aggressive Structured Allocation Service Class 110,871 60,930 171,801 892,786 1,454,743 LVIP SSgA S&P 500 Index Standard Class 16,179 -- 16,179 39,734 50,448 LVIP SSgA S&P 500 Index Service Class 677,224 -- 677,224 2,020,388 2,489,667 LVIP SSgA Small-Cap Index Service Class 249,023 -- 249,023 591,944 763,974
N-9
DIVIDENDS NET FROM MORTALITY AND INVESTMENT INVESTMENT EXPENSE INCOME SUBACCOUNT INCOME GUARANTEE CHARGES (LOSS) ---------------------------------------------------------------------------------------- LVIP SSgA Small-Mid Cap 200 Service Class $ 76,195 $ (56,940) $ 19,255 LVIP T. Rowe Price Growth Stock Service Class -- (95,918) (95,918) LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class -- (1,218) (1,218) LVIP T. Rowe Price Structured Mid-Cap Growth Service Class -- (64,591) (64,591) LVIP Templeton Growth RPM Service Class 90,397 (87,158) 3,239 LVIP UBS Large Cap Growth RPM Standard Class -- (1,949) (1,949) LVIP UBS Large Cap Growth RPM Service Class -- (33,830) (33,830) LVIP Vanguard Domestic Equity ETF Service Class 34,407 (29,732) 4,675 LVIP Vanguard International Equity ETF Service Class 72,352 (22,660) 49,692 Lord Abbett Fundamental Equity Class VC 383 (748) (365) MFS VIT Core Equity Service Class 315 (1,049) (734) MFS VIT Growth Initial Class -- (1,465) (1,465) MFS VIT Growth Service Class -- (12,414) (12,414) MFS VIT Total Return Initial Class 17,677 (9,087) 8,590 MFS VIT Total Return Service Class 329,856 (228,303) 101,553 MFS VIT Utilities Initial Class 33,153 (6,488) 26,665 MFS VIT Utilities Service Class 891,241 (228,685) 662,556 NB AMT Mid Cap Growth I Class -- (58,697) (58,697) NB AMT Mid Cap Intrinsic Value I Class 22,481 (62,410) (39,929) Oppenheimer Global Securities Service Class 4,012 (1,814) 2,198 PIMCO VIT CommodityRealReturn Strategy Advisor Class 78,470 (46,233) 32,237 Putnam VT Global Health Care Class IB 1,071 (1,276) (205) Putnam VT Growth & Income Class IB 1,025 (759) 266
See accompanying notes. N-10
DIVIDENDS NET CHANGE NET INCREASE FROM TOTAL IN UNREALIZED (DECREASE) NET REALIZED NET REALIZED NET REALIZED APPRECIATION OR IN NET ASSETS GAIN (LOSS) GAIN ON GAIN (LOSS) DEPRECIATION RESULTING SUBACCOUNT ON INVESTMENTS INVESTMENTS ON INVESTMENTS ON INVESTMENTS FROM OPERATIONS ----------------------------------------------------------------------------------------------------------------------------- LVIP SSgA Small-Mid Cap 200 Service Class $ 99,207 $ 268,177 $ 367,384 $ (14,962) $ 371,677 LVIP T. Rowe Price Growth Stock Service Class 209,064 -- 209,064 598,017 711,163 LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class 7,193 2,170 9,363 (924) 7,221 LVIP T. Rowe Price Structured Mid-Cap Growth Service Class 146,428 113,419 259,847 268,593 463,849 LVIP Templeton Growth RPM Service Class 14,318 -- 14,318 868,052 885,609 LVIP UBS Large Cap Growth RPM Standard Class 2,073 -- 2,073 16,141 16,265 LVIP UBS Large Cap Growth RPM Service Class 37,720 -- 37,720 211,464 215,354 LVIP Vanguard Domestic Equity ETF Service Class 16,252 -- 16,252 176,415 197,342 LVIP Vanguard International Equity ETF Service Class 15,165 21 15,186 160,808 225,686 Lord Abbett Fundamental Equity Class VC 750 1,096 1,846 6,574 8,055 MFS VIT Core Equity Service Class 4,748 -- 4,748 2,844 6,858 MFS VIT Growth Initial Class 14,842 -- 14,842 2,980 16,357 MFS VIT Growth Service Class 48,031 -- 48,031 72,902 108,519 MFS VIT Total Return Initial Class 13,484 -- 13,484 39,594 61,668 MFS VIT Total Return Service Class 180,259 -- 180,259 950,860 1,232,672 MFS VIT Utilities Initial Class 22,422 -- 22,422 3,078 52,165 MFS VIT Utilities Service Class 246,195 -- 246,195 579,705 1,488,456 NB AMT Mid Cap Growth I Class 338,267 -- 338,267 99,349 378,919 NB AMT Mid Cap Intrinsic Value I Class 24,370 967,901 992,271 (466,778) 485,564 Oppenheimer Global Securities Service Class 5,154 -- 5,154 31,965 39,317 PIMCO VIT CommodityRealReturn Strategy Advisor Class (64,461) 110,505 46,044 (54,878) 23,403 Putnam VT Global Health Care Class IB (201) 6,912 6,711 7,814 14,320 Putnam VT Growth & Income Class IB (10,303) -- (10,303) 14,733 4,696
N-11 LINCOLN NEW YORK ACCOUNT N FOR VARIABLE ANNUITIES STATEMENTS OF CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2011 AND 2012
ABVPSF GLOBAL ABVPSF ABVPSF ABVPSF THEMATIC GROWTH INTERNATIONAL LARGE CAP GROWTH AND INCOME VALUE GROWTH CLASS B CLASS B CLASS B CLASS B SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 1,698,177 $ 7,283,147 $ 8,263,725 $ 758,632 Changes From Operations: - Net investment income (loss) (22,539) (38,781) 197,040 (10,603) - Net realized gain (loss) on investments 38,215 (291,579) (1,183,632) 21,049 - Net change in unrealized appreciation or depreciation on investments (465,736) 610,892 (1,088,389) (41,308) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (450,060) 280,532 (2,074,981) (30,862) Changes From Unit Transactions: Accumulation Units: - Contract purchases 202,740 231,465 608,461 577 - Contract withdrawals and transfers to annuity reserves (140,585) (814,906) (688,924) (71,263) - Contract transfers 160,478 (500,852) 814,733 (16,658) ------------- ------------- ------------- ------------- 222,633 (1,084,293) 734,270 (87,344) Annuity Reserves: - Annuity Payments -- (1,097) -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- (198) -- -- ------------- ------------- ------------- ------------- -- (1,295) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 222,633 (1,085,588) 734,270 (87,344) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (227,427) (805,056) (1,340,711) (118,206) ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 1,470,750 6,478,091 6,923,014 640,426 Changes From Operations: - Net investment income (loss) (24,522) (20,903) (19,326) (9,815) - Net realized gain (loss) on investments (29,390) (12,734) (576,822) 41,151 - Net change in unrealized appreciation or depreciation on investments 219,235 977,333 1,431,145 56,355 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 165,323 943,696 834,997 87,691 Changes From Unit Transactions: Accumulation Units: - Contract purchases 56,611 12,123 80,168 864 - Contract withdrawals and transfers to annuity reserves (108,543) (825,892) (792,738) (39,088) - Contract transfers (60,940) (516,226) 54,135 (135,773) ------------- ------------- ------------- ------------- (112,872) (1,329,995) (658,435) (173,997) Annuity Reserves: - Annuity Payments -- (1,157) -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- 92 -- -- ------------- ------------- ------------- ------------- -- (1,065) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (112,872) (1,331,060) (658,435) (173,997) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 52,451 (387,364) 176,562 (86,306) ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 1,523,201 $ 6,090,727 $ 7,099,576 $ 554,120 ============= ============= ============= =============
See accompanying notes. N-12
AMERICAN ABVPSF CENTURY VP AMERICAN SMALL/MID CAP INFLATION FUNDS VALUE PROTECTION GLOBAL GROWTH CLASS B CLASS II CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 9,003,067 $ 24,348,757 $ 17,543,478 Changes From Operations: - Net investment income (loss) (115,761) 593,682 (67,209) - Net realized gain (loss) on investments 416,310 694,953 92,648 - Net change in unrealized appreciation or depreciation on investments (1,197,641) 1,104,564 (1,795,346) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (897,092) 2,393,199 (1,769,907) Changes From Unit Transactions: Accumulation Units: - Contract purchases 827,399 335,965 142,323 - Contract withdrawals and transfers to annuity reserves (732,819) (1,818,084) (1,380,160) - Contract transfers (1,072,424) (316,213) 150,506 ------------- ------------- ------------- (977,844) (1,798,332) (1,087,331) Annuity Reserves: - Annuity Payments -- (3,790) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 330 -- ------------- ------------- ------------- -- (3,460) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (977,844) (1,801,792) (1,087,331) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,874,936) 591,407 (2,857,238) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 7,128,131 24,940,164 14,686,240 Changes From Operations: - Net investment income (loss) (102,239) 166,333 (123,492) - Net realized gain (loss) on investments 433,098 1,088,308 181,882 - Net change in unrealized appreciation or depreciation on investments 794,074 79,044 2,647,936 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,124,933 1,333,685 2,706,326 Changes From Unit Transactions: Accumulation Units: - Contract purchases 451,280 194,575 92,717 - Contract withdrawals and transfers to annuity reserves (831,597) (2,835,846) (1,496,621) - Contract transfers (601,245) (310,060) (2,033,997) ------------- ------------- ------------- (981,562) (2,951,331) (3,437,901) Annuity Reserves: - Annuity Payments (237) (3,638) -- - Receipt (reimbursement) of mortality guarantee adjustments 95 332 -- ------------- ------------- ------------- (142) (3,306) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (981,704) (2,954,637) (3,437,901) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 143,229 (1,620,952) (731,575) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 7,271,360 $ 23,319,212 $ 13,954,665 ============= ============= ============= AMERICAN AMERICAN FUNDS AMERICAN FUNDS GLOBAL SMALL FUNDS GROWTH- CAPITALIZATION GROWTH INCOME CLASS 2 CLASS 2 CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 16,495,780 $ 93,251,626 $ 83,560,147 Changes From Operations: - Net investment income (loss) (44,365) (944,021) (143,730) - Net realized gain (loss) on investments 243,213 460,677 (735,341) - Net change in unrealized appreciation or depreciation on investments (3,094,114) (4,220,709) (1,802,703) -------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (2,895,266) (4,704,053) (2,681,774) Changes From Unit Transactions: Accumulation Units: - Contract purchases 442,243 913,772 1,023,752 - Contract withdrawals and transfers to annuity reserves (1,317,806) (9,636,562) (7,135,715) - Contract transfers (1,476,900) (7,645,508) (5,755,134) -------------- ------------- ------------- (2,352,463) (16,368,298) (11,867,097) Annuity Reserves: - Annuity Payments -- (2,685) (1,710) - Receipt (reimbursement) of mortality guarantee adjustments -- (87) 107 -------------- ------------- ------------- -- (2,772) (1,603) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (2,352,463) (16,371,070) (11,868,700) -------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (5,247,729) (21,075,123) (14,550,474) -------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 11,248,051 72,176,503 69,009,673 Changes From Operations: - Net investment income (loss) (29,628) (671,668) (71,744) - Net realized gain (loss) on investments (91,394) 1,113,518 409,422 - Net change in unrealized appreciation or depreciation on investments 1,877,030 10,504,750 9,826,110 -------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,756,008 10,946,600 10,163,788 Changes From Unit Transactions: Accumulation Units: - Contract purchases 192,185 241,527 606,003 - Contract withdrawals and transfers to annuity reserves (1,518,208) (8,890,901) (8,493,926) - Contract transfers (391,449) (3,626,588) (3,519,354) -------------- ------------- ------------- (1,717,472) (12,275,962) (11,407,277) Annuity Reserves: - Annuity Payments (446) (2,597) (2,628) - Receipt (reimbursement) of mortality guarantee adjustments 178 205 (89) -------------- ------------- ------------- (268) (2,392) (2,717) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,717,740) (12,278,354) (11,409,994) -------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 38,268 (1,331,754) (1,246,206) -------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 11,286,319 $ 70,844,749 $ 67,763,467 ============== ============= ============= DELAWARE AMERICAN BLACKROCK VIP FUNDS GLOBAL DIVERSIFIED INTERNATIONAL ALLOCATION V.I. INCOME CLASS 2 CLASS III SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 44,063,816 $ 13,806,109 $ 44,404,564 Changes From Operations: - Net investment income (loss) 21,925 405,626 989,341 - Net realized gain (loss) on investments (435,122) 998,352 2,476,054 - Net change in unrealized appreciation or depreciation on investments (6,191,891) (3,291,046) (1,590,714) ------------- --------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (6,605,088) (1,887,068) 1,874,681 Changes From Unit Transactions: Accumulation Units: - Contract purchases 509,189 14,499,484 9,223,508 - Contract withdrawals and transfers to annuity reserves (4,318,728) (1,005,324) (3,448,995) - Contract transfers 660,642 9,955,609 (2,813,842) ------------- --------------- ------------- (3,148,897) 23,449,769 2,960,671 Annuity Reserves: - Annuity Payments (1,612) -- (3,324) - Receipt (reimbursement) of mortality guarantee adjustments 113 -- 283 ------------- --------------- ------------- (1,499) -- (3,041) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (3,150,396) 23,449,769 2,957,630 ------------- --------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (9,755,484) 21,562,701 4,832,311 ------------- --------------- ------------- NET ASSETS AT DECEMBER 31, 2011 34,308,332 35,368,810 49,236,875 Changes From Operations: - Net investment income (loss) (78,719) (71,171) 691,968 - Net realized gain (loss) on investments (600,058) 154,792 1,916,721 - Net change in unrealized appreciation or depreciation on investments 5,830,006 3,248,947 4,704 ------------- --------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 5,151,229 3,332,568 2,613,393 Changes From Unit Transactions: Accumulation Units: - Contract purchases 306,519 9,804,381 4,255,683 - Contract withdrawals and transfers to annuity reserves (3,768,368) (2,773,600) (4,431,866) - Contract transfers (1,994,544) 7,574,787 2,877,513 ------------- --------------- ------------- (5,456,393) 14,605,568 2,701,330 Annuity Reserves: - Annuity Payments (1,348) -- (3,095) - Receipt (reimbursement) of mortality guarantee adjustments 117 -- 282 ------------- --------------- ------------- (1,231) -- (2,813) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (5,457,624) 14,605,568 2,698,517 ------------- --------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (306,395) 17,938,136 5,311,910 ------------- --------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 34,001,937 $ 53,306,946 $ 54,548,785 ============= =============== =============
N-13
DELAWARE DELAWARE VIP VIP DELAWARE DELAWARE LIMITED-TERM EMERGING VIP VIP DIVERSIFIED MARKETS HIGH YIELD HIGH YIELD INCOME SERVICE CLASS STANDARD CLASS SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS AT JANUARY 1, 2011 $ 17,597,531 $ 651,513 $ 16,394,024 $ 13,156,486 Changes From Operations: - Net investment income (loss) (13,123) 47,236 996,949 5,412 - Net realized gain (loss) on investments 245,548 10,163 339,642 248,042 - Net change in unrealized appreciation or depreciation on investments (4,428,662) (51,424) (1,221,144) (139,564) ------------- -------------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (4,196,237) 5,975 115,447 113,890 Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,831,884 73 229,505 5,204,218 - Contract withdrawals and transfers to annuity reserves (1,398,502) (69,250) (1,973,148) (1,120,201) - Contract transfers 1,853,607 66,809 (219,786) 3,919,854 ------------- -------------- ------------- ------------ 3,286,989 (2,368) (1,963,429) 8,003,871 Annuity Reserves: - Annuity Payments (1,056) (409) -- -- - Receipt (reimbursement) of mortality guarantee adjustments 75 31 -- -- ------------- -------------- ------------- ------------ (981) (378) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 3,286,008 (2,746) (1,963,429) 8,003,871 ------------- -------------- ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (910,229) 3,229 (1,847,982) 8,117,761 ------------- -------------- ------------- ------------ NET ASSETS AT DECEMBER 31, 2011 16,687,302 654,742 14,546,042 21,274,247 Changes From Operations: - Net investment income (loss) (162,322) 49,034 1,019,474 (40,096) - Net realized gain (loss) on investments (117,875) 5,792 231,921 221,507 - Net change in unrealized appreciation or depreciation on investments 2,407,058 47,637 808,752 18,260 ------------- -------------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,126,861 102,463 2,060,147 199,671 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,380,716 111 97,073 3,375,660 - Contract withdrawals and transfers to annuity reserves (1,842,351) (56,108) (1,966,009) (2,280,365) - Contract transfers 578,147 23,148 (910,111) 1,460,631 ------------- -------------- ------------- ------------ 116,512 (32,849) (2,779,047) 2,555,926 Annuity Reserves: - Annuity Payments (847) (394) -- (234) - Receipt (reimbursement) of mortality guarantee adjustments 75 27 -- 84 ------------- -------------- ------------- ------------ (772) (367) -- (150) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 115,740 (33,216) (2,779,047) 2,555,776 ------------- -------------- ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 2,242,601 69,247 (718,900) 2,755,447 ------------- -------------- ------------- ------------ NET ASSETS AT DECEMBER 31, 2012 $ 18,929,903 $ 723,989 $ 13,827,142 $ 24,029,694 ============= ============== ============= ============
See accompanying notes. N-14
DELAWARE VIP DELAWARE DELAWARE SMALL CAP VIP REIT VIP REIT VALUE STANDARD CLASS SERVICE CLASS STANDARD CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 790,420 $ 10,340,763 $ 896,644 Changes From Operations: - Net investment income (loss) 1,091 (39,861) (7,497) - Net realized gain (loss) on investments (36,388) (397,281) 26,065 - Net change in unrealized appreciation or depreciation on investments 104,011 1,312,451 (40,413) -------------- ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 68,714 875,309 (21,845) Changes From Unit Transactions: Accumulation Units: - Contract purchases 84 863,646 1,207 - Contract withdrawals and transfers to annuity reserves (74,923) (1,188,980) (58,930) - Contract transfers (30,353) 420,904 (37,203) -------------- ------------- -------------- (105,192) 95,570 (94,926) Annuity Reserves: - Annuity Payments -- (750) (413) - Receipt (reimbursement) of mortality guarantee adjustments -- (234) 30 -------------- ------------- -------------- -- (984) (383) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (105,192) 94,586 (95,309) -------------- ------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (36,478) 969,895 (117,154) -------------- ------------- -------------- NET ASSETS AT DECEMBER 31, 2011 753,942 11,310,658 779,490 Changes From Operations: - Net investment income (loss) 1,458 (41,122) (6,255) - Net realized gain (loss) on investments (11,770) 60,873 102,789 - Net change in unrealized appreciation or depreciation on investments 122,373 1,597,573 (10,699) -------------- ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 112,061 1,617,324 85,835 Changes From Unit Transactions: Accumulation Units: - Contract purchases 138 653,404 244 - Contract withdrawals and transfers to annuity reserves (88,707) (1,372,287) (154,692) - Contract transfers (4,053) (313,681) 4,765 -------------- ------------- -------------- (92,622) (1,032,564) (149,683) Annuity Reserves: - Annuity Payments -- (1,346) (391) - Receipt (reimbursement) of mortality guarantee adjustments -- (53) 25 -------------- ------------- -------------- -- (1,399) (366) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (92,622) (1,033,963) (150,049) -------------- ------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 19,439 583,361 (64,214) -------------- ------------- -------------- NET ASSETS AT DECEMBER 31, 2012 $ 773,381 $ 11,894,019 $ 715,276 ============== ============= ============== DELAWARE VIP DELAWARE VIP DELAWARE VIP SMALL CAP SMID CAP SMID CAP VALUE GROWTH GROWTH SERVICE CLASS STANDARD CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 18,102,120 $ 485,534 $ 6,424,434 Changes From Operations: - Net investment income (loss) (262,242) (1,957) (60,367) - Net realized gain (loss) on investments 325,789 35,644 574,093 - Net change in unrealized appreciation or depreciation on investments (908,534) (1,049) (261,826) ------------- -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (844,987) 32,638 251,900 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,858,775 1,744 606,805 - Contract withdrawals and transfers to annuity reserves (1,715,281) (42,188) (956,196) - Contract transfers 890,870 (69,008) (407,767) ------------- -------------- ------------- 1,034,364 (109,452) (757,158) Annuity Reserves: - Annuity Payments -- (368) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 30 -- ------------- -------------- ------------- -- (338) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,034,364 (109,790) (757,158) ------------- -------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 189,377 (77,152) (505,258) ------------- -------------- ------------- NET ASSETS AT DECEMBER 31, 2011 18,291,497 408,382 5,919,176 Changes From Operations: - Net investment income (loss) (259,655) (4,965) (129,681) - Net realized gain (loss) on investments 1,783,477 39,099 593,965 - Net change in unrealized appreciation or depreciation on investments 612,973 2,987 109,633 ------------- -------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,136,795 37,121 573,917 Changes From Unit Transactions: Accumulation Units: - Contract purchases 887,717 1,600 510,531 - Contract withdrawals and transfers to annuity reserves (1,855,497) (72,811) (635,182) - Contract transfers (296,039) 13,013 1,781,450 ------------- -------------- ------------- (1,263,819) (58,198) 1,656,799 Annuity Reserves: - Annuity Payments -- (385) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 25 -- ------------- -------------- ------------- -- (360) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,263,819) (58,558) 1,656,799 ------------- -------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 872,976 (21,437) 2,230,716 ------------- -------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 19,164,473 $ 386,945 $ 8,149,892 ============= ============== ============= DELAWARE VIP DELAWARE DELAWARE U.S. GROWTH VIP VALUE VIP VALUE SERVICE CLASS STANDARD CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 2,445,380 $ 184,583 $ 7,602,371 Changes From Operations: - Net investment income (loss) (35,241) 1,097 (647) - Net realized gain (loss) on investments 147,052 3,210 (179,032) - Net change in unrealized appreciation or depreciation on investments 53,842 10,663 670,255 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 165,653 14,970 490,576 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,049,007 -- 883,990 - Contract withdrawals and transfers to annuity reserves (264,417) (17,296) (1,087,004) - Contract transfers 185,802 22,794 471,458 ------------- ------------- ------------- 970,392 5,498 268,444 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 970,392 5,498 268,444 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,136,045 20,468 759,020 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 3,581,425 205,051 8,361,391 Changes From Operations: - Net investment income (loss) (73,526) 1,240 35,237 - Net realized gain (loss) on investments 195,385 11,414 122,940 - Net change in unrealized appreciation or depreciation on investments 450,483 7,897 891,144 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 572,342 20,551 1,049,321 Changes From Unit Transactions: Accumulation Units: - Contract purchases 512,191 29 319,037 - Contract withdrawals and transfers to annuity reserves (366,089) (28,578) (1,279,535) - Contract transfers 917,444 (50,417) 442,239 ------------- ------------- ------------- 1,063,546 (78,966) (518,259) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,063,546 (78,966) (518,259) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,635,888 (58,415) 531,062 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 5,217,313 $ 146,636 $ 8,892,453 ============= ============= =============
N-15
DWS DWS DWS DWS ALTERNATIVE EQUITY 500 EQUITY 500 SMALL CAP ASSET ALLOCATION INDEX INDEX INDEX VIP CLASS B VIP CLASS A VIP CLASS B VIP CLASS A SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS AT JANUARY 1, 2011 $ 3,839,499 $ 2,341,674 $ 3,086,837 $ 592,306 Changes From Operations: - Net investment income (loss) (7,273) 2,674 (4,055) (3,832) - Net realized gain (loss) on investments 19,927 33,873 48,515 (2,390) - Net change in unrealized appreciation or depreciation on investments (144,842) (31,012) (33,990) (27,332) ---------------- ----------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (132,188) 5,535 10,470 (33,554) Changes From Unit Transactions: Accumulation Units: - Contract purchases 709,102 11,439 8,127 221 - Contract withdrawals and transfers to annuity reserves (121,705) (128,561) (452,677) (52,953) - Contract transfers (2,293,124) 13,404 (192,825) 47,908 ---------------- ----------- ------------- ------------ (1,705,727) (103,718) (637,375) (4,824) Annuity Reserves: - Annuity Payments -- (83,882) (729) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 8 57 -- ---------------- ----------- ------------- ------------ -- (83,874) (672) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,705,727) (187,592) (638,047) (4,824) ---------------- ----------- ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS (1,837,915) (182,057) (627,577) (38,378) ---------------- ----------- ------------- ------------ NET ASSETS AT DECEMBER 31, 2011 2,001,584 2,159,617 2,459,260 553,928 Changes From Operations: - Net investment income (loss) 36,350 5,554 (1,526) (3,340) - Net realized gain (loss) on investments 28,999 89,968 100,683 (1,014) - Net change in unrealized appreciation or depreciation on investments 105,604 188,161 203,854 70,247 ---------------- ----------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 170,953 283,683 303,011 65,893 Changes From Unit Transactions: Accumulation Units: - Contract purchases 505,696 7,874 13,318 610 - Contract withdrawals and transfers to annuity reserves (205,416) (300,318) (502,112) (90,442) - Contract transfers 369,001 (156,686) (217,422) (58,937) ---------------- ----------- ------------- ------------ 669,281 (449,130) (706,216) (148,769) Annuity Reserves: - Annuity Payments -- -- (701) -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- 64 -- ---------------- ----------- ------------- ------------ -- -- (637) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 669,281 (449,130) (706,853) (148,769) ---------------- ----------- ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 840,234 (165,447) (403,842) (82,876) ---------------- ----------- ------------- ------------ NET ASSETS AT DECEMBER 31, 2012 $ 2,841,818 $ 1,994,170 $ 2,055,418 $ 471,052 ================ =========== ============= ============
See accompanying notes. N-16
DWS FIDELITY VIP FIDELITY VIP SMALL CAP CONTRAFUND EQUITY-INCOME INDEX SERVICE INITIAL VIP CLASS B CLASS 2 CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 1,946,989 $ 40,250,191 $ 589,945 Changes From Operations: - Net investment income (loss) (19,930) (352,040) 6,233 - Net realized gain (loss) on investments (43,784) (669,563) (5,382) - Net change in unrealized appreciation or depreciation on investments (56,842) (873,819) (2,463) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (120,556) (1,895,422) (1,612) Changes From Unit Transactions: Accumulation Units: - Contract purchases 12,504 4,646,325 -- - Contract withdrawals and transfers to annuity reserves (244,654) (4,042,861) (35,157) - Contract transfers (125,954) 704,541 1,925 ------------- ------------- ------------- (358,104) 1,308,005 (33,232) Annuity Reserves: - Annuity Payments -- (696) -- - Receipt (reimbursement) of mortality guarantee adjustments -- (211) -- ------------- ------------- ------------- -- (907) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (358,104) 1,307,098 (33,232) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (478,660) (588,324) (34,844) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 1,468,329 39,661,867 555,101 Changes From Operations: - Net investment income (loss) (16,924) (244,502) 8,208 - Net realized gain (loss) on investments 6,334 46,381 19,246 - Net change in unrealized appreciation or depreciation on investments 206,696 5,789,792 49,744 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 196,106 5,591,671 77,198 Changes From Unit Transactions: Accumulation Units: - Contract purchases 3,758 2,883,043 -- - Contract withdrawals and transfers to annuity reserves (221,474) (4,072,987) (104,988) - Contract transfers (75,934) (1,427,302) (20,193) ------------- ------------- ------------- (293,650) (2,617,246) (125,181) Annuity Reserves: - Annuity Payments -- (1,091) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 213 -- ------------- ------------- ------------- -- (878) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (293,650) (2,618,124) (125,181) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (97,544) 2,973,547 (47,983) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 1,370,785 $ 42,635,414 $ 507,118 ============= ============= ============= FIDELITY VIP FIDELITY VIP FIDELITY VIP EQUITY-INCOME GROWTH GROWTH SERVICE INITIAL SERVICE CLASS 2 CLASS CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 2,043,346 $ 217,326 $ 3,089,942 Changes From Operations: - Net investment income (loss) 9,699 (2,238) (50,319) - Net realized gain (loss) on investments (61,064) 5,787 121,841 - Net change in unrealized appreciation or depreciation on investments 39,970 (4,564) (120,528) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (11,395) (1,015) (49,006) Changes From Unit Transactions: Accumulation Units: - Contract purchases 62,935 -- 528,388 - Contract withdrawals and transfers to annuity reserves (294,220) (23,237) (287,448) - Contract transfers (123,509) (209) 35,650 ------------- ------------- ------------- (354,794) (23,446) 276,590 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (354,794) (23,446) 276,590 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (366,189) (24,461) 227,584 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 1,677,157 192,865 3,317,526 Changes From Operations: - Net investment income (loss) 20,501 (1,875) (51,314) - Net realized gain (loss) on investments 91,128 7,598 184,450 - Net change in unrealized appreciation or depreciation on investments 136,019 17,274 269,144 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 247,648 22,997 402,280 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,144 -- 437,813 - Contract withdrawals and transfers to annuity reserves (250,704) (4,388) (310,567) - Contract transfers 19,223 (42,631) 637,104 ------------- ------------- ------------- (230,337) (47,019) 764,350 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (230,337) (47,019) 764,350 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 17,311 (24,022) 1,166,630 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 1,694,468 $ 168,843 $ 4,484,156 ============= ============= ============= FIDELITY VIP FIDELITY VIP FIDELITY VIP MID CAP OVERSEAS OVERSEAS SERVICE INITIAL SERVICE CLASS 2 CLASS CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 22,285,551 $ 101,129 $ 4,156,534 Changes From Operations: - Net investment income (loss) (389,524) (40) (27,132) - Net realized gain (loss) on investments 312,665 26 (397,879) - Net change in unrealized appreciation or depreciation on investments (3,284,633) (18,255) (643,105) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (3,361,492) (18,269) (1,068,116) Changes From Unit Transactions: Accumulation Units: - Contract purchases 3,919,826 -- 322,459 - Contract withdrawals and transfers to annuity reserves (1,827,441) (4,893) (600,616) - Contract transfers 2,346,838 588 405,973 ------------- ------------- ------------- 4,439,223 (4,305) 127,816 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 4,439,223 (4,305) 127,816 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,077,731 (22,574) (940,300) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 23,363,282 78,555 3,216,234 Changes From Operations: - Net investment income (loss) (356,541) 397 1,601 - Net realized gain (loss) on investments 2,627,905 (348) (83,779) - Net change in unrealized appreciation or depreciation on investments 820,898 13,465 646,368 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 3,092,262 13,514 564,190 Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,759,704 -- 39,275 - Contract withdrawals and transfers to annuity reserves (2,383,537) (13,684) (343,920) - Contract transfers 1,645,536 (812) (85,828) ------------- ------------- ------------- 2,021,703 (14,496) (390,473) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 2,021,703 (14,496) (390,473) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 5,113,965 (982) 173,717 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 28,477,247 $ 77,573 $ 3,389,951 ============= ============= =============
N-17
FTVIPT FTVIPT FRANKLIN FTVIPT FTVIPT FRANKLIN SMALL-MID CAP MUTUAL TEMPLETON INCOME GROWTH SHARES GLOBAL BOND SECURITIES SECURITIES SECURITIES SECURITIES CLASS 2 CLASS 2 CLASS 2 CLASS 2 SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 25,815,263 $ 9,300,368 $ 18,048,001 $ 17,080,105 Changes From Operations: - Net investment income (loss) 1,039,396 (147,318) 154,750 655,305 - Net realized gain (loss) on investments (209,045) 279,144 (165,738) 620,823 - Net change in unrealized appreciation or depreciation on investments (663,004) (647,347) (460,970) (1,706,272) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 167,347 (515,521) (471,958) (430,144) Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,346,058 409,486 2,315,977 64,190 - Contract withdrawals and transfers to annuity reserves (1,645,796) (905,026) (1,142,149) (1,483,039) - Contract transfers (1,839,800) (541,089) 413,069 (376,745) ------------- ------------- ------------- ------------- (1,139,538) (1,036,629) 1,586,897 (1,795,594) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,139,538) (1,036,629) 1,586,897 (1,795,594) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (972,191) (1,552,150) 1,114,939 (2,225,738) ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 24,843,072 7,748,218 19,162,940 14,854,367 Changes From Operations: - Net investment income (loss) 1,343,387 (126,391) 98,322 651,070 - Net realized gain (loss) on investments (159,498) 764,556 (112,269) 351,731 - Net change in unrealized appreciation or depreciation on investments 1,500,424 53,877 2,346,857 667,910 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,684,313 692,042 2,332,910 1,670,711 Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,452,766 37,960 1,253,759 59,271 - Contract withdrawals and transfers to annuity reserves (3,526,133) (1,048,746) (1,531,556) (1,981,692) - Contract transfers 350,155 (608,542) (942,544) (1,622,304) ------------- ------------- ------------- ------------- (723,212) (1,619,328) (1,220,341) (3,544,725) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (723,212) (1,619,328) (1,220,341) (3,544,725) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,961,101 (927,286) 1,112,569 (1,874,014) ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 26,804,173 $ 6,820,932 $ 20,275,509 $ 12,980,353 ============= ============= ============= =============
See accompanying notes. N-18
GOLDMAN FTVIPT SACHS VIT TEMPLETON LARGE CAP GROWTH VALUE SECURITIES SERVICE HUNTINGTON VA CLASS 2 CLASS BALANCED SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 5,102,032 $ 857,331 $ -- Changes From Operations: - Net investment income (loss) (14,226) 3,831 -- - Net realized gain (loss) on investments (177,979) 14,743 -- - Net change in unrealized appreciation or depreciation on investments (154,156) (130,968) -- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (346,361) (112,394) -- Changes From Unit Transactions: Accumulation Units: - Contract purchases 3,231 425,570 -- - Contract withdrawals and transfers to annuity reserves (685,883) (27,740) -- - Contract transfers (183,116) 325,775 -- ------------- ------------- ------------- (865,768) 723,605 -- Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (865,768) 723,605 -- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (1,212,129) 611,211 -- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 3,889,903 1,468,542 -- Changes From Operations: - Net investment income (loss) 15,473 1,623 12 - Net realized gain (loss) on investments (232,304) 56,658 28 - Net change in unrealized appreciation or depreciation on investments 852,372 192,369 222 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 635,541 250,650 262 Changes From Unit Transactions: Accumulation Units: - Contract purchases 8,494 19,936 2,772 - Contract withdrawals and transfers to annuity reserves (705,397) (77,490) (43) - Contract transfers (394,659) (148,960) 1,787 ------------- ------------- ------------- (1,091,562) (206,514) 4,516 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,091,562) (206,514) 4,516 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (456,021) 44,136 4,778 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 3,433,882 $ 1,512,678 $ 4,778 ============= ============= ============= INVESCO V.I. INVESCO V.I. HUNTINGTON VA CAPITAL CAPITAL DIVIDEND APPRECIATION APPRECIATION CAPTURE SERIES I SERIES II SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ -- $ 177,636 $ 69,484 Changes From Operations: - Net investment income (loss) -- (2,563) (1,101) - Net realized gain (loss) on investments -- (3,738) (438) - Net change in unrealized appreciation or depreciation on investments -- (9,876) (4,909) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS -- (16,177) (6,448) Changes From Unit Transactions: Accumulation Units: - Contract purchases -- 240 131 - Contract withdrawals and transfers to annuity reserves -- (23,791) (2,419) - Contract transfers -- (622) -- ------------- ------------- ------------- -- (24,173) (2,288) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS -- (24,173) (2,288) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS -- (40,350) (8,736) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 -- 137,286 60,748 Changes From Operations: - Net investment income (loss) 1,178 (826) (357) - Net realized gain (loss) on investments 31 1,903 (4,912) - Net change in unrealized appreciation or depreciation on investments 726 19,261 14,202 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,935 20,338 8,933 Changes From Unit Transactions: Accumulation Units: - Contract purchases 16,005 80 42 - Contract withdrawals and transfers to annuity reserves (223) (948) (1,082) - Contract transfers 24,147 (156,756) (68,641) ------------- ------------- ------------- 39,929 (157,624) (69,681) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 39,929 (157,624) (69,681) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 41,864 (137,286) (60,748) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 41,864 $ -- $ -- ============= ============= ============= INVESCO V.I. INVESCO V.I. INVESCO V.I. INTERNATIONAL CORE EQUITY CORE EQUITY GROWTH SERIES I SERIES II SERIES I SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 419,992 $ 9,230 $ 122,723 Changes From Operations: - Net investment income (loss) (2,159) (65) 170 - Net realized gain (loss) on investments 4,685 142 2,047 - Net change in unrealized appreciation or depreciation on investments (7,571) (266) (11,923) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (5,045) (189) (9,706) Changes From Unit Transactions: Accumulation Units: - Contract purchases 3,100 1,248 -- - Contract withdrawals and transfers to annuity reserves (25,457) (2,010) (3,462) - Contract transfers (10,046) -- 88 ------------- ------------- ------------- (32,403) (762) (3,374) Annuity Reserves: - Annuity Payments (533) -- -- - Receipt (reimbursement) of mortality guarantee adjustments 18 -- -- ------------- ------------- ------------- (515) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (32,918) (762) (3,374) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (37,963) (951) (13,080) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 382,029 8,279 109,643 Changes From Operations: - Net investment income (loss) (1,656) (56) 94 - Net realized gain (loss) on investments 25,241 11 2,332 - Net change in unrealized appreciation or depreciation on investments 13,700 1,083 12,300 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 37,285 1,038 14,726 Changes From Unit Transactions: Accumulation Units: - Contract purchases 221 1,248 -- - Contract withdrawals and transfers to annuity reserves (64,169) -- (4,673) - Contract transfers (130,851) -- 73 ------------- ------------- ------------- (194,799) 1,248 (4,600) Annuity Reserves: - Annuity Payments (544) -- -- - Receipt (reimbursement) of mortality guarantee adjustments 36 -- -- ------------- ------------- ------------- (508) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (195,307) 1,248 (4,600) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (158,022) 2,286 10,126 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 224,007 $ 10,565 $ 119,769 ============= ============= =============
N-19
INVESCO VAN INVESCO VAN INVESCO V.I. KAMPEN V.I. KAMPEN V.I. JANUS INTERNATIONAL AMERICAN AMERICAN ASPEN SERIES GROWTH FRANCHISE FRANCHISE BALANCED SERIES II SERIES I SERIES II SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 219,863 $ -- $ -- $ 653,622 Changes From Operations: - Net investment income (loss) (826) -- -- 4,092 - Net realized gain (loss) on investments 1,609 -- -- 44,935 - Net change in unrealized appreciation or depreciation on investments (19,216) -- -- (51,418) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (18,433) -- -- (2,391) Changes From Unit Transactions: Accumulation Units: - Contract purchases 258 -- -- 361 - Contract withdrawals and transfers to annuity reserves (1,511) -- -- (49,417) - Contract transfers (699) -- -- 20,087 ------------- ------------- ------------- ------------- (1,952) -- -- (28,969) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,952) -- -- (28,969) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (20,385) -- -- (31,360) ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 199,478 -- -- 622,262 Changes From Operations: - Net investment income (loss) (921) (1,568) (674) 6,034 - Net realized gain (loss) on investments 49,148 (1,264) (703) 51,704 - Net change in unrealized appreciation or depreciation on investments (26,780) (3,281) (1,627) 9,032 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 21,447 (6,113) (3,004) 66,770 Changes From Unit Transactions: Accumulation Units: - Contract purchases 97 160 301 424 - Contract withdrawals and transfers to annuity reserves (62,914) (15,705) (6,886) (53,546) - Contract transfers (96,109) 155,440 68,641 32,304 ------------- ------------- ------------- ------------- (158,926) 139,895 62,056 (20,818) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (158,926) 139,895 62,056 (20,818) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (137,479) 133,782 59,052 45,952 ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 61,999 $ 133,782 $ 59,052 $ 668,214 ============= ============= ============= =============
See accompanying notes. N-20
JANUS JANUS LVIP ASPEN SERIES ASPEN SERIES AMERICAN ENTERPRISE WORLDWIDE GLOBAL GROWTH SERVICE CLASS SERVICE CLASS SERVICE CLASS II SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 663,530 $ 20,304 $ 129,265 Changes From Operations: - Net investment income (loss) (9,625) (145) (13,063) - Net realized gain (loss) on investments 68,808 856 (7,583) - Net change in unrealized appreciation or depreciation on investments (75,294) (2,591) (114,084) ------------- ------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (16,111) (1,880) (134,730) Changes From Unit Transactions: Accumulation Units: - Contract purchases 755 11 882,588 - Contract withdrawals and transfers to annuity reserves (62,946) (8,109) (19,908) - Contract transfers (43,097) 921 551,998 ------------- ------------- ---------------- (105,288) (7,177) 1,414,678 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ---------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (105,288) (7,177) 1,414,678 ------------- ------------- ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (121,399) (9,057) 1,279,948 ------------- ------------- ---------------- NET ASSETS AT DECEMBER 31, 2011 542,131 11,247 1,409,213 Changes From Operations: - Net investment income (loss) (7,373) (67) (12,424) - Net realized gain (loss) on investments 73,466 404 20,453 - Net change in unrealized appreciation or depreciation on investments 8,554 1,478 311,279 ------------- ------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 74,647 1,815 319,308 Changes From Unit Transactions: Accumulation Units: - Contract purchases 505 4 193,355 - Contract withdrawals and transfers to annuity reserves (14,763) (3,110) (51,832) - Contract transfers (183,224) (312) 143,994 ------------- ------------- ---------------- (197,482) (3,418) 285,517 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ---------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (197,482) (3,418) 285,517 ------------- ------------- ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (122,835) (1,603) 604,825 ------------- ------------- ---------------- NET ASSETS AT DECEMBER 31, 2012 $ 419,296 $ 9,644 $ 2,014,038 ============= ============= ================ LVIP LVIP AMERICAN LVIP AMERICAN GLOBAL SMALL AMERICAN GROWTH- CAPITALIZATION GROWTH INCOME SERVICE CLASS II SERVICE CLASS II SERVICE CLASS II SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 75,551 $ 397,998 $ 371,435 Changes From Operations: - Net investment income (loss) (5,559) (37,831) (32,329) - Net realized gain (loss) on investments (14,328) (24,714) 1,029 - Net change in unrealized appreciation or depreciation on investments (210,873) (175,795) (56,350) ---------------- ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (230,760) (238,340) (87,650) Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,300,358 3,071,107 2,829,116 - Contract withdrawals and transfers to annuity reserves (230,396) (79,217) (78,556) - Contract transfers 489,288 722,789 736,844 ---------------- ---------------- ---------------- 1,559,250 3,714,679 3,487,404 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ---------------- ---------------- ---------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,559,250 3,714,679 3,487,404 ---------------- ---------------- ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,328,490 3,476,339 3,399,754 ---------------- ---------------- ---------------- NET ASSETS AT DECEMBER 31, 2011 1,404,041 3,874,337 3,771,189 Changes From Operations: - Net investment income (loss) (12,608) (97,400) (31,760) - Net realized gain (loss) on investments (9,273) 53,909 80,190 - Net change in unrealized appreciation or depreciation on investments 293,690 805,190 712,151 ---------------- ---------------- ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 271,809 761,699 760,581 Changes From Unit Transactions: Accumulation Units: - Contract purchases 753,375 2,077,874 1,959,901 - Contract withdrawals and transfers to annuity reserves (88,250) (188,818) (187,346) - Contract transfers 186,967 1,132,897 1,229,831 ---------------- ---------------- ---------------- 852,092 3,021,953 3,002,386 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ---------------- ---------------- ---------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 852,092 3,021,953 3,002,386 ---------------- ---------------- ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,123,901 3,783,652 3,762,967 ---------------- ---------------- ---------------- NET ASSETS AT DECEMBER 31, 2012 $ 2,527,942 $ 7,657,989 $ 7,534,156 ================ ================ ================ LVIP BLACKROCK LVIP LVIP BARON EMERGING AMERICAN GROWTH MARKETS INTERNATIONAL OPPORTUNITIES INDEX RPM SERVICE CLASS II SERVICE CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 132,078 $ 7,321,779 $ -- Changes From Operations: - Net investment income (loss) (23,887) (134,780) -- - Net realized gain (loss) on investments (35,531) 280,201 -- - Net change in unrealized appreciation or depreciation on investments (296,496) 19,163 -- ---------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (355,914) 164,584 -- Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,111,070 1,085,374 -- - Contract withdrawals and transfers to annuity reserves (61,557) (555,890) -- - Contract transfers 947,589 (64,936) -- ---------------- ------------- ------------- 2,997,102 464,548 -- Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ---------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 2,997,102 464,548 -- ---------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 2,641,188 629,132 -- ---------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 2,773,266 7,950,911 -- Changes From Operations: - Net investment income (loss) 32,499 (49,400) 493 - Net realized gain (loss) on investments 8,240 703,301 1 - Net change in unrealized appreciation or depreciation on investments 494,677 629,451 5,494 ---------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 535,416 1,283,352 5,988 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,108,469 620,762 115,308 - Contract withdrawals and transfers to annuity reserves (139,746) (769,143) -- - Contract transfers 118,389 (33,751) 13,486 ---------------- ------------- ------------- 1,087,112 (182,132) 128,794 Annuity Reserves: - Annuity Payments -- (279) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 115 -- ---------------- ------------- ------------- -- (164) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,087,112 (182,296) 128,794 ---------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,622,528 1,101,056 134,782 ---------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 4,395,794 $ 9,051,967 $ 134,782 ================ ============= =============
N-21
LVIP LVIP BLACKROCK BLACKROCK LVIP EQUITY INFLATION LVIP CLARION DIVIDEND PROTECTED CAPITAL GLOBAL RPM BOND GROWTH REAL ESTATE SERVICE SERVICE SERVICE SERVICE CLASS CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 1,255,952 $ 1,156,079 $ 1,759,064 $ 5,337,719 Changes From Operations: - Net investment income (loss) (12,154) 80,379 (24,508) (93,318) - Net realized gain (loss) on investments (5,235) 155,632 43,889 78,787 - Net change in unrealized appreciation or depreciation on investments (41,625) 309,958 (258,478) (597,251) ------------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (59,014) 545,969 (239,097) (611,782) Changes From Unit Transactions: Accumulation Units: - Contract purchases 284,905 6,322,465 470,629 1,035,452 - Contract withdrawals and transfers to annuity reserves (100,837) (176,232) (56,473) (261,615) - Contract transfers 36,954 4,204,074 322,199 195,092 ------------- ------------ ------------ ------------ 221,022 10,350,307 736,355 968,929 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------ ------------ ------------ -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 221,022 10,350,307 736,355 968,929 ------------- ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 162,008 10,896,276 497,258 357,147 ------------- ------------ ------------ ------------ NET ASSETS AT DECEMBER 31, 2011 1,417,960 12,052,355 2,256,322 5,694,866 Changes From Operations: - Net investment income (loss) (20,553) (295,173) (30,737) (105,554) - Net realized gain (loss) on investments 25,933 582,812 32,850 150,013 - Net change in unrealized appreciation or depreciation on investments 226,518 411,314 412,070 1,216,090 ------------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 231,898 698,953 414,183 1,260,549 Changes From Unit Transactions: Accumulation Units: - Contract purchases 649,534 5,509,367 169,720 562,357 - Contract withdrawals and transfers to annuity reserves (99,191) (695,163) (126,225) (463,311) - Contract transfers 362,119 4,028,970 171,053 (370,909) ------------- ------------ ------------ ------------ 912,462 8,843,174 214,548 (271,863) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------ ------------ ------------ -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 912,462 8,843,174 214,548 (271,863) ------------- ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 1,144,360 9,542,127 628,731 988,686 ------------- ------------ ------------ ------------ NET ASSETS AT DECEMBER 31, 2012 $ 2,562,320 $ 21,594,482 $ 2,885,053 $ 6,683,552 ============= ============ ============ ============
See accompanying notes. N-22
LVIP COLUMBIA SMALL-MID LVIP LVIP CAP GROWTH DELAWARE DELAWARE RPM BOND BOND SERVICE STANDARD SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 1,480,721 $ 12,528,566 $ 46,866,116 Changes From Operations: - Net investment income (loss) (31,097) 207,419 840,453 - Net realized gain (loss) on investments 54,328 487,685 1,920,472 - Net change in unrealized appreciation or depreciation on investments (229,039) (6,838) 28,593 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (205,808) 688,266 2,789,518 Changes From Unit Transactions: Accumulation Units: - Contract purchases 573,038 135,591 8,851,069 - Contract withdrawals and transfers to annuity reserves (90,712) (1,684,052) (4,593,376) - Contract transfers 59,421 (416,504) 3,748,608 ------------- ------------- ------------- 541,747 (1,964,965) 8,006,301 Annuity Reserves: - Annuity Payments -- (825) (1,637) - Receipt (reimbursement) of mortality guarantee adjustments -- 69 140 ------------- ------------- ------------- -- (756) (1,497) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 541,747 (1,965,721) 8,004,804 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 335,939 (1,277,455) 10,794,322 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 1,816,660 11,251,111 57,660,438 Changes From Operations: - Net investment income (loss) (33,960) 28,315 119,444 - Net realized gain (loss) on investments 16,501 477,904 2,052,907 - Net change in unrealized appreciation or depreciation on investments 94,378 9,934 717,778 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 76,919 516,153 2,890,129 Changes From Unit Transactions: Accumulation Units: - Contract purchases 272,410 35,226 10,332,166 - Contract withdrawals and transfers to annuity reserves (109,269) (1,895,142) (4,743,566) - Contract transfers (67,819) (321,029) 4,865,006 ------------- ------------- ------------- 95,322 (2,180,945) 10,453,606 Annuity Reserves: - Annuity Payments -- (3,470) (1,529) - Receipt (reimbursement) of mortality guarantee adjustments -- (582) 139 ------------- ------------- ------------- -- (4,052) (1,390) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 95,322 (2,184,997) 10,452,216 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 172,241 (1,668,844) 13,342,345 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 1,988,901 $ 9,582,267 $ 71,002,783 ============= ============= ============= LVIP LVIP LVIP DELAWARE DELAWARE DELAWARE DIVERSIFIED FOUNDATION FOUNDATION FLOATING AGGRESSIVE AGGRESSIVE RATE ALLOCATION ALLOCATION SERVICE STANDARD SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 798,262 $ 368,235 $ 3,524,951 Changes From Operations: - Net investment income (loss) 21,464 1,661 3,780 - Net realized gain (loss) on investments (6,105) (9,002) (43,533) - Net change in unrealized appreciation or depreciation on investments (130,065) (4,278) (56,442) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (114,706) (11,619) (96,195) Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,822,584 25 2,947 - Contract withdrawals and transfers to annuity reserves (531,772) (47,694) (434,083) - Contract transfers 2,307,242 (28,447) (287,781) ------------- ------------- ------------- 4,598,054 (76,116) (718,917) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 4,598,054 (76,116) (718,917) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 4,483,348 (87,735) (815,112) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 5,281,610 280,500 2,709,839 Changes From Operations: - Net investment income (loss) (23,000) 952 (5,779) - Net realized gain (loss) on investments (6,136) (3,442) 19,330 - Net change in unrealized appreciation or depreciation on investments 169,554 33,145 272,151 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 140,418 30,655 285,702 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,824,745 34 3,470 - Contract withdrawals and transfers to annuity reserves (563,202) (17,944) (159,484) - Contract transfers 1,907,336 (12,302) (435,924) ------------- ------------- ------------- 3,168,879 (30,212) (591,938) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 3,168,879 (30,212) (591,938) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 3,309,297 443 (306,236) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 8,590,907 $ 280,943 $ 2,403,603 ============= ============= ============= LVIP DELAWARE LVIP LVIP GROWTH DELAWARE DELAWARE AND SOCIAL SOCIAL INCOME AWARENESS AWARENESS SERVICE STANDARD SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 1,509,371 $ 815,938 $ 2,248,485 Changes From Operations: - Net investment income (loss) (13,984) (6,360) (26,503) - Net realized gain (loss) on investments (4,881) 10,221 42,903 - Net change in unrealized appreciation or depreciation on investments (10,557) (11,417) (43,543) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (29,422) (7,556) (27,143) Changes From Unit Transactions: Accumulation Units: - Contract purchases 61,353 597 543,613 - Contract withdrawals and transfers to annuity reserves (118,326) (35,545) (376,141) - Contract transfers 387,377 (51,785) (52,039) ------------- ------------- ------------- 330,404 (86,733) 115,433 Annuity Reserves: - Annuity Payments -- (932) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 32 -- ------------- ------------- ------------- -- (900) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 330,404 (87,633) 115,433 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 300,982 (95,189) 88,290 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 1,810,353 720,749 2,336,775 Changes From Operations: - Net investment income (loss) (17,057) (5,785) (31,611) - Net realized gain (loss) on investments 50,810 70,922 225,135 - Net change in unrealized appreciation or depreciation on investments 188,538 28,811 112,528 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 222,291 93,948 306,052 Changes From Unit Transactions: Accumulation Units: - Contract purchases 23,230 664 35,346 - Contract withdrawals and transfers to annuity reserves (124,809) (84,347) (340,861) - Contract transfers (311,496) (31,093) 263,598 ------------- ------------- ------------- (413,075) (114,776) (41,917) Annuity Reserves: - Annuity Payments -- (968) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 63 -- ------------- ------------- ------------- -- (905) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (413,075) (115,681) (41,917) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (190,784) (21,733) 264,135 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 1,619,569 $ 699,016 $ 2,600,910 ============= ============= =============
N-23
LVIP LVIP LVIP DELAWARE DIMENSIONAL LVIP DIMENSIONAL/ SPECIAL NON-U.S. DIMENSIONAL VANGUARD OPPORTUNITIES EQUITY U.S. EQUITY TOTAL BOND SERVICE SERVICE SERVICE SERVICE CLASS CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 1,310,134 $ -- $ -- $ -- Changes From Operations: - Net investment income (loss) (43,336) (1,949) (1,854) (28,920) - Net realized gain (loss) on investments 106,393 (12,679) 1,333 4,559 - Net change in unrealized appreciation or depreciation on investments (386,224) (19,012) 16,839 53,743 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (323,167) (33,640) 16,318 29,382 Changes From Unit Transactions: Accumulation Units: - Contract purchases 526,352 488,241 472,380 1,154,304 - Contract withdrawals and transfers to annuity reserves (194,196) (2,833) (928) (122,548) - Contract transfers 682,574 87,428 132,202 5,202,406 ------------- ------------- ------------- ------------- 1,014,730 572,836 603,654 6,234,162 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,014,730 572,836 603,654 6,234,162 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 691,563 539,196 619,972 6,263,544 ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 2,001,697 539,196 619,972 6,263,544 Changes From Operations: - Net investment income (loss) (33,243) 13,970 (10,104) 1,655 - Net realized gain (loss) on investments 305,806 6,581 39,658 78,765 - Net change in unrealized appreciation or depreciation on investments 27,118 144,681 180,255 36,692 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 299,681 165,232 209,809 117,112 Changes From Unit Transactions: Accumulation Units: - Contract purchases 271,113 865,350 1,910,769 3,450,984 - Contract withdrawals and transfers to annuity reserves (166,320) (30,950) (43,359) (360,738) - Contract transfers 690,342 145,365 355,220 263,469 ------------- ------------- ------------- ------------- 795,135 979,765 2,222,630 3,353,715 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 795,135 979,765 2,222,630 3,353,715 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,094,816 1,144,997 2,432,439 3,470,827 ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 3,096,513 $ 1,684,193 $ 3,052,411 $ 9,734,371 ============= ============= ============= =============
See accompanying notes. N-24
LVIP LVIP LVIP JPMORGAN GLOBAL JPMORGAN MID CAP INCOME HIGH YIELD VALUE RPM SERVICE SERVICE SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 7,511,475 $ 138,587 $ 790,627 Changes From Operations: - Net investment income (loss) 346,430 104,510 (15,419) - Net realized gain (loss) on investments 50,737 (6,340) 9,622 - Net change in unrealized appreciation or depreciation on investments (731,898) (117,119) (31,904) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (334,731) (18,949) (37,701) Changes From Unit Transactions: Accumulation Units: - Contract purchases 5,084,878 1,233,032 155,623 - Contract withdrawals and transfers to annuity reserves (489,934) (110,389) (47,218) - Contract transfers 2,538,951 2,288,206 158,477 ------------- ------------- ------------- 7,133,895 3,410,849 266,882 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 7,133,895 3,410,849 266,882 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 6,799,164 3,391,900 229,181 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 14,310,639 3,530,487 1,019,808 Changes From Operations: - Net investment income (loss) (5,569) 200,977 (22,001) - Net realized gain (loss) on investments (538) 67,642 30,026 - Net change in unrealized appreciation or depreciation on investments 844,274 396,675 119,544 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 838,167 665,294 127,569 Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,582,377 970,515 488,026 - Contract withdrawals and transfers to annuity reserves (912,534) (261,747) (100,204) - Contract transfers 927,876 1,850,019 16,949 ------------- ------------- ------------- 2,597,719 2,558,787 404,771 Annuity Reserves: - Annuity Payments (239) -- -- - Receipt (reimbursement) of mortality guarantee adjustments 93 -- -- ------------- ------------- ------------- (146) -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 2,597,573 2,558,787 404,771 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 3,435,740 3,224,081 532,340 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 17,746,379 $ 6,754,568 $ 1,552,148 ============= ============= ============= LVIP MFS LVIP INTERNATIONAL LVIP MID-CAP GROWTH MFS VALUE VALUE SERVICE SERVICE SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 2,972,670 $ 7,930,493 $ 2,979,731 Changes From Operations: - Net investment income (loss) 35,067 (21,835) (53,642) - Net realized gain (loss) on investments (63,060) 173,519 60,722 - Net change in unrealized appreciation or depreciation on investments (351,279) (339,502) (389,501) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (379,272) (187,818) (382,421) Changes From Unit Transactions: Accumulation Units: - Contract purchases 536,212 2,292,975 561,894 - Contract withdrawals and transfers to annuity reserves (147,768) (505,810) (180,524) - Contract transfers 74,888 1,045,320 266,004 ------------- ------------- ------------- 463,332 2,832,485 647,374 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 463,332 2,832,485 647,374 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 84,060 2,644,667 264,953 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 3,056,730 10,575,160 3,244,684 Changes From Operations: - Net investment income (loss) (40,555) (62,443) (58,987) - Net realized gain (loss) on investments 3,473 284,347 138,011 - Net change in unrealized appreciation or depreciation on investments 615,268 1,353,544 636,187 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 578,186 1,575,448 715,211 Changes From Unit Transactions: Accumulation Units: - Contract purchases 549,293 1,737,193 509,935 - Contract withdrawals and transfers to annuity reserves (274,950) (579,667) (313,981) - Contract transfers 207,043 (316,016) (250,353) ------------- ------------- ------------- 481,386 841,510 (54,399) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 481,386 841,510 (54,399) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 1,059,572 2,416,958 660,812 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 4,116,302 $ 12,992,118 $ 3,905,496 ============= ============= ============= LVIP LVIP MONDRIAN MONDRIAN LVIP INTERNATIONAL INTERNATIONAL MONEY VALUE VALUE MARKET STANDARD SERVICE STANDARD CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 1,789,661 $ 7,448,268 $ 3,791,835 Changes From Operations: - Net investment income (loss) 27,560 82,237 (51,213) - Net realized gain (loss) on investments (35,291) (123,350) 4 - Net change in unrealized appreciation or depreciation on investments (95,264) (357,354) -- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (102,995) (398,467) (51,209) Changes From Unit Transactions: Accumulation Units: - Contract purchases 152,672 371,398 768 - Contract withdrawals and transfers to annuity reserves (203,407) (922,268) (1,192,475) - Contract transfers 36,562 131,000 829,648 ------------- ------------- ------------- (14,173) (419,870) (362,059) Annuity Reserves: - Annuity Payments -- (779) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 59 -- ------------- ------------- ------------- -- (720) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (14,173) (420,590) (362,059) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (117,168) (819,057) (413,268) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 1,672,493 6,629,211 3,378,567 Changes From Operations: - Net investment income (loss) 20,396 60,120 (44,091) - Net realized gain (loss) on investments (32,751) (159,221) 12 - Net change in unrealized appreciation or depreciation on investments 136,878 573,807 -- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 124,523 474,706 (44,079) Changes From Unit Transactions: Accumulation Units: - Contract purchases 8,394 97,870 11,138 - Contract withdrawals and transfers to annuity reserves (195,431) (627,533) (2,019,188) - Contract transfers 12,749 (14,475) 1,254,814 ------------- ------------- ------------- (174,288) (544,138) (753,236) Annuity Reserves: - Annuity Payments -- (656) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 60 -- ------------- ------------- ------------- -- (596) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (174,288) (544,734) (753,236) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (49,765) (70,028) (797,315) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 1,622,728 $ 6,559,183 $ 2,581,252 ============= ============= =============
N-25
LVIP LVIP LVIP LVIP PROTECTED PROTECTED PROTECTED MONEY PROFILE PROFILE PROFILE MARKET 2010 2020 2030 SERVICE SERVICE SERVICE SERVICE CLASS CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 14,882,422 $ 935,858 $ 501,684 $ 414,905 Changes From Operations: - Net investment income (loss) (264,445) (5,085) (11,297) (3,731) - Net realized gain (loss) on investments 20 39,330 11,073 1,554 - Net change in unrealized appreciation or depreciation on investments -- (35,325) (33,900) (7,753) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (264,425) (1,080) (34,124) (9,930) Changes From Unit Transactions: Accumulation Units: - Contract purchases 3,659,663 -- 6,373 -- - Contract withdrawals and transfers to annuity reserves (8,419,500) (280,429) (54,988) (7,750) - Contract transfers 5,390,378 178,305 2,685,309 (12,349) ------------- ------------- ------------- ------------- 630,541 (102,124) 2,636,694 (20,099) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 630,541 (102,124) 2,636,694 (20,099) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 366,116 (103,204) 2,602,570 (30,029) ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 15,248,538 832,654 3,104,254 384,876 Changes From Operations: - Net investment income (loss) (270,675) (88) (5,787) (1,375) - Net realized gain (loss) on investments 72 17,644 89,612 5,631 - Net change in unrealized appreciation or depreciation on investments -- 23,014 35,018 17,624 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (270,603) 40,570 118,843 21,880 Changes From Unit Transactions: Accumulation Units: - Contract purchases 1,646,900 73 376 -- - Contract withdrawals and transfers to annuity reserves (13,902,870) (9,000) (25,445) (102,587) - Contract transfers 14,571,302 (483,607) (2,778,200) -- ------------- ------------- ------------- ------------- 2,315,332 (492,534) (2,803,269) (102,587) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 2,315,332 (492,534) (2,803,269) (102,587) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 2,044,729 (451,964) (2,684,426) (80,707) ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 17,293,267 $ 380,690 $ 419,828 $ 304,169 ============= ============= ============= =============
See accompanying notes. N-26
LVIP LVIP LVIP PROTECTED PROTECTED PROTECTED PROFILE PROFILE PROFILE 2040 CONSERVATIVE GROWTH SERVICE SERVICE SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 76,452 $ 12,635,635 $ 19,727,783 Changes From Operations: - Net investment income (loss) (411) 31,076 16,814 - Net realized gain (loss) on investments 10,008 163,864 120,823 - Net change in unrealized appreciation or depreciation on investments (7,103) 34,090 (530,141) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,494 229,030 (392,504) Changes From Unit Transactions: Accumulation Units: - Contract purchases -- 3,799,808 3,353,349 - Contract withdrawals and transfers to annuity reserves (26,383) (891,724) (1,728,792) - Contract transfers (44,288) 2,021,795 620,330 ------------- ------------- ------------- (70,671) 4,929,879 2,244,887 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (70,671) 4,929,879 2,244,887 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (68,177) 5,158,909 1,852,383 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 8,275 17,794,544 21,580,166 Changes From Operations: - Net investment income (loss) (51) 893,813 871,583 - Net realized gain (loss) on investments (9) 964,439 161,536 - Net change in unrealized appreciation or depreciation on investments 468 363,192 2,770,326 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 408 2,221,444 3,803,445 Changes From Unit Transactions: Accumulation Units: - Contract purchases -- 19,368,411 57,745,194 - Contract withdrawals and transfers to annuity reserves (79) (2,590,814) (2,919,263) - Contract transfers -- 15,264,891 18,186,497 ------------- ------------- ------------- (79) 32,042,488 73,012,428 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (79) 32,042,488 73,012,428 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 329 34,263,932 76,815,873 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 8,604 $ 52,058,476 $ 98,396,039 ============= ============= ============= LVIP LVIP LVIP SSgA PROTECTED SSgA CONSERVATIVE PROFILE BOND INDEX MODERATE INDEX ALLOCATION SERVICE SERVICE SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 39,011,600 $ 30,602,415 $ -- Changes From Operations: - Net investment income (loss) (84,730) 374,658 (15,938) - Net realized gain (loss) on investments 566,164 481,500 (83,427) - Net change in unrealized appreciation or depreciation on investments (1,128,913) 810,162 12,826 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (647,479) 1,666,320 (86,539) Changes From Unit Transactions: Accumulation Units: - Contract purchases 8,839,089 1,774,727 898,574 - Contract withdrawals and transfers to annuity reserves (3,494,226) (1,669,512) (66,087) - Contract transfers 6,963,595 1,174,266 1,079,800 ------------- ------------- ------------- 12,308,458 1,279,481 1,912,287 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 12,308,458 1,279,481 1,912,287 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 11,660,979 2,945,801 1,825,748 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 50,672,579 33,548,216 1,825,748 Changes From Operations: - Net investment income (loss) 1,617,858 200,410 29,988 - Net realized gain (loss) on investments 651,641 347,076 18,279 - Net change in unrealized appreciation or depreciation on investments 3,254,482 64,489 128,995 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 5,523,981 611,975 177,262 Changes From Unit Transactions: Accumulation Units: - Contract purchases 55,690,451 3,690,486 1,171,030 - Contract withdrawals and transfers to annuity reserves (4,605,944) (1,981,979) (151,807) - Contract transfers 18,769,587 2,111,615 566,672 ------------- ------------- ------------- 69,854,094 3,820,122 1,585,895 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 69,854,094 3,820,122 1,585,895 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 75,378,075 4,432,097 1,763,157 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 126,050,654 $ 37,980,313 $ 3,588,905 ============= ============= ============= LVIP LVIP LVIP SSgA SSgA SSgA CONSERVATIVE DEVELOPED EMERGING STRUCTURED INTERNATIONAL MARKETS ALLOCATION 150 100 SERVICE SERVICE SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 50,557 $ 4,677,746 $ 7,217,769 Changes From Operations: - Net investment income (loss) (31,190) 22,120 46,111 - Net realized gain (loss) on investments (3,008) 124,806 934,928 - Net change in unrealized appreciation or depreciation on investments 37,029 (778,980) (2,101,845) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,831 (632,054) (1,120,806) Changes From Unit Transactions: Accumulation Units: - Contract purchases 4,296,175 206,799 774,660 - Contract withdrawals and transfers to annuity reserves (108,564) (195,975) (322,889) - Contract transfers 693,050 65,829 (471,387) ------------- ------------- ------------- 4,880,661 76,653 (19,616) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 4,880,661 76,653 (19,616) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 4,883,492 (555,401) (1,140,422) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 4,934,049 4,122,345 6,077,347 Changes From Operations: - Net investment income (loss) 194,485 33,212 54,485 - Net realized gain (loss) on investments 48,844 (16,520) 634,262 - Net change in unrealized appreciation or depreciation on investments 202,642 518,546 18,149 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 445,971 535,238 706,896 Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,698,579 400,338 668,094 - Contract withdrawals and transfers to annuity reserves (349,796) (275,384) (492,154) - Contract transfers 2,289,201 199,097 833,885 ------------- ------------- ------------- 4,637,984 324,051 1,009,825 Annuity Reserves: - Annuity Payments -- -- (342) - Receipt (reimbursement) of mortality guarantee adjustments -- -- 130 ------------- ------------- ------------- -- -- (212) NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 4,637,984 324,051 1,009,613 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 5,083,955 859,289 1,716,509 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 10,018,004 $ 4,981,634 $ 7,793,856 ============= ============= =============
N-27
LVIP SSgA LVIP LVIP GLOBAL LVIP SSgA SSgA TACTICAL SSgA LARGE MODERATE ALLOCATION INTERNATIONAL CAP INDEX RPM INDEX 100 ALLOCATION SERVICE SERVICE SERVICE SERVICE CLASS CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 3,349,785 $ 6,865,472 $ 11,676,876 $ 519,247 Changes From Operations: - Net investment income (loss) (52,647) (43,964) (49,544) (34,903) - Net realized gain (loss) on investments (222,715) 121,516 761,840 (29,893) - Net change in unrealized appreciation or depreciation on investments (164,146) (1,071,160) (691,148) 5,086 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (439,508) (993,608) 21,148 (59,710) Changes From Unit Transactions: Accumulation Units: - Contract purchases 8,265,681 575,171 715,535 2,582,390 - Contract withdrawals and transfers to annuity reserves (573,446) (281,527) (603,120) (70,697) - Contract transfers 12,323,576 610,437 (1,485,184) 1,407,314 ------------- ------------- ------------- ------------- 20,015,811 904,081 (1,372,769) 3,919,007 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 20,015,811 904,081 (1,372,769) 3,919,007 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 19,576,303 (89,527) (1,351,621) 3,859,297 ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 22,926,088 6,775,945 10,325,255 4,378,544 Changes From Operations: - Net investment income (loss) 445,665 (5,524) (40,666) 44,258 - Net realized gain (loss) on investments 129,305 38,416 345,481 18,445 - Net change in unrealized appreciation or depreciation on investments 1,749,097 1,099,070 736,313 498,196 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,324,067 1,131,962 1,041,128 560,899 Changes From Unit Transactions: Accumulation Units: - Contract purchases 8,146,354 560,563 447,246 4,028,736 - Contract withdrawals and transfers to annuity reserves (1,425,557) (367,868) (761,120) (343,526) - Contract transfers 3,226,434 74,840 27,190 1,004,355 ------------- ------------- ------------- ------------- 9,947,231 267,535 (286,684) 4,689,565 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- ------------- ------------- -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 9,947,231 267,535 (286,684) 4,689,565 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 12,271,298 1,399,497 754,444 5,250,464 ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 35,197,386 $ 8,175,442 $ 11,079,699 $ 9,629,008 ============= ============= ============= =============
See accompanying notes. N-28
LVIP LVIP LVIP SSgA SSgA SSgA MODERATELY MODERATELY MODERATE AGGRESSIVE AGGRESSIVE STRUCTURED INDEX STRUCTURED ALLOCATION ALLOCATION ALLOCATION SERVICE SERVICE SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 886,695 $ 196,856 $ 854,596 Changes From Operations: - Net investment income (loss) (179,388) (26,363) (94,411) - Net realized gain (loss) on investments 8,760 (23,226) (35,781) - Net change in unrealized appreciation or depreciation on investments (332,400) (96,316) (222,372) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (503,028) (145,905) (352,564) Changes From Unit Transactions: Accumulation Units: - Contract purchases 21,334,612 2,909,032 10,253,235 - Contract withdrawals and transfers to annuity reserves (372,545) (53,317) (153,153) - Contract transfers 5,520,833 357,869 2,715,289 ------------- ------------- ------------- 26,482,900 3,213,584 12,815,371 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 26,482,900 3,213,584 12,815,371 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 25,979,872 3,067,679 12,462,807 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 26,866,567 3,264,535 13,317,403 Changes From Operations: - Net investment income (loss) 723,496 36,333 390,156 - Net realized gain (loss) on investments 289,729 21,173 171,801 - Net change in unrealized appreciation or depreciation on investments 1,649,696 418,269 892,786 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 2,662,921 475,775 1,454,743 Changes From Unit Transactions: Accumulation Units: - Contract purchases 10,282,576 1,374,406 3,072,655 - Contract withdrawals and transfers to annuity reserves (1,062,829) (207,018) (590,102) - Contract transfers 2,045,525 1,481,760 2,887,168 ------------- ------------- ------------- 11,265,272 2,649,148 5,369,721 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 11,265,272 2,649,148 5,369,721 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 13,928,193 3,124,923 6,824,464 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 40,794,760 $ 6,389,458 $ 20,141,867 ============= ============= ============= LVIP LVIP SSgA SSgA LVIP S&P S&P SSgA 500 500 SMALL-CAP INDEX INDEX INDEX STANDARD SERVICE SERVICE CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 463,460 $ 17,453,770 $ 5,842,260 Changes From Operations: - Net investment income (loss) (5,862) (191,763) (93,357) - Net realized gain (loss) on investments 12,005 543,374 247,789 - Net change in unrealized appreciation or depreciation on investments (7,543) (308,059) (493,409) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (1,400) 43,552 (338,977) Changes From Unit Transactions: Accumulation Units: - Contract purchases -- 2,053,383 525,708 - Contract withdrawals and transfers to annuity reserves (31,757) (944,025) (282,881) - Contract transfers (27,395) 1,738 (154,120) ------------- ------------- ------------- (59,152) 1,111,096 88,707 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (59,152) 1,111,096 88,707 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (60,552) 1,154,648 (250,270) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 402,908 18,608,418 5,591,990 Changes From Operations: - Net investment income (loss) (5,465) (207,945) (76,993) - Net realized gain (loss) on investments 16,179 677,224 249,023 - Net change in unrealized appreciation or depreciation on investments 39,734 2,020,388 591,944 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 50,448 2,489,667 763,974 Changes From Unit Transactions: Accumulation Units: - Contract purchases -- 1,296,358 539,171 - Contract withdrawals and transfers to annuity reserves (43,176) (1,114,140) (384,301) - Contract transfers (31,035) 133,951 (365,862) ------------- ------------- ------------- (74,211) 316,169 (210,992) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (74,211) 316,169 (210,992) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (23,763) 2,805,836 552,982 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 379,145 $ 21,414,254 $ 6,144,972 ============= ============= ============= LVIP LVIP LVIP T. ROWE SSgA T. ROWE PRICE SMALL-MID PRICE STRUCTURED CAP GROWTH MID-CAP 200 STOCK GROWTH SERVICE SERVICE STANDARD CLASS CLASS CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 3,270,464 $ 2,168,082 $ 109,984 Changes From Operations: - Net investment income (loss) (10,034) (56,681) (1,481) - Net realized gain (loss) on investments 165,566 80,505 14,427 - Net change in unrealized appreciation or depreciation on investments (283,986) (185,378) (14,843) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (128,454) (161,554) (1,897) Changes From Unit Transactions: Accumulation Units: - Contract purchases 306,261 1,410,527 48 - Contract withdrawals and transfers to annuity reserves (150,862) (181,917) (30,215) - Contract transfers (94,142) 727,767 (15,675) ------------- ------------- ------------- 61,257 1,956,377 (45,842) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 61,257 1,956,377 (45,842) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (67,197) 1,794,823 (47,739) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 3,203,267 3,962,905 62,245 Changes From Operations: - Net investment income (loss) 19,255 (95,918) (1,218) - Net realized gain (loss) on investments 367,384 209,064 9,363 - Net change in unrealized appreciation or depreciation on investments (14,962) 598,017 (924) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 371,677 711,163 7,221 Changes From Unit Transactions: Accumulation Units: - Contract purchases 175,039 630,218 3,109 - Contract withdrawals and transfers to annuity reserves (204,248) (444,192) (6,668) - Contract transfers 21,028 1,285,200 7,773 ------------- ------------- ------------- (8,181) 1,471,226 4,214 Annuity Reserves: - Annuity Payments -- (268) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 104 -- ------------- ------------- ------------- -- (164) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (8,181) 1,471,062 4,214 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 363,496 2,182,225 11,435 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 3,566,763 $ 6,145,130 $ 73,680 ============= ============= =============
N-29
LVIP T. ROWE PRICE STRUCTURED LVIP LVIP UBS LVIP UBS MID-CAP TEMPLETON LARGE CAP LARGE CAP GROWTH GROWTH RPM GROWTH RPM GROWTH RPM SERVICE CLASS SERVICE CLASS STANDARD CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------------------------------------------------------------------------------------------------------------------------ NET ASSETS AT JANUARY 1, 2011 $ 2,677,560 $ 4,174,991 $ 121,493 $ 1,721,907 Changes From Operations: - Net investment income (loss) (49,648) 12,217 (1,404) (28,410) - Net realized gain (loss) on investments 134,425 (58,065) 4,861 36,452 - Net change in unrealized appreciation or depreciation on investments (249,355) (220,763) (10,101) (123,195) ------------- ------------- -------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (164,578) (266,611) (6,644) (115,153) Changes From Unit Transactions: Accumulation Units: - Contract purchases 626,912 679,121 23 125,159 - Contract withdrawals and transfers to annuity reserves (174,032) (227,241) (4,040) (151,761) - Contract transfers 144,400 207,072 1,149 (133,360) ------------- ------------- -------------- ------------ 597,280 658,952 (2,868) (159,962) Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- -------------- ------------ -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 597,280 658,952 (2,868) (159,962) ------------- ------------- -------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 432,702 392,341 (9,512) (275,115) ------------- ------------- -------------- ------------ NET ASSETS AT DECEMBER 31, 2011 3,110,262 4,567,332 111,981 1,446,792 Changes From Operations: - Net investment income (loss) (64,591) 3,239 (1,949) (33,830) - Net realized gain (loss) on investments 259,847 14,318 2,073 37,720 - Net change in unrealized appreciation or depreciation on investments 268,593 868,052 16,141 211,464 ------------- ------------- -------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 463,849 885,609 16,265 215,354 Changes From Unit Transactions: Accumulation Units: - Contract purchases 710,523 883,914 23 295,065 - Contract withdrawals and transfers to annuity reserves (374,681) (381,132) (4,174) (124,542) - Contract transfers 136,163 (115,894) (1,077) 350,308 ------------- ------------- -------------- ------------ 472,005 386,888 (5,228) 520,831 Annuity Reserves: - Annuity Payments -- -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- -- ------------- ------------- -------------- ------------ -- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 472,005 386,888 (5,228) 520,831 ------------- ------------- -------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 935,854 1,272,497 11,037 736,185 ------------- ------------- -------------- ------------ NET ASSETS AT DECEMBER 31, 2012 $ 4,046,116 $ 5,839,829 $ 123,018 $ 2,182,977 ============= ============= ============== ============
See accompanying notes. N-30
LVIP LVIP VANGUARD VANGUARD LORD ABBETT DOMESTIC INTERNATIONAL FUNDAMENTAL EQUITY ETF EQUITY ETF EQUITY SERVICE CLASS SERVICE CLASS CLASS VC SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ -- $ -- $ 35,937 Changes From Operations: - Net investment income (loss) 602 (2,313) (439) - Net realized gain (loss) on investments 866 (3,120) 3,372 - Net change in unrealized appreciation or depreciation on investments 18,068 (37,349) (9,540) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 19,536 (42,782) (6,607) Changes From Unit Transactions: Accumulation Units: - Contract purchases 336,072 241,729 34,670 - Contract withdrawals and transfers to annuity reserves (1,031) (2,229) (1,336) - Contract transfers 126,185 354,425 25,581 ------------- ------------- ------------- 461,226 593,925 58,915 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 461,226 593,925 58,915 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 480,762 551,143 52,308 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 480,762 551,143 88,245 Changes From Operations: - Net investment income (loss) 4,675 49,692 (365) - Net realized gain (loss) on investments 16,252 15,186 1,846 - Net change in unrealized appreciation or depreciation on investments 176,415 160,808 6,574 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 197,342 225,686 8,055 Changes From Unit Transactions: Accumulation Units: - Contract purchases 624,053 341,741 -- - Contract withdrawals and transfers to annuity reserves (105,419) (33,251) (2,298) - Contract transfers 1,870,941 884,528 (22,873) ------------- ------------- ------------- 2,389,575 1,193,018 (25,171) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 2,389,575 1,193,018 (25,171) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 2,586,917 1,418,704 (17,116) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 3,067,679 $ 1,969,847 $ 71,129 ============= ============= ============= MFS VIT MFS VIT MFS VIT CORE EQUITY GROWTH GROWTH SERVICE CLASS INITIAL CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 91,399 $ 151,706 $ 364,478 Changes From Operations: - Net investment income (loss) (819) (1,717) (6,853) - Net realized gain (loss) on investments 12,640 24,543 15,983 - Net change in unrealized appreciation or depreciation on investments (10,751) (24,120) (26,043) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,070 (1,294) (16,913) Changes From Unit Transactions: Accumulation Units: - Contract purchases 22 -- 77,574 - Contract withdrawals and transfers to annuity reserves (13,742) (11,424) (41,722) - Contract transfers (37,101) (29,039) 262,808 ------------- ------------- ------------- (50,821) (40,463) 298,660 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (50,821) (40,463) 298,660 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (49,751) (41,757) 281,747 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 41,648 109,949 646,225 Changes From Operations: - Net investment income (loss) (734) (1,465) (12,414) - Net realized gain (loss) on investments 4,748 14,842 48,031 - Net change in unrealized appreciation or depreciation on investments 2,844 2,980 72,902 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 6,858 16,357 108,519 Changes From Unit Transactions: Accumulation Units: - Contract purchases 28 -- 89,691 - Contract withdrawals and transfers to annuity reserves (13,049) (6,955) (52,424) - Contract transfers 27,088 (32,576) 87,909 ------------- ------------- ------------- 14,067 (39,531) 125,176 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 14,067 (39,531) 125,176 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 20,925 (23,174) 233,695 ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 62,573 $ 86,775 $ 879,920 ============= ============= ============= MFS VIT MFS VIT MFS VIT TOTAL RETURN TOTAL RETURN UTILITIES INITIAL CLASS SERVICE CLASS INITIAL CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 816,796 $ 15,470,557 $ 584,237 Changes From Operations: - Net investment income (loss) 9,261 115,348 10,341 - Net realized gain (loss) on investments 454 (1,934) 24,329 - Net change in unrealized appreciation or depreciation on investments (7,809) (154,646) (3,045) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,906 (41,232) 31,625 Changes From Unit Transactions: Accumulation Units: - Contract purchases 740 856,459 3,100 - Contract withdrawals and transfers to annuity reserves (54,932) (1,686,460) (58,651) - Contract transfers (67,292) (58,914) (72,597) ------------- ------------- ------------- (121,484) (888,915) (128,148) Annuity Reserves: - Annuity Payments -- (1,978) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 70 -- ------------- ------------- ------------- -- (1,908) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (121,484) (890,823) (128,148) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (119,578) (932,055) (96,523) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 697,218 14,538,502 487,714 Changes From Operations: - Net investment income (loss) 8,590 101,553 26,665 - Net realized gain (loss) on investments 13,484 180,259 22,422 - Net change in unrealized appreciation or depreciation on investments 39,594 950,860 3,078 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 61,668 1,232,672 52,165 Changes From Unit Transactions: Accumulation Units: - Contract purchases 77 65,236 153 - Contract withdrawals and transfers to annuity reserves (185,418) (2,386,722) (29,619) - Contract transfers (18,798) (417,559) (95,847) ------------- ------------- ------------- (204,139) (2,739,045) (125,313) Annuity Reserves: - Annuity Payments -- (2,025) -- - Receipt (reimbursement) of mortality guarantee adjustments -- 133 -- ------------- ------------- ------------- -- (1,892) -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (204,139) (2,740,937) (125,313) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (142,471) (1,508,265) (73,148) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 554,747 $ 13,030,237 $ 414,566 ============= ============= =============
N-31
NB AMT NB AMT MID CAP OPPENHEIMER MFS VIT MID CAP INTRINSIC GLOBAL UTILITIES GROWTH I VALUE I SECURITIES SERVICE CLASS CLASS CLASS SERVICE CLASS SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 11,092,347 $ 4,293,649 $ 4,932,486 $ 67,373 Changes From Operations: - Net investment income (loss) 165,666 (66,935) (45,091) (482) - Net realized gain (loss) on investments 93,305 240,235 81,971 592 - Net change in unrealized appreciation or depreciation on investments 202,177 (198,469) (370,022) (23,614) ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 461,148 (25,169) (333,142) (23,504) Changes From Unit Transactions: Accumulation Units: - Contract purchases 843,766 51,583 32,870 127,237 - Contract withdrawals and transfers to annuity reserves (879,615) (464,079) (475,442) (3,810) - Contract transfers 1,940,650 (276,139) (435,268) 40,448 ------------- ------------- ------------- ------------- 1,904,801 (688,635) (877,840) 163,875 Annuity Reserves: - Annuity Payments (2,437) -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments 86 -- -- -- ------------- ------------- ------------- ------------- (2,351) -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,902,450 (688,635) (877,840) 163,875 ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 2,363,598 (713,804) (1,210,982) 140,371 ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 13,455,945 3,579,845 3,721,504 207,744 Changes From Operations: - Net investment income (loss) 662,556 (58,697) (39,929) 2,198 - Net realized gain (loss) on investments 246,195 338,267 992,271 5,154 - Net change in unrealized appreciation or depreciation on investments 579,705 99,349 (466,778) 31,965 ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 1,488,456 378,919 485,564 39,317 Changes From Unit Transactions: Accumulation Units: - Contract purchases 840,410 2,421 2,739 2,995 - Contract withdrawals and transfers to annuity reserves (1,395,860) (595,683) (460,210) (5,486) - Contract transfers (839,741) (187,863) (102,740) (21,474) ------------- ------------- ------------- ------------- (1,395,191) (781,125) (560,211) (23,965) Annuity Reserves: - Annuity Payments (2,507) -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments 165 -- -- -- ------------- ------------- ------------- ------------- (2,342) -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS (1,397,533) (781,125) (560,211) (23,965) ------------- ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 90,923 (402,206) (74,647) 15,352 ------------- ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 13,546,868 $ 3,177,639 $ 3,646,857 $ 223,096 ============= ============= ============= =============
See accompanying notes. N-32
PIMCO VIT COMMODITY PUTNAM VT PUTNAM VT REAL RETURN GLOBAL GROWTH & STRATEGY HEALTH CARE INCOME ADVISOR CLASS CLASS IB CLASS IB SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------------------------------------------------------------------------------------------------------------- NET ASSETS AT JANUARY 1, 2011 $ 851,447 $ 87,254 $ 58,401 Changes From Operations: - Net investment income (loss) 159,529 (621) (335) - Net realized gain (loss) on investments (5,636) 2,509 (3,286) - Net change in unrealized appreciation or depreciation on investments (300,051) (4,265) (213) ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (146,158) (2,377) (3,834) Changes From Unit Transactions: Accumulation Units: - Contract purchases 331,349 99 15,897 - Contract withdrawals and transfers to annuity reserves (104,595) (9,317) (16,550) - Contract transfers 390,781 2 2,206 ------------- ------------- ------------- 617,535 (9,216) 1,553 Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 617,535 (9,216) 1,553 ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 471,377 (11,593) (2,281) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2011 1,322,824 75,661 56,120 Changes From Operations: - Net investment income (loss) 32,237 (205) 266 - Net realized gain (loss) on investments 46,044 6,711 (10,303) - Net change in unrealized appreciation or depreciation on investments (54,878) 7,814 14,733 ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS 23,403 14,320 4,696 Changes From Unit Transactions: Accumulation Units: - Contract purchases 2,019,344 104 48 - Contract withdrawals and transfers to annuity reserves (190,104) (6,464) (47,270) - Contract transfers 157,178 23,495 (547) ------------- ------------- ------------- 1,986,418 17,135 (47,769) Annuity Reserves: - Annuity Payments -- -- -- - Receipt (reimbursement) of mortality guarantee adjustments -- -- -- ------------- ------------- ------------- -- -- -- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS 1,986,418 17,135 (47,769) ------------- ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS 2,009,821 31,455 (43,073) ------------- ------------- ------------- NET ASSETS AT DECEMBER 31, 2012 $ 3,332,645 $ 107,116 $ 13,047 ============= ============= =============
N-33 LINCOLN NEW YORK ACCOUNT N FOR VARIABLE ANNUITIES NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 1. ACCOUNTING POLICIES AND VARIABLE ACCOUNT INFORMATION THE VARIABLE ACCOUNT: Lincoln New York Separate Account N for Variable Annuities (the Variable Account) is a segregated investment account of Lincoln Life & Annuity Company of New York (the Company) and is registered as a unit investment trust with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. The operations of the Variable Account, which commenced on March 4, 2004, are part of the operations of the Company. The Variable Account consists of twenty products as follows: - Lincoln ChoicePlus - Lincoln ChoicePlus Access - Lincoln ChoicePlus II - 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 - Lincoln ChoicePlus Signature - Lincoln ChoicePlus Fusion - Lincoln InvestmentSolutions - Lincoln ChoicePlus Assurance Series B Share - Lincoln ChoicePlus Assurance Series C Share - Lincoln ChoicePlus Assurance Series L Share 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 U.S. generally accepted accounting principles (GAAP) for unit investment trusts. ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts as of the date of the financial statements. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts that require use of estimates is the fair value of certain assets. INVESTMENTS: The assets of the Variable Account are divided into variable subaccounts, each of which may be invested in shares of one of two hundred twenty-three available mutual funds (the Funds) of twenty-one diversified, open-ended management investment companies, each Fund with its own investment objective. The Funds are: AllianceBernstein Variable Products Series Fund, Inc. (ABVPSF): ABVPSF Global Thematic Growth Class A Portfolio** ABVPSF Global Thematic Growth Class B Portfolio ABVPSF Growth and Income Class A Portfolio** ABVPSF Growth and Income Class B Portfolio ABVPSF International Value Class A Portfolio** ABVPSF International Value Class B Portfolio ABVPSF Large Cap Growth Class B Portfolio ABVPSF Small/Mid Cap Value Class A Portfolio** ABVPSF Small/Mid Cap Value Class B Portfolio American Century Variable Portfolios, Inc. (American Century VP): American Century VP Inflation Protection Class I Fund** American Century VP Inflation Protection Class II Fund American Funds Insurance Series (American Funds): American Funds Asset Allocation Class 1 Fund** American Funds Blue Chip Income and Growth Class 1 Fund** American Funds Bond Class 1 Fund** American Funds Global Balanced Class 1 Fund** American Funds Global Bond Class 1 Fund** American Funds Global Discovery Class 1 Fund** American Funds Global Growth Class 1 Fund** American Funds Global Growth Class 2 Fund American Funds Global Growth and Income Class 1 Fund** American Funds Global Small Capitalization Class 1 Fund** American Funds Global Small Capitalization Class 2 Fund American Funds Growth Class 1 Fund** American Funds Growth Class 2 Fund American Funds Growth-Income Class 1 Fund** American Funds Growth-Income Class 2 Fund American Funds High-Income Bond Class 1 Fund** American Funds International Class 1 Fund** American Funds International Class 2 Fund American Funds International Growth and Income Class 1 Fund** American Funds Mortgage Class 1 Fund** American Funds New World Class 1 Fund** American Funds Protected Asset Allocation Class P1 Fund** American Funds Protected Asset Allocation Class P2 Fund** American Funds U.S. Government/AAA-Rated Securities Class 1 Fund** BlackRock Variable Series Funds, Inc. (BlackRock): BlackRock Global Allocation V.I. Class I Fund** BlackRock Global Allocation V.I. Class III Fund N-34 Delaware VIP Trust (Delaware VIP): Delaware VIP Diversified Income Standard Class Series** Delaware VIP Diversified Income Service Class Series Delaware VIP Emerging Markets Standard Class Series** Delaware VIP Emerging Markets Service Class Series Delaware VIP High Yield Standard Class Series Delaware VIP High Yield Service Class Series Delaware VIP Limited-Term Diversified Income Standard Class Series** Delaware VIP Limited-Term Diversified Income Service Class Series Delaware VIP REIT Standard Class Series Delaware VIP REIT Service Class Series Delaware VIP Small Cap Value Standard Class Series Delaware VIP Small Cap Value Service Class Series Delaware VIP Smid Cap Growth Standard Class Series Delaware VIP Smid Cap Growth Service Class Series Delaware VIP U.S. Growth Standard Class Series** Delaware VIP U.S. Growth Service Class Series Delaware VIP Value Standard Class Series Delaware VIP Value Service Class Series DWS Variable Series II (DWS): DWS Alternative Asset Allocation VIP Class A Portfolio** DWS Alternative Asset Allocation VIP Class B Portfolio DWS Investments VIT Funds (DWS): DWS Equity 500 Index VIP Class A Portfolio DWS Equity 500 Index VIP Class B Portfolio DWS Small Cap Index VIP Class A Portfolio DWS Small Cap Index VIP Class B Portfolio Fidelity Variable Insurance Products Fund (Fidelity VIP): Fidelity VIP Contrafund Initial Class Portfolio** Fidelity VIP Contrafund Service Class 2 Portfolio Fidelity VIP Equity-Income Initial Class Portfolio Fidelity VIP Equity-Income Service Class 2 Portfolio Fidelity VIP Growth Initial Class Portfolio Fidelity VIP Growth Service Class 2 Portfolio Fidelity VIP Mid Cap Initial Class Portfolio** Fidelity VIP Mid Cap Service Class 2 Portfolio Fidelity VIP Overseas Initial Class Portfolio Fidelity VIP Overseas Service Class 2 Portfolio Franklin Templeton Variable Insurance Products Trust (FTVIPT): FTVIPT Franklin Income Securities Class 1 Fund** FTVIPT Franklin Income Securities Class 2 Fund FTVIPT Franklin Small-Mid Cap Growth Securities Class 1 Fund** FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 Fund FTVIPT Mutual Shares Securities Class 1 Fund** FTVIPT Mutual Shares Securities Class 2 Fund FTVIPT Templeton Global Bond Securities Class 2 Fund FTVIPT Templeton Growth Securities Class 2 Fund Goldman Sachs Variable Insurance Trust (Goldman Sachs VIT): Goldman Sachs VIT Large Cap Value Service Class Fund Hunting VA Funds: Huntington VA Balanced Fund Huntington VA Dividend Capture Fund Invesco Variable Insurance Funds (Invesco V.I.): Invesco V.I. Core Equity Series I Fund Invesco V.I. Core Equity Series II Fund Invesco V.I. International Growth Series I Fund Invesco V.I. International Growth Series II Fund Invesco Van Kampen V.I. American Franchise Series I Fund Invesco Van Kampen V.I. American Franchise Series II Fund Janus Aspen Series: Janus Aspen Series Balanced Service Class Portfolio Janus Aspen Series Enterprise Service Class Portfolio Janus Aspen Series Worldwide Service Class Portfolio Lincoln Variable Insurance Products Trust (LVIP)*: LVIP American Balanced Allocation Standard Class Fund** LVIP American Global Growth Service Class II Fund LVIP American Global Small Capitalization Service Class II Fund LVIP American Growth Allocation Standard Class Fund** LVIP American Growth Service Class II Fund LVIP American Growth-Income Service Class II Fund LVIP American Income Allocation Standard Class Fund** LVIP American International Service Class II Fund LVIP American Preservation Standard Class Fund** LVIP American Preservation Service Class Fund** LVIP Baron Growth Opportunities Standard Class Fund** LVIP Baron Growth Opportunities Service Class Fund LVIP BlackRock Emerging Markets Index RPM Standard Class Fund** LVIP BlackRock Emerging Markets Index RPM Service Class Fund LVIP BlackRock Equity Dividend RPM Standard Class Fund** LVIP BlackRock Equity Dividend RPM Service Class Fund LVIP BlackRock Inflation Protected Bond Standard Class Fund** LVIP BlackRock Inflation Protected Bond Service Class Fund LVIP Capital Growth Standard Class Fund** LVIP Capital Growth Service Class Fund LVIP Clarion Global Real Estate Standard Class Fund** N-35 LVIP Clarion Global Real Estate Service Class Fund LVIP Columbia Small-Mid Cap Growth RPM Standard Class Fund** LVIP Columbia Small-Mid Cap Growth RPM Service Class Fund LVIP Delaware Bond Standard Class Fund LVIP Delaware Bond Service Class Fund LVIP Delaware Diversified Floating Rate Standard Class Fund** LVIP Delaware Diversified Floating Rate Service Class Fund LVIP Delaware Foundation Aggressive Allocation Standard Class Fund LVIP Delaware Foundation Aggressive Allocation Service Class Fund LVIP Delaware Foundation Conservative Allocation Standard Class Fund** LVIP Delaware Foundation Conservative Allocation Service Class Fund** LVIP Delaware Foundation Moderate Allocation Standard Class Fund** LVIP Delaware Foundation Moderate Allocation Service Class Fund** LVIP Delaware Growth and Income Standard Class Fund** LVIP Delaware Growth and Income Service Class Fund LVIP Delaware Social Awareness Standard Class Fund LVIP Delaware Social Awareness Service Class Fund LVIP Delaware Special Opportunities Standard Class Fund** LVIP Delaware Special Opportunities Service Class Fund LVIP Dimensional Non-U.S. Equity Standard Class Fund** LVIP Dimensional Non-U.S. Equity Service Class Fund LVIP Dimensional U.S. Equity Standard Class Fund** LVIP Dimensional U.S. Equity Service Class Fund LVIP Dimensional/Vanguard Total Bond Standard Class Fund** LVIP Dimensional/Vanguard Total Bond Service Class Fund LVIP Global Income Standard Class Fund** LVIP Global Income Service Class Fund LVIP JPMorgan High Yield Standard Class Fund** LVIP JPMorgan High Yield Service Class Fund LVIP JPMorgan Mid Cap Value RPM Standard Class Fund** LVIP JPMorgan Mid Cap Value RPM Service Class Fund LVIP MFS International Growth Standard Class Fund** LVIP MFS International Growth Service Class Fund LVIP MFS Value Standard Class Fund** LVIP MFS Value Service Class Fund LVIP Mid-Cap Value Standard Class Fund** LVIP Mid-Cap Value Service Class Fund LVIP Mondrian International Value Standard Class Fund LVIP Mondrian International Value Service Class Fund LVIP Money Market Standard Class Fund LVIP Money Market Service Class Fund LVIP Protected Profile 2010 Service Class Fund LVIP Protected Profile 2020 Service Class Fund LVIP Protected Profile 2030 Service Class Fund LVIP Protected Profile 2040 Service Class Fund LVIP Protected American Balanced Allocation Standard Class Fund** LVIP Protected American Growth Allocation Standard Class Fund** LVIP Protected Profile Conservative Standard Class Fund** LVIP Protected Profile Conservative Service Class Fund LVIP Protected Profile Growth Standard Class Fund** LVIP Protected Profile Growth Service Class Fund LVIP Protected Profile Moderate Standard Class Fund** LVIP Protected Profile Moderate Service Class Fund LVIP SSgA Bond Index Standard Class Fund** LVIP SSgA Bond Index Service Class Fund LVIP SSgA Conservative Index Allocation Standard Class Fund** LVIP SSgA Conservative Index Allocation Service Class Fund LVIP SSgA Conservative Structured Allocation Standard Class Fund** LVIP SSgA Conservative Structured Allocation Service Class Fund LVIP SSgA Developed International 150 Standard Class Fund** LVIP SSgA Developed International 150 Service Class Fund LVIP SSgA Emerging Markets 100 Standard Class Fund** LVIP SSgA Emerging Markets 100 Service Class Fund LVIP SSgA Global Tactical Allocation RPM Standard Class Fund** LVIP SSgA Global Tactical Allocation RPM Service Class Fund LVIP SSgA International Index Standard Class Fund** LVIP SSgA International Index Service Class Fund LVIP SSgA Large Cap 100 Standard Class Fund** LVIP SSgA Large Cap 100 Service Class Fund LVIP SSgA Moderate Index Allocation Standard Class Fund** LVIP SSgA Moderate Index Allocation Service Class Fund N-36 LVIP SSgA Moderate Structured Allocation Standard Class Fund** LVIP SSgA Moderate Structured Allocation Service Class Fund LVIP SSgA Moderately Aggressive Index Allocation Standard Class Fund** LVIP SSgA Moderately Aggressive Index Allocation Service Class Fund LVIP SSgA Moderately Aggressive Structured Allocation Standard Class Fund** LVIP SSgA Moderately Aggressive Structured Allocation Service Class Fund LVIP SSgA S&P 500 Index Standard Class Fund LVIP SSgA S&P 500 Index Service Class Fund LVIP SSgA Small-Cap Index Standard Class Fund** LVIP SSgA Small-Cap Index Service Class Fund LVIP SSgA Small-Mid Cap 200 Standard Class Fund** LVIP SSgA Small-Mid Cap 200 Service Class Fund LVIP T. Rowe Price Growth Stock Standard Class Fund** LVIP T. Rowe Price Growth Stock Service Class Fund LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class Fund LVIP T. Rowe Price Structured Mid-Cap Growth Service Class Fund LVIP Templeton Growth RPM Standard Class Fund** LVIP Templeton Growth RPM Service Class Fund LVIP UBS Large Cap Growth RPM Standard Class Fund LVIP UBS Large Cap Growth RPM Service Class Fund LVIP Vanguard Domestic Equity ETF Standard Class Fund** LVIP Vanguard Domestic Equity ETF Service Class Fund LVIP Vanguard International Equity ETF Standard Class Fund** LVIP Vanguard International Equity ETF Service Class Fund Lord Abbett Securities Trust (Lord Abbett): Lord Abbett Fundamental Equity Class VC Portfolio MFS Variable Insurance Trust (MFS VIT): MFS VIT Core Equity Service Class Series MFS VIT Growth Initial Class Series MFS VIT Growth Service Class Series MFS VIT Total Return Initial Class Series MFS VIT Total Return Service Class Series MFS VIT Utilities Initial Class Series MFS VIT Utilities Service Class Series Morgan Stanley Universal Institutional Funds (Morgan Stanley UIF): Morgan Stanley UIF Capital Growth Class II Portfolio** Neuberger Berman Advisers Management Trust (NB AMT): NB AMT Mid Cap Growth I Class Portfolio NB AMT Mid Cap Intrinsic Value I Class Portfolio Oppenheimer Variable Account Funds (Oppenheimer): Oppenheimer Global Securities Service Class Fund/VA PIMCO Variable Insurance Trust (PIMCO VIT): PIMCO VIT CommodityRealReturn Strategy Administrative Class Portfolio** PIMCO VIT CommodityRealReturn Strategy Advisor Class Portfolio Putnam Variable Trust (Putnam VT): Putnam VT Global Health Care Class IB Fund Putnam VT Growth & Income Class IB Fund ---------- * Denotes an affiliate of the Company ** Available fund with no money invested at December 31, 2012 Investments in the Funds are stated at fair value as determined by the closing net asset value per share on December 31, 2012. The difference between cost and net asset value is reflected as unrealized appreciation or depreciation of investments. The Variable Account's investments in the Funds are valued in accordance with the Fair Value Measurements and Disclosure Topic of the Financial Accounting Standards Board Accounting Standards Codification (Topic). The Topic 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. The Topic 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 N-37 Level 3 - inputs to the valuation methodology are unobservable and reflect assumptions on the part of the reporting entity The Variable Account's investments in the Funds are valued within the 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. 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 or receivable with respect to the Variable Account's net investment income and the net realized gain (loss) 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 1983a Individual Annuitant Mortality Table and an assumed investment rate of 3%, 4%, or 5%. INVESTMENT FUND CHANGES: During 2011, the following funds became available as investment options for account contract owners. Accordingly, for the subaccounts that commenced operations during 2011, the 2011 statements of changes in net assets and total return and investment income ratios in note 3 are for the period from the commencement of operations to December 31, 2011: American Funds Asset Allocation Class 1 Fund American Funds Blue Chip Income and Growth Class 1 Fund American Funds Bond Class 1 Fund American Funds Global Balanced Class 1 Fund American Funds Global Bond Class 1 Fund American Funds Global Discovery Class 1 Fund American Funds Global Growth and Income Class 1 Fund American Funds High-Income Bond Class 1 Fund American Funds International Growth and Income Class 1 Fund American Funds Mortgage Class 1 Fund American Funds New World Class 1 Fund American Funds U.S. Government/AAA-Rated Securities Class 1 Fund Huntington VA Balanced Fund Huntington VA Dividend Capture Fund LVIP American Balanced Allocation Standard Class Fund LVIP American Growth Allocation Standard Class Fund LVIP American Income Allocation Standard Class Fund LVIP Dimensional Non-U.S. Equity Standard Class Fund LVIP Dimensional Non-U.S. Equity Service Class Fund LVIP Dimensional U.S. Equity Standard Class Fund LVIP Dimensional U.S. Equity Service Class Fund LVIP Dimensional/Vanguard Total Bond Standard Class Fund LVIP Dimensional/Vanguard Total Bond Service Class Fund LVIP Vanguard Domestic Equity ETF Standard Class Fund LVIP Vanguard Domestic Equity ETF Service Class Fund LVIP Vanguard International Equity ETF Standard Class Fund LVIP Vanguard International Equity ETF Service Class Fund Also during 2011, the following funds changed their names:
PREVIOUS FUND NAME NEW FUND NAME -------------------------------------------------------------------------------------------------------------------------- LVIP Wilshire 2010 Profile Service Class Fund LVIP Protected Profile 2010 Service Class Fund LVIP Wilshire 2020 Profile Service Class Fund LVIP Protected Profile 2020 Service Class Fund LVIP Wilshire 2030 Profile Service Class Fund LVIP Protected Profile 2030 Service Class Fund LVIP Wilshire 2040 Profile Service Class Fund LVIP Protected Profile 2040 Service Class Fund LVIP Wilshire Conservative Profile Standard Class Fund LVIP Protected Profile Conservative Standard Class Fund LVIP Wilshire Conservative Profile Service Class Fund LVIP Protected Profile Conservative Service Class Fund LVIP Wilshire Moderately Aggressive Profile Standard Class Fund LVIP Protected Profile Growth Standard Class Fund LVIP Wilshire Moderately Aggressive Profile Service Class Fund LVIP Protected Profile Growth Service Class Fund LVIP Wilshire Moderate Profile Standard Class Fund LVIP Protected Profile Moderate Standard Class Fund LVIP Wilshire Moderate Profile Service Class Fund LVIP Protected Profile Moderate Service Class Fund
In the accompanying 2011 Statements of Changes in Net Assets, certain 2011 contract purchases and contract withdrawals have been reclassified to contract transfers. The total net increase/(decrease) in net assets resulting from unit transactions has not changed. N-38 During 2012, the following funds became available as investment options for account contract owners. Accordingly, for the subaccounts that commenced operations during 2012, the 2012 statements of operations and statements of changes in net assets and total return and investment income ratios in note 3 are for the period from the commencement of operations to December 31, 2012: American Funds Protected Asset Allocation Class P1 Fund American Funds Protected Asset Allocation Class P2 Fund Invesco Van Kampen V.I. American Franchise Series I Fund Invesco Van Kampen V.I. American Franchise Series II Fund LVIP American Preservation Standard Class Fund LVIP American Preservation Service Class Fund LVIP BlackRock Emerging Markets Index RPM Standard Class Fund LVIP BlackRock Emerging Markets Index RPM Service Class Fund LVIP Delaware Foundation Conservative Allocation Standard Class Fund LVIP Delaware Foundation Conservative Allocation Service Class Fund LVIP Delaware Foundation Moderate Allocation Standard Class Fund LVIP Delaware Foundation Moderate Allocation Service Class Fund LVIP Protected American Balanced Allocation Standard Class Fund LVIP Protected American Growth Allocation Standard Class Fund During 2012, the Invesco V.I. Capital Appreciation Series I Fund and the Invesco V.I. Capital Appreciation Series II Fund ceased to be available as investment options to Variable Account Contract owners. Also during 2012, the following funds changed their names:
PREVIOUS FUND NAME NEW FUND NAME -------------------------------------------------------------------------------------------------------------------------- DWS Alternative Asset Allocation Plus VIP Class A Portfolio DWS Alternative Asset Allocation VIP Class A Portfolio DWS Alternative Asset Allocation Plus VIP Class B Portfolio DWS Alternative Asset Allocation VIP Class B Portfolio LVIP Wells Fargo Intrinsic Value Standard Class Fund LVIP BlackRock Equity Dividend RPM Standard Class Fund LVIP Wells Fargo Intrinsic Value Service Class Fund LVIP BlackRock Equity Dividend RPM Service Class Fund LVIP Cohen & Steers Global Real Estate Standard Class Fund LVIP Clarion Global Real Estate Standard Class Fund LVIP Cohen & Steers Global Real Estate Service Class Fund LVIP Clarion Global Real Estate Service Class Fund LVIP Turner Mid-Cap Growth Standard Class Fund LVIP Columbia Small-Mid Cap Growth RPM Standard Class Fund LVIP Turner Mid-Cap Growth Service Class Fund LVIP Columbia Small-Mid Cap Growth RPM Service Class Fund LVIP Columbia Value Opportunities Standard Class Fund LVIP JPMorgan Mid Cap Value RPM Standard Class Fund LVIP Columbia Value Opportunities Service Class Fund LVIP JPMorgan Mid Cap Value RPM Service Class Fund LVIP SSgA Global Tactical Allocation Standard Class Fund LVIP SSgA Global Tactical Allocation RPM Standard Class Fund LVIP SSgA Global Tactical Allocation Service Class Fund LVIP SSgA Global Tactical Allocation RPM Service Class Fund LVIP Templeton Growth Standard Class Fund LVIP Templeton Growth RPM Standard Class Fund LVIP Templeton Growth Service Class Fund LVIP Templeton Growth RPM Service Class Fund LVIP Janus Capital Appreciation Standard Class Fund LVIP UBS Large Cap Growth RPM Standard Class Fund LVIP Janus Capital Appreciation Service Class Fund LVIP UBS Large Cap Growth RPM Service Class Fund NB AMT Regency I Class Portfolio NB AMT Mid Cap Intrinsic Value I Class Portfolio
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 twenty contract types: Lincoln ChoicePlus at a daily rate of .0038356% to .0073973% (1.40% to 2.70% on an annual basis) Lincoln ChoicePlus Access at a daily rate of .0038356% to .0080822% (1.40% to 2.95% on an annual basis) Lincoln ChoicePlus II at a daily rate of .0034247% to .0073973% (1.25% to 2.70% on an annual basis) Lincoln ChoicePlus II Access at a daily rate of .0038356% to .0080822% (1.40% to 2.95% on an annual basis) Lincoln ChoicePlus II Advance at a daily rate of .0038356% to .0082192% (1.40% to 3.00% on an annual basis) Lincoln ChoicePlus II Bonus at a daily rate of .0038356% to .0079452% (1.40% to 2.90% on an annual basis) Lincoln ChoicePlus Assurance A Share at a daily rate of .0016438% to .0063014% (.60% to 2.30% on an annual basis) Lincoln ChoicePlus Assurance B Share at a daily rate of .0034247% to .0076712% (1.25% to 2.80% on an annual basis) Lincoln ChoicePlus Assurance Bonus at a daily rate of .0038356% to .0083562% (1.40% to 3.05% on an annual basis) Lincoln ChoicePlus Assurance C Share at a daily rate of .0038356% to .0087671% (1.40% to 3.20% on an annual basis) Lincoln ChoicePlus Assurance L Share at a daily rate of .0038356% to .0087671% (1.40% to 3.20% on an annual basis) Lincoln ChoicePlus Design at a daily rate of .0030137% to .0084932% (1.10% to 3.10% on an annual basis) N-39 Lincoln ChoicePlus Assurance A Class at a daily rate of .0016438% to .0063014% (.60% to 2.30% on an annual basis) Lincoln ChoicePlus Assurance B Class at a daily rate of .0034247% to .0076712% (1.25% to 2.80% on an annual basis) Lincoln ChoicePlus Signature at a daily rate of .0034247% to .0086301% (1.25% to 3.15% on an annual basis) Lincoln ChoicePlus Fusion at a daily rate of .0021918% to .0064384% (0.80% to 2.35% on an annual basis) Lincoln InvestmentSolutions at a daily rate of .0016438% to .0058904% (0.60% to 2.15% on an annual basis) Lincoln ChoicePlus Assurance Series B Share at a daily rate of .0034247% to .0076712% (1.25% to 2.80% on an annual basis) Lincoln ChoicePlus Assurance Series C Share at a daily rate of .0038356% to .0087671% (1.40% to 3.20% on an annual basis) Lincoln ChoicePlus Assurance Series L Share at a daily rate of .0038356% to .0087671% (1.40% to 3.20% on an annual basis) Contract charges and surrender charges for the years ended December 31, 2012 and 2011, were $7,754,174 and $5,713,249, respectively. For the Lincoln ChoicePlus Assurance A Share and Lincoln ChoicePlus Assurance A Class products, a front-end load or sales charge is applied as a percentage (5.75% maximum) to all gross purchase payments. For the Lincoln ChoicePlus Fusion product, a premium based charge or sales charge is applied on a quarterly basis over a seven year period as a percentage (.175% maximum per quarter) of all purchase payments received. For the years ending December 31, 2012 and 2011, sales charges amounted to $133,489 and $371,583, respectively. 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, 2012, 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) --------------------------------------------------------------------------------------------------------------------------------- ABVPSF GLOBAL THEMATIC GROWTH CLASS B 2012 0.80% 2.80% $ 3.98 $ 15.79 149,736 $ 1,523,201 10.11% 12.33% 0.00% 2011 0.80% 2.80% 3.57 14.17 179,285 1,470,750 -25.53% -24.38% 0.32% 2010 1.25% 2.80% 4.74 18.80 161,329 1,698,177 15.31% 17.05% 2.08% 2009 1.25% 2.80% 4.07 16.11 207,358 1,734,910 48.91% 51.24% 0.00% 2008 1.25% 2.80% 2.70 10.69 255,641 1,422,126 -48.92% -48.11% 0.00% ABVPSF GROWTH AND INCOME CLASS B 2012 0.75% 2.90% 10.11 17.24 436,360 6,090,727 13.89% 16.37% 1.32% 2011 0.75% 2.90% 8.84 14.94 536,919 6,478,091 3.14% 5.28% 1.11% 2010 0.75% 2.80% 8.40 14.31 625,404 7,283,147 9.69% 11.95% 0.00% 2009 0.75% 2.80% 8.01 12.89 644,282 6,786,606 17.32% 18.97% 3.58% 2008 1.15% 2.55% 6.73 10.89 725,854 6,545,593 -42.19% -41.37% 1.74% ABVPSF INTERNATIONAL VALUE CLASS B 2012 0.65% 2.90% 6.32 10.48 1,042,035 7,099,576 11.04% 13.46% 1.36% 2011 0.65% 2.95% 5.69 9.26 1,140,746 6,923,014 -21.67% -19.96% 4.02% 2010 0.65% 2.80% 7.14 7.81 1,086,316 8,263,725 1.42% 3.62% 2.78% 2009 0.65% 2.80% 6.91 7.58 1,078,067 8,023,441 30.97% 33.49% 1.12% 2008 0.65% 2.55% 5.48 5.71 1,116,025 6,298,328 -54.46% -53.82% 0.90% ABVPSF LARGE CAP GROWTH CLASS B 2012 1.40% 1.70% 6.39 14.88 59,389 554,120 14.17% 14.53% 0.03% 2011 1.40% 1.70% 5.59 13.02 77,039 640,426 -4.90% -4.62% 0.09% 2010 1.40% 1.70% 5.88 13.68 86,073 758,632 7.98% 8.31% 0.26% 2009 1.40% 1.70% 5.44 12.66 110,946 870,301 34.79% 35.20% 0.00% 2008 1.40% 1.70% 4.04 9.38 137,530 802,609 -40.84% -40.66% 0.00%
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) --------------------------------------------------------------------------------------------------------------------------------- ABVPSF SMALL/MID CAP VALUE CLASS B 2012 0.65% 2.95% $ 12.06 $ 25.69 412,122 $ 7,271,360 15.08% 17.70% 0.29% 2011 0.65% 2.90% 10.37 22.03 468,555 7,128,131 -10.93% -9.21% 0.28% 2010 0.65% 2.55% 11.45 24.50 517,546 9,003,067 23.41% 25.76% 0.27% 2009 0.65% 2.55% 9.13 19.67 452,129 6,441,402 39.06% 41.75% 0.77% 2008 0.65% 2.65% 7.01 14.01 354,669 3,564,791 -37.37% -36.48% 0.43% AMERICAN CENTURY VP INFLATION PROTECTION CLASS II 2012 0.75% 2.95% 12.24 14.58 1,699,722 23,319,212 4.37% 6.58% 2.39% 2011 0.75% 2.85% 11.72 13.75 1,915,538 24,940,164 8.61% 10.91% 4.05% 2010 0.75% 2.85% 10.82 12.46 2,050,930 24,348,757 2.20% 4.31% 1.65% 2009 0.75% 2.80% 10.66 12.01 1,943,884 22,593,535 7.36% 9.41% 1.73% 2008 0.75% 2.65% 9.93 11.03 1,548,195 16,622,077 -4.17% -2.72% 4.85% AMERICAN FUNDS GLOBAL GROWTH CLASS 2 2012 0.65% 2.95% 12.18 17.64 854,882 13,954,665 19.00% 21.76% 0.84% 2011 0.65% 2.95% 10.12 14.57 1,078,424 14,686,240 -11.45% -9.47% 1.30% 2010 0.65% 2.85% 11.20 16.19 1,148,727 17,543,478 8.66% 11.02% 1.51% 2009 0.65% 2.80% 10.12 14.67 1,134,636 15,847,735 38.38% 41.24% 1.46% 2008 0.75% 2.80% 7.60 10.44 1,129,386 11,336,240 -40.00% -39.09% 2.01% AMERICAN FUNDS GLOBAL SMALL CAPITALIZATION CLASS 2 2012 0.65% 2.85% 10.39 27.69 621,975 11,286,319 14.86% 17.41% 1.33% 2011 0.65% 2.85% 8.95 23.81 692,771 11,248,051 -21.42% -19.67% 1.30% 2010 0.65% 2.85% 11.17 29.92 750,489 16,495,780 19.04% 21.62% 1.66% 2009 0.65% 2.80% 9.21 24.84 736,037 14,036,268 56.84% 60.24% 0.30% 2008 0.65% 2.80% 6.29 15.65 637,442 7,813,603 -54.81% -54.03% 0.00% AMERICAN FUNDS GROWTH CLASS 2 2012 0.65% 3.15% 10.54 20.98 4,375,203 70,844,749 14.35% 17.13% 0.77% 2011 0.65% 3.05% 9.09 18.09 5,156,890 72,176,503 -6.97% -4.90% 0.58% 2010 0.65% 2.85% 9.66 19.20 6,193,558 93,251,626 15.41% 17.79% 0.73% 2009 0.75% 2.80% 8.27 16.44 6,474,620 84,571,379 35.56% 38.37% 0.65% 2008 0.75% 2.80% 6.03 11.98 6,816,758 65,510,396 -45.52% -44.61% 0.86% AMERICAN FUNDS GROWTH-INCOME CLASS 2 2012 0.65% 3.15% 10.11 18.19 4,789,325 67,763,467 13.95% 16.72% 1.55% 2011 0.65% 3.05% 9.00 15.73 5,583,881 69,009,673 -4.59% -2.47% 1.48% 2010 0.65% 2.85% 9.25 16.28 6,432,388 83,560,147 8.29% 10.70% 1.55% 2009 0.65% 2.85% 8.38 14.85 6,408,583 76,909,875 27.55% 30.39% 1.56% 2008 0.65% 2.85% 6.95 11.50 6,931,147 65,081,606 -39.48% -38.56% 1.79% AMERICAN FUNDS INTERNATIONAL CLASS 2 2012 0.65% 3.05% 9.64 23.34 2,014,810 34,001,937 14.37% 17.14% 1.41% 2011 0.65% 3.05% 9.16 20.11 2,328,671 34,308,332 -16.39% -14.61% 1.70% 2010 0.75% 2.85% 10.75 23.75 2,478,687 44,063,816 4.27% 6.27% 2.05% 2009 0.90% 2.80% 10.11 22.51 2,522,984 43,087,776 39.12% 41.80% 1.54% 2008 0.90% 2.80% 7.28 15.99 2,656,473 32,607,236 -43.72% -42.76% 2.05% BLACKROCK GLOBAL ALLOCATION V.I. CLASS III 2012 0.65% 2.95% 10.93 13.28 4,188,108 53,306,946 6.77% 9.25% 1.63% 2011 0.65% 2.95% 11.47 12.12 3,002,359 35,368,810 -6.35% -4.36% 3.46% 2010 0.75% 2.85% 12.31 12.64 1,106,687 13,806,109 7.00% 8.78% 2.17% 2009 7/14/09 0.90% 2.55% 11.50 11.62 166,801 1,928,875 0.14% 14.29% 2.55% DELAWARE VIP DIVERSIFIED INCOME SERVICE CLASS 2012 0.65% 3.00% 10.68 16.70 3,536,938 54,548,785 3.77% 6.18% 2.97% 2011 0.65% 2.95% 10.89 15.82 3,337,234 49,236,875 3.17% 5.46% 3.86% 2010 0.65% 2.85% 12.70 15.09 3,102,682 44,404,564 4.84% 7.06% 3.98% 2009 0.75% 2.85% 12.11 14.16 2,234,856 30,370,661 23.10% 25.71% 5.50% 2008 0.75% 2.85% 9.96 11.32 1,774,133 19,410,248 -7.25% -5.99% 3.65% DELAWARE VIP EMERGING MARKETS SERVICE CLASS 2012 0.75% 2.95% 10.13 35.09 1,055,486 18,929,903 10.87% 13.33% 0.75% 2011 0.75% 2.95% 9.04 31.24 1,039,810 16,687,302 -22.21% -20.60% 1.57% 2010 0.75% 2.80% 11.80 39.71 836,850 17,597,531 14.95% 17.33% 0.60% 2009 0.75% 2.80% 10.10 34.15 796,327 14,713,375 72.77% 76.34% 0.89% 2008 0.75% 2.80% 5.75 19.54 841,109 8,985,568 -53.02% -52.24% 1.32%
N-41
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 VIP HIGH YIELD STANDARD CLASS 2012 1.40% 2.35% $ 15.95 $ 20.69 35,930 $ 723,989 15.32% 16.19% 8.61% 2011 1.40% 2.15% 13.83 17.81 36,910 654,742 0.20% 0.96% 8.35% 2010 1.40% 2.15% 13.80 17.64 37,087 651,513 12.87% 13.72% 7.83% 2009 1.40% 2.15% 12.23 15.51 42,659 659,241 45.81% 46.90% 7.84% 2008 1.40% 2.15% 8.39 10.56 59,710 628,708 -25.79% -25.23% 9.89% DELAWARE VIP HIGH YIELD SERVICE CLASS 2012 0.75% 2.90% 12.01 25.58 691,486 13,827,142 14.00% 16.48% 8.70% 2011 0.75% 2.90% 13.07 22.15 835,834 14,546,042 -0.50% 1.56% 8.12% 2010 0.75% 2.80% 12.99 21.99 942,467 16,394,024 11.74% 14.05% 7.47% 2009 0.75% 2.80% 11.46 19.45 892,462 14,029,082 44.98% 47.54% 7.20% 2008 0.75% 2.50% 8.01 13.29 799,471 8,670,568 -26.29% -25.29% 8.38% DELAWARE VIP LIMITED-TERM DIVERSIFIED INCOME SERVICE CLASS 2012 0.65% 3.15% 10.52 12.35 2,055,629 24,029,694 -0.36% 1.86% 1.43% 2011 0.65% 2.85% 10.34 12.13 1,834,871 21,274,247 -0.32% 1.89% 1.60% 2010 0.65% 2.85% 10.87 11.90 1,133,102 13,156,486 1.42% 3.62% 2.03% 2009 0.65% 2.80% 11.14 11.49 526,246 5,958,645 10.40% 11.88% 3.37% 2008 0.65% 1.95% 10.09 10.33 181,814 1,854,976 -2.57% -1.93% 4.40% DELAWARE VIP REIT STANDARD CLASS 2012 1.40% 2.15% 13.46 31.93 24,486 773,381 14.45% 15.32% 1.59% 2011 1.40% 2.15% 11.76 27.69 27,514 753,942 8.60% 9.42% 1.54% 2010 1.40% 2.15% 10.83 25.31 31,541 790,420 24.29% 25.22% 2.78% 2009 1.40% 2.15% 8.72 20.21 39,856 798,797 20.68% 21.60% 4.80% 2008 1.40% 2.15% 7.22 16.62 45,860 756,320 -36.45% -35.97% 2.50% DELAWARE VIP REIT SERVICE CLASS 2012 0.80% 2.90% 10.62 28.48 582,359 11,894,019 13.33% 15.68% 1.32% 2011 0.80% 2.85% 11.15 24.77 613,499 11,310,658 7.67% 9.25% 1.31% 2010 1.25% 2.70% 10.31 22.12 583,548 10,340,763 23.30% 25.04% 2.68% 2009 1.25% 2.65% 8.33 17.76 609,191 8,788,159 20.01% 21.71% 4.37% 2008 1.25% 2.65% 7.02 14.65 669,511 8,055,493 -36.98% -36.09% 2.13% DELAWARE VIP SMALL CAP VALUE STANDARD CLASS 2012 1.40% 2.15% 13.79 29.09 24,902 715,276 11.48% 12.32% 0.61% 2011 1.40% 2.15% 12.37 25.90 30,435 779,490 -3.43% -2.70% 0.51% 2010 1.40% 2.15% 12.81 26.62 34,047 896,644 29.46% 30.43% 0.64% 2009 1.40% 2.15% 9.90 20.41 46,578 934,628 29.02% 30.00% 1.00% 2008 1.40% 2.15% 7.67 15.70 56,909 880,274 -31.37% -30.85% 0.87% DELAWARE VIP SMALL CAP VALUE SERVICE CLASS 2012 0.75% 2.95% 11.89 28.09 989,770 19,164,473 10.39% 12.79% 0.35% 2011 0.75% 2.90% 11.28 25.13 1,030,517 18,291,497 -4.36% -2.33% 0.28% 2010 0.75% 2.85% 11.62 25.96 938,813 18,102,120 28.28% 30.93% 0.46% 2009 0.75% 2.80% 8.93 20.01 931,387 14,527,468 27.93% 30.58% 0.67% 2008 0.75% 2.80% 7.43 15.46 974,434 11,838,703 -32.00% -30.94% 0.47% DELAWARE VIP SMID CAP GROWTH STANDARD CLASS 2012 1.40% 2.35% 13.80 13.80 27,957 386,945 9.48% 9.48% 0.24% 2011 1.40% 1.40% 12.61 12.61 32,387 408,382 6.63% 6.63% 0.98% 2010 10/8/10 1.40% 1.40% 11.83 11.83 41,057 485,534 13.41% 13.41% 0.00% DELAWARE VIP SMID CAP GROWTH SERVICE CLASS 2012 1.05% 2.90% 10.87 23.85 483,625 8,149,892 7.65% 9.44% 0.01% 2011 0.80% 2.95% 9.98 21.89 369,561 5,919,176 4.92% 6.66% 0.80% 2010 10/8/10 1.15% 2.80% 9.41 20.62 414,054 6,424,434 12.98% 13.40% 0.00% DELAWARE VIP TREND STANDARD CLASS 2009 1.40% 2.15% 8.75 10.11 56,266 492,868 51.43% 52.58% 0.00% 2008 1.40% 2.15% 5.73 6.68 70,014 401,917 -47.87% -47.48% 0.00% DELAWARE VIP TREND SERVICE CLASS 2009 1.15% 2.80% 7.00 15.33 344,720 3,989,233 50.56% 52.63% 0.00% 2008 1.15% 2.50% 4.61 10.09 377,620 2,895,182 -48.18% -47.46% 0.00%
N-42
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 VIP U.S. GROWTH SERVICE CLASS 2012 0.65% 2.90% $ 11.51 $ 16.72 392,592 $ 5,217,313 12.64% 15.20% 0.00% 2011 0.65% 2.95% 10.48 14.65 303,313 3,581,425 5.01% 6.81% 0.05% 2010 0.65% 2.35% 9.97 13.85 208,823 2,445,380 10.90% 12.84% 0.00% 2009 0.65% 2.45% 8.97 12.39 176,677 1,955,508 39.48% 41.86% 0.00% 2008 0.75% 2.45% 6.49 8.81 181,397 1,437,444 -44.24% -43.57% 0.00% DELAWARE VIP VALUE STANDARD CLASS 2012 1.40% 1.40% 16.05 16.05 9,134 146,636 13.14% 13.14% 2.21% 2011 1.40% 1.40% 14.19 14.19 14,451 205,051 8.01% 8.01% 2.00% 2010 1.40% 1.40% 13.14 13.14 14,051 184,583 14.02% 14.02% 2.87% 2009 1.40% 2.15% 9.00 11.52 23,001 263,719 15.45% 16.32% 2.86% 2008 1.40% 2.15% 7.79 9.90 32,025 316,031 -34.84% -34.35% 3.24% DELAWARE VIP VALUE SERVICE CLASS 2012 0.80% 2.95% 11.39 19.13 592,198 8,892,453 11.11% 13.52% 2.08% 2011 0.80% 2.95% 10.07 16.98 611,529 8,361,391 6.24% 8.01% 1.67% 2010 1.15% 2.80% 9.32 15.80 592,966 7,602,371 12.14% 14.01% 2.22% 2009 1.15% 2.80% 8.18 13.92 609,144 6,955,676 14.91% 16.31% 2.93% 2008 1.15% 2.35% 7.03 12.02 644,275 6,481,523 -35.12% -34.33% 2.70% DWS ALTERNATIVE ASSET ALLOCATION VIP CLASS B 2012 1.15% 2.95% 10.73 13.17 220,010 2,841,818 6.18% 8.01% 3.14% 2011 1.25% 2.95% 11.71 12.20 166,944 2,001,584 -5.79% -4.32% 1.48% 2010 1.25% 2.80% 12.67 12.75 303,424 3,839,499 10.31% 10.76% 0.41% 2009 9/2/09 1.25% 1.65% 11.48 11.51 4,328 49,770 1.77% 7.04% 0.00% DWS EQUITY 500 INDEX VIP CLASS A 2012 1.25% 2.60% 9.74 17.25 144,606 1,994,170 12.73% 14.26% 1.85% 2011 1.25% 2.60% 8.56 15.15 180,809 2,159,617 -0.53% 0.57% 1.70% 2010 1.25% 2.35% 8.54 15.12 200,440 2,341,674 12.04% 13.28% 1.98% 2009 1.25% 2.35% 7.57 13.39 296,615 2,899,686 23.39% 24.76% 2.91% 2008 1.25% 2.35% 6.09 10.77 366,999 2,872,840 -38.61% -37.93% 2.52% DWS EQUITY 500 INDEX VIP CLASS B 2012 1.25% 2.75% 10.26 15.77 142,803 2,055,418 12.29% 13.99% 1.57% 2011 1.25% 2.75% 9.89 13.84 191,715 2,459,260 -1.01% 0.24% 1.47% 2010 1.25% 2.50% 9.96 13.83 238,458 3,086,837 11.69% 13.09% 1.71% 2009 1.25% 2.50% 8.90 12.24 293,217 3,362,104 22.92% 24.46% 2.68% 2008 1.25% 2.50% 7.29 9.84 343,991 3,199,057 -38.89% -38.12% 2.22% DWS SMALL CAP INDEX VIP CLASS A 2012 1.25% 2.35% 12.30 22.90 22,473 471,052 13.56% 14.81% 0.99% 2011 1.25% 2.35% 10.83 20.02 30,046 553,928 -6.64% -5.60% 0.90% 2010 1.25% 2.35% 11.60 21.28 30,668 592,306 23.47% 24.82% 0.97% 2009 1.25% 2.35% 9.39 17.11 43,175 663,838 23.64% 25.00% 1.87% 2008 1.25% 2.35% 7.60 13.73 54,740 674,464 -35.66% -34.94% 1.65% DWS SMALL CAP INDEX VIP CLASS B 2012 1.25% 2.55% 11.88 19.44 80,565 1,370,785 12.96% 14.44% 0.64% 2011 1.25% 2.55% 10.52 17.00 97,646 1,468,329 -6.98% -5.76% 0.61% 2010 1.25% 2.55% 11.79 18.06 119,903 1,946,989 23.43% 24.54% 0.64% 2009 1.25% 2.15% 9.52 14.52 145,827 1,868,669 23.58% 24.70% 1.63% 2008 1.25% 2.80% 7.41 11.65 174,996 1,833,481 -36.14% -35.14% 1.40% FIDELITY VIP CONTRAFUND SERVICE CLASS 2 2012 0.65% 3.05% 11.27 19.75 2,735,039 42,635,414 12.66% 15.39% 1.11% 2011 0.65% 3.05% 9.95 17.22 2,896,162 39,661,867 -5.52% -3.41% 0.81% 2010 0.65% 2.85% 10.32 17.94 2,771,410 40,250,191 13.64% 16.17% 1.05% 2009 0.65% 2.85% 8.91 15.59 2,662,898 34,236,601 31.66% 34.60% 1.20% 2008 0.65% 2.85% 7.04 11.69 2,681,682 26,189,519 -44.28% -43.32% 0.89% FIDELITY VIP EQUITY-INCOME INITIAL CLASS 2012 1.40% 1.40% 13.78 13.78 36,795 507,118 15.68% 15.68% 3.01% 2011 1.40% 2.35% 9.76 11.91 46,745 555,101 -1.38% -0.43% 2.49% 2010 1.40% 2.35% 9.90 11.97 49,458 589,945 12.48% 13.55% 1.65% 2009 1.40% 2.35% 8.80 10.54 62,920 661,398 27.18% 28.40% 2.23% 2008 1.40% 2.35% 8.21 8.21 81,512 667,683 -43.45% -43.45% 2.09%
N-43
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) --------------------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME SERVICE CLASS 2 2012 1.25% 2.80% $ 10.51 $ 17.12 107,592 $ 1,694,468 13.82% 15.60% 2.78% 2011 1.25% 2.80% 9.21 14.86 122,060 1,677,157 -1.83% -0.60% 2.10% 2010 1.25% 2.50% 9.38 15.00 147,513 2,043,346 12.08% 13.49% 1.54% 2009 1.25% 2.50% 8.66 13.27 179,710 2,192,506 26.74% 28.27% 2.00% 2008 1.25% 2.45% 6.83 10.38 216,604 2,067,281 -44.20% -43.52% 2.32% FIDELITY VIP GROWTH INITIAL CLASS 2012 1.40% 1.40% 8.70 8.70 19,404 168,843 13.10% 13.10% 0.49% 2011 1.40% 1.40% 7.69 7.69 25,067 192,865 -1.19% -1.19% 0.35% 2010 1.40% 1.40% 7.79 7.79 27,910 217,326 22.45% 22.45% 0.26% 2009 1.40% 2.15% 6.36 8.95 35,005 223,539 25.56% 26.50% 0.44% 2008 1.40% 2.15% 5.03 7.13 38,421 193,967 -48.29% -47.90% 0.57% FIDELITY VIP GROWTH SERVICE CLASS 2 2012 0.75% 2.90% 7.28 16.30 363,473 4,484,156 11.36% 13.54% 0.40% 2011 0.75% 2.70% 6.47 14.48 305,798 3,317,526 -2.55% -0.78% 0.14% 2010 0.75% 2.55% 6.58 14.72 274,884 3,089,942 20.87% 22.93% 0.03% 2009 0.75% 2.45% 5.40 12.07 263,703 2,462,291 25.12% 26.51% 0.20% 2008 1.15% 2.25% 4.29 9.59 302,246 2,237,876 -48.33% -47.91% 0.60% FIDELITY VIP MID CAP SERVICE CLASS 2 2012 0.65% 3.05% 9.89 15.26 1,943,130 28,477,247 11.12% 13.82% 0.40% 2011 0.65% 3.05% 10.80 13.49 1,793,158 23,363,282 -13.32% -11.43% 0.02% 2010 0.65% 2.80% 12.22 15.32 1,492,380 22,285,551 25.02% 27.61% 0.13% 2009 0.75% 2.80% 9.59 12.06 1,489,715 17,620,587 35.89% 38.70% 0.49% 2008 0.75% 2.80% 7.18 8.74 1,388,995 11,957,576 -41.28% -40.30% 0.24% FIDELITY VIP OVERSEAS INITIAL CLASS 2012 1.40% 1.40% 10.68 10.68 7,260 77,573 19.07% 19.07% 1.92% 2011 1.40% 1.40% 8.97 8.97 8,754 78,555 -18.32% -18.32% 1.36% 2010 1.40% 1.40% 10.99 10.99 9,204 101,129 11.55% 11.55% 1.39% 2009 1.40% 1.40% 9.85 9.85 10,064 99,119 24.77% 24.77% 1.91% 2008 1.40% 1.40% 7.89 7.89 15,030 118,640 -44.59% -44.59% 2.36% FIDELITY VIP OVERSEAS SERVICE CLASS 2 2012 1.15% 2.60% 9.31 18.72 226,595 3,389,951 17.29% 19.00% 1.66% 2011 1.15% 2.60% 7.86 15.75 256,401 3,216,234 -19.38% -18.29% 1.00% 2010 1.15% 2.50% 9.67 19.36 258,604 4,156,534 10.05% 11.54% 1.14% 2009 1.15% 2.50% 8.71 17.43 294,153 4,350,399 23.16% 24.78% 1.92% 2008 1.15% 2.45% 7.01 14.03 324,270 3,816,208 -45.32% -44.60% 2.48% FTVIPT FRANKLIN INCOME SECURITIES CLASS 2 2012 0.65% 3.15% 12.08 14.86 2,061,739 26,804,173 9.38% 11.92% 6.74% 2011 0.65% 2.95% 11.03 12.07 2,116,041 24,843,072 -0.49% 1.72% 5.75% 2010 0.65% 2.85% 10.97 11.93 2,212,406 25,815,263 9.51% 11.95% 6.44% 2009 0.65% 2.85% 9.82 10.72 2,120,385 22,357,290 31.79% 34.58% 8.12% 2008 0.75% 2.85% 7.65 8.01 2,047,115 16,199,724 -31.50% -30.43% 5.54% FTVIPT FRANKLIN SMALL-MID CAP GROWTH SECURITIES CLASS 2 2012 0.65% 2.95% 8.59 21.19 462,448 6,820,932 7.79% 10.14% 0.00% 2011 0.65% 2.80% 7.88 19.42 567,271 7,748,218 -7.46% -5.45% 0.00% 2010 0.65% 2.80% 8.42 20.74 629,793 9,300,368 24.10% 26.80% 0.00% 2009 0.65% 2.80% 6.70 16.51 680,642 7,975,242 39.61% 42.66% 0.00% 2008 0.65% 2.80% 4.75 11.68 653,596 5,415,804 -43.89% -43.21% 0.00% FTVIPT MUTUAL SHARES SECURITIES CLASS 2 2012 0.65% 2.95% 9.50 12.03 1,927,560 20,275,509 10.98% 13.50% 2.05% 2011 0.65% 2.95% 8.78 10.61 2,052,964 19,162,940 -3.78% -1.68% 2.40% 2010 0.65% 2.80% 9.02 9.80 1,887,560 18,048,001 8.13% 10.47% 1.63% 2009 0.65% 2.80% 8.19 8.93 1,674,952 14,663,495 22.57% 25.23% 1.97% 2008 0.65% 2.80% 6.95 7.17 1,526,955 10,807,864 -38.63% -37.83% 3.26% FTVIPT TEMPLETON GLOBAL BOND SECURITIES CLASS 2 2012 0.65% 2.95% 12.95 18.68 722,341 12,980,353 11.72% 14.32% 6.49% 2011 0.65% 2.95% 14.84 16.43 931,664 14,854,367 -3.61% -1.51% 5.64% 2010 0.65% 2.80% 15.40 16.79 1,042,826 17,080,105 11.29% 13.71% 1.40% 2009 0.65% 2.80% 13.84 14.85 1,148,034 16,699,762 15.41% 17.90% 14.48% 2008 0.65% 2.80% 11.99 12.67 1,043,672 13,020,428 3.27% 4.99% 3.68%
N-44
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 TEMPLETON GROWTH SECURITIES CLASS 2 2012 1.25% 2.75% $ 8.77 $ 17.18 243,987 $ 3,433,882 17.77% 19.56% 2.08% 2011 1.25% 2.75% 8.70 14.42 326,845 3,889,903 -9.32% -8.13% 1.34% 2010 1.25% 2.55% 9.59 15.75 388,040 5,102,032 4.70% 6.06% 1.36% 2009 1.25% 2.55% 9.16 14.90 445,634 5,522,806 27.80% 29.47% 3.19% 2008 1.25% 2.55% 7.17 11.55 522,721 5,040,454 -43.78% -43.04% 1.82% GOLDMAN SACHS VIT LARGE CAP VALUE SERVICE CLASS 2012 0.65% 2.20% 11.87 14.59 110,212 1,512,678 16.24% 18.05% 1.10% 2011 0.65% 2.20% 10.07 12.36 125,830 1,468,542 -9.29% -7.87% 1.31% 2010 0.65% 2.20% 13.13 13.39 64,486 857,331 9.08% 10.06% 1.30% 2009 5/19/09 0.75% 1.65% 12.04 12.16 9,804 119,035 0.99% 21.16% 4.21% HUNTINGTON VA BALANCED 2012 1/9/12 1.40% 1.40% 10.47 10.47 455 4,778 7.07% 7.07% 1.65% HUNTINGTON VA DIVIDEND CAPTURE 2012 1/23/12 1.40% 1.40% 10.79 10.79 3,879 41,864 5.81% 5.81% 4.95% INVESCO V.I. CAPITAL APPRECIATION SERIES I 2011 1.40% 2.60% 3.79 10.61 27,990 137,286 -9.83% -9.19% 0.15% 2010 1.40% 2.10% 4.19 4.86 36,269 177,636 13.60% 13.88% 0.78% 2009 1.40% 1.65% 3.69 4.27 44,985 179,686 19.10% 19.40% 0.62% 2008 1.40% 1.65% 3.10 3.57 53,514 181,176 -43.44% -43.29% 0.00% INVESCO V.I. CAPITAL APPRECIATION SERIES II 2011 1.40% 1.70% 8.55 11.85 6,580 60,748 -9.66% -9.39% 0.00% 2010 1.40% 1.70% 9.47 13.11 6,814 69,484 13.27% 13.61% 0.54% 2009 1.25% 1.70% 8.36 11.56 9,168 86,254 18.69% 19.22% 0.28% 2008 1.25% 1.70% 7.04 9.73 10,047 80,198 -43.60% -43.34% 0.00% INVESCO V.I. CORE EQUITY SERIES I 2012 1.40% 1.65% 8.26 9.00 25,187 224,007 12.02% 12.30% 0.81% 2011 1.40% 1.65% 7.38 8.02 48,973 382,029 -1.70% -1.45% 0.95% 2010 1.40% 1.65% 7.50 8.13 52,914 419,992 7.76% 8.03% 0.94% 2009 1.40% 2.15% 6.96 10.76 72,234 533,456 25.57% 26.51% 1.73% 2008 1.40% 2.15% 5.52 8.57 95,576 560,729 -31.63% -31.11% 1.90% INVESCO V.I. CORE EQUITY SERIES II 2012 1.40% 1.60% 12.81 16.78 731 10,565 11.82% 12.04% 0.92% 2011 1.40% 1.60% 11.43 15.01 629 8,279 -1.88% -1.68% 0.83% 2010 1.40% 1.60% 11.63 15.30 666 9,230 7.53% 7.74% 0.45% 2009 1.40% 1.60% 10.79 14.23 1,430 16,483 25.96% 26.21% 0.94% 2008 1.40% 1.60% 8.55 11.29 4,155 36,379 -31.44% -31.30% 1.93% INVESCO V.I. INTERNATIONAL GROWTH SERIES I 2012 1.40% 1.40% 13.33 13.33 8,988 119,769 13.93% 13.93% 1.48% 2011 1.40% 1.40% 11.70 11.70 9,374 109,643 -8.04% -8.04% 1.54% 2010 1.40% 1.40% 12.72 12.72 9,649 122,723 11.30% 11.30% 2.33% 2009 1.40% 1.40% 11.43 11.43 10,020 114,506 33.36% 33.36% 1.21% 2008 1.40% 1.65% 7.52 8.57 21,030 178,491 -41.36% -41.21% 0.41% INVESCO V.I. INTERNATIONAL GROWTH SERIES II 2012 1.40% 1.70% 19.63 23.82 2,935 61,999 13.32% 13.66% 0.71% 2011 1.40% 1.70% 17.32 21.00 10,202 199,478 -8.56% -8.29% 1.16% 2010 1.40% 1.70% 18.95 22.94 10,304 219,863 10.71% 11.04% 1.81% 2009 1.40% 1.70% 17.11 20.70 10,720 205,627 32.63% 33.04% 1.41% 2008 1.40% 1.70% 12.90 15.59 11,997 171,182 -41.55% -41.37% 0.40% INVESCO VAN KAMPEN V.I. AMERICAN FRANCHISE SERIES I 2012 4/27/12 1.40% 2.60% 4.20 11.70 24,460 133,782 -4.20% -3.42% 0.00% INVESCO VAN KAMPEN V.I. AMERICAN FRANCHISE SERIES II 2012 4/27/12 1.40% 1.70% 9.44 13.09 5,736 59,052 -3.80% -3.60% 0.00% JANUS ASPEN SERIES BALANCED SERVICE CLASS 2012 1.35% 1.70% 17.43 18.26 37,595 668,214 11.46% 11.86% 2.53% 2011 1.35% 1.70% 15.64 16.36 39,014 622,262 -0.35% -0.01% 2.16% 2010 1.35% 1.70% 15.70 16.40 40,823 653,622 6.30% 6.67% 2.46% 2009 1.35% 1.70% 14.77 15.42 49,333 742,768 23.47% 23.90% 2.53% 2008 1.25% 1.70% 11.96 12.47 75,551 924,265 -17.48% -17.10% 2.48%
N-45
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) --------------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES ENTERPRISE SERVICE CLASS 2012 1.25% 1.70% $ 19.93 $ 25.61 18,234 $ 419,296 15.02% 15.54% 0.00% 2011 1.25% 1.70% 17.32 22.25 27,036 542,131 -3.31% -2.87% 0.00% 2010 1.25% 1.70% 17.92 22.99 31,864 663,530 23.41% 23.96% 0.00% 2009 1.25% 1.70% 14.52 18.61 46,217 765,293 42.01% 42.65% 0.00% 2008 1.25% 1.70% 10.22 13.09 51,127 592,797 -44.80% -44.56% 0.06% JANUS ASPEN SERIES WORLDWIDE SERVICE CLASS 2012 1.40% 1.50% 11.66 13.72 723 9,644 18.08% 18.19% 0.78% 2011 1.40% 1.60% 9.86 11.85 984 11,247 -15.36% -15.18% 0.44% 2010 1.40% 1.60% 13.71 14.00 1,495 20,304 13.69% 13.86% 0.46% 2009 1.45% 1.60% 12.05 12.31 1,419 17,207 35.23% 35.43% 1.21% 2008 1.45% 1.60% 8.90 9.11 1,834 16,488 -45.69% -45.60% 0.96% LVIP AMERICAN GLOBAL GROWTH SERVICE CLASS II 2012 1.25% 2.75% 12.22 13.38 152,239 2,014,038 18.86% 20.59% 0.99% 2011 1.25% 2.70% 10.99 11.09 127,945 1,409,213 -10.97% -10.43% 0.09% 2010 11/29/10 1.30% 1.90% 12.34 12.38 10,447 129,265 1.13% 5.76% 0.00% LVIP AMERICAN GLOBAL SMALL CAPITALIZATION SERVICE CLASS II 2012 1.15% 2.95% 11.39 11.84 216,047 2,527,942 14.62% 16.40% 1.04% 2011 1.15% 2.70% 10.06 10.15 138,964 1,404,041 -21.00% -20.52% 0.90% 2010 11/23/10 1.30% 1.90% 12.73 12.77 5,921 75,551 1.82% 5.45% 0.00% LVIP AMERICAN GROWTH SERVICE CLASS II 2012 1.25% 2.95% 12.68 13.65 569,028 7,657,989 14.04% 15.99% 0.24% 2011 1.25% 2.95% 11.65 11.76 331,443 3,874,337 -6.47% -5.91% 0.06% 2010 11/19/10 1.30% 1.90% 12.46 12.50 31,890 397,998 1.80% 6.38% 0.00% LVIP AMERICAN GROWTH-INCOME SERVICE CLASS II 2012 1.25% 2.95% 12.50 13.60 562,218 7,534,156 13.64% 15.59% 1.29% 2011 1.25% 2.95% 11.65 11.76 323,320 3,771,189 -4.07% -3.50% 0.12% 2010 11/22/10 1.30% 1.90% 12.14 12.18 30,537 371,435 0.85% 4.53% 0.00% LVIP AMERICAN INTERNATIONAL SERVICE CLASS II 2012 1.15% 2.95% 10.70 12.05 369,188 4,395,794 14.10% 16.00% 2.55% 2011 1.25% 2.90% 10.29 10.38 269,042 2,773,266 -15.94% -15.43% 0.10% 2010 12/2/10 1.30% 1.90% 12.24 12.27 10,767 132,078 1.02% 1.95% 0.00% LVIP BARON GROWTH OPPORTUNITIES SERVICE CLASS 2012 0.75% 2.95% 12.02 17.51 700,349 9,051,967 14.81% 17.36% 1.18% 2011 0.75% 2.95% 10.49 11.44 714,612 7,950,911 1.15% 3.25% 0.00% 2010 0.75% 2.80% 10.37 11.14 672,638 7,321,779 22.90% 25.44% 0.00% 2009 0.75% 2.80% 8.50 8.92 595,873 5,229,059 34.84% 37.28% 0.00% 2008 0.75% 2.55% 6.32 6.53 568,879 3,672,296 -40.67% -39.89% 0.00% LVIP BLACKROCK EMERGING MARKETS INDEX RPM SERVICE CLASS 2012 10/22/12 1.25% 1.95% 10.96 10.99 12,282 134,782 2.45% 8.80% 1.09% LVIP BLACKROCK EQUITY DIVIDEND RPM SERVICE CLASS 2012 0.75% 2.95% 9.97 14.98 235,730 2,562,320 13.30% 15.82% 0.52% 2011 0.75% 2.95% 8.79 9.73 149,732 1,417,960 -5.50% -3.54% 0.80% 2010 0.75% 2.80% 9.30 10.14 127,314 1,255,952 14.39% 16.30% 0.72% 2009 1.15% 2.80% 8.14 8.73 153,112 1,307,180 20.01% 21.58% 0.96% 2008 1.15% 2.45% 6.88 7.19 157,959 1,117,134 -39.97% -39.25% 1.64% LVIP BLACKROCK INFLATION PROTECTED BOND SERVICE CLASS 2012 0.80% 3.05% 11.01 11.87 1,861,065 21,594,482 3.05% 5.40% 0.00% 2011 0.80% 3.05% 10.94 11.17 1,085,655 12,052,355 9.01% 10.43% 3.08% 2010 11/18/10 1.30% 2.60% 10.04 10.12 114,500 1,156,079 -2.28% 1.08% 0.91% LVIP CAPITAL GROWTH SERVICE CLASS 2012 0.65% 2.60% 9.36 12.37 275,180 2,885,053 15.71% 18.00% 0.00% 2011 0.65% 2.60% 8.11 10.50 255,031 2,256,322 -11.53% -9.83% 0.00% 2010 0.65% 2.55% 9.17 9.82 182,917 1,759,064 15.68% 17.92% 0.00% 2009 0.65% 2.70% 7.95 8.31 108,531 886,634 31.27% 33.52% 0.07% 2008 0.75% 2.45% 6.05 6.17 90,952 558,156 -43.14% -42.46% 0.00%
N-46
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) --------------------------------------------------------------------------------------------------------------------------------- LVIP CLARION GLOBAL REAL ESTATE SERVICE CLASS 2012 0.80% 2.95% $ 7.52 $ 16.89 830,354 $ 6,683,552 20.78% 23.40% 0.00% 2011 0.80% 2.95% 6.22 6.79 866,351 5,694,866 -11.42% -9.71% 0.00% 2010 0.90% 2.80% 7.02 7.52 730,226 5,337,719 14.42% 16.61% 0.00% 2009 0.90% 2.80% 6.17 6.40 647,497 4,093,020 33.96% 35.92% 0.00% 2008 1.15% 2.60% 4.65 4.71 489,716 2,289,889 -43.30% -42.84% 1.35% LVIP COLUMBIA SMALL-MID CAP GROWTH RPM SERVICE CLASS 2012 1.15% 2.95% 8.77 15.00 213,107 1,988,901 3.12% 5.00% 0.00% 2011 1.15% 2.95% 8.49 9.18 203,299 1,816,660 -10.42% -8.88% 0.00% 2010 1.15% 2.85% 9.50 10.08 150,691 1,480,721 23.43% 25.49% 0.00% 2009 1.15% 2.80% 7.80 8.03 135,348 1,065,818 45.19% 46.36% 0.00% 2008 1.15% 1.95% 5.37 5.49 128,783 697,056 -50.41% -50.01% 0.00% LVIP DELAWARE BOND STANDARD CLASS 2012 1.25% 2.80% 12.69 20.57 551,257 9,582,267 3.66% 5.28% 1.85% 2011 1.25% 2.80% 12.49 19.57 671,512 11,251,111 4.82% 6.30% 3.30% 2010 1.25% 2.65% 11.91 18.43 790,437 12,528,566 5.65% 7.14% 3.17% 2009 1.25% 2.65% 11.28 17.23 939,493 14,140,359 15.79% 17.42% 4.00% 2008 1.25% 2.65% 9.74 14.70 1,155,221 14,987,636 -5.46% -4.13% 4.02% LVIP DELAWARE BOND SERVICE CLASS 2012 0.65% 3.20% 10.60 14.82 5,124,573 71,002,783 3.15% 5.55% 1.77% 2011 0.65% 2.95% 10.98 14.14 4,320,019 57,660,438 4.30% 6.56% 3.20% 2010 0.65% 2.80% 11.62 13.36 3,666,301 46,866,116 5.13% 7.42% 2.95% 2009 0.65% 2.80% 11.18 12.53 3,621,392 43,880,347 15.50% 17.71% 4.59% 2008 0.65% 2.55% 9.68 10.72 3,005,756 31,297,680 -5.70% -4.46% 4.60% LVIP DELAWARE DIVERSIFIED FLOATING RATE SERVICE CLASS 2012 0.80% 3.00% 9.77 10.27 856,206 8,590,907 0.99% 3.13% 1.38% 2011 0.80% 2.90% 9.68 9.88 538,092 5,281,610 -2.99% -1.77% 2.35% 2010 11/23/10 1.30% 2.55% 9.98 10.06 79,582 798,262 -0.05% 0.03% 0.44% LVIP DELAWARE FOUNDATION AGGRESSIVE ALLOCATION STANDARD CLASS 2012 1.25% 2.45% 11.91 17.29 17,313 280,943 10.56% 11.88% 1.77% 2011 1.25% 2.45% 10.77 15.51 19,339 280,500 -4.40% -3.24% 1.96% 2010 1.25% 2.45% 11.27 16.08 24,404 368,235 9.77% 11.09% 2.54% 2009 1.25% 2.45% 10.26 14.53 32,353 438,586 28.79% 30.35% 1.67% 2008 1.25% 2.45% 7.97 11.19 37,992 395,662 -34.84% -34.05% 6.34% LVIP DELAWARE FOUNDATION AGGRESSIVE ALLOCATION SERVICE CLASS 2012 1.25% 2.80% 11.38 15.92 167,410 2,403,603 9.89% 11.61% 1.41% 2011 1.25% 2.80% 10.35 14.28 211,759 2,709,839 -4.97% -3.49% 1.76% 2010 1.25% 2.85% 10.87 14.88 264,021 3,524,951 9.05% 10.81% 2.47% 2009 1.25% 2.85% 9.96 13.44 283,186 3,425,915 27.96% 29.96% 1.47% 2008 1.30% 2.85% 7.87 10.35 294,315 2,777,935 -35.07% -34.25% 7.85% LVIP DELAWARE GROWTH AND INCOME SERVICE CLASS 2012 0.75% 2.55% 10.61 11.67 142,592 1,619,569 12.03% 14.06% 0.68% 2011 0.75% 2.55% 9.32 10.28 180,122 1,810,353 -1.70% 0.09% 0.79% 2010 0.75% 2.55% 9.32 10.33 149,036 1,509,371 9.71% 11.70% 0.68% 2009 0.75% 2.55% 8.75 9.30 128,534 1,178,088 21.36% 22.63% 0.96% 2008 1.30% 2.35% 7.31 7.58 93,226 699,617 -37.49% -36.82% 1.09% LVIP DELAWARE SOCIAL AWARENESS STANDARD CLASS 2012 1.25% 2.60% 11.41 19.02 40,461 699,016 12.32% 13.85% 0.74% 2011 1.25% 2.60% 13.92 16.76 47,269 720,749 -1.45% -0.61% 0.74% 2010 1.25% 2.10% 14.07 16.93 52,379 815,938 9.69% 10.18% 0.59% 2009 1.25% 1.70% 12.83 15.41 62,558 887,698 27.81% 28.39% 0.70% 2008 1.25% 1.70% 10.04 12.05 66,181 737,175 -35.52% -35.23% 0.84% LVIP DELAWARE SOCIAL AWARENESS SERVICE CLASS 2012 1.05% 2.90% 11.18 17.05 177,317 2,600,910 11.60% 13.45% 0.40% 2011 0.75% 2.90% 9.43 15.05 178,709 2,336,775 -2.24% -0.46% 0.42% 2010 0.75% 2.55% 9.47 15.21 162,869 2,248,485 8.60% 10.35% 0.25% 2009 0.75% 2.45% 8.58 13.86 193,793 2,474,240 26.41% 28.57% 0.36% 2008 0.75% 2.45% 7.49 10.85 217,703 2,187,066 -36.23% -35.45% 0.58%
N-47
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) --------------------------------------------------------------------------------------------------------------------------------- LVIP DELAWARE SPECIAL OPPORTUNITIES SERVICE CLASS 2012 0.80% 2.85% $ 9.10 $ 12.54 320,240 $ 3,096,513 11.31% 13.62% 0.49% 2011 0.80% 2.95% 8.28 8.80 232,336 2,001,697 -7.91% -6.71% 0.00% 2010 1.25% 2.55% 9.19 9.43 141,879 1,310,134 27.66% 28.56% 0.39% 2009 1.25% 2.50% 7.21 7.33 166,672 1,208,196 27.54% 28.37% 0.93% 2008 1.25% 1.90% 5.65 5.71 63,135 358,094 -38.05% -37.64% 1.06% LVIP DIMENSIONAL NON-U.S. EQUITY SERVICE CLASS 2012 1.10% 2.95% 9.53 9.76 174,360 1,684,193 15.49% 17.18% 2.80% 2011 6/8/11 1.10% 2.55% 8.25 8.33 64,951 539,196 -18.01% 6.23% 0.14% LVIP DIMENSIONAL U.S. EQUITY SERVICE CLASS 2012 1.10% 2.95% 10.73 10.87 283,414 3,052,411 14.91% 15.83% 1.15% 2011 6/8/11 1.10% 1.90% 9.34 9.39 66,209 619,972 -7.18% 11.21% 0.00% LVIP DIMENSIONAL/VANGUARD TOTAL BOND SERVICE CLASS 2012 0.80% 2.95% 10.31 10.63 925,295 9,734,371 0.47% 2.40% 1.68% 2011 6/7/11 1.05% 2.95% 10.26 10.38 605,794 6,263,544 -0.07% 3.54% 0.19% LVIP GLOBAL INCOME SERVICE CLASS 2012 0.75% 3.00% 10.46 12.44 1,484,706 17,746,379 4.30% 6.62% 1.76% 2011 0.75% 2.95% 11.04 11.66 1,262,369 14,310,639 -2.01% 0.07% 4.80% 2010 0.75% 2.85% 11.27 11.66 655,511 7,511,475 6.40% 8.61% 3.82% 2009 7/10/09 0.75% 2.80% 10.60 10.73 127,526 1,359,469 -2.16% 5.43% 2.66% LVIP JPMORGAN HIGH YIELD SERVICE CLASS 2012 0.75% 3.00% 11.87 12.48 549,278 6,754,568 11.30% 13.42% 5.07% 2011 1.05% 2.95% 10.85 10.96 323,764 3,530,487 0.60% 1.21% 7.32% 2010 11/19/10 1.30% 1.90% 10.78 10.83 12,833 138,587 0.54% 0.76% 1.01% LVIP JPMORGAN MID CAP VALUE RPM SERVICE CLASS 2012 1.30% 2.90% 9.26 9.96 159,132 1,552,148 10.55% 12.00% 0.00% 2011 1.05% 2.85% 8.39 8.89 116,891 1,019,808 -4.47% -3.27% 0.00% 2010 1.30% 2.55% 8.83 9.19 87,323 790,627 21.50% 22.84% 0.00% 2009 1.30% 2.40% 7.37 7.46 58,275 431,485 22.01% 22.63% 0.36% 2008 1.40% 1.90% 6.06 6.09 56,185 340,393 -35.21% -35.05% 0.26% LVIP MFS INTERNATIONAL GROWTH SERVICE CLASS 2012 0.65% 2.90% 8.07 13.04 474,501 4,116,302 15.93% 18.35% 0.54% 2011 0.65% 2.70% 6.96 11.04 412,107 3,056,730 -12.50% -10.68% 2.72% 2010 0.65% 2.70% 7.95 8.53 359,169 2,972,670 9.82% 11.98% 0.57% 2009 0.75% 2.70% 7.33 7.62 271,562 2,021,186 32.50% 34.50% 0.72% 2008 0.75% 2.25% 5.56 5.63 229,810 1,282,862 -50.03% -49.63% 1.08% LVIP MFS VALUE SERVICE CLASS 2012 0.65% 3.15% 8.79 12.42 1,343,113 12,992,118 12.84% 15.29% 0.99% 2011 0.65% 2.80% 7.79 10.79 1,261,992 10,575,160 -3.10% -1.00% 1.29% 2010 0.65% 2.80% 8.04 8.69 942,376 7,930,493 8.24% 10.59% 1.19% 2009 0.65% 2.80% 7.50 7.86 597,763 4,580,700 17.75% 19.89% 1.44% 2008 0.65% 2.45% 6.42 6.51 370,870 2,393,206 -33.76% -33.20% 1.26% LVIP MID-CAP VALUE SERVICE CLASS 2012 0.75% 2.90% 8.65 12.80 421,062 3,905,496 20.34% 22.89% 0.13% 2011 0.75% 2.85% 7.19 7.92 427,742 3,244,684 -12.09% -10.22% 0.00% 2010 0.75% 2.85% 8.19 8.77 349,617 2,979,731 20.18% 22.48% 0.01% 2009 0.90% 2.80% 6.97 7.11 268,417 1,882,270 39.34% 40.46% 0.31% 2008 1.15% 1.95% 5.00 5.06 219,819 1,103,680 -42.00% -41.53% 0.11% LVIP MONDRIAN INTERNATIONAL VALUE STANDARD CLASS 2012 1.25% 2.55% 10.53 20.70 83,845 1,622,728 6.86% 8.26% 2.85% 2011 1.25% 2.55% 10.43 19.18 92,986 1,672,493 -6.53% -5.41% 3.11% 2010 1.25% 2.45% 11.16 20.35 91,896 1,789,661 -0.01% 1.19% 2.98% 2009 1.25% 2.45% 11.16 20.18 117,151 2,267,726 18.29% 19.73% 3.31% 2008 1.25% 2.45% 9.44 16.92 133,119 2,154,235 -38.19% -37.44% 4.74% LVIP MONDRIAN INTERNATIONAL VALUE SERVICE CLASS 2012 0.75% 2.95% 9.09 18.56 431,106 6,559,183 6.16% 8.52% 2.60% 2011 0.75% 2.95% 8.38 17.21 465,747 6,629,211 -7.09% -5.17% 2.81% 2010 0.75% 2.80% 10.55 18.25 477,244 7,448,268 -0.61% 0.94% 3.01% 2009 1.25% 2.80% 10.55 18.10 525,340 8,335,441 17.58% 19.42% 3.13% 2008 1.25% 2.80% 9.34 15.17 541,088 7,326,395 -38.37% -37.60% 4.75%
N-48
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) --------------------------------------------------------------------------------------------------------------------------------- LVIP MONEY MARKET STANDARD CLASS 2012 1.25% 2.70% $ 9.55 $ 10.83 246,756 $ 2,581,252 -2.42% -1.22% 0.03% 2011 1.25% 2.45% 9.78 10.98 317,927 3,378,567 -2.41% -1.21% 0.03% 2010 1.25% 2.45% 10.02 11.13 351,694 3,791,835 -2.39% -1.20% 0.05% 2009 1.25% 2.45% 10.27 11.28 586,054 6,399,225 -2.13% -0.94% 0.32% 2008 1.25% 2.45% 10.49 11.40 920,631 10,085,363 -0.13% 1.07% 2.22% LVIP MONEY MARKET SERVICE CLASS 2012 0.75% 2.90% 9.14 10.34 1,731,118 17,293,267 -2.83% -0.72% 0.03% 2011 0.75% 2.90% 9.46 10.47 1,518,418 15,248,538 -2.73% -0.72% 0.03% 2010 0.75% 2.80% 9.72 10.60 1,453,345 14,882,422 -2.72% -0.71% 0.04% 2009 0.75% 2.80% 9.99 10.73 1,649,506 17,180,141 -2.68% -0.67% 0.09% 2008 0.75% 2.80% 10.34 10.85 2,317,934 24,490,806 -0.38% 0.82% 1.98% LVIP PROTECTED PROFILE 2010 SERVICE CLASS 2012 1.30% 2.55% 10.46 11.22 34,399 380,690 5.55% 6.87% 1.54% 2011 1.30% 2.55% 9.91 10.50 80,430 832,654 -1.55% -0.31% 0.59% 2010 1.30% 2.55% 10.07 10.53 90,394 935,858 8.39% 9.75% 0.86% 2009 1.30% 2.55% 9.36 9.60 86,639 822,784 21.34% 22.49% 1.73% 2008 1.30% 2.25% 7.71 7.71 64,209 499,512 -25.79% -25.79% 1.70% LVIP PROTECTED PROFILE 2020 SERVICE CLASS 2012 1.30% 2.55% 9.94 10.66 40,590 419,828 5.38% 6.71% 0.93% 2011 1.30% 2.55% 9.43 9.99 316,250 3,104,254 -2.57% -1.34% 0.42% 2010 1.25% 2.55% 9.68 10.14 50,353 501,684 8.95% 10.36% 0.66% 2009 1.25% 2.55% 9.03 9.18 51,484 466,940 22.99% 23.73% 1.78% 2008 1.30% 1.90% 7.39 7.39 32,242 237,153 -28.19% -28.19% 1.55% LVIP PROTECTED PROFILE 2030 SERVICE CLASS 2012 1.30% 1.90% 9.96 10.30 30,077 304,169 5.60% 6.24% 1.19% 2011 1.30% 1.90% 9.43 9.70 40,148 384,876 -2.68% -2.09% 0.64% 2010 1.30% 1.90% 9.69 9.90 42,279 414,905 10.15% 10.81% 0.56% 2009 1.30% 1.90% 8.80 8.94 53,848 477,964 25.25% 26.00% 1.46% 2008 1.30% 1.90% 7.09 7.09 50,346 356,008 -31.85% -31.85% 0.81% LVIP PROTECTED PROFILE 2040 SERVICE CLASS 2012 1.80% 1.80% 9.32 9.32 923 8,604 4.95% 4.95% 1.20% 2011 1.80% 1.80% 8.88 8.88 931 8,275 -3.48% -3.48% 0.19% 2010 1.65% 1.90% 9.17 9.25 8,284 76,452 11.25% 11.53% 0.40% 2009 1.60% 1.90% 8.24 8.31 15,520 128,587 28.17% 28.56% 1.27% 2008 1.60% 1.90% 6.46 6.46 17,041 109,942 -36.77% -36.77% 0.11% LVIP PROTECTED PROFILE CONSERVATIVE SERVICE CLASS 2012 0.65% 3.20% 12.00 13.96 3,890,852 52,058,476 6.43% 8.79% 4.46% 2011 0.65% 2.85% 11.62 12.91 1,421,904 17,794,544 0.52% 2.65% 1.93% 2010 0.75% 2.85% 11.56 12.64 1,028,388 12,635,635 7.14% 8.86% 3.66% 2009 1.25% 2.85% 10.79 11.61 833,593 9,465,517 21.05% 23.00% 4.42% 2008 1.25% 2.85% 8.93 9.44 550,326 5,123,736 -20.90% -19.66% 2.06% LVIP PROTECTED PROFILE GROWTH SERVICE CLASS 2012 0.75% 3.20% 11.06 12.73 8,008,505 98,396,039 5.87% 8.06% 3.41% 2011 0.75% 2.80% 10.25 11.84 1,884,835 21,580,166 -3.00% -0.99% 1.75% 2010 0.75% 2.80% 10.37 12.01 1,687,929 19,727,783 9.33% 11.42% 2.83% 2009 0.90% 2.80% 10.08 10.80 1,332,778 14,124,608 25.16% 27.05% 4.24% 2008 1.30% 2.80% 8.05 8.50 1,371,009 11,503,260 -35.42% -34.44% 0.79% LVIP PROTECTED PROFILE MODERATE SERVICE CLASS 2012 0.65% 3.20% 11.39 13.49 9,766,303 126,050,654 6.20% 8.50% 3.85% 2011 0.75% 2.90% 11.16 12.49 4,221,992 50,672,579 -1.92% 0.16% 1.62% 2010 0.75% 2.85% 11.16 12.54 3,194,946 39,011,600 8.54% 10.68% 2.80% 2009 0.90% 2.85% 10.57 11.37 2,881,089 32,177,868 24.14% 26.27% 4.05% 2008 1.15% 2.85% 8.39 9.01 3,014,242 26,819,220 -28.87% -27.65% 1.74% LVIP SSgA BOND INDEX SERVICE CLASS 2012 0.65% 2.95% 10.24 12.39 3,194,803 37,980,313 0.59% 2.67% 2.34% 2011 0.90% 2.95% 11.26 12.06 2,870,538 33,548,216 4.12% 6.17% 2.92% 2010 0.90% 2.85% 10.83 11.36 2,753,241 30,602,415 2.79% 4.76% 2.14% 2009 0.90% 2.80% 10.58 10.79 1,344,495 14,412,752 1.64% 2.97% 2.16% 2008 7/7/08 1.25% 2.55% 10.41 10.48 393,102 4,112,314 2.70% 6.05% 0.76%
N-49
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) --------------------------------------------------------------------------------------------------------------------------------- LVIP SSgA CONSERVATIVE INDEX ALLOCATION SERVICE CLASS 2012 1.25% 2.95% $ 10.91 $ 11.35 320,758 $ 3,588,905 5.66% 7.41% 2.92% 2011 2/10/11 1.30% 2.95% 10.33 10.57 174,192 1,825,748 -2.93% 3.21% 0.24% LVIP SSgA CONSERVATIVE STRUCTURED ALLOCATION SERVICE CLASS 2012 0.80% 3.00% 10.86 11.24 900,160 10,018,004 5.21% 6.69% 4.13% 2011 1.30% 2.70% 10.53 10.53 470,832 4,934,049 1.22% 1.22% 0.21% 2010 12/8/10 1.30% 1.30% 10.41 10.41 4,856 50,557 1.08% 1.08% 0.00% LVIP SSgA DEVELOPED INTERNATIONAL 150 SERVICE CLASS 2012 1.25% 2.95% 8.53 9.15 556,461 4,981,634 10.24% 11.96% 2.49% 2011 0.90% 2.80% 7.74 8.18 513,585 4,122,345 -14.78% -13.44% 2.26% 2010 1.25% 2.80% 9.08 9.45 501,816 4,677,746 4.05% 5.67% 1.25% 2009 1.25% 2.80% 8.76 8.94 251,863 2,236,344 40.69% 42.53% 1.71% 2008 7/16/08 1.25% 2.55% 6.23 6.27 90,944 569,302 -33.94% 20.38% 1.96% LVIP SSgA EMERGING MARKETS 100 SERVICE CLASS 2012 0.90% 2.95% 10.77 15.66 599,865 7,793,856 9.12% 11.38% 2.52% 2011 0.90% 2.95% 11.33 12.11 517,112 6,077,347 -17.50% -15.92% 2.50% 2010 0.90% 2.80% 13.73 14.41 511,545 7,217,769 23.93% 26.79% 1.17% 2009 0.90% 2.80% 11.12 11.34 342,441 3,859,425 84.71% 87.12% 1.53% 2008 7/16/08 1.25% 2.55% 6.02 6.06 74,056 448,279 -39.37% 21.11% 1.23% LVIP SSgA GLOBAL TACTICAL ALLOCATION RPM SERVICE CLASS 2012 0.80% 3.00% 9.94 13.26 3,052,805 35,197,386 7.66% 9.99% 3.37% 2011 0.80% 2.95% 10.28 10.91 2,158,045 22,926,088 -2.21% -1.33% 1.44% 2010 1.30% 2.20% 10.66 11.06 309,603 3,349,785 6.38% 7.08% 0.79% 2009 1.30% 1.95% 10.02 10.32 322,166 3,278,800 27.95% 28.78% 6.47% 2008 1.30% 1.95% 7.83 8.02 325,144 2,576,159 -41.77% -41.38% 0.33% LVIP SSgA INTERNATIONAL INDEX SERVICE CLASS 2012 0.90% 2.95% 7.97 8.68 978,250 8,175,442 14.56% 16.76% 1.69% 2011 0.90% 2.85% 6.96 7.44 940,151 6,775,945 -15.01% -13.37% 1.16% 2010 0.90% 2.80% 8.18 8.59 817,811 6,865,472 3.83% 5.82% 1.49% 2009 0.90% 2.80% 7.91 8.07 375,412 3,010,040 24.32% 25.95% 1.82% 2008 7/7/08 1.25% 2.55% 6.36 6.41 107,278 686,271 -33.64% 18.08% 1.41% LVIP SSgA LARGE CAP 100 SERVICE CLASS 2012 1.25% 2.95% 11.33 12.18 929,622 11,079,699 8.80% 10.56% 1.37% 2011 0.90% 2.85% 10.43 11.02 954,164 10,325,255 -0.76% 0.80% 1.32% 2010 1.10% 2.80% 10.51 10.93 1,082,247 11,676,876 15.62% 17.42% 1.30% 2009 1.25% 2.80% 9.13 9.31 511,442 4,730,638 31.56% 33.28% 1.48% 2008 7/16/08 1.25% 2.55% 6.94 6.99 165,085 1,150,990 -30.68% 11.67% 0.58% LVIP SSgA MODERATE INDEX ALLOCATION SERVICE CLASS 2012 0.65% 3.15% 11.14 11.71 845,485 9,629,008 8.24% 10.71% 2.39% 2011 0.65% 2.90% 10.43 10.43 420,465 4,378,544 -2.11% -2.11% 0.10% 2010 12/7/10 1.25% 1.65% 10.65 10.67 48,688 519,247 0.81% 1.34% 0.00% LVIP SSgA MODERATE STRUCTURED ALLOCATION SERVICE CLASS 2012 0.80% 2.95% 10.91 11.40 3,624,775 40,794,760 7.06% 9.00% 3.75% 2011 1.15% 2.95% 10.35 10.44 2,586,633 26,866,567 -1.84% -1.25% 0.22% 2010 12/6/10 1.30% 1.90% 10.54 10.57 84,035 886,695 0.91% 1.45% 0.00% LVIP SSgA MODERATELY AGGRESSIVE INDEX ALLOCATION SERVICE CLASS 2012 1.25% 2.95% 11.07 11.52 559,471 6,389,458 9.30% 11.12% 2.35% 2011 1.30% 2.95% 10.33 10.37 316,364 3,264,535 -4.28% -4.04% 0.03% 2010 12/20/10 1.30% 1.55% 10.79 10.80 18,233 196,856 0.32% 1.01% 0.00% LVIP SSgA MODERATELY AGGRESSIVE STRUCTURED ALLOCATION SERVICE CLASS 2012 1.10% 2.90% 11.14 11.54 1,767,041 20,141,867 7.94% 9.73% 3.99% 2011 1.25% 2.90% 10.42 10.51 1,274,024 13,317,403 -3.84% -3.26% 0.18% 2010 11/24/10 1.30% 1.90% 10.84 10.86 78,770 854,596 1.02% 3.08% 0.00% LVIP SSgA S&P 500 INDEX STANDARD CLASS 2012 1.40% 2.70% 10.65 11.44 35,257 379,145 12.96% 14.04% 0.88% 2011 1.40% 2.35% 9.43 10.04 42,395 402,908 -0.52% 0.43% 0.87% 2010 1.40% 2.35% 9.48 9.99 48,434 463,460 12.06% 13.13% 2.00% 2009 1.40% 2.35% 8.53 8.83 18,571 161,394 23.43% 24.36% 0.61% 2008 1.40% 2.15% 7.10 7.10 32,633 230,929 -38.07% -38.07% 4.78%
N-50
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) --------------------------------------------------------------------------------------------------------------------------------- LVIP SSgA S&P 500 INDEX SERVICE CLASS 2012 0.80% 2.95% $ 10.10 $ 14.94 1,956,056 $ 21,414,254 12.01% 14.44% 0.72% 2011 0.80% 2.95% 8.87 9.97 1,931,039 18,608,418 -1.21% 0.69% 0.70% 2010 0.90% 2.80% 8.81 9.94 1,808,456 17,453,770 11.29% 13.42% 1.07% 2009 0.90% 2.80% 8.28 8.79 1,133,198 9,790,077 22.61% 24.34% 1.33% 2008 1.15% 2.55% 6.91 7.06 761,531 5,327,198 -38.53% -38.16% 5.05% LVIP SSgA SMALL-CAP INDEX SERVICE CLASS 2012 0.90% 3.05% 9.03 11.23 638,970 6,144,972 12.14% 14.57% 0.44% 2011 0.90% 3.05% 8.03 8.79 661,006 5,591,990 -7.48% -5.65% 0.10% 2010 0.90% 2.85% 8.70 9.32 645,999 5,842,260 22.40% 24.74% 0.34% 2009 0.90% 2.80% 7.15 7.42 465,259 3,409,090 22.48% 24.27% 0.56% 2008 1.15% 2.60% 5.90 5.97 315,131 1,868,880 -35.38% -34.89% 1.26% LVIP SSgA SMALL-MID CAP 200 SERVICE CLASS 2012 1.25% 2.95% 13.70 14.70 247,965 3,566,763 10.41% 12.13% 2.33% 2011 0.90% 2.80% 12.41 13.11 248,780 3,203,267 -5.15% -3.67% 1.45% 2010 1.25% 2.80% 13.09 13.61 243,536 3,270,464 23.92% 25.85% 1.91% 2009 1.25% 2.80% 10.60 10.81 134,130 1,440,616 47.48% 49.42% 1.98% 2008 7/16/08 1.25% 2.55% 7.19 7.24 37,800 273,108 -32.73% 25.69% 0.76% LVIP T. ROWE PRICE GROWTH STOCK SERVICE CLASS 2012 0.75% 2.95% 9.56 13.11 603,779 6,145,130 14.64% 17.13% 0.00% 2011 0.75% 2.90% 8.33 9.16 451,951 3,962,905 -4.60% -2.63% 0.00% 2010 0.75% 2.80% 8.73 9.40 238,999 2,168,082 13.22% 15.57% 0.00% 2009 0.75% 2.80% 7.90 8.14 172,515 1,366,963 40.04% 41.66% 0.00% 2008 0.75% 1.90% 5.64 5.69 118,843 672,060 -43.08% -42.74% 0.00% LVIP T. ROWE PRICE STRUCTURED MID-CAP GROWTH STANDARD CLASS 2012 1.40% 2.65% 13.86 21.83 4,189 73,680 13.60% 14.67% 0.00% 2011 1.40% 2.35% 12.20 19.07 3,454 62,245 -6.10% -5.21% 0.00% 2010 1.40% 2.35% 12.99 20.16 6,068 109,984 25.39% 26.58% 0.00% 2009 1.40% 2.35% 10.36 15.96 7,809 114,153 42.94% 44.31% 0.11% 2008 1.40% 2.35% 7.25 11.08 6,888 68,297 -44.11% -43.57% 0.00% LVIP T. ROWE PRICE STRUCTURED MID-CAP GROWTH SERVICE CLASS 2012 0.80% 3.15% 12.67 19.90 241,009 4,046,116 12.65% 15.09% 0.00% 2011 0.80% 2.95% 11.02 17.39 209,432 3,110,262 -6.76% -4.97% 0.00% 2010 0.90% 2.80% 11.59 18.38 164,256 2,677,560 24.53% 26.91% 0.00% 2009 0.90% 2.80% 9.97 14.55 144,139 1,925,598 43.22% 44.37% 0.00% 2008 1.10% 1.90% 6.90 10.10 98,002 930,708 -44.00% -43.54% 0.00% LVIP TEMPLETON GROWTH RPM SERVICE CLASS 2012 0.65% 2.95% 8.31 13.93 655,386 5,839,829 17.40% 20.13% 1.76% 2011 0.65% 2.95% 7.09 7.83 610,143 4,567,332 -6.01% -3.91% 1.97% 2010 0.65% 2.80% 7.54 8.12 531,857 4,174,991 3.37% 5.51% 1.72% 2009 0.75% 2.80% 7.35 7.70 490,915 3,688,563 24.60% 26.85% 1.82% 2008 0.75% 2.50% 5.96 6.02 414,443 2,478,450 -39.07% -38.70% 2.15% LVIP UBS LARGE CAP GROWTH RPM STANDARD CLASS 2012 1.25% 2.70% 11.96 16.65 8,810 123,018 13.29% 14.94% 0.00% 2011 1.25% 2.70% 11.82 14.54 9,207 111,981 -7.27% -6.86% 0.24% 2010 1.25% 1.70% 12.74 15.66 8,961 121,493 9.47% 9.96% 0.70% 2009 1.25% 1.70% 11.64 14.29 10,258 125,584 36.19% 36.80% 0.77% 2008 1.25% 1.70% 8.55 10.48 13,433 121,269 -41.82% -41.56% 0.67% LVIP UBS LARGE CAP GROWTH RPM SERVICE CLASS 2012 1.15% 2.80% 11.11 15.28 163,497 2,182,977 12.90% 14.78% 0.00% 2011 1.15% 2.95% 9.84 13.34 121,650 1,446,792 -8.53% -7.00% 0.00% 2010 1.15% 2.80% 10.76 14.38 131,778 1,721,907 8.01% 9.81% 0.54% 2009 1.15% 2.80% 10.37 13.17 117,578 1,450,153 35.57% 36.59% 0.89% 2008 1.15% 1.90% 7.59 9.66 103,965 953,011 -42.08% -41.64% 0.56% LVIP VANGUARD DOMESTIC EQUITY ETF SERVICE CLASS 2012 0.80% 2.75% 10.40 10.71 290,392 3,067,679 11.93% 13.96% 1.81% 2011 7/11/11 0.80% 2.60% 9.29 9.40 51,312 480,762 -6.15% 12.32% 0.85%
N-51
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) --------------------------------------------------------------------------------------------------------------------------------- LVIP VANGUARD INTERNATIONAL EQUITY ETF SERVICE CLASS 2012 1.25% 2.95% $ 9.57 $ 9.82 201,864 $ 1,969,847 15.64% 17.50% 5.33% 2011 6/29/11 1.30% 2.90% 8.27 8.36 66,049 551,143 -18.35% 2.72% 0.00% LORD ABBETT FUNDAMENTAL EQUITY CLASS VC 2012 0.75% 1.30% 11.71 16.53 4,460 71,129 9.15% 9.76% 0.49% 2011 0.75% 2.35% 14.99 15.06 6,335 88,245 -5.34% -5.20% 0.26% 2010 5/21/10 0.75% 0.90% 15.83 15.88 2,264 35,937 14.45% 18.64% 0.36% MFS VIT CORE EQUITY SERVICE CLASS 2012 1.40% 2.35% 11.71 17.73 4,035 62,573 13.26% 14.34% 0.51% 2011 1.40% 2.35% 10.34 15.53 3,363 41,648 -3.57% -2.65% 0.44% 2010 1.40% 2.35% 10.72 15.99 6,602 91,399 14.15% 15.24% 0.91% 2009 1.40% 2.35% 9.39 13.90 7,687 91,487 29.17% 30.40% 1.31% 2008 1.40% 2.35% 7.27 10.68 8,254 76,056 -40.74% -40.17% 0.42% MFS VIT GROWTH INITIAL CLASS 2012 1.40% 1.40% 8.29 8.29 10,469 86,775 15.76% 15.76% 0.00% 2011 1.40% 1.40% 7.16 7.16 15,353 109,949 -1.71% -1.71% 0.19% 2010 1.40% 1.40% 7.29 7.29 20,823 151,706 13.73% 13.73% 0.12% 2009 1.40% 2.15% 6.41 11.45 24,920 163,102 34.75% 35.76% 0.30% 2008 1.40% 2.15% 4.72 8.50 29,618 142,578 -38.75% -38.29% 0.23% MFS VIT GROWTH SERVICE CLASS 2012 0.80% 2.60% 10.81 20.71 61,642 879,920 14.07% 16.15% 0.00% 2011 0.80% 2.60% 9.45 17.98 52,354 646,225 -3.06% -1.84% 0.02% 2010 1.30% 2.55% 9.66 18.37 23,294 364,478 12.13% 13.54% 0.00% 2009 1.30% 2.55% 12.26 16.23 22,342 310,698 34.75% 35.48% 0.03% 2008 1.25% 1.90% 9.22 12.01 17,947 199,968 -38.60% -38.32% 0.00% MFS VIT TOTAL RETURN INITIAL CLASS 2012 1.40% 1.40% 16.00 16.00 34,673 554,747 9.71% 9.71% 2.72% 2011 1.40% 1.40% 14.58 14.58 47,810 697,218 0.36% 0.36% 2.59% 2010 1.40% 1.40% 14.53 14.53 56,209 816,796 8.40% 8.40% 2.89% 2009 1.40% 2.15% 9.94 13.41 81,281 1,087,744 15.52% 16.39% 3.96% 2008 1.40% 2.15% 8.60 11.52 120,074 1,381,280 -23.79% -23.22% 3.22% MFS VIT TOTAL RETURN SERVICE CLASS 2012 0.65% 2.80% 10.84 15.45 938,481 13,030,237 7.87% 10.21% 2.38% 2011 0.65% 2.85% 10.01 14.12 1,135,245 14,538,502 -1.27% 0.93% 2.39% 2010 0.65% 2.85% 10.14 14.10 1,198,487 15,470,557 6.55% 8.81% 2.53% 2009 0.75% 2.85% 9.39 13.04 1,267,316 15,292,357 14.42% 16.84% 3.18% 2008 0.75% 2.85% 8.33 11.25 1,166,594 12,218,673 -24.47% -23.29% 2.86% MFS VIT UTILITIES INITIAL CLASS 2012 1.40% 1.40% 21.30 21.30 19,461 414,566 11.91% 11.91% 7.14% 2011 1.40% 1.40% 19.04 19.04 25,620 487,714 5.30% 5.30% 3.20% 2010 1.40% 1.40% 18.08 18.08 32,317 584,237 12.23% 12.23% 3.18% 2009 1.40% 1.40% 16.11 16.11 38,609 621,943 31.37% 31.37% 5.40% 2008 1.40% 1.40% 12.26 12.26 53,498 656,021 -38.54% -38.54% 1.61% MFS VIT UTILITIES SERVICE CLASS 2012 0.75% 2.95% 12.74 37.60 622,844 13,546,868 9.98% 12.36% 6.41% 2011 0.75% 2.90% 12.65 33.75 685,691 13,455,945 3.57% 5.71% 3.04% 2010 0.75% 2.80% 11.99 32.20 557,635 11,092,347 10.49% 12.66% 3.02% 2009 0.75% 2.70% 11.66 28.82 593,173 10,612,729 29.46% 31.35% 4.56% 2008 1.15% 2.60% 8.88 22.04 634,382 8,758,111 -39.38% -38.52% 1.30% NB AMT MID CAP GROWTH I CLASS 2012 1.25% 2.70% 13.85 21.97 177,048 3,177,639 9.57% 11.02% 0.00% 2011 1.25% 2.55% 12.60 19.83 217,266 3,579,845 -2.05% -0.77% 0.00% 2010 1.25% 2.55% 12.83 20.05 257,458 4,293,649 25.85% 27.49% 0.00% 2009 1.25% 2.55% 10.16 15.78 312,161 4,113,976 28.29% 29.96% 0.00% 2008 1.25% 2.55% 8.21 12.19 388,501 3,961,626 -44.80% -44.07% 0.00%
N-52
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) --------------------------------------------------------------------------------------------------------------------------------- NB AMT MID CAP INTRINSIC VALUE I CLASS 2012 1.25% 2.90% $ 10.97 $ 20.62 219,756 $ 3,646,857 12.23% 14.09% 0.60% 2011 1.25% 2.90% 9.71 18.14 253,041 3,721,504 -8.99% -7.66% 0.61% 2010 1.25% 2.70% 10.63 19.71 302,631 4,932,486 23.01% 24.62% 0.69% 2009 1.25% 2.55% 8.61 15.87 384,586 5,109,230 42.87% 44.74% 1.78% 2008 1.25% 2.65% 6.31 11.00 443,184 4,097,055 -47.19% -46.49% 1.19% OPPENHEIMER GLOBAL SECURITIES SERVICE CLASS 2012 0.75% 1.30% 12.72 19.24 14,940 223,096 19.39% 20.05% 1.90% 2011 0.75% 1.30% 15.75 16.03 16,819 207,744 -9.71% -9.21% 0.55% 2010 5/21/10 0.75% 1.30% 17.45 17.65 3,824 67,373 1.60% 21.26% 0.00% PIMCO VIT COMMODITYREALRETURN STRATEGY ADVISOR CLASS 2012 0.65% 2.50% 13.93 14.89 231,047 3,332,645 2.53% 4.44% 2.63% 2011 0.65% 2.50% 13.78 14.26 95,026 1,322,824 -9.33% -8.14% 14.47% 2010 0.65% 1.95% 15.21 15.46 55,655 851,447 21.91% 23.10% 15.39% 2009 7/1/09 0.90% 1.90% 12.48 12.56 24,322 304,150 12.38% 22.53% 6.29% PUTNAM VT GLOBAL HEALTH CARE CLASS IB 2012 1.40% 1.70% 13.24 15.73 7,832 107,116 20.21% 20.57% 1.31% 2011 1.40% 1.70% 11.01 13.07 6,602 75,661 -2.84% -2.55% 0.84% 2010 1.40% 1.70% 11.34 13.44 7,408 87,254 0.74% 1.04% 1.97% 2009 1.35% 1.70% 11.25 13.33 10,108 123,536 23.88% 24.25% 0.00% 2008 1.40% 1.70% 9.08 10.75 11,152 105,401 -18.47% -18.23% 0.00% PUTNAM VT GROWTH & INCOME CLASS IB 2012 1.40% 2.80% 12.66 14.62 944 13,047 15.85% 17.48% 2.81% 2011 1.40% 2.80% 10.77 13.17 4,382 56,120 -6.16% -5.97% 1.22% 2010 1.40% 1.70% 11.14 14.03 4,509 58,401 12.45% 12.79% 1.52% 2009 1.40% 1.70% 9.90 12.47 4,506 51,857 27.62% 28.00% 2.98% 2008 1.40% 1.70% 7.76 9.76 8,118 71,886 -39.74% -39.55% 2.16%
---------- (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. N-53 4. PURCHASES AND SALES OF INVESTMENTS The aggregate cost of investments purchased and the aggregate proceeds from investments sold were as follows for 2012:
AGGREGATE AGGREGATE COST OF PROCEEDS SUBACCOUNT PURCHASES FROM SALES -------------------------------------------------------------------------------------------------- ABVPSF Global Thematic Growth Class B $ 286,239 $ 411,563 ABVPSF Growth and Income Class B 217,494 1,569,165 ABVPSF International Value Class B 568,898 1,239,047 ABVPSF Large Cap Growth Class B 2,658 186,456 ABVPSF Small/Mid Cap Value Class B 840,572 1,682,905 American Century VP Inflation Protection Class II 2,334,127 4,577,368 American Funds Global Growth Class 2 419,842 3,979,826 American Funds Global Small Capitalization Class 2 569,823 2,313,082 American Funds Growth Class 2 1,303,300 14,268,431 American Funds Growth-Income Class 2 1,886,167 13,363,422 American Funds International Class 2 1,004,613 6,528,219 BlackRock Global Allocation V.I. Class III 18,482,079 3,771,189 Delaware VIP Diversified Income Service Class 10,521,750 5,623,240 Delaware VIP Emerging Markets Service Class 2,799,775 2,849,348 Delaware VIP High Yield Standard Class 109,589 97,180 Delaware VIP High Yield Service Class 2,390,104 3,925,109 Delaware VIP Limited-Term Diversified Income Service Class 7,161,162 4,366,783 Delaware VIP REIT Standard Class 42,934 134,068 Delaware VIP REIT Service Class 1,383,370 2,456,590 Delaware VIP Small Cap Value Standard Class 126,924 226,414 Delaware VIP Small Cap Value Service Class 3,201,730 3,390,501 Delaware VIP Smid Cap Growth Standard Class 57,149 98,137 Delaware VIP Smid Cap Growth Service Class 3,194,936 1,258,413 Delaware VIP U.S. Growth Service Class 1,727,744 711,322 Delaware VIP Value Standard Class 6,836 84,561 Delaware VIP Value Service Class 1,238,258 1,640,185 DWS Alternative Asset Allocation VIP Class B 1,160,395 433,777 DWS Equity 500 Index VIP Class A 56,541 500,076 DWS Equity 500 Index VIP Class B 116,669 824,984 DWS Small Cap Index VIP Class A 109,669 179,580 DWS Small Cap Index VIP Class B 15,371 325,474 Fidelity VIP Contrafund Service Class 2 3,294,061 6,174,375 Fidelity VIP Equity-Income Initial Class 48,117 132,224 Fidelity VIP Equity-Income Service Class 2 226,886 326,967 Fidelity VIP Growth Initial Class 1,007 49,897 Fidelity VIP Growth Service Class 2 1,806,952 1,095,820 Fidelity VIP Mid Cap Service Class 2 7,153,055 3,281,786 Fidelity VIP Overseas Initial Class 1,902 15,748 Fidelity VIP Overseas Service Class 2 230,965 607,756 FTVIPT Franklin Income Securities Class 2 6,722,351 6,120,355 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 604,667 1,827,941 FTVIPT Mutual Shares Securities Class 2 1,924,338 3,067,072 FTVIPT Templeton Global Bond Securities Class 2 1,770,615 4,638,109 FTVIPT Templeton Growth Securities Class 2 136,901 1,212,843 Goldman Sachs VIT Large Cap Value Service Class 106,152 274,467 Huntington VA Balanced 4,698 148 Huntington VA Dividend Capture 41,834 722 Invesco V.I. Capital Appreciation Series I 26 158,490 Invesco V.I. Capital Appreciation Series II -- 70,042 Invesco V.I. Core Equity Series I 2,465 199,433 Invesco V.I. Core Equity Series II 1,193 1 Invesco V.I. International Growth Series I 1,905 6,405 Invesco V.I. International Growth Series II 14,500 174,356 Invesco Van Kampen V.I. American Franchise Series I 157,798 19,453 Invesco Van Kampen V.I. American Franchise Series II 68,648 7,258 Janus Aspen Series Balanced Service Class 128,086 101,612 Janus Aspen Series Enterprise Service Class 2,063 206,913 Janus Aspen Series Worldwide Service Class 579 4,064
N-54
AGGREGATE AGGREGATE COST OF PROCEEDS SUBACCOUNT PURCHASES FROM SALES -------------------------------------------------------------------------------------------------- LVIP American Global Growth Service Class II $ 645,139 $ 371,738 LVIP American Global Small Capitalization Service Class II 1,097,520 252,428 LVIP American Growth Service Class II 3,494,124 543,665 LVIP American Growth-Income Service Class II 3,525,006 551,598 LVIP American International Service Class II 1,843,820 711,105 LVIP Baron Growth Opportunities Service Class 1,483,829 1,276,101 LVIP BlackRock Emerging Markets Index RPM Service Class 129,327 23 LVIP BlackRock Equity Dividend RPM Service Class 1,071,030 288,065 LVIP BlackRock Inflation Protected Bond Service Class 11,085,654 2,308,690 LVIP Capital Growth Service Class 432,169 245,920 LVIP Clarion Global Real Estate Service Class 678,852 1,050,932 LVIP Columbia Small-Mid Cap Growth RPM Service Class 494,220 433,710 LVIP Delaware Bond Standard Class 674,252 2,772,173 LVIP Delaware Bond Service Class 17,613,848 5,522,986 LVIP Delaware Diversified Floating Rate Service Class 4,476,505 1,388,575 LVIP Delaware Foundation Aggressive Allocation Standard Class 4,997 34,247 LVIP Delaware Foundation Aggressive Allocation Service Class 378,308 975,944 LVIP Delaware Growth and Income Service Class 191,602 620,805 LVIP Delaware Social Awareness Standard Class 55,978 128,759 LVIP Delaware Social Awareness Service Class 590,341 483,719 LVIP Delaware Special Opportunities Service Class 1,425,434 345,569 LVIP Dimensional Non-U.S. Equity Service Class 1,255,453 251,998 LVIP Dimensional U.S. Equity Service Class 2,579,252 364,936 LVIP Dimensional/Vanguard Total Bond Service Class 6,444,901 3,192,782 LVIP Global Income Service Class 4,977,747 2,353,908 LVIP JPMorgan High Yield Service Class 3,763,849 991,101 LVIP JPMorgan Mid Cap Value RPM Service Class 772,484 389,209 LVIP MFS International Growth Service Class 1,062,713 594,805 LVIP MFS Value Service Class 2,342,828 1,565,762 LVIP Mid-Cap Value Service Class 665,451 777,198 LVIP Mondrian International Value Standard Class 107,903 261,729 LVIP Mondrian International Value Service Class 502,344 985,543 LVIP Money Market Standard Class 1,641,283 2,438,521 LVIP Money Market Service Class 17,169,722 15,124,538 LVIP Protected Profile 2010 Service Class 6,521 499,168 LVIP Protected Profile 2020 Service Class 7,155 2,816,433 LVIP Protected Profile 2030 Service Class 4,476 108,431 LVIP Protected Profile 2040 Service Class 102 232 LVIP Protected Profile Conservative Service Class 41,450,217 8,634,456 LVIP Protected Profile Growth Service Class 75,737,091 2,673,758 LVIP Protected Profile Moderate Service Class 80,162,443 9,684,046 LVIP SSgA Bond Index Service Class 8,578,380 4,540,352 LVIP SSgA Conservative Index Allocation Service Class 2,345,949 728,441 LVIP SSgA Conservative Structured Allocation Service Class 5,994,990 1,154,776 LVIP SSgA Developed International 150 Service Class 1,022,651 658,618 LVIP SSgA Emerging Markets 100 Service Class 2,536,261 762,152 LVIP SSgA Global Tactical Allocation RPM Service Class 12,534,527 2,421,520 LVIP SSgA International Index Service Class 1,507,392 1,218,508 LVIP SSgA Large Cap 100 Service Class 1,340,886 1,668,484 LVIP SSgA Moderate Index Allocation Service Class 6,316,862 1,576,854 LVIP SSgA Moderate Structured Allocation Service Class 18,237,470 6,139,729 LVIP SSgA Moderately Aggressive Index Allocation Service Class 3,190,423 499,838 LVIP SSgA Moderately Aggressive Structured Allocation Service Class 8,495,585 2,671,999 LVIP SSgA S&P 500 Index Standard Class 15,917 96,198 LVIP SSgA S&P 500 Index Service Class 2,932,274 2,975,099 LVIP SSgA Small-Cap Index Service Class 879,024 1,163,716 LVIP SSgA Small-Mid Cap 200 Service Class 732,662 452,606 LVIP T. Rowe Price Growth Stock Service Class 2,281,375 922,194 LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class 28,644 23,473 LVIP T. Rowe Price Structured Mid-Cap Growth Service Class 1,154,437 617,430 LVIP Templeton Growth RPM Service Class 1,136,966 819,858 LVIP UBS Large Cap Growth RPM Standard Class 2,020 9,191 LVIP UBS Large Cap Growth RPM Service Class 660,019 173,412
N-55
AGGREGATE AGGREGATE COST OF PROCEEDS SUBACCOUNT PURCHASES FROM SALES -------------------------------------------------------------------------------------------------- LVIP Vanguard Domestic Equity ETF Service Class $ 2,591,012 $ 214,455 LVIP Vanguard International Equity ETF Service Class 1,453,683 203,775 Lord Abbett Fundamental Equity Class VC 8,637 33,077 MFS VIT Core Equity Service Class 27,494 14,156 MFS VIT Growth Initial Class 2,985 43,979 MFS VIT Growth Service Class 396,313 307,047 MFS VIT Total Return Initial Class 42,640 238,180 MFS VIT Total Return Service Class 1,591,899 4,230,879 MFS VIT Utilities Initial Class 33,358 131,996 MFS VIT Utilities Service Class 2,272,796 3,006,567 NB AMT Mid Cap Growth I Class 29,425 869,094 NB AMT Mid Cap Intrinsic Value I Class 1,028,717 660,745 Oppenheimer Global Securities Service Class 57,223 78,984 PIMCO VIT CommodityRealReturn Strategy Advisor Class 2,635,116 505,646 Putnam VT Global Health Care Class IB 31,741 7,891 Putnam VT Growth & Income Class IB 1,785 49,292
5. INVESTMENTS The following is a summary of investments owned at December 31, 2012:
NET SHARES ASSET FAIR VALUE SUBACCOUNT OWNED VALUE OF SHARES COST OF SHARES -------------------------------------------------------------------------------------------------------------------------------- ABVPSF Global Thematic Growth Class B 92,899 $ 16.42 $ 1,525,400 $ 1,515,951 ABVPSF Growth and Income Class B 294,861 20.66 6,091,822 5,890,388 ABVPSF International Value Class B 553,525 12.84 7,107,268 9,233,341 ABVPSF Large Cap Growth Class B 18,242 30.38 554,177 425,267 ABVPSF Small/Mid Cap Value Class B 413,297 17.58 7,265,758 6,312,708 American Century VP Inflation Protection Class II 1,936,209 12.03 23,292,592 21,209,506 American Funds Global Growth Class 2 595,463 23.44 13,957,644 12,195,039 American Funds Global Small Capitalization Class 2 568,443 19.86 11,289,268 11,004,885 American Funds Growth Class 2 1,171,840 60.45 70,837,697 62,440,785 American Funds Growth-Income Class 2 1,772,311 38.24 67,773,190 62,724,350 American Funds International Class 2 1,930,505 17.62 34,015,498 34,245,371 BlackRock Global Allocation V.I. Class III 3,715,214 14.34 53,276,164 52,605,646 Delaware VIP Diversified Income Service Class 4,954,717 11.00 54,501,886 52,698,586 Delaware VIP Emerging Markets Service Class 957,704 19.78 18,943,389 18,190,615 Delaware VIP High Yield Standard Class 117,943 6.11 720,631 637,004 Delaware VIP High Yield Service Class 2,267,150 6.09 13,806,945 12,549,986 Delaware VIP Limited-Term Diversified Income Service Class 2,399,383 10.05 24,113,802 24,076,092 Delaware VIP REIT Standard Class 64,135 12.06 773,469 793,435 Delaware VIP REIT Service Class 988,231 12.04 11,898,302 11,164,272 Delaware VIP Small Cap Value Standard Class 21,617 33.14 716,389 553,845 Delaware VIP Small Cap Value Service Class 579,876 33.04 19,159,097 17,024,715 Delaware VIP Smid Cap Growth Standard Class 15,867 24.37 386,681 325,961 Delaware VIP Smid Cap Growth Service Class 344,165 23.67 8,146,385 7,610,729 Delaware VIP U.S. Growth Service Class 522,746 10.03 5,243,142 4,386,092 Delaware VIP Value Standard Class 7,377 19.88 146,653 119,465 Delaware VIP Value Service Class 448,274 19.84 8,893,759 7,995,774 DWS Alternative Asset Allocation VIP Class B 204,774 13.88 2,842,263 2,746,747 DWS Equity 500 Index VIP Class A 132,871 15.01 1,994,395 1,606,444 DWS Equity 500 Index VIP Class B 137,049 15.00 2,055,742 1,748,936 DWS Small Cap Index VIP Class A 34,742 13.56 471,104 436,552 DWS Small Cap Index VIP Class B 101,188 13.55 1,371,098 1,297,466 Fidelity VIP Contrafund Service Class 2 1,638,396 26.00 42,598,288 41,053,308 Fidelity VIP Equity-Income Initial Class 25,435 19.94 507,175 551,318 Fidelity VIP Equity-Income Service Class 2 86,375 19.62 1,694,673 1,819,471 Fidelity VIP Growth Initial Class 4,016 42.05 168,862 137,484 Fidelity VIP Growth Service Class 2 107,651 41.64 4,482,573 3,987,118 Fidelity VIP Mid Cap Service Class 2 949,858 29.98 28,476,746 28,187,069
N-56
NET SHARES ASSET FAIR VALUE SUBACCOUNT OWNED VALUE OF SHARES COST OF SHARES -------------------------------------------------------------------------------------------------------------------------------- Fidelity VIP Overseas Initial Class 4,822 $ 16.09 $ 77,582 $ 74,116 Fidelity VIP Overseas Service Class 2 212,616 15.95 3,391,222 3,615,485 FTVIPT Franklin Income Securities Class 2 1,777,637 15.07 26,788,985 26,179,726 FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 324,225 21.04 6,821,688 6,235,077 FTVIPT Mutual Shares Securities Class 2 1,176,402 17.22 20,257,638 19,724,007 FTVIPT Templeton Global Bond Securities Class 2 666,949 19.47 12,985,494 11,610,390 FTVIPT Templeton Growth Securities Class 2 286,917 11.97 3,434,397 3,685,214 Goldman Sachs VIT Large Cap Value Service Class 140,757 10.75 1,513,133 1,385,443 Huntington VA Balanced 333 14.35 4,779 4,557 Huntington VA Dividend Capture 3,884 10.78 41,869 41,143 Invesco V.I. Core Equity Series I 7,433 30.14 224,033 186,818 Invesco V.I. Core Equity Series II 354 29.86 10,566 9,089 Invesco V.I. International Growth Series I 3,989 30.03 119,783 69,822 Invesco V.I. International Growth Series II 2,089 29.68 62,007 44,905 Invesco Van Kampen V.I. American Franchise Series I 3,688 36.28 133,800 137,081 Invesco Van Kampen V.I. American Franchise Series II 1,661 35.55 59,060 60,687 Janus Aspen Series Balanced Service Class 23,515 28.42 668,299 619,636 Janus Aspen Series Enterprise Service Class 9,712 43.18 419,348 260,670 Janus Aspen Series Worldwide Service Class 318 30.32 9,645 8,094 LVIP American Global Growth Service Class II 147,339 13.67 2,014,416 1,814,337 LVIP American Global Small Capitalization Service Class II 210,921 12.01 2,533,158 2,448,141 LVIP American Growth Service Class II 545,231 14.05 7,659,408 7,019,998 LVIP American Growth-Income Service Class II 543,674 13.86 7,537,495 6,878,376 LVIP American International Service Class II 363,335 12.14 4,409,065 4,209,510 LVIP Baron Growth Opportunities Service Class 258,116 35.08 9,055,740 7,504,089 LVIP BlackRock Emerging Markets Index RPM Service Class 12,373 10.90 134,799 129,305 LVIP BlackRock Equity Dividend RPM Service Class 163,999 14.96 2,453,584 2,316,761 LVIP BlackRock Inflation Protected Bond Service Class 1,866,446 11.45 21,370,808 20,674,733 LVIP Capital Growth Service Class 104,743 27.55 2,885,783 2,555,682 LVIP Clarion Global Real Estate Service Class 794,051 8.43 6,689,878 5,459,845 LVIP Columbia Small-Mid Cap Growth RPM Service Class 181,689 10.94 1,988,228 1,960,149 LVIP Delaware Bond Standard Class 674,876 14.21 9,591,335 8,887,313 LVIP Delaware Bond Service Class 4,994,667 14.21 70,979,219 68,931,318 LVIP Delaware Diversified Floating Rate Service Class 839,817 10.14 8,511,543 8,473,536 LVIP Delaware Foundation Aggressive Allocation Standard Class 21,296 13.19 280,975 290,561 LVIP Delaware Foundation Aggressive Allocation Service Class 182,270 13.19 2,403,960 2,366,941 LVIP Delaware Growth and Income Service Class 49,093 32.99 1,619,783 1,442,414 LVIP Delaware Social Awareness Standard Class 21,488 32.54 699,104 602,554 LVIP Delaware Social Awareness Service Class 80,102 32.48 2,601,302 2,417,229 LVIP Delaware Special Opportunities Service Class 90,949 34.07 3,098,543 3,300,048 LVIP Dimensional Non-U.S. Equity Service Class 183,731 9.20 1,690,697 1,565,028 LVIP Dimensional U.S. Equity Service Class 285,028 10.71 3,053,792 2,856,698 LVIP Dimensional/Vanguard Total Bond Service Class 897,452 10.69 9,592,869 9,502,434 LVIP Global Income Service Class 1,501,400 11.82 17,743,544 17,499,526 LVIP JPMorgan High Yield Service Class 607,634 11.12 6,758,102 6,478,173 LVIP JPMorgan Mid Cap Value RPM Service Class 132,668 11.70 1,552,749 1,415,738 LVIP MFS International Growth Service Class 319,929 12.95 4,143,716 3,903,269 LVIP MFS Value Service Class 503,035 25.80 12,980,308 11,270,312 LVIP Mid-Cap Value Service Class 246,418 15.86 3,908,449 3,208,219 LVIP Mondrian International Value Standard Class 106,472 15.24 1,622,951 1,750,503 LVIP Mondrian International Value Service Class 430,618 15.24 6,560,890 7,142,768 LVIP Money Market Standard Class 258,153 10.00 2,581,530 2,581,530 LVIP Money Market Service Class 1,729,514 10.00 17,295,146 17,295,145 LVIP Protected Profile 2010 Service Class 33,825 11.26 380,738 322,401 LVIP Protected Profile 2020 Service Class 38,922 10.79 419,891 358,630 LVIP Protected Profile 2030 Service Class 28,623 10.63 304,209 273,514 LVIP Protected Profile 2040 Service Class 861 9.99 8,605 8,804 LVIP Protected Profile Conservative Service Class 4,028,361 12.85 51,760,414 50,387,310 LVIP Protected Profile Growth Service Class 8,196,335 11.91 97,577,372 94,891,154 LVIP Protected Profile Moderate Service Class 9,955,609 12.56 125,062,358 121,014,236 LVIP SSgA Bond Index Service Class 3,280,767 11.57 37,971,596 36,673,818
N-57
NET SHARES ASSET FAIR VALUE SUBACCOUNT OWNED VALUE OF SHARES COST OF SHARES -------------------------------------------------------------------------------------------------------------------------------- LVIP SSgA Conservative Index Allocation Service Class 314,769 $ 11.40 $ 3,589,628 $ 3,447,807 LVIP SSgA Conservative Structured Allocation Service Class 898,614 11.14 10,008,760 9,768,509 LVIP SSgA Developed International 150 Service Class 615,813 8.10 4,988,701 4,679,356 LVIP SSgA Emerging Markets 100 Service Class 746,531 10.45 7,799,760 8,334,228 LVIP SSgA Global Tactical Allocation RPM Service Class 3,188,525 10.95 34,920,726 33,669,522 LVIP SSgA International Index Service Class 1,031,297 7.94 8,192,621 7,427,996 LVIP SSgA Large Cap 100 Service Class 964,297 11.49 11,081,702 9,223,296 LVIP SSgA Moderate Index Allocation Service Class 827,579 11.64 9,631,364 9,122,987 LVIP SSgA Moderate Structured Allocation Service Class 3,619,782 11.27 40,809,421 39,484,034 LVIP SSgA Moderately Aggressive Index Allocation Service Class 549,021 11.64 6,390,604 6,067,512 LVIP SSgA Moderately Aggressive Structured Allocation Service Class 1,766,603 11.40 20,146,346 19,467,309 LVIP SSgA S&P 500 Index Standard Class 37,191 10.19 379,017 308,076 LVIP SSgA S&P 500 Index Service Class 2,084,183 10.20 21,250,332 17,481,098 LVIP SSgA Small-Cap Index Service Class 313,549 19.60 6,146,181 4,993,047 LVIP SSgA Small-Mid Cap 200 Service Class 282,567 12.63 3,568,259 3,157,648 LVIP T. Rowe Price Growth Stock Service Class 299,918 20.44 6,130,317 5,354,033 LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class 4,697 15.69 73,691 62,199 LVIP T. Rowe Price Structured Mid-Cap Growth Service Class 264,240 15.32 4,047,886 3,457,186 LVIP Templeton Growth RPM Service Class 200,658 28.74 5,767,321 5,323,978 LVIP UBS Large Cap Growth RPM Standard Class 5,224 23.55 123,034 88,853 LVIP UBS Large Cap Growth RPM Service Class 93,607 23.32 2,182,727 1,932,070 LVIP Vanguard Domestic Equity ETF Service Class 293,412 10.40 3,050,020 2,855,537 LVIP Vanguard International Equity ETF Service Class 216,381 9.14 1,977,071 1,853,612 Lord Abbett Fundamental Equity Class VC 4,039 17.61 71,134 69,193 MFS VIT Core Equity Service Class 3,550 17.63 62,582 51,116 MFS VIT Growth Initial Class 3,010 28.83 86,785 55,884 MFS VIT Growth Service Class 31,141 28.25 879,734 737,451 MFS VIT Total Return Initial Class 27,671 20.05 554,810 512,127 MFS VIT Total Return Service Class 658,184 19.80 13,032,040 12,396,079 MFS VIT Utilities Initial Class 15,006 27.63 414,613 332,549 MFS VIT Utilities Service Class 496,499 27.29 13,549,453 12,494,745 NB AMT Mid Cap Growth I Class 102,619 30.97 3,178,123 2,073,760 NB AMT Mid Cap Intrinsic Value I Class 301,700 12.09 3,647,546 4,122,648 Oppenheimer Global Securities Service Class 6,918 32.25 223,112 205,074 PIMCO VIT CommodityRealReturn Strategy Advisor Class 462,284 7.21 3,333,068 3,627,828 Putnam VT Global Health Care Class IB 8,292 12.92 107,130 100,473 Putnam VT Growth & Income Class IB 728 17.93 13,049 14,427
6. CHANGES IN UNITS OUTSTANDING The change in units outstanding for the year ended December 31, 2012, is as follows:
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------------- ABVPSF Global Thematic Growth Class B 27,547 (57,096) (29,549) ABVPSF Growth and Income Class B 10,603 (111,162) (100,559) ABVPSF International Value Class B 83,434 (182,145) (98,711) ABVPSF Large Cap Growth Class B 525 (18,175) (17,650) ABVPSF Small/Mid Cap Value Class B 43,728 (100,161) (56,433) American Century VP Inflation Protection Class II 106,363 (322,179) (215,816) American Funds Global Growth Class 2 21,910 (245,452) (223,542) American Funds Global Small Capitalization Class 2 36,472 (107,268) (70,796) American Funds Growth Class 2 62,496 (844,183) (781,687) American Funds Growth-Income Class 2 90,083 (884,639) (794,556) American Funds International Class 2 54,138 (367,999) (313,861) BlackRock Global Allocation V.I. Class III 1,457,198 (271,449) 1,185,749 Delaware VIP Diversified Income Service Class 533,350 (333,646) 199,704 Delaware VIP Emerging Markets Service Class 172,379 (156,703) 15,676 Delaware VIP High Yield Standard Class 3,647 (4,627) (980) Delaware VIP High Yield Service Class 59,127 (203,475) (144,348)
N-58
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------------- Delaware VIP Limited-Term Diversified Income Service Class 589,549 (368,791) 220,758 Delaware VIP REIT Standard Class 1,080 (4,108) (3,028) Delaware VIP REIT Service Class 76,155 (107,295) (31,140) Delaware VIP Small Cap Value Standard Class 2,348 (7,881) (5,533) Delaware VIP Small Cap Value Service Class 118,603 (159,350) (40,747) Delaware VIP Smid Cap Growth Standard Class 2,344 (6,774) (4,430) Delaware VIP Smid Cap Growth Service Class 183,705 (69,641) 114,064 Delaware VIP U.S. Growth Service Class 142,226 (52,947) 89,279 Delaware VIP Value Standard Class 228 (5,545) (5,317) Delaware VIP Value Service Class 86,512 (105,843) (19,331) DWS Alternative Asset Allocation VIP Class B 85,637 (32,571) 53,066 DWS Equity 500 Index VIP Class A 1,793 (37,996) (36,203) DWS Equity 500 Index VIP Class B 6,111 (55,023) (48,912) DWS Small Cap Index VIP Class A 1,070 (8,643) (7,573) DWS Small Cap Index VIP Class B 449 (17,530) (17,081) Fidelity VIP Contrafund Service Class 2 217,589 (378,712) (161,123) Fidelity VIP Equity-Income Initial Class -- (9,950) (9,950) Fidelity VIP Equity-Income Service Class 2 5,526 (19,994) (14,468) Fidelity VIP Growth Initial Class -- (5,663) (5,663) Fidelity VIP Growth Service Class 2 147,579 (89,904) 57,675 Fidelity VIP Mid Cap Service Class 2 357,056 (207,084) 149,972 Fidelity VIP Overseas Initial Class 22 (1,516) (1,494) Fidelity VIP Overseas Service Class 2 12,985 (42,791) (29,806) FTVIPT Franklin Income Securities Class 2 421,935 (476,237) (54,302) FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 9,377 (114,200) (104,823) FTVIPT Mutual Shares Securities Class 2 160,430 (285,834) (125,404) FTVIPT Templeton Global Bond Securities Class 2 64,293 (273,616) (209,323) FTVIPT Templeton Growth Securities Class 2 7,323 (90,181) (82,858) Goldman Sachs VIT Large Cap Value Service Class 4,820 (20,438) (15,618) Huntington VA Balanced 467 (12) 455 Huntington VA Dividend Capture 3,918 (39) 3,879 Invesco V.I. Capital Appreciation Series I 19 (28,009) (27,990) Invesco V.I. Capital Appreciation Series II 4 (6,584) (6,580) Invesco V.I. Core Equity Series I 83 (23,869) (23,786) Invesco V.I. Core Equity Series II 102 -- 102 Invesco V.I. International Growth Series I 21 (407) (386) Invesco V.I. International Growth Series II 752 (8,019) (7,267) Invesco Van Kampen V.I. American Franchise Series I 28,097 (3,637) 24,460 Invesco Van Kampen V.I. American Franchise Series II 6,485 (749) 5,736 Janus Aspen Series Balanced Service Class 4,090 (5,509) (1,419) Janus Aspen Series Enterprise Service Class 128 (8,930) (8,802) Janus Aspen Series Worldwide Service Class 43 (304) (261) LVIP American Global Growth Service Class II 52,414 (28,120) 24,294 LVIP American Global Small Capitalization Service Class II 98,515 (21,432) 77,083 LVIP American Growth Service Class II 274,545 (36,960) 237,585 LVIP American Growth-Income Service Class II 275,979 (37,081) 238,898 LVIP American International Service Class II 161,078 (60,932) 100,146 LVIP Baron Growth Opportunities Service Class 82,651 (96,914) (14,263) LVIP BlackRock Emerging Markets Index RPM Service Class 12,282 -- 12,282 LVIP BlackRock Equity Dividend RPM Service Class 110,887 (24,889) 85,998 LVIP BlackRock Inflation Protected Bond Service Class 966,736 (191,326) 775,410 LVIP Capital Growth Service Class 42,649 (22,500) 20,149 LVIP Clarion Global Real Estate Service Class 96,616 (132,613) (35,997) LVIP Columbia Small-Mid Cap Growth RPM Service Class 54,253 (44,445) 9,808 LVIP Delaware Bond Standard Class 21,158 (141,413) (120,255) LVIP Delaware Bond Service Class 1,180,476 (375,922) 804,554 LVIP Delaware Diversified Floating Rate Service Class 453,196 (135,082) 318,114 LVIP Delaware Foundation Aggressive Allocation Standard Class 5 (2,031) (2,026) LVIP Delaware Foundation Aggressive Allocation Service Class 28,406 (72,755) (44,349) LVIP Delaware Growth and Income Service Class 16,372 (53,902) (37,530) LVIP Delaware Social Awareness Standard Class 182 (6,990) (6,808) LVIP Delaware Social Awareness Service Class 34,637 (36,029) (1,392)
N-59
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------------- LVIP Delaware Special Opportunities Service Class 121,156 (33,252) 87,904 LVIP Dimensional Non-U.S. Equity Service Class 136,856 (27,447) 109,409 LVIP Dimensional U.S. Equity Service Class 250,985 (33,780) 217,205 LVIP Dimensional/Vanguard Total Bond Service Class 621,605 (302,104) 319,501 LVIP Global Income Service Class 412,810 (190,473) 222,337 LVIP JPMorgan High Yield Service Class 305,155 (79,641) 225,514 LVIP JPMorgan Mid Cap Value RPM Service Class 82,718 (40,477) 42,241 LVIP MFS International Growth Service Class 135,003 (72,609) 62,394 LVIP MFS Value Service Class 246,709 (165,588) 81,121 LVIP Mid-Cap Value Service Class 78,835 (85,515) (6,680) LVIP Mondrian International Value Standard Class 3,618 (12,759) (9,141) LVIP Mondrian International Value Service Class 29,746 (64,387) (34,641) LVIP Money Market Standard Class 158,167 (229,338) (71,171) LVIP Money Market Service Class 1,746,126 (1,533,426) 212,700 LVIP Protected Profile 2010 Service Class 2 (46,033) (46,031) LVIP Protected Profile 2020 Service Class 99 (275,759) (275,660) LVIP Protected Profile 2030 Service Class -- (10,071) (10,071) LVIP Protected Profile 2040 Service Class -- (8) (8) LVIP Protected Profile Conservative Service Class 3,097,195 (628,247) 2,468,948 LVIP Protected Profile Growth Service Class 6,331,251 (207,581) 6,123,670 LVIP Protected Profile Moderate Service Class 6,298,369 (754,058) 5,544,311 LVIP SSgA Bond Index Service Class 686,530 (362,265) 324,265 LVIP SSgA Conservative Index Allocation Service Class 209,179 (62,613) 146,566 LVIP SSgA Conservative Structured Allocation Service Class 526,165 (96,837) 429,328 LVIP SSgA Developed International 150 Service Class 118,144 (75,268) 42,876 LVIP SSgA Emerging Markets 100 Service Class 139,632 (56,879) 82,753 LVIP SSgA Global Tactical Allocation RPM Service Class 1,083,251 (188,491) 894,760 LVIP SSgA International Index Service Class 188,175 (150,076) 38,099 LVIP SSgA Large Cap 100 Service Class 110,443 (134,985) (24,542) LVIP SSgA Moderate Index Allocation Service Class 562,138 (137,118) 425,020 LVIP SSgA Moderate Structured Allocation Service Class 1,576,841 (538,699) 1,038,142 LVIP SSgA Moderately Aggressive Index Allocation Service Class 282,455 (39,348) 243,107 LVIP SSgA Moderately Aggressive Structured Allocation Service Class 716,594 (223,577) 493,017 LVIP SSgA S&P 500 Index Standard Class 1,159 (8,297) (7,138) LVIP SSgA S&P 500 Index Service Class 286,326 (261,309) 25,017 LVIP SSgA Small-Cap Index Service Class 97,262 (119,298) (22,036) LVIP SSgA Small-Mid Cap 200 Service Class 29,973 (30,788) (815) LVIP T. Rowe Price Growth Stock Service Class 240,160 (88,332) 151,828 LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class 1,851 (1,116) 735 LVIP T. Rowe Price Structured Mid-Cap Growth Service Class 65,381 (33,804) 31,577 LVIP Templeton Growth RPM Service Class 138,249 (93,006) 45,243 LVIP UBS Large Cap Growth RPM Standard Class 163 (560) (397) LVIP UBS Large Cap Growth RPM Service Class 53,190 (11,343) 41,847 LVIP Vanguard Domestic Equity ETF Service Class 257,914 (18,834) 239,080 LVIP Vanguard International Equity ETF Service Class 157,421 (21,606) 135,815 Lord Abbett Fundamental Equity Class VC 485 (2,360) (1,875) MFS VIT Core Equity Service Class 1,611 (939) 672 MFS VIT Growth Initial Class 390 (5,274) (4,884) MFS VIT Growth Service Class 30,879 (21,591) 9,288 MFS VIT Total Return Initial Class 1,673 (14,810) (13,137) MFS VIT Total Return Service Class 91,509 (288,273) (196,764) MFS VIT Utilities Initial Class 22 (6,181) (6,159) MFS VIT Utilities Service Class 78,869 (141,716) (62,847) NB AMT Mid Cap Growth I Class 2,196 (42,414) (40,218) NB AMT Mid Cap Intrinsic Value I Class 3,014 (36,299) (33,285) Oppenheimer Global Securities Service Class 3,446 (5,325) (1,879) PIMCO VIT CommodityRealReturn Strategy Advisor Class 171,538 (35,517) 136,021 Putnam VT Global Health Care Class IB 1,762 (532) 1,230 Putnam VT Growth & Income Class IB 61 (3,499) (3,438)
N-60 The change in units outstanding for the year ended December 31, 2011, is as follows:
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------------- ABVPSF Global Thematic Growth Class B 57,369 (39,413) 17,956 ABVPSF Growth and Income Class B 41,320 (129,805) (88,485) ABVPSF International Value Class B 379,127 (324,697) 54,430 ABVPSF Large Cap Growth Class B 2,899 (11,933) (9,034) ABVPSF Small/Mid Cap Value Class B 149,093 (198,084) (48,991) American Century VP Inflation Protection Class II 211,839 (347,231) (135,392) American Funds Global Growth Class 2 109,033 (179,336) (70,303) American Funds Global Small Capitalization Class 2 86,837 (144,555) (57,718) American Funds Growth Class 2 306,690 (1,343,358) (1,036,668) American Funds Growth-Income Class 2 217,632 (1,066,139) (848,507) American Funds International Class 2 232,512 (382,528) (150,016) BlackRock Global Allocation V.I. Class III 1,962,369 (66,697) 1,895,672 Delaware VIP Diversified Income Service Class 1,028,844 (794,292) 234,552 Delaware VIP Emerging Markets Service Class 289,826 (86,866) 202,960 Delaware VIP High Yield Standard Class 5,231 (5,408) (177) Delaware VIP High Yield Service Class 121,185 (227,818) (106,633) Delaware VIP Limited-Term Diversified Income Service Class 1,008,904 (307,135) 701,769 Delaware VIP REIT Standard Class 1,306 (5,333) (4,027) Delaware VIP REIT Service Class 129,085 (99,134) 29,951 Delaware VIP Small Cap Value Standard Class 134 (3,746) (3,612) Delaware VIP Small Cap Value Service Class 246,777 (155,073) 91,704 Delaware VIP Smid Cap Growth Standard Class 1,181 (9,851) (8,670) Delaware VIP Smid Cap Growth Service Class 212,819 (257,312) (44,493) Delaware VIP U.S. Growth Service Class 137,242 (42,752) 94,490 Delaware VIP Value Standard Class 2,904 (2,504) 400 Delaware VIP Value Service Class 174,549 (155,986) 18,563 DWS Alternative Asset Allocation VIP Class B 305,790 (442,270) (136,480) DWS Equity 500 Index VIP Class A 2,510 (22,141) (19,631) DWS Equity 500 Index VIP Class B 2,185 (48,928) (46,743) DWS Small Cap Index VIP Class A 5,595 (6,217) (622) DWS Small Cap Index VIP Class B 9,518 (31,775) (22,257) Fidelity VIP Contrafund Service Class 2 430,511 (305,759) 124,752 Fidelity VIP Equity-Income Initial Class 169 (2,882) (2,713) Fidelity VIP Equity-Income Service Class 2 9,353 (34,806) (25,453) Fidelity VIP Growth Initial Class 1,252 (4,095) (2,843) Fidelity VIP Growth Service Class 2 100,435 (69,521) 30,914 Fidelity VIP Mid Cap Service Class 2 527,811 (227,033) 300,778 Fidelity VIP Overseas Initial Class 71 (521) (450) Fidelity VIP Overseas Service Class 2 194,909 (197,112) (2,203) FTVIPT Franklin Income Securities Class 2 360,336 (456,701) (96,365) FTVIPT Franklin Small-Mid Cap Growth Securities Class 2 44,354 (106,876) (62,522) FTVIPT Mutual Shares Securities Class 2 319,133 (153,729) 165,404 FTVIPT Templeton Global Bond Securities Class 2 134,887 (246,049) (111,162) FTVIPT Templeton Growth Securities Class 2 8,653 (69,848) (61,195) Goldman Sachs VIT Large Cap Value Service Class 78,779 (17,435) 61,344 Invesco V.I. Capital Appreciation Series I 213 (8,492) (8,279) Invesco V.I. Capital Appreciation Series II 12 (246) (234) Invesco V.I. Core Equity Series I 811 (4,752) (3,941) Invesco V.I. Core Equity Series II 106 (143) (37) Invesco V.I. International Growth Series I 37 (312) (275) Invesco V.I. International Growth Series II 17 (119) (102) Janus Aspen Series Balanced Service Class 4,359 (6,168) (1,809) Janus Aspen Series Enterprise Service Class 4,415 (9,243) (4,828) Janus Aspen Series Worldwide Service Class 76 (587) (511) LVIP American Global Growth Service Class II 122,598 (5,100) 117,498 LVIP American Global Small Capitalization Service Class II 156,476 (23,433) 133,043 LVIP American Growth Service Class II 353,817 (54,264) 299,553 LVIP American Growth-Income Service Class II 331,004 (38,221) 292,783 LVIP American International Service Class II 262,876 (4,601) 258,275
N-61
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------------- LVIP Baron Growth Opportunities Service Class 146,544 (104,570) 41,974 LVIP BlackRock Equity Dividend RPM Service Class 39,515 (17,097) 22,418 LVIP BlackRock Inflation Protected Bond Service Class 1,045,370 (74,215) 971,155 LVIP Capital Growth Service Class 92,832 (20,718) 72,114 LVIP Clarion Global Real Estate Service Class 213,278 (77,153) 136,125 LVIP Columbia Small-Mid Cap Growth RPM Service Class 95,938 (43,330) 52,608 LVIP Delaware Bond Standard Class 39,036 (157,961) (118,925) LVIP Delaware Bond Service Class 1,265,934 (612,216) 653,718 LVIP Delaware Diversified Floating Rate Service Class 555,578 (97,068) 458,510 LVIP Delaware Foundation Aggressive Allocation Standard Class 96 (5,161) (5,065) LVIP Delaware Foundation Aggressive Allocation Service Class 2,400 (54,662) (52,262) LVIP Delaware Growth and Income Service Class 50,715 (19,629) 31,086 LVIP Delaware Social Awareness Standard Class 643 (5,753) (5,110) LVIP Delaware Social Awareness Service Class 48,226 (32,386) 15,840 LVIP Delaware Special Opportunities Service Class 327,505 (237,048) 90,457 LVIP Dimensional Non-U.S. Equity Service Class 75,153 (10,202) 64,951 LVIP Dimensional U.S. Equity Service Class 67,361 (1,152) 66,209 LVIP Dimensional/Vanguard Total Bond Service Class 749,334 (143,540) 605,794 LVIP Global Income Service Class 829,929 (223,071) 606,858 LVIP JPMorgan High Yield Service Class 320,357 (9,426) 310,931 LVIP JPMorgan Mid Cap Value RPM Service Class 59,901 (30,333) 29,568 LVIP MFS International Growth Service Class 151,193 (98,255) 52,938 LVIP MFS Value Service Class 451,518 (131,902) 319,616 LVIP Mid-Cap Value Service Class 128,304 (50,179) 78,125 LVIP Mondrian International Value Standard Class 13,828 (12,738) 1,090 LVIP Mondrian International Value Service Class 52,321 (63,818) (11,497) LVIP Money Market Standard Class 129,886 (163,653) (33,767) LVIP Money Market Service Class 1,470,264 (1,405,191) 65,073 LVIP Protected Profile 2010 Service Class 47,515 (57,479) (9,964) LVIP Protected Profile 2020 Service Class 276,196 (10,299) 265,897 LVIP Protected Profile 2030 Service Class -- (2,131) (2,131) LVIP Protected Profile 2040 Service Class -- (7,353) (7,353) LVIP Protected Profile Conservative Service Class 501,335 (107,819) 393,516 LVIP Protected Profile Growth Service Class 453,315 (256,409) 196,906 LVIP Protected Profile Moderate Service Class 1,348,903 (321,857) 1,027,046 LVIP SSgA Bond Index Service Class 818,562 (701,265) 117,297 LVIP SSgA Conservative Index Allocation Service Class 534,109 (359,917) 174,192 LVIP SSgA Conservative Structured Allocation Service Class 488,261 (22,285) 465,976 LVIP SSgA Developed International 150 Service Class 103,438 (91,669) 11,769 LVIP SSgA Emerging Markets 100 Service Class 157,067 (151,500) 5,567 LVIP SSgA Global Tactical Allocation RPM Service Class 1,982,007 (133,565) 1,848,442 LVIP SSgA International Index Service Class 213,371 (91,031) 122,340 LVIP SSgA Large Cap 100 Service Class 274,165 (402,248) (128,083) LVIP SSgA Moderate Index Allocation Service Class 382,394 (10,617) 371,777 LVIP SSgA Moderate Structured Allocation Service Class 2,620,890 (118,292) 2,502,598 LVIP SSgA Moderately Aggressive Index Allocation Service Class 332,942 (34,811) 298,131 LVIP SSgA Moderately Aggressive Structured Allocation Service Class 1,282,006 (86,752) 1,195,254 LVIP SSgA S&P 500 Index Standard Class 4,429 (10,468) (6,039) LVIP SSgA S&P 500 Index Service Class 399,866 (277,283) 122,583 LVIP SSgA Small-Cap Index Service Class 127,268 (112,261) 15,007 LVIP SSgA Small-Mid Cap 200 Service Class 56,536 (51,292) 5,244 LVIP T. Rowe Price Growth Stock Service Class 275,929 (62,977) 212,952 LVIP T. Rowe Price Structured Mid-Cap Growth Standard Class 52 (2,666) (2,614) LVIP T. Rowe Price Structured Mid-Cap Growth Service Class 66,189 (21,013) 45,176 LVIP Templeton Growth RPM Service Class 150,218 (71,932) 78,286 LVIP UBS Large Cap Growth RPM Standard Class 1,764 (1,518) 246 LVIP UBS Large Cap Growth RPM Service Class 22,878 (33,006) (10,128) LVIP Vanguard Domestic Equity ETF Service Class 56,631 (5,319) 51,312 LVIP Vanguard International Equity ETF Service Class 69,124 (3,075) 66,049 Lord Abbett Fundamental Equity Class VC 4,361 (290) 4,071 MFS VIT Core Equity Service Class 12 (3,251) (3,239) MFS VIT Growth Initial Class 3,650 (9,120) (5,470)
N-62
UNITS UNITS NET INCREASE SUBACCOUNT ISSUED REDEEMED (DECREASE) ---------------------------------------------------------------------------------------------------------------- MFS VIT Growth Service Class 34,279 (5,219) 29,060 MFS VIT Total Return Initial Class 13 (8,412) (8,399) MFS VIT Total Return Service Class 104,191 (167,433) (63,242) MFS VIT Utilities Initial Class 162 (6,859) (6,697) MFS VIT Utilities Service Class 207,120 (79,064) 128,056 NB AMT Mid Cap Growth I Class 3,362 (43,554) (40,192) NB AMT Mid Cap Intrinsic Value I Class 6,835 (56,425) (49,590) Oppenheimer Global Securities Service Class 13,608 (613) 12,995 PIMCO VIT CommodityRealReturn Strategy Advisor Class 64,454 (25,083) 39,371 Putnam VT Global Health Care Class IB 22 (828) (806) Putnam VT Growth & Income Class IB 1,500 (1,627) (127)
7. SUBSEQUENT EVENT Subsequent events were evaluated through the date these financial statements were issued. N-63 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 statements 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, 2012, and the related statements of operations for the year then ended and the 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, 2012, 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, 2012, and the results of their operations 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 April 5, 2013 N-64 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. (Not Applicable) 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, 2012 Statement of Operations - Year ended December 31, 2012 Statements of Changes in Net Assets - Years ended December 31, 2012 and 2011 Notes to Financial Statements - December 31, 2012 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, 2012 and 2011 Statements of Comprehensive Income (Loss) - Years ended December 31, 2012, 2011 and 2010 Statements of Stockholders' Equity - Years ended December 31, 2012, 2011 and 2010 Statements of Cash Flows - Years ended December 31, 2012, 2011, and 2010 Notes to Financial Statements - December 31, 2012 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. (2) Not Applicable (3)(a) Principal Underwriting Agreement 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) Broker-Dealer Selling Group Agreement among The Lincoln National Life Insurance Company, Lincoln Life & Annuity Company of New York and Lincoln Financial Distributors, Inc. incorporated herein by reference to Pre-Effective Amendment No. 1 (File No. 333-170897) filed on April 8, 2011. (4)(a) Annuity Contract (30070BNYL 5/03) incorporated herein by reference to Post-Effective Amendment No. 3 (File No. 333-141754) filed on April 14, 2004. (b) Contract Specifications (30070 - B Share) incorporated herein by reference to Post-Effective Amendment No. 1 (File No. 333-171097) filed on June 21, 2011. (c) IRA Contract Amendment incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-93875) filed on April 15, 2003. (d) Roth IRA Endorsement incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-93875) filed on April 15, 2003. (e) Guaranteed Account Values for DCA Fixed Account (NYLGV) incorporated herein by reference to Post-Effective Amendment No. 1 (File No. 333-171097) filed on June 21, 2011. (f) Allocation Amendment (AR503 1/06) incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-40937) filed on April 18, 2006. (g) Section 403(b) Annuity Endorsement (32481NY-I-12/08) incorporated herein by reference to Post-Effective Amendment No. 7 (File No. 333-141763) filed on April 7, 2009. (h) Enhanced Minimum Guaranteed Death Benefit (32149-NY) incorporated herein by reference to Post-Effective Amendment No. 25 (File No. 333-40937) filed on April 13, 2007. (i) Variable Annuity Guaranteed Income Benefit Rider (LINC 2.0) (AR-529 8/10 NY) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-145531) filed on October 28, 2010. (j) Guaranteed Income Benefit Rider (GIB v4) AR-528 8/10 NY) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-145531) filed on October 28, 2010. (k) Contract Benefit Data (CBD 8/10 NY) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-145531) filed on October 28, 2010. (l) Variable Annuity Payment Option Rider (i4LA-NQ 8/10 NY Rev 09-02) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-145531) filed on October 28, 2010. (m) Variable Annuity Payment Option Rider (i4LA-Q 8/10 NY Rev 09-02) incorporated herein by reference to Post-Effective Amendment No. 12 (File No. 333-145531) filed on October 28, 2010. (n) Contract Endorsement (AR514-DOMA) incorporated herein by reference to Post-Effective Amendment No. 1 (File No. 333-171097) filed on June 21, 2011. (o) Variable Annuity Amendment (AR 440 NY 06/05) incorporated herein by reference to Post-Effective Amendment No. 1 (File No. 333-171097) filed on June 21, 2011. (5) ChoicePlus Prime Application (ANF06747NY1 2/10) incorporated herein by reference to Post-Effective Amendment No. 9 (File No. 333-141752) filed on April 7, 2010. (6) Amended and Restated By-laws of Lincoln Life & Annuity Company of New York incorporated herein by reference to Registration Statement on Form N-4 (File No. 333-175691) filed on July 21, 2011. (7)(a) Automatic Indemnity Reinsurance Agreement dated December 31, 2007, Amended and Restated as of January 1, 2010 between Lincoln Life & Annuity Company of New York and Lincoln National Reinsurance Company (Barbados) Limited incorporated herein by reference to Post-Effective Amendment No. 9 (File No. 333-141758) filed on April 7, 2010. (b) Novation Agreement effective as of January 1, 2010 by and among Lincoln National Reinsurance Company (Barbados) Limited, Lincoln Life & Annuity Company of New York and The Lincoln National Life Insurance Company incorporated herein by reference to Post-Effective Amendment No. 9 (File No. 333-141758) filed on April 7, 2010. (8)(a) Accounting and Financial Services Administration 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) AllianceBernstein Variable Products Series Funds incorporated herein by reference to Post-Effective Amendment No. 16 on Form N-6 (File No. 333-155333) filed on April 3, 2012. (ii) BlackRock Variable Series Funds, Inc. incorporated herein by reference to Post-Effective Amendment No. 14 on Form N-6 (File No. 333-155333) filed on April 1, 2011. (iii) Delaware VIP Trust incorporated herein by reference to Post-Effective Amendment No. 16 on Form N-6 (File No. 333-155333) filed on April 3, 2012. (iv) DWS Variable Series II incorporated herein by reference to Post-Effective Amendment No. 17 on Form N-6 (File No. 333-155333) filed on April 2, 2013. (v) Fidelity Variable Insurance Products Fund incorporated herein by reference to Post-Effective Amendment No. 16 on Form N-6 (File No. 333-155333) filed on April 3, 2012. (vi) Franklin Templeton Variable Insurance Products Trust incorporated herein by reference to Post-Effective Amendment No. 16 on Form N-6 (File No. 333-155333) filed on April 3, 2012. (vii) Lincoln Variable Insurance Products Trust incorporated herein by reference to Post-Effective Amendment No. 17 on Form N-6 (File No. 333-155333) filed on April 2, 2013. B-2 (viii) MFS Variable Insurance Trust incorporated herein by reference to Post-Effective Amendment No. 17 on Form N-6 (File No. 333-155333) filed on April 2, 2013. (ix) PIMCO Variable Insurance Trust incorporated herein by reference to Post-Effective Amendment No. 14 on Form N-6 (File No. 333-155333) filed on April 1, 2011. (c) Rule 22c-2 Agreements between Lincoln Life & Annuity Company of New York and: (i) BlackRock Variable Series Fund, Inc. incorporated herein by reference to Post-Effective Amendment No. 22 (File No. 333-68842) filed on June 22, 2009. (ii) Delaware VIP Trust incorporated herein by reference to Post-Effective Amendment No. 14 (File No. 333-145531) filed on March 30, 2012. (iii) Fidelity Variable Insurance Products Fund incorporated herein by reference to Post-Effective Amendment No. 30 (File No. 333-36304) filed on May 29, 2008. (iv) 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. (v) Lincoln 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. (9) Opinion and Consent of Scott C. Durocher, Counsel of The Lincoln National Life Insurance Company, as to legality of securities being issued (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 incorporated herein by reference to Post-Effective Amendment No. 48 (File No. 033-26032) filed on September 21, 2012. 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-3
Name Positions and Offices with Depositor --------------------------------- -------------------------------------------------------------------- Ellen Cooper** Executive Vice President, Chief Investment Officer and Director Charles C. Cornelio*** Executive Vice President, Chief Administrative Officer and Director Robert W. Dineen Director 65 Second Avenue Westwood, NJ 07675 Randal J. Freitag** Executive Vice President, Chief Financial Officer and Director Dennis R. Glass** President and Director George W. Henderson, III Director Granville Capital 300 N. Greene Street Greensboro, NC 27401 Mark E. Konen** Executive 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 Robert O. Sheppard* Second Vice President, General Counsel and Secretary Jeffrey D. Coutts** Senior Vice President and Treasurer
* Principal business address is 100 Madison Street, Suite 1860, Syracuse, NY 13202 ** Principal business address is Radnor Financial Center, 150 Radnor Chester Road, Radnor, PA 19087 *** Principal business address is 100 N. Greene Street, Greensboro, NC 27401 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, 2013 there were 10,425 contract owners under Account N. Item 28. Indemnification a) Brief description of indemnification provisions. 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: B-4 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 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; Lincoln Life Variable Annuity Account JF-H; Lincoln Life Variable Annuity Account JF-I; Lincoln Life Flexible Premium Variable Life Account JF-A; Lincoln Life Flexible Premium Variable Life Account JF-C; Lincoln Life Variable Annuity Account JL-A; Lincoln Life & Annuity Flexible Premium Variable Life Account JA-B; Lincoln Variable Insurance Products Trust; Lincoln Advisors Trust. (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 Jeffrey D. Coutts* Senior Vice President and Treasurer Patrick J. Caulfield** Vice President and Chief Compliance Officer Joel Schwartz* Senior Vice President and Director Elizabeth F. Conover*** Assistant Vice President and Chief Financial Officer Thomas P. O'Neill* Senior Vice President and Director Nancy A. Smith* 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 100 Greene Street, Greensboro NC 27401 (c) N/A 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. B-5 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 Life & Annuity Company of 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 Life & Annuity Company of 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 has caused this Pre-Effective Amendment No. 1 Registration Statement to be signed on its behalf, in the City of Fort Wayne, and State of Indiana on this 28th day of May, 2013. Lincoln New York Account N for Variable Annuities (Registrant) Lincoln ChoicePlus AssuranceSM (Prime) By: /s/Kimberly A. Genovese ------------------------------------ Kimberly A. Genovese Assistant Vice President, Lincoln Life & Annuity Company of New York (Title) LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK (Depositor) By: /s/Stephen R. Turer ------------------------------------ Stephen R. Turer Vice President, Lincoln Life & Annuity Company of New York (Title)
(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 May 28, 2013. B-6 Signature Title * President ------------------------------ (Principal Executive Officer) Dennis R. Glass * Executive Vice President, Chief Investment Officer and Direc- ------------------------------ tor Ellen Cooper * Executive Vice President, Chief Administrative Officer and Direc- ------------------------------ tor Charles C. Cornelio * Executive Vice President, Chief Financial Officer and Director ------------------------------ (Principal Financial Officer) Randal J. Freitag ------------------------------ Director Robert W. Dineen * Director ------------------------------ George W. Henderson, III * Director ------------------------------ Mark E. Konen * Director ------------------------------ M. Leanne Lachman * Director ------------------------------ Louis G. Marcoccia * Director ------------------------------ Patrick S. Pittard *By: /s/ Kimberly A. Genovese Pursuant to a Power of Attorney --------------------------- Kimberly A. Genovese
B-7