485BPOS 1 a20-5886_1485bpos.htm POST-EFFECTIVE AMENDMENT FILED PURSUANT TO SECURITIES ACT RULE 485(B)
As filed with the Securities and Exchange Commission on April 8, 2020
1933 Act Registration No. 333-141769
1940 Act Registration No. 811-09257
CIK No. 0001081039
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 25
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 53
LLANY Separate Account S for Flexible Premium Variable Life Insurance
(Exact Name of Registrant)
Lincoln Corporate Variable 5
Lincoln Corporate Commitment VUL
LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK
(Exact Name of Depositor)
120 Madison Street, Suite 1310
Syracuse, NY 13202
(Address of Depositor’s Principal Executive Offices)
Depositor’s Telephone Number, Including Area Code: (315) 428-8400
Robert O. Sheppard, Esquire
Lincoln Life & Annuity Company of New York
120 Madison Street, Suite 1310
Syracuse, NY 13202
(Name and Address of Agent for Service)
Copy to:
Scott C. Durocher
The Lincoln National Life Insurance Company
350 Church Street
Hartford, CT 06103
Approximate Date of Proposed Public Offering: Continuous
Title of Securities being registered:
Indefinite Number of Units of Interest in Variable Life Insurance Contracts.
An indefinite amount of the securities being offered by the Registration Statement has been registered pursuant to
Rule 24f-2 under the Investment Company Act of 1940. The Form 24F-2 for the Registrant for the fiscal year ended
December 31, 2019 was filed March 26, 2020.
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 2020 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on ______, 2020 pursuant to paragraph (a)(1) of Rule 485.
/ / This Post-Effective Amendment designates a new effective date for a previously filed Post-Effective Amendment. Such effective date shall be ______, 2020.

 

Supplement Dated May 1, 2020

To the Product Prospectuses Dated May 1, 2020 for:

 

LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK

 

LLANY Separate Account S for Flexible Premium Variable Life Insurance

Lincoln Corporate Variable 5, Lincoln Corporate Commitment® VUL

 

If your financial advisor is a member of M Financial Group:

 

This supplement provides information about four additional funds offered under your policy. A separate funds prospectus supplement for these four funds has also been prepared, and should be presented to you along with this product prospectus supplement. Except as amended by this supplement, all information in your product prospectus applies. The funds and their investment advisers and objectives are listed below.

 

M Fund, Inc., advised by M Financial Investment Advisers, Inc. (MFIA)

 

·                  M Capital Appreciation Fund: Maximum capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

·                  M International Equity Fund: Long-term capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

·                  M Large Cap Growth Fund: Long-term capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

·                  M Large Cap Value Fund: Long-term capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

Please retain this Supplement for future reference.

 

 

Prospectus 1

 

LLANY Separate Account S for Flexible Premium Variable Life Insurance
Lincoln Life & Annuity Company of New York
Home Office Location:
120 Madison Street
Suite 1310
Syracuse, NY 13202
(888) 223-1860
Administrative Office:
Lincoln Executive Benefits
350 Church Street - MEM4
Hartford, CT 06103-1106
(877) 533-0117
 
A Flexible Premium Variable Life Insurance Policy
This prospectus describes Lincoln Corporate Variable 5, a flexible premium variable life insurance contract (the “Policy”), offered by Lincoln Life & Annuity Company of New York (“Lincoln Life”, the “Company”, “We”, “Us”, “Our”). This corporate-owned Policy provides for a death benefit on an employee or other individual in whom the corporate owner has an insurable interest (the “Insured Employee”), and policy values that may vary with the performance of the underlying investment options. Read this prospectus carefully to understand the Policy being offered. Remember, you are looking to the financial strength of the Company for fulfillment of the contractual promises and guarantees, including those related to death benefits.
The Policy described in this prospectus is available only in New York.
You, the Owner, may allocate Net Premiums to the variable Sub-Accounts of our Flexible Premium Variable Life Account S, established on March 2, 1999 (“Separate Account”), or to the Fixed Account. Each Sub-Account invests in shares of a certain fund offered by the following fund families. These funds are collectively known as the Elite Series. Comprehensive information on the funds may be found in the funds' prospectuses which is furnished with this prospectus.
• AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
• AllianceBernstein Variable Products Series Fund
• American Century Variable Portfolios, Inc.
• American Century Variable Portfolios II, Inc.
• American Funds Insurance Series®
• BlackRock Variable Series Funds, Inc.
• BlackRock Variable Series Funds II, Inc.
• Delaware VIP® Trust
• Deutsche DWS Investments VIT Funds
• Deutsche DWS Variable Series II
• Eaton Vance Variable Trust
• Fidelity® Variable Insurance Products
• Franklin Templeton Variable Insurance Products Trust
• Goldman Sachs Variable Insurance Trust
• Ivy Variable Insurance Portfolios
• Janus Aspen Series
• JPMorgan Insurance Trust
• Legg Mason Partners Variable Equity Trust
• Lincoln Variable Insurance Products Trust
• MFS® Variable Insurance Trust
• MFS® Variable Insurance Trust II
• MFS® Variable Insurance Trust III
• Neuberger Berman Advisers Management Trust
• Northern Lights Variable Trust
• PIMCO Variable Insurance Trust

 

• Putnam Variable Trust
• T. Rowe Price Equity Series, Inc.
• Wells Fargo Variable Trust
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, you may not be receiving paper copies of the funds’ shareholder reports from us by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and we will notify you by mail each time a report is posted and will provide you with a website link to access the report. We will also provide instructions for requesting paper copies.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. At any time, you may elect to receive shareholder reports and other communications electronically by following the instructions we have provided.
You may elect to receive all future reports in paper free of charge by informing us that you wish to continue receiving paper copies of your shareholder reports by contacting us at the telephone number listed on the first page of this prospectus. Your election to receive reports in paper will apply to all funds available under your Policy.
Additional information on Lincoln Life, the Separate Account and this Policy may be found in the Statement of Additional Information (the “SAI”). See the last page of this prospectus for information on how you may obtain the SAI.
Certain terms used in this prospectus are defined within the sentences where they appear, within relevant provisions of the prospectus, including footnotes or they may be found in the prospectus Glossary, if one is provided, at the back of the prospectus.
To be valid, this prospectus must have the current funds’ prospectuses with it. Keep all prospectuses for future reference.
The Securities and Exchange Commission has not approved or disapproved these securities or determined this prospectus is accurate or complete. It is a criminal offense to state otherwise.
Prospectus Dated: May 1, 2020

 

Table of Contents
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POLICY SUMMARY
Benefits of Your Policy
Death Benefit Protection.  The Policy described in this prospectus is a variable life insurance policy which provides death benefit protection. Variable life insurance is a flexible tool for financial and investment planning for persons needing death benefit protection. It is not meant to be used for speculation, arbitrage, viatical arrangements or other collective investment schemes. The Policy may not be traded on any stock exchange and is not intended to be sold on any secondary market. You should consider other forms of investments if you do not need death benefit protection, as there are additional costs and expenses in providing the insurance. Benefits of the Policy will be impacted by a number of factors discussed in this prospectus, including adverse investment performance and the amount and timing of Premium Payments.
Tax Deferred Accumulation.  Variable life insurance has significant tax advantages under current tax law. Policy values accumulate on a tax-deferred basis. A transfer of values from one Sub-Account to another within the Policy currently generates no current taxable gain or loss. Any investment income and realized capital gains within a Sub-Account, or interest from the Fixed Account, is automatically reinvested without being taxed to the Owner.
Access to Your Policy Values.  Variable life insurance offers access to policy values. You may borrow against your Policy or surrender all or a portion of your Policy. Your Policy can support a variety of personal and business financial planning needs.
Flexibility.  The Policy is a flexible premium variable life insurance contract in which flexible Premium Payments are permitted. You may select death benefit options and policy riders. You may increase or decrease the amount of death benefit. You are able to select, monitor, and change investment Sub-Account choices within your Policy. With the wide variety of investment Sub-Accounts available, it is possible to fine tune an investment mix to meet changing personal objectives or investment conditions. Premium Payments and policy values you choose to allocate to Sub-Accounts are used by us to purchase shares of funds which follow investment objectives similar to the investment objectives of the corresponding Sub-Account. Those funds are referred to in this prospectus as “Underlying Funds”. You should refer to this prospectus and the prospectus for each Underlying Fund for comprehensive information on the Sub-Accounts and the Underlying Funds. You may also allocate Premiums and policy values to the Fixed Account.
Risks of Your Policy
Fluctuating Investment Performance.  Sub-Accounts and policy values in the Sub-Accounts are not guaranteed and will increase and decrease in value according to investment performance of the Underlying Fund. If you put money into the Sub-Accounts, you assume all the investment risk on that money. A comprehensive discussion of each Sub-Account’s objective and risk is found in this prospectus. A comprehensive discussion of each Underlying Fund's objective and risk is found in each Underlying Fund's prospectus. You should review these prospectuses before making your investment decision. Your choice of Sub-Accounts and the performance of the Underlying Funds will impact the Policy's Accumulation Value (may also be referred to in some riders as “Total Account Value”) and will impact how long the Policy remains in force, its tax status, and the amount of Premium you need to pay to keep the Policy in force.
Policy Values in the Fixed Account.  Premium Payments and policy values allocated to the Fixed Account are held in the Company's General Account. Note that there are significant limitations on your right to transfer amounts in the Fixed Account and, due to these limitations, if you want to transfer the entire balance of the Fixed Account to one or more Sub-Accounts, it may take several years to do so. Therefore, you should carefully consider whether the Fixed Account meets your investment needs. We issue other types of insurance policies and financial products as well. In addition to any amounts we are obligated to pay in excess of policy value under the Policy, we also pay our obligations under these products from our assets in the General Account. Moreover, unlike assets held in the Separate Account, the assets of the General Account are subject to the general liabilities of the Company and,
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therefore, to the Company’s General Account creditors. In the event of an insolvency of receivership, payments we make from our General Account to satisfy claims under the Policy would generally receive the same priority as our other Owners’ 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 company’s fulfillment of the contractual promises and guarantees we make to you in the Policy, including those relating to the payment of death benefits. 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.
For more information, please see “Lincoln Life, The Separate Account and The General Account” and “Transfers” sections of this prospectus.
Unsuitable for Short-Term Investment.  This Policy is intended for long-term financial and investment planning for persons needing death benefit protection. It is unsuitable for short-term goals and is not designed to serve as a vehicle for frequent trading.
Policy Lapse.  Sufficient Premiums must be paid to keep your Policy in force. There is a risk of lapse if Premiums are too low in relation to the insurance amount or if investment results of the Sub-Accounts you have chosen are adverse or are less favorable than anticipated. In addition, outstanding Policy Loans and Partial Surrenders will increase the risk of lapse.
Decreasing Death Benefit.  Outstanding Policy Loans or any amounts that you have surrendered will reduce your Policy’s death benefit. Depending upon your choice of death benefit option, adverse performance of the Sub-Accounts you choose may also decrease your Policy's death benefit.
Consequences of Surrender.  Partial Surrenders may reduce the policy value and death benefit, and may increase the risk of lapse. To avoid lapse, you may be required to make additional Premium Payments. Full or Partial Surrenders may result in tax consequences.
Tax Consequences.  You should always consult a tax advisor about the application of federal and state tax rules to your individual situation. The federal income tax treatment of life insurance is complex and current tax treatment of life insurance may change. There are other federal tax consequences such as estate, gift and generation skipping transfer taxes, as well as state and local income, estate and inheritance tax consequences.
Tax Treatment of Life Insurance Contracts.  Your Policy is designed to enjoy the favorable tax treatment afforded life insurance, including the exclusion of death benefits from income tax, the ability to take distributions and loans over the life of your Policy, and the deferral of taxation of any increase in the value of your Policy. If the Policy does fail to qualify, you will be subject to the denial of those important benefits. In addition, if you pay more Premiums than permitted under the federal tax law your Policy may still be life insurance but will be classified as a Modified Endowment Contract (“MEC”) whereby only the tax benefits applicable to death benefits will apply and distributions will be subject to immediate taxation and to an added penalty tax.
Tax Law Compliance.   We believe that the Policy will satisfy the federal tax law definition of life insurance, and we will monitor your Policy for compliance with the tax law requirements. The discussion of the tax treatment of your Policy is based on the current Policy, as well as the current rules and regulations governing life insurance. Please note that changes made to the Policy, as well as any changes in the current tax law requirements, may affect the Policy's qualification as life insurance or may have other tax consequences.
Cyber-Security and Business Interruption Risks. We rely heavily on interconnected computer systems and digital data to conduct our variable products business.  Because our business is highly dependent upon the effective operation of our computer systems and those of our business partners, our business is vulnerable to disruptions from utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions), and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service, attacks on websites and other operational disruption and unauthorized release of confidential
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customer information. Such systems failures and cyber-attacks affecting us, any third-party administrator, the Underlying Funds, intermediaries and other affiliated or third-party service providers may adversely affect us and your policy value. For instance, systems failures and cyber-attacks may interfere with our processing of policy transactions, including the processing of orders from our website or with the Underlying Funds, impact our ability to calculate your policy value, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the Underlying Funds invest, which may cause the funds underlying your Policy to lose policy value. There can be no assurance that we or the Underlying Funds or our service providers will avoid losses affecting your Policy due to cyber-attacks or information security breaches in the future. In addition to cyber security risks, we are subject to business interruption risks caused by catastrophes, both natural and man-made, associated with pandemics, terrorist attacks or inclement weather events. Such events may cause systems upon which we rely to be inaccessible to our employees, customers or business partners for an extended period of time, causing a negative impact on our ability to provide services and products.
Charges and Fees
This section describes the fees and expenses that you will pay when buying, owning or surrendering your Policy. Refer to the “Policy Charges and Fees” section later in this prospectus for more information.
The fees shown in the tables below are the maximums we can charge.
Table I describes the fees and expenses that you will pay at the time you purchase your Policy, surrender your Policy, or transfer policy values between Sub-Accounts.
Table I: Transaction Fees
Charge When Charge
is Deducted 		Amount
Deducted
Maximum sales charge imposed on Premiums When you pay a Premium. 5%.
Maximum Premium Tax When you pay a Premium. 5%
Deferred Acquisition Cost (DAC) Tax When you pay a Premium. 1%
Surrender Charge Upon Full Surrender of your Policy. There is no charge for surrendering your Policy.
Partial Surrender Fee When you take a Partial Surrender of your Policy. There is no charge for a Partial Surrender.
Maximum Fund Transfer Fee Applied to any transfer request in excess of 24 made during any Insured Employee Coverage Duration. $25
Table II describes the fees and expenses that you will pay periodically during the time that you own your Policy, not including the fund operating expenses shown in Table III.
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Table II: Periodic Charges Other Than Fund Operating Expenses
Charge When Charge
is Deducted 		Amount
Deducted
Cost of Insurance* Monthly  
A dollar amount per $1,000 of Net Amount at Risk    
Maximum Charge1   $83.33 per $1,000
Minimum Charge   $0.00 per $1,000
Maximum Charge for a Representative Insured Employee: male, age 45, nonsmoker.   $0.38 per $1,000
Mortality and Expense Risk Charge (“M&E”) Monthly  
A percentage of the value of the Sub-Accounts.    
Maximum Charge   0.50%
Administrative Fee* Monthly  
Flat Fee; plus   A maximum flat fee of $10 in all years
A monthly fee per $1,000 of Specified Amount:    
Maximum Charge   $0.17 per $1,000
Minimum Charge   $0.00 per $1,000
Maximum Charge for a Representative Insured Employee: male, age 45, nonsmoker.   $0.06 per $1,000
Policy Loan Interest Annually The greater of 3.5%, or Moody’s Investors Service, Inc. Corporate Bond Yield Average — Monthly Average Corporates for the calendar month which ends two months prior to the Policy Anniversary.
    
Table II: Periodic Charges Other Than Fund Operating Expenses (continued)
Charge When Charge
is Deducted 		Amount
Deducted
Rider Charges   Individualized based on optional Rider(s) selected.
Adjustable Benefit Enhancement Rider N/A There is no charge for this rider.
Change of Insured Rider N/A There is no charge for this rider.
Enhanced Surrender Value Rider N/A There is no charge for this rider.
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Table II: Periodic Charges Other Than Fund Operating Expenses (continued)
Charge When Charge
is Deducted 		Amount
Deducted
Term Insurance Rider* Monthly  
A dollar amount per $1,000 of Net Amount at Risk    
Maximum Charge1   $83.33 per $1,000
Minimum Charge   $0.00 per $1,000
Maximum Charge for a Representative Insured Employee: male, age 45, nonsmoker.   $0.38 per $1,000
* These charges and costs vary based on individual characteristics. The charges and costs shown in the tables may not be representative of the charges and costs that a particular Owner will pay. You may obtain more information about the particular charges, cost of insurance, and the cost of certain riders that would apply to you by requesting a personalized policy illustration from your registered representative.
1 Individuals with a higher mortality risk than standard issue individuals can be charged from 125% to 800% of the standard rate. However, under no circumstances would it be higher than the maximum amount shown in the table above.
Table III shows the annual fund fees and expenses for the year ended December 31, 2019. The fees that are deducted daily from the Underlying Funds in which your Sub-Account invests. The table shows the minimum and maximum total operating expenses charged by the Underlying Funds that you may pay during the time you own your Policy. More detail concerning each Underlying Fund’s fees and expenses is contained in the prospectus for each Underlying Fund.
These fees and expenses may change at any time.
Table III: Total Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Total Annual Operating Expense Maximum Minimum
Total management fees, distribution and/or service (12b-1) fees, and other expenses. 2.27% 1 0.23%
1 The Total Annual Operating Expenses shown in the table do not reflect waivers and reductions. Underlying Funds may offer waivers and reductions to lower their fees. Currently such waivers and reductions range from 0% to 1.35%. These waivers and reductions generally extend through April 30, 2021 but may be terminated at any time by the Underlying Fund. Refer to the Underlying Fund’s prospectus for specific information on any waivers or reductions in effect. The minimum and maximum percentages shown in the table include Fund Operating Expenses of mutual funds, if any, which may be acquired by the Underlying Funds which operate as Fund of Funds. Refer to such Underlying Fund’s prospectus for details concerning Fund Operating Expenses of mutual fund shares acquired by it, if any. In addition, certain Underlying Funds have reserved the right to impose fees when fund shares are redeemed within a specified period of time of purchase (“Redemption Fees”) not reflected in the table above. As of the date of this prospectus, none have done so. Redemption Fees are discussed in the Market Timing section of this prospectus and further information about Redemption Fees is contained in the prospectus for such Underlying Fund, copies of which accompany this prospectus or may be obtained by calling 1-877-533-0117.
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LINCOLN LIFE, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT
Lincoln Life & Annuity Company of New York (Lincoln Life, the Company, we, us, our) (EIN 22-0832760), is a stock life insurance company chartered in New Jersey in 1897 and redomesticated in New York on April 2, 2007. It is engaged primarily in the direct issuance of life insurance policies and annuities. Lincoln Life is an indirect wholly owned subsidiary of Lincoln National Corporation (LNC), a publicly held insurance and financial services holding company incorporated in Indiana. Lincoln Life is obligated to pay all amounts promised to owners under the policies. Death Benefit Proceeds and rider benefits to the extent those proceeds and benefits exceed the then current Accumulation Value of your Policy are backed by the claims-paying ability of Lincoln Life. Our claims paying ability is rated from time to time by various rating agencies. Information with respect to our current ratings is available at our website noted below under “How to Obtain More Information.” Those ratings do not apply to the Separate Account, but reflect the opinion of the rating agency companies as to our relative financial strength and ability to meet contractual obligations to owners of our policies. Ratings can and do change from time to time. Additional information about ratings 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.
General Account. 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. The General Account represents all of the general assets of the Company. Our general assets include all assets other than those held in separate accounts which we sponsor. We will invest the assets of the General Account in accordance with applicable law. Additional information concerning laws and regulations applicable to the investment of the assets of the General Account is included in the Statement of Additional Information.
Fixed Account. The Fixed Account assets are general assets of the Company, and are held in the Company’s General Account. Amounts allocated to the Fixed Account are not subject to market fluctuation.
Separate Account. The investment performance of assets in the Separate Account is kept separate from that of the Company’s General Account. Separate Account assets attributable to the Policies are not charged with the general liabilities of the Company. Separate Account income, gains and losses are credited to or charged against the Separate Account without regard to the Company’s other income, gains or losses. The Separate Account’s values and investment performance are not guaranteed. It is registered with the Securities and Exchange Commission (the “SEC” or the “Commission”) as a unit investment trust under the Investment Company Act of 1940 (“1940 Act”) and meets the definition of “separate account.” We may change the investment policy of the Separate Account at any time. If required by the Insurance Commissioner, we will file any such change for approval with the Department of Insurance in our state of domicile.
Our Financial Condition.  As an insurance company, we are required by state insurance regulation to hold a specified amount of reserves in order to meet all the contractual obligations of our General Account to our Owners. In order to meet our claims-paying obligations, we regularly monitor our reserves to ensure we hold sufficient amounts to cover actual or expected policy and claim payments.
State insurance regulators also require insurance companies to maintain a minimum amount of capital in excess of reserves, 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.
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How to Obtain More Information.   We encourage both existing and prospective Owners 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 Separate Account, are located in the Statement of Additional Information. If you would like a free copy of the Statement of Additional Information please contact our Administration Office at the address or telephone number listed on the first page of this prospectus. 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, any unaudited statutory financial statements that may be available as well as ratings information by visiting our website at www.LincolnFinancial.com.
Fund Participation Agreements
In order to make the Underlying Funds available, Lincoln Life has entered into agreements with the Underlying Fund company and their advisors or distributors. In some of these agreements, we must perform certain services for the Underlying Fund advisors or distributors. Such services include, but are not limited to, recordkeeping; aggregating and processing purchase and redemption orders; providing Owners with statements showing their positions within the funds; processing dividend payments; providing sub-accounting services for shares held by Owners; and forwarding shareholder communications, such as proxies, shareholder reports, dividend and tax notices, and printing and delivering prospectuses and updates to Owners. For these administrative functions, we may be compensated at annual rates of between 0% and 0.30% based upon the assets of an Underlying Fund attributable to the Policies. Additionally, an Underlying Fund’s advisor and/or distributor (or its affiliates) may provide us with certain services that assist us in the distribution of the Policies and may pay us and/or certain affiliates amounts to participate in sales meetings. We may also receive compensation for marketing and distribution which may come from 12b-1 fees, or be paid by the advisors or distributors. The Underlying Funds offered by the following trusts or corporations make payments to Lincoln Life under their distribution plans in consideration of the administrative functions Lincoln Life performs: American Century Investments Variable Portfolios, Inc., American Funds Insurance Series, Eaton Vance Variable Trust, Fidelity Variable Insurance Products, Franklin Templeton Variable Insurance Products Trust, Goldman Sachs Variable Insurance Trust, Ivy Variable Insurance Portfolios, Janus Aspen Series, Lincoln Variable Insurance Products Trust, Northern Lights Variable Trust, PIMCO Variable Insurance Trust and Wells Fargo Variable Trust.
Payments made out of the assets of an Underlying Fund will reduce the amount of assets that otherwise would be available for investment and will reduce the return on your investment. The dollar amount of future asset-based fees is not predictable because these fees are a percentage of the Underlying Fund’s average net assets, which can fluctuate over time. If, however, the value of the Underlying Fund goes up, then so would the payment to us (or our affiliates). Conversely, if the value of the Underlying Fund goes down, payments to us (or our affiliates) would decrease.
Distribution of the Policies and Compensation
The Policy is distributed by broker-dealer firms through their registered representatives who are appointed as life insurance agents for the Company, subject to the terms of selling agreements entered into by such firms, the Company and the Company’s Principal Underwriter, Lincoln Financial Distributors, Inc. (“LFD”). The Company’s affiliates, Lincoln Financial Advisors Corporation and Lincoln Financial Services Corporation (collectively, “LFN”), have such agreements in effect with LFD and the Company. In addition to compensation for distributing the Policy as described below, the Company provides financial and personnel support to LFD and LFN for operating and other expenses, including amounts used for recruitment and training of personnel, production of literature and similar services.
The maximum total compensation we pay to any broker-dealer firm in the form of commission or expense reimbursement allowance, inclusive of any bonus incentives, with respect to policy sales is 50% of the first year Premium and 20% of all other Premiums paid. The actual amount of such compensation or the timing and manner of its receipt may be affected by a number of factors including: (a) choices the Owner has made at the time of
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application for the Policy, including the choice of riders; (b) the volume of business produced by the firm and its representatives; or (c) the profitability of the business the firm has placed with the Company. Also, in lieu of premium-based commission, equivalent amounts may be paid over time based on Accumulation Value.
In some situations, the broker-dealer may elect to share its commission or expense reimbursement allowance with its registered representatives. Registered representatives of broker-dealer firms may also be eligible for cash bonuses and “non-cash compensation.” “Non-cash compensation”, as defined under FINRA’s rules, includes but is not limited to, merchandise, gifts, marketing support, sponsorships, seminars, entertainment and travel expenses.
Broker-dealers or their affiliates may be paid additional amounts for: (1) “preferred product” treatment of the Policies in their marketing programs, which may include marketing services and increased access to sales representatives; (2) sales promotions relating to the Policies; (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 broker-dealer offers. Loans may be provided to broker-dealers or their affiliates to help finance marketing and distribution of the Policies, and those loans may be forgiven if aggregate sales goals are met. In addition, staffing or other administrative support and services may be provided to broker-dealers who distribute the Policies.
These additional types of compensation are not offered to all broker-dealers. The terms of any particular agreement governing compensation may vary among broker-dealers and the amounts may be significant. The prospect of receiving, or the receipt of, additional compensation may provide broker-dealers and/or their registered representatives with an incentive to favor sales of the Policies over other variable life insurance policies (or other investments) with respect to which a broker-dealer does not receive additional compensation, or receives lower levels of additional compensation. You may ask your registered representative how he/she will personally be compensated, in whole or in part, for the sale of the Policy to you or for any alternative proposal that may have been presented to you. You may wish to take such payments into account when considering and evaluating any recommendation made to you in connection with the purchase of a Policy.
Depending on the particular selling arrangements, there may be others who are compensated for 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 policies. LFD may compensate marketing organizations, associations, brokers or consultants which provide marketing assistance and other services to broker-dealers who distribute the policies, and which may be affiliated with those broker-dealers. Commissions and other incentives or payments described above are not charged directly to Owners or the Separate Account. The potential of receiving, or the receipt of, such marketing assistance or other services and the payment to those who control access or for referrals, may provide broker-dealers and/or their registered representatives an incentive to favor sales of the Policies over other variable life insurance policies (or other investments) with respect to which a broker-dealer does not receive similar assistance or disadvantage issuers of other variable life insurance policies (or other investments) which do not compensate for access or referrals. All compensation is paid from our resources, which include fees and charges imposed on your Policy.
Sub-Accounts and Funds
The variable investment options in the Policy are Sub-Accounts of the Separate Account (“Sub-Accounts”). Each Sub-Account invests in shares in a single Underlying Fund. All amounts allocated or transferred to a Sub-Account are used to purchase shares of the appropriate Underlying Fund. You do not invest directly in these Underlying Funds. The investment performance of each Sub-Account will reflect the investment performance of the Underlying Fund.
We create Sub-Accounts and select the Underlying Funds, the shares of which are purchased by amounts allocated or transferred to the Sub-Accounts, 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
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whether the fund (or an affiliate, investment advisor or distributor of the fund) being evaluated is an affiliate of ours and whether we are compensated for provided administrative, marketing, and/or support services that would otherwise be provided by the fund, its investment advisor or its distributor. Some funds pay us significantly more than others and the amount we receive may be substantial. We often receive more revenue from an affiliated fund than one that is not affiliated with us. These factors give us an incentive to select a fund that yields more revenue, and this is often an affiliated fund.
We review each Underlying Fund periodically after it is selected. Upon review, we may either close a Sub-Account or restrict allocation of additional Premium Payments to a Sub-Account if we determine the Underlying Fund no longer meets one or more of the factors and/or if the Sub-Account has not attracted significant Owner assets. Alternatively, we may seek to substitute another fund which follows a similar investment objective as the Underlying Fund, subject to receipt of applicable regulatory approvals. Finally, when we develop a variable life insurance 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.
A given Underlying Fund may have an investment objective and principal investment strategy similar to those for another fund managed by the same investment advisor or subadvisor. However, because of timing of investments and other variables, there will be no correlation between the two investments. Even though the management strategy and the objectives of the funds are similar, the investment results may vary.
Certain Underlying Funds invest 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”, which may have higher expenses than funds that invest directly in debt or equity securities. An advisor affiliated with us manages some of the available funds of funds. Our affiliates may promote the benefits of such funds to Owners and/or suggest that Owners consider whether allocating some or all of their policy value to such portfolios is consistent with their desired investment objectives. In doing so, we may be subject to conflicts of interest insofar as we may derive greater revenues from the affiliated fund of funds than certain other funds available to you under your Policy.
Certain of the Underlying Funds, including funds managed by an advisor affiliated with us, employ risk management strategies that are intended to control the Underlying Funds’ overall volatility, and for some Underlying Funds, to also reduce the downside exposure of the Underlying Funds during significant market downturns. These funds usually, but not always, have “Managed Risk” or “Managed Volatility” in the name of the fund. These risk management strategies could limit the upside participation of the Underlying Fund in rising equity markets relative to other funds. Also, several of the Underlying Funds may invest in non-investment grade, high-yield, and high-risk debt securities (commonly referred to as “junk bonds”) as detailed in the individual Underlying Fund prospectus. For more information about the Underlying Funds and the investment strategies they employ, please refer to the Underlying Funds’ current prospectuses.
Shares of the Underlying Fund are available to insurance company separate accounts which fund variable annuity contracts and variable life insurance policies, including the Policy described in this prospectus. Because shares are offered to separate accounts of both affiliated and unaffiliated insurance companies, it is conceivable that, in the future, it may not be advantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in these Underlying Funds simultaneously, since the interests of such Owners or contractholders may differ. Although neither the Company nor the Underlying Funds currently foresees any such disadvantages either to variable life insurance or to variable annuity Owners, each Underlying Fund’s Board of Trustees/Directors has agreed to monitor events in order to identify any material irreconcilable conflicts which may possibly arise and to determine what action, if any, should be taken in response thereto. If such a conflict were to occur, the Separate Account might withdraw its investment in an Underlying Fund. This might force that Underlying Fund to sell the securities it holds at disadvantageous prices. Owners will not bear the attendant expense.
There is no assurance that the investment objective of any of the Underlying Funds will be met. You assume all of the investment performance risk for the Sub-Accounts you select. The amount of risk varies significantly among the Sub-Accounts. You should read each Underlying Fund’s prospectus carefully before making investment choices. In
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particular, also please note, 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 Policy fees and expenses, the yields of any Sub-Account investing in a money market fund may become extremely low and possibly negative.
Additional Sub-Accounts and Underlying Funds may be made available in our discretion. The right to select among Sub-Accounts will be limited by the terms and conditions imposed by the Company.
If an Underlying Fund imposes restrictions with respect to the acceptance of premium allocations or transfers, we reserve the right to reject an allocation or transfer request at any time that the Underlying Fund has notified us that such would not be accepted. We will notify you if your allocation or transfer request is or becomes subject to such restrictions.
The Underlying Funds and their investment advisors and objectives are listed below. Comprehensive information on each Underlying Fund, its objectives and past performance may be found in that Underlying Fund’s prospectus or summary prospectus. Prospectuses for each of the Underlying Funds listed below accompany this prospectus and are available by calling 1-877-533-0117 or by referring to the contact information provided by the Underlying Fund’s on the cover page of its summary prospectus.
AIM Variable Insurance Funds (Invesco Variable Insurance Funds), advised by Invesco Advisers, Inc.
• Invesco Oppenheimer V.I. Main Street Small Cap Fund® (Series I Shares): Capital appreciation.
• Invesco V.I. Comstock Fund (Series I Shares): To seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
• Invesco V.I. Growth and Income Fund (Series I Shares): Long-term growth of capital and income.
AllianceBernstein Variable Products Series Fund, advised by AllianceBernstein, L.P.
• AB VPS Global Thematic Growth Portfolio (Class A): Long-term growth of capital.
• AB VPS Growth and Income Portfolio (Class A): Long-term growth of capital.
This fund is available only to existing Cases as of May 2, 2011. Consult your registered representative.
• AB VPS International Value Portfolio (Class A): Long-term growth of capital.
This fund is available only to existing Cases as of May 1, 2012. Consult your registered representative.
• AB VPS Small/Mid Cap Value Portfolio (Class A): Long-term growth of capital.
American Century Variable Portfolios, Inc., advised by American Century Investment Management, Inc.
• American Century VP Income and Growth Fund (Class I): Capital growth; income is a secondary consideration.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
• American Century VP International Fund (Class I): Capital growth.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
• American Century VP Mid Cap Value (Class I): Long-term capital growth; income is a secondary objective.
American Century Variable Portfolios II, Inc., advised by American Century Investment Management, Inc.
• American Century VP Inflation Protection Fund (Class II): Long-term total return using a strategy that seeks to protect against U.S. inflation.
American Funds Insurance Series®, advised by Capital Research and Management Company.
• American Funds Bond Fund (Class 2): To provide as high a level of current income as is consistent with the preservation of capital.
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• American Funds Capital Income Builder® (Class 2): Seeks to provide a level of current income that exceeds the average yield on U.S. stocks generally and to provide a growing stream of income over the years.
• American Funds Global Growth Fund (Class 2): Long-term growth of capital.
• American Funds Global Small Capitalization Fund (Class 2): Long-term capital growth.
• American Funds Growth Fund (Class 2): Growth of capital.
• American Funds Growth-Income Fund (Class 2): Long-term growth of capital and income.
• American Funds High-Income Bond Fund (Class 2): To provide investors with a high level of current income; capital appreciation is the secondary objective.
• American Funds International Fund (Class 2): Long-term growth of capital.
• American Funds U.S. Government/AAA-Rated Securities Fund (Class 2): To provide a high level of current income consistent with preservation of capital.
BlackRock Variable Series Funds, Inc., advised by BlackRock Advisors, LLC
• BlackRock Equity Dividend V.I. Fund (Class I): Long-term total return and current income.
• BlackRock Global Allocation V.I. Fund (Class I): High total investment return.
BlackRock Variable Series Funds II, Inc., advised by BlackRock Advisors, LLC
• BlackRock High Yield V.I. Fund (Class I): Maximize total return, consistent with income generation and prudent investment management.
Delaware VIP® Trust, advised by Delaware Management Company.*
• Delaware VIP® Diversified Income Series (Standard Class): Maximum long-term total return consistent with reasonable risk.
• Delaware VIP® Emerging Markets Series (Standard Class): Long-term capital appreciation.
• Delaware VIP® High Yield Series (Standard Class): Total return and, as a secondary objective, high current income.
This fund is available only to existing Cases as of May 17, 2010. Consult your registered representative.
• Delaware VIP® Limited-Term Diversified Income Series (Standard Class): Maximum total return, consistent with reasonable risk.
• Delaware VIP® REIT Series (Standard Class): Maximum long-term total return, with capital appreciation as a secondary objective.
• Delaware VIP® Small Cap Value Series (Standard Class): Capital appreciation.
• Delaware VIP® Smid Cap Core Series (Standard Class): Long-term capital appreciation.
• Delaware VIP® U. S. Growth Series (Standard Class): Long-term capital appreciation.
• Delaware VIP® Value Series (Standard Class): Long-term capital appreciation.
Deutsche DWS Investments VIT Funds, advised by DWS Investment Management Americas Inc.
• DWS Equity 500 Index VIP Portfolio (Class A): To replicate, as closely as possible, before the deduction of expenses, the performance of the Standard & Poor's 500 Composite Stock Price Index (the “S&P 500® Index”), which emphasizes stocks of large US companies.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
• DWS Small Cap Index VIP Portfolio (Class A): to replicate, as closely as possible, before the deduction of expenses, the performance of the Russell 2000® Index, which emphasizes stocks of small US companies.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
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Deutsche DWS Variable Series II, advised by DWS Investment Management Americas Inc.
• DWS Alternative Asset Allocation VIP Portfolio (Class A): Capital appreciation; a fund of funds.
Eaton Vance Variable Trust, advised by Eaton Vance Management
• Eaton Vance VT Floating-Rate Income Fund (Initial Class): To provide a high level of current income.
Fidelity® Variable Insurance Products, advised by Fidelity Management & Research Company
• Fidelity® VIP Asset Manager Portfolio (Service Class): To obtain high total return with reduced risk over the long-term by allocating its assets among stocks, bonds, and short-term instruments.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
• Fidelity® VIP Contrafund® Portfolio (Service Class): Long-term capital appreciation.
• Fidelity® VIP Freedom 2020 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2025 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2030 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2035 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2040 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2045 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2050 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2055 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2060 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom Income PortfolioSM (Service Class): High total return with a secondary objective of principal preservation; a fund of funds.
• Fidelity® VIP Growth Portfolio (Service Class): To achieve capital appreciation.
• Fidelity® VIP Investment Grade Bond Portfolio (Service Class): As high a level of current income as is consistent with the preservation of capital.
• Fidelity® VIP Mid Cap Portfolio (Service Class): Long-term growth of capital.
• Fidelity® VIP Overseas Portfolio (Service Class): Long-term growth of capital.
• Fidelity® VIP Real Estate Portfolio (Service Class): Above average income and long-term capital growth, consistent with reasonable investment risk.
Franklin Templeton Variable Insurance Products Trust, advised by Franklin Advisers, Inc. for the Franklin Income VIP Fund, the Franklin Small-Mid Cap Growth VIP Fund, the Franklin U.S. Government Securities VIP Fund, and the Templeton Global Bond VIP Fund, by Templeton Global Advisors Limited for the Templeton Growth VIP Fund, and by Franklin Mutual Advisers, LLC for the Franklin Mutual Shares VIP Fund.
• Franklin Income VIP Fund (Class 1): To maximize income while maintaining prospects for capital appreciation.
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• Franklin Mutual Shares VIP Fund (Class 1): Capital appreciation; income is a secondary consideration.
• Franklin Rising Dividends VIP Fund (Class1): Long-term capital appreciation; preservation of capital is also an important consideration.
• Franklin Small Cap Value VIP Fund (Class 2): Long-term total return.
• Franklin Small-Mid Cap Growth VIP Fund (Class 1): Long-term capital growth.
• Franklin U.S. Government Securities VIP Fund (Class 1): Income.
• Templeton Global Bond VIP Fund (Class 1): High current income consistent with preservation of capital; capital appreciation is a secondary objective.
• Templeton Growth VIP Fund (Class 1): Long-term capital growth.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
Goldman Sachs Variable Insurance Trust, advised by Goldman Sachs Asset Management, L.P.
• Goldman Sachs VIT Global Trends Allocation Fund (Service Shares): Total return while seeking to provide volatility management.
• Goldman Sachs VIT Mid Cap Value Fund (Service Shares): Long-term capital appreciation.
Ivy Variable Insurance Portfolios, advised by Waddell & Reed Investment Management Company.
• Ivy VIP Asset Strategy Portfolio (Class II): Total return.
Janus Aspen Series, advised by Janus Capital Management LLC.
• Janus Henderson Flexible Bond Portfolio (Service Shares): To obtain maximum total return, consistent with preservation of capital.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
JPMorgan Insurance Trust, advised by J.P. Morgan Investment Management Inc.
• JPMorgan Insurance Trust Core Bond Portfolio (Class 1): To maximize total return by investing primarily in a diversified portfolio of intermediate- and long-term debt securities.
• JPMorgan Insurance Trust Global Allocation Portfolio (Class 1): Maximize long-term total return.
• JPMorgan Insurance Trust Income Builder Portfolio (Class 1): Maximize income while maintaining prospects for capital appreciation.
• JPMorgan Insurance Trust Small Cap Core Portfolio (Class 1): Capital growth over the long term.
Legg Mason Partners Variable Equity Trust, advised by LeggMason Partners Fund Advisor, LLC.
• ClearBridge Variable Aggressive Growth Portfolio (Class I): Capital appreciation.
• ClearBridge Variable Mid Cap Portfolio (Class I): Long-term growth of capital.
• ClearBridge Variable Small Cap Growth Portfolio (Class I): Long-term growth of capital.
Lincoln Variable Insurance Products Trust, advised by Lincoln Investment Advisors Corporation.
• LVIP Baron Growth Opportunities Fund (Service Class): Capital appreciation.
• LVIP Baron Growth Opportunities Fund (Standard Class): Capital appreciation.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
• LVIP BlackRock Dividend Value Managed Volatility Fund (Standard Class): Reasonable income by investing primarily in income-producing equity securities.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP BlackRock Global Real Estate Fund (Standard Class): Total return through a combination of current income and long-term capital appreciation.
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• LVIP BlackRock Inflation Protected Bond Fund (Standard Class): To maximize real return, consistent with preservation of real capital and prudent investment management.
• LVIP Blended Large Cap Growth Managed Volatility Fund (Standard Class): Long-term growth of capital in a manner consistent with the preservation of capital.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Blended Mid Cap Managed Volatility Fund (Standard Class): Capital appreciation.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP ClearBridge QS Select Large Cap Managed Volatility (Standard Class): Capital appreciation.
This fund will be available to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Delaware Bond Fund (Standard Class)*: Maximum current income (yield) consistent with a prudent investment strategy.
• LVIP Delaware Diversified Floating Rate Fund (Standard Class)*: Total return.
• LVIP Delaware Mid Cap Value Fund (Standard Class)*: To maximize long-term capital appreciation.
(formerly LVIP Delaware Special Opportunities Fund)
• LVIP Delaware Social Awareness Fund (Standard Class)*: To maximize long-term capital appreciation.
• LVIP Delaware Wealth Builder Fund (Standard Class)*: To provide a responsible level of income and the potential for capital appreciation.
This fund is available only to existing Cases as of May 18, 2009. Consult your registered representative.
• LVIP Dimensional International Equity Managed Volatility Fund (Standard Class): Long-term capital appreciation; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Dimensional U.S. Core Equity 1 Fund (Standard Class): Long-term capital appreciation.
• LVIP Dimensional U.S. Core Equity 2 Fund (Standard Class): Long-term capital appreciation.
• LVIP Dimensional U.S. Equity Managed Volatility Fund (Standard Class): Long-term capital appreciation; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Dimensional/Vanguard Total Bond Fund (Standard Class): Total return consistent with the preservation of capital; a fund of funds.
• LVIP Franklin Templeton Global Equity Managed Volatility Fund (Standard Class): Long-term capital growth.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Franklin Templeton Multi-Asset Opportunities Fund (Standard Class): Long-term growth of capital.
• LVIP Global Conservative Allocation Managed Risk Fund (Standard Class): A high level of current income with some consideration given to growth of capital; a fund of funds.
• LVIP Global Growth Allocation Managed Risk Fund (Standard Class): 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.
• LVIP Global Income Fund (Standard Class): Current income consistent with the preservation of capital.
• LVIP Global Moderate Allocation Managed Risk Fund (Standard Class): A balance between a high level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds.
• LVIP Goldman Sachs Income Builder Fund (Standard Class): To seek a balance of current income and capital appreciation.
• LVIP Government Money Market Fund (Standard Class): Current income while (i) maintaining a stable value of your shares (providing stability of net asset value) and (ii) preserving the value of your initial investment (preservation of capital).
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• LVIP JPMorgan High Yield Fund (Standard Class): A high level of current income; capital appreciation is the secondary objective.
• LVIP JPMorgan Retirement Income Fund (Standard Class): Current income and some capital appreciation.
• LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund (Standard Class): Long-term capital appreciation.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Loomis Sayles Global Growth Fund (Standard Class): To provide investment results over a full market cycle that, before fees and expenses, are superior to an index that tracks global equities.
• LVIP MFS International Growth Fund (Standard Class): Long-term capital appreciation.
• LVIP MFS Value Fund (Standard Class): Capital appreciation.
• LVIP Mondrian International Value Fund (Standard Class): Long-term capital appreciation as measured by the change in the value of fund shares over a period of three years or longer.
• LVIP Multi-Manager Global Equity Managed Volatility Fund (Standard Class): Long-term growth of capital; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP PIMCO Low Duration Bond Fund (Standard Class): To seek a high level of current income consistent with preservation of capital.
• LVIP SSGA Bond Index Fund (Standard Class): To match as closely as practicable, before fees and expenses, the performance of the Barclays Capital U.S. Aggregate Index.
• LVIP SSGA Conservative Index Allocation Fund (Standard Class): A high level of current income, with some consideration given to growth of capital; a fund of funds.
• LVIP SSGA Conservative Structured Allocation Fund (Standard Class): A high level of current income, with some consideration given to growth of capital; a fund of funds.
• LVIP SSGA Developed International 150 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP SSGA Emerging Markets 100 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP SSGA Emerging Market Equity Index (Standard Class): A balance between current income and growth of capital, with a greater emphasis on growth of capital.
• LVIP SSGA Global Tactical Allocation Managed Volatility Fund (Standard Class): Long-term growth of capital; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP SSGA International Index Fund (Standard Class): To approximate as closely as practicable, before fees and expenses, the performance of a broad market index of non-U.S. foreign securities.
• LVIP SSGA International Managed Volatility Fund (Standard Class): Capital appreciation; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP SSGA Large Cap 100 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP SSGA Mid-Cap Index Fund (Standard Class): Seek to approximate as closely as practicable, before fees and expenses, the performance of a broad market index that emphasizes stocks of mid-sized U.S. companies.
• LVIP SSGA Moderate Index Allocation Fund (Standard Class): 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.
• LVIP SSGA Moderate Structured Allocation Fund (Standard Class): A balance between a high level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds.
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• LVIP SSGA Moderately Aggressive Index Allocation Fund (Standard Class): A balance between high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds.
• LVIP SSGA Moderately Aggressive Structured Allocation Fund (Standard Class): A balance between high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds.
• LVIP SSGA S&P 500 Index Fund (Standard Class)(1): 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.
• LVIP SSGA Short-Term Bond Index Fund (Standard Class): To provide investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks the short-term U.S. corporate bond market.
• LVIP SSGA Small-Cap Index Fund (Standard Class): To approximate as closely as practicable, before fees and expenses, the performance of the Russell 2000® Index, which emphasizes stocks of small U.S. companies.
• LVIP SSGA Small-Mid Cap 200 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP T. Rowe Price 2010 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2020 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2030 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2040 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2050 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2060 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
This fund will be available on or about May 1, 2020. Consult your registered representative.
• LVIP T. Rowe Price Growth Stock Fund (Standard Class): Long-term capital growth.
• LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Standard Class): To maximize capital appreciation.
• LVIP U.S. Growth Allocation Managed Risk Fund (Standard Class): High level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds.
• LVIP Vanguard Domestic Equity ETF Fund (Standard Class): Long-term capital appreciation; a fund of funds.
• LVIP Vanguard International Equity ETF Fund (Standard Class): Long-term capital appreciation; a fund of funds.
• LVIP Wellington Capital Growth Fund (Standard Class): Capital growth.
• LVIP Wellington Mid-Cap Value Fund (Standard Class): Long-term capital appreciation.
• LVIP Western Asset Core Bond Fund (Standard Class): The investment seeks to maximize total return, consistent with prudent investment management and liquidity needs.
MFS® Variable Insurance Trust, advised by Massachusetts Financial Services Company
• MFS® VIT Growth Series (Initial Class): Capital appreciation.
• MFS® VIT Mid Cap Growth Series (Initial Class): Capital appreciation.
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• MFS® VIT New Discovery Series (Initial Class): Capital appreciation.
• MFS® VIT Total Return Bond Series (Initial Class): Total return with an emphasis on current income.
• MFS® VIT Total Return Series (Initial Class): Total return.
• MFS® VIT Utilities Series (Initial Class): Total return.
MFS® Variable Insurance Trust II, advised by Massachusetts Financial Services Company
• MFS® VIT II Technology Portfolio (Initial Class): Capital appreciation.
MFS® Variable Insurance Trust III, advised by Massachusetts Financial Services Company
• MFS® VIT III Mid Cap Value Portfolio (Initial Class): Capital appreciation.
Neuberger Berman Advisers Management Trust, advised by Neuberger Berman Management Inc.
• Neuberger Berman AMT Mid Cap Growth Portfolio (I Class): Growth of capital.
This fund is available only to existing Cases as of May 21, 2007. Consult your registered representative.
• Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio (I Class): Growth of capital.
Northern Lights Variable Trust, advised by Valmark Advisers, Inc.
• TOPS® Aggressive Growth ETF Portfolio (Class 2 Shares): Capital appreciation.
• TOPS® Balanced® ETF Portfolio (Class 2 Shares): Income and capital appreciation; a fund of funds.
• TOPS® Conservative ETF Portfolio (Class 2 Shares): Preserve capital and provide moderate income and moderate capital appreciation.
• TOPS® Growth ETF Portfolio (Class 2 Shares): Capital appreciation.
• TOPS® Moderate Growth ETF Portfolio (Class 2 Shares): Capital appreciation; a fund of funds.
PIMCO Variable Insurance Trust, advised by PIMCO
• PIMCO VIT CommodityRealReturn® Strategy Portfolio (Administrative Class): Maximum real return, consistent with prudent investment management.
• PIMCO VIT Global Bond Opportunities Portfolio (Unhedged) (Administrative Class): To seek maximum total return, consistent with preservation of capital and prudent investment management.
• PIMCO VIT Real Return Portfolio (Administrative Class): Growth of capital.
• PIMCO VIT Total Return Portfolio (Administrative Class): Maximum total return, consistent with preservation of capital and prudent investment management.
Putnam Variable Trust, advised by Putnam Investment Management, LLC
• Putnam VT Multi-Asset Absolute Return Fund (Class IA): To seek positive total return.
T. Rowe Price Equity Series, Inc., advised by T. Rowe Price Associates, Inc.
• T. Rowe Price Equity Income Portfolio: To provide substantial dividend income as well as long-term growth of capital through investments in the common stocks of established companies.
Wells Fargo Variable Trust, advised by Wells Fargo Funds Management, LLC.
• Wells Fargo VT Discovery Fund (Class 2): Long-term capital appreciation.
* Investments in Delaware VIP Series, Delaware Funds, LVIP Delaware Funds or Lincoln Life accounts managed by Macquarie Investment Management Advisers, a series of Macquarie Investments 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
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  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.
(1) The Index to which this fund is managed is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed for use by one or more of the portfolio’s service providers (licensee). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the licensees. S&P®, S&P GSCI® and the Index are trademarks of S&P and have been licensed for use by SPDJI and its affiliates and sublicensed for certain purposes by the licensee. The Index is not owned, endorsed, or approved by or associated with any additional third party. The licensee’s products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or their third party licensors, and none of these parties or their respective affiliates or third party licensors make any representation regarding the advisability of investing in such products, nor do they have any liability for any errors, omissions, or interruptions of the Index.
Sub-Account Availability and Substitution of Funds
We may add, change or eliminate any Underlying Funds that the Separate Account or the Sub-Accounts invest in, subject to state or federal laws and regulations. An Underlying Fund may also discontinue offering their shares to the Sub-Accounts.
We may choose to add or remove Sub-Accounts as investment options under the Policies. If we change any Sub-Accounts or substitute any Underlying Funds, we will make appropriate endorsements to the Policies.
Placing or transferring money into the money market Sub-Account may have impacts on other features of your Policy. Prior to moving money into the money market Sub-Account or allowing it to default into the money market Sub-Account as a result of a fund liquidation, refer to your Policy for specific impacts that may apply, if any. We will notify you of any change that is made.
If we obtain appropriate approvals from Owners and securities regulators, we may:
• Change the investment objective of the Separate Account;
• Operate the Separate Account as a management investment company, unit investment trust, or any other form permitted under applicable securities laws;
• Deregister the Separate Account; or
• Combine the Separate Account with another Separate Account.
If required by law, we will obtain any required approvals from Owners, the SEC, and state insurance regulators before substituting any Underlying Funds. Substitute Underlying Funds may have higher charges than the Underlying Funds being replaced.
We may close Sub-Accounts to Owners that purchase a new Policy after a specified date, and these Owners may not allocate Net Premium Payments or policy value to the closed Sub-Account. Owners that purchased a Policy prior to the specified date may continue to allocate Net Premium Payments and policy value to the Sub-Account.
From time to time, certain of the Underlying Funds may merge with other funds. If a merger of an Underlying Fund occurs, the policy value allocated to the existing fund will be transferred into the surviving fund. Any future Net Premium Payments allocated to the existing fund will automatically be allocated to the surviving fund unless otherwise instructed by you.
In addition, a Sub-Account may become unavailable due to the liquidation of its Underlying Fund portfolio. To the extent permitted by applicable law, upon notice to you and unless you otherwise instruct us, we will transfer any policy value in the liquidated Underlying Fund to the money market Sub-Account or a Sub-Account investing in another Underlying Fund designated by us. Any future Net Premium Payments allocated to the liquidated fund will automatically be allocated to the money market Sub-Account or a Sub-Account investing in another Underlying Fund designated by us unless otherwise instructed by you.
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Voting Rights
The Underlying Funds do not hold regularly scheduled shareholder meetings. When an Underlying Fund holds a special meeting for the purpose of approving changes in the ownership or operation of the Underlying Fund, the Company is entitled to vote the shares held by our Sub-Account in that Underlying Fund. Under our current interpretation of applicable law, you may instruct us how to vote those shares. If the 1940 Act or any other 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.
We will notify you when your instructions are needed and will provide information from the Underlying Fund about the matters requiring the special meeting. We will calculate the number of votes for which you may instruct us based on the amount you have allocated to that Sub-Account, and the value of a share of the corresponding Underlying Fund, as of a date chosen by the Underlying Fund (record date). If we receive instructions from you, we will follow those instructions in voting the shares attributable to your Policy. If we do not receive instructions from you, we will vote the shares attributable to your Policy in the same proportion as we vote other shares based on instructions received from other Owners. Since Underlying Funds may also offer their shares to entities other than the Company, those other entities also may vote shares of the Underlying Funds, and those votes may affect the outcome.
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 shareholders present in person or by proxy which must vote in favor of matters presented. Because shares of the Underlying Fund held in the Separate Account are owned by the Company, and because under the 1940 Act the Company will vote all such shares in the same proportion as the voting instructions which we receive, it is important that each Owner provide their voting instructions to the Company. For funds un-affiliated with Lincoln, even though Owners may choose not to provide voting instructions, the shares of an Underlying Fund to which such Owners would have been entitled to provide voting instructions will be voted by the Company in the same proportion as the voting instructions which we actually receive. For funds affiliated with Lincoln, shares of a fund to which such Owners would have been entitled to provide voting instructions will, once we receive a sufficient number of instructions we deem appropriate to ensure a fair representation of Owners eligible to vote, be voted on by the Company in the same proportion as the voting instructions which we actually receive. As a result, the instructions of a small number of Owners could determine the outcome of matters subject to shareholder vote. In addition, because the Company expects to vote all shares of the Underlying Fund which it owns at a meeting of the shareholders of an Underlying Fund, all shares voted by the Company 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.
POLICY CHARGES AND FEES
Policy charges and fees compensate us for providing your insurance benefit, administering your Policy, assuming risks associated with your Policy, and incurring sales related expenses. We may profit from any of these charges, and we may use this profit for any purpose, including covering shortfalls from other charges. Certain charges vary based on “Insured Employee Coverage Duration”, which is each twelve-month period, beginning on the Date of Issue of initial coverage on any Insured Employee.
The current charges for Premium Load and mortality and expense risk vary by specific criteria of your Policy. These criteria include:
• the initial policy Premium, and the total Premiums expected to be paid,
• total assets under management with the Company,
• the purpose for which the Policies are being purchased,
• the level of plan administration services required.
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Differences in charges will not be unfairly discriminatory to any Owners. Specific charges are shown on the Policy Specifications page.
In addition to policy charges, the investment advisor for each of the Underlying Funds deducts a daily charge as a percent of the value in each Underlying Fund as an asset management charge. The charge reflects asset management fees of the investment advisor. Other expenses are incurred by the Underlying Funds (including 12b-1 fees for Class 2 shares and other expenses) and are deducted from Underlying Fund assets as described in the fund prospectus. Values in the Sub-Accounts are reduced by these charges. Future Underlying Fund expenses may vary. Detailed information about charges and expenses incurred by each Underlying Fund is contained in that Underlying Fund’s prospectus.
The Monthly Deductions, including the Cost of Insurance Charges, are deducted proportionately from the value of each of the Sub-Accounts and the Fixed Account unless you or the Company agree otherwise. The Monthly Deductions are made on the “Monthly Anniversary Day,” which is the Date of Issue and the same day of each month thereafter. If the day that would otherwise be a Monthly Deduction Day is non-existent for that month, or is not a Valuation Day, then the Monthly Deduction Day is the next Valuation Day.
If the Net Accumulation Value is insufficient to cover the current Monthly Deduction, you have a 61-day Grace Period to make a payment sufficient to cover that deduction.
Premium Load; Net Premium Payment
We deduct a portion from each Premium Payment. This amount, referred to as “Premium Load,” covers a portion of the sales expenses incurred by the Company and certain policy-related state and federal tax liabilities. The Premium Payment, after deduction of the Premium Load, is called the “Net Premium Payment.” Target Premium is based on the maximum annual Premium allowed under the Internal Revenue Code for a policy which is not a MEC, providing a death benefit equal to the Specified Amount and paying seven level, annual Premiums. See the Tax Issues section later in this prospectus. The Target Premium is shown in the Policy Specifications.
Sales Charge.     The current sales charge ranges are:
Insured Employee Coverage Duration   Portion of Premium
Paid up to
Target Premium 		  Portion of Premium
Paid greater than
Target Premium
1   3.5%   0.5%
2   3%   0.5%
3   2%   0.5%
4-7   1%   0.5%
8+   0.5%   0.5%
The sales charge is guaranteed to be no higher than 5% of the total Premium paid in any Insured Employee Coverage Duration.
Premium Tax.     We deduct an explicit premium tax equal to state and municipal premium tax from each Premium Payment.
Deferred Acquisition Cost (DAC) Tax.     We deduct a 1% charge from each Premium Payment to help offset the company's tax liability associated with the Policy's acquisition costs.
For the purpose of calculating current and maximum Premium Loads, an increase in Specified Amount is treated as a newly issued policy.
Surrender Charges
There are no Surrender Charges for your Policy.
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Partial Surrender Fee
There is no Surrender Charge or Administrative Fee imposed on Partial Surrenders.
Transfer Fee
The Company reserves the right to charge $25 for each transfer after the twenty-fourth transfer per Insured Employee Coverage Duration.
In the event that we make a material change in the investment strategy of a Sub-Account, you may transfer the Accumulation Values allocated to that Sub-Account to any other Sub-Account or to the Fixed Account without being charged a fee and may do so even if you have requested 24 transfers during that Policy Year. This option to transfer from a Sub-Account must be exercised within 60 days after the effective date of such change in investment strategy of that Sub-Account. You will be provided with a supplement to your prospectus in the event that such a change is made.
Mortality and Expense Risk Charge
We assess a monthly Mortality and Expense Risk Charge (“M&E”) as a percentage of the Policy's Separate Account Value. The mortality risk assumed is that the Insured Employee may live for a shorter period than we originally estimated. The expense risk assumed is that our expenses incurred in issuing and administering the Policies will be greater than we originally estimated.
Current Mortality and Expense Risk Charges, on an annualized basis, are within the ranges below, based on the level of average annual Planned Premium:
Insured Employee Coverage Duration   Annualized Mortality
Expense Risk Charge
1-10   0.10%-0.40%
11-20   0.10%-0.20%
21 and after   0.10%
     
The Company reserves the right to increase the Mortality and Expense Risk Charge if it believes that circumstances have changed so that current charges are no longer adequate. In no event will the charge exceed 0.50%.
Cost of Insurance Charge
A significant cost of variable life insurance is the “Cost of Insurance Charge”. This charge is the portion of the Monthly Deduction designed to compensate the Company for the anticipated cost of paying death benefits in excess of the policy value.
The Cost of Insurance Charge for your Policy depends on the current “Net Amount at Risk”. The Net Amount at Risk is the death benefit, without regard to any benefits payable at the Insured's death under any riders, minus the Policy's Total Account Value. Because the Total Account Value will vary with investment performance, Premium Payment patterns and charges, the Net Amount at Risk will vary accordingly.
The Cost of Insurance Charge is determined by subtracting the Total Account Value from the death benefit at the beginning of the Policy Month, and multiplying the result (the “Net Amount at Risk”) by the applicable current cost of insurance rate as determined by the Company. The maximum rates that we may use are found in the guaranteed maximum cost of insurance rate table in your Policy’s specifications. The applicable cost of insurance rate used in this monthly calculation for your Policy depends upon the Policy’s duration, the age, gender (in accordance with state law) and underwriting category of the Insured Employee. Please note that it will generally increase each Policy Year as the Insured Employee ages and are lower for healthy individuals. Current cost of insurance rates, in general,
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are determined based on our expectation of future mortality, investment earnings, persistency and expenses (including, but not limited to, taxes and reinsurance). For this reason, they may be less than the guaranteed maximum rates shown in the Policy. Accordingly, your monthly Cost of Insurance Charge may be less than the amount that would be calculated using the guaranteed maximum cost of insurance rate shown in the table in your Policy. Also, your monthly Cost of Insurance Charge will never be calculated at a rate higher than the maximum Cost of Insurance Charge shown in “Table II: Periodic Charges Other Than Fund Operating Expenses” in this prospectus.
Administrative Fee
The monthly Administrative Fee as of the date of policy issue is $6.00 per month in all Insured Employee Coverage Durations. The Company may change this fee after the first Insured Employee Coverage Duration based on its expectations of future expenses, but is guaranteed not to exceed $10.00 per month. There is an additional charge per $1,000 of Specified Amount that varies with the Insured Employee's age. This charge will never exceed $0.17 per $1,000 of Specified Amount. This fee compensates the Company for administrative expenses associated with policy issue and ongoing policy maintenance including premium billing and collection, policy value calculation, confirmations, periodic reports and other similar matters.
Policy Loan Interest
If you borrow against your Policy, interest will accrue on the loan balance. The interest rate will be the greater of 3.5%, or Moody’s Investors Service, Inc. Corporate Bond Yield Average – Monthly Average Corporates for the calendar month which ends two months prior to the Policy Anniversary. You may obtain the applicable monthly average at any time by contacting the Company. The interest rate will never exceed the maximum interest rate allowed by law in the state in which the Policy is issued.
We will notify you of the current Policy Loan Interest rate for this Policy at the time a Policy Loan is taken. If the Policy has a loan balance, we will notify you of any change in the interest rate at least 30 days before the new rate becomes effective.
Rider Charges
The following paragraphs describe the charges for the riders listed below. The features of the riders available with this Policy and any limitations on the selection of riders are discussed in the section headed “Riders”.
Term Insurance Rider.  This optional rider provides term life insurance on the life of the Insured Employee, which is annually renewable to Attained Age 100. There are monthly Cost of Insurance Charges for this rider, based on the Policy duration, and the age and underwriting category of the Insured Employee. We may adjust the monthly rider rate from time to time, but the rate will never exceed the guaranteed cost of insurance rates for the rider for that Policy Year.
Case Exceptions
We reserve the right to reduce Premium Loads or any other charges on certain multiple life sales (“Cases”) where it is expected that the amount or nature of such Cases will result in savings of sales, underwriting, administrative or other costs. Eligibility for these reductions and the amount of reductions will be determined by a number of factors, including but not limited to:
• the number of lives to be insured,
• the total Premiums expected to be paid,
• total assets under management with the Company,
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• the nature of the relationship among the Insured individuals,
• the purpose for which the Policies are being purchased,
• expected persistency of the individual policies, and
• any other circumstances which we believe to be relevant to the expected reduction of our expenses.
Some of these reductions may be guaranteed but we may withdraw or modify others on a uniform Case basis. Reductions in charges will not be unfairly discriminatory to any Owners.
YOUR INSURANCE POLICY
Your Policy is a life insurance contract that provides for a death benefit payable on the death of the Insured Employee. The Policy and the application constitute the entire contract between you and Lincoln Life.
The Policy includes Policy Specifications pages, with supporting schedules. These pages and schedules provide important information about your Policy such as: the identity of the Insured Employee and Owner; Date of Issue; the Initial Specified Amount; the death benefit option selected; issue age; named Beneficiary; initial Premium Payment; expense charges and fees; and guaranteed maximum cost of insurance rates.
Note: The Policy Specifications pages (and any specifications pages relating to riders you may purchase) reference certain dates that are very important in understanding when your coverage begins and ends, when certain benefits become available and when certain rights or obligations arise or terminate. Generally, terms such as “Policy Date”, “Effective Date” or “Policy Effective Date” (or “Rider Date”, “Rider Effective Date”) refer to the date that coverage under the Policy (or rider) becomes effective and is the date from which Policy Years, Policy Anniversary and ages are determined. Terms such as “Issue Date” or “Policy Issue Date” (or “Rider Issue Date”) generally refer to when we print or produce the Policy (or rider), but such dates may have importance beyond that date. For example, the period of time we may have to contest a claim submitted in the first couple years of the Policy will typically start on the date the Policy is issued and not the date the Policy goes into effect. Please read your Policy carefully and make sure you understand which dates are important and why.
When your Policy is delivered to you, you should review it promptly to confirm that it reflects the information you provided in your application. If not, please notify us immediately.
The Policy is nonparticipating. This means that no dividends are payable to you. In addition, your Policy does not share in the profits or surplus earnings of the Company.
Before purchasing the Policy to replace, or to be funded with proceeds from an existing life insurance policy or annuity, make sure you understand the potential impact. The Insured Employee will need to prove current insurability and there may be a new contestable period for the new Policy. The death benefit and policy values may be less for some period of time in the new Policy.
Once your Policy is in force, the effective date of payments and requests you send us is usually determined by the day and time we receive them.
We cannot process your requests for transactions relating to the Policy until we have received the request in “Good Order” at our Home Office. “Good Order” means the actual receipt of the requested transaction in writing (or other form subject to our consent) along with all information and supporting legal documentation necessary to effect the transaction. 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.
We allow telephone or other electronic transactions when you complete our authorization form and return it to us. Contact our Administrative Office for information on permitted electronic transactions and authorization for electronic transactions.
Any telephone or other electronic transmission, whether it is yours, your service provider’s, your agent’s, or ours, can experience outages or slowdowns for a variety of reasons. Although we have taken precautions to help our
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systems handle heavy use, we cannot promise complete reliability under all circumstances. If you experience problems, you should send your request in writing to our Administrative Office.
Application
If you decide to purchase a Policy, you must first complete an application. A completed application identifies the proposed Insured Employee and provides sufficient information to permit us to begin underwriting risks in the Policy. We require a medical history and examination of the proposed Insured Employee. Based on our review of medical information about the proposed Insured Employee,  if required, we may decline to provide insurance, or we may place the proposed Insured Employee in a special underwriting category. The monthly Cost of Insurance Charge deducted from the policy value after issue varies depending on the Insured Employee's age, underwriting category, the Policy duration, and the current Net Amount at Risk.
A Policy may only be issued upon receipt of satisfactory evidence of insurability, and generally when the Insured Employee is at least age 18 and at most age 85. Age will be determined by the nearest birthday of the Insured Employee.
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 applies for a Policy. When you apply for a Policy, 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. If this Policy is corporate owned, we may ask for date and state of incorporation.
Owner
The Owner on the date of policy issue is designated in the Policy Specifications. You, as Owner, will make the following choices:
1) initial death benefit amount and death benefit option;
2) either of two life insurance qualification methods;
3) the amount and frequency of Premium Payments; and
4) the amount of Net Premium Payment to be allocated to the selected Sub-Accounts or the Fixed Account.
You are entitled to exercise rights and privileges of your Policy as long as the Insured Employee is living  and before the maturity date. These rights generally include the power to select the Beneficiary, request Policy Loans, make Partial Surrenders, surrender the Policy entirely, name a new Owner, and assign the Policy. You must inform us of any change in writing. We will record change of Owner and Beneficiary forms to be effective as of the date of the latest signature on the written request. In addition to changes in ownership or Beneficiary designations, you should make certain that our records are up to date with respect to your address and contact information and, to the extent possible, the address and contact information of any Beneficiaries. This will ensure that there are no unnecessary delays in effecting any changes you wish to make, ownership privileges you wish to exercise or payments of proceeds to you or your Beneficiaries. Exercising a change in ownership may cause a taxable event. You should consult a tax advisor prior to exercising a change in ownership to determine the tax consequences of such exercise.
Right to Examine Period
You may return your Policy to us for cancellation within the greater of 45 days after the application is signed or 10 days after you receive it (60 days after receipt for policies issued in replacement of other insurance). This is called the Right to Examine Period. If the Policy is returned for cancellation within the Right to Examine Period, we will refund to you the greater of (a) all Premium Payments less any Indebtedness; or (b) the sum of (i) the Total
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Account Value less any Indebtedness, on the date the returned Policy is received by us, plus (ii) any charges and fees imposed under the Policy's terms. If a Premium Payment was made by check, there may be a delay until the check clears.
Any Net Premium Payments received by us within 10 days of the date the Policy was issued will be held in the money market Sub-Account. At the end of that period, it will be allocated to the Sub-Accounts and the Fixed Account, if applicable, which you designated.
Initial Specified Amount
You will select the Initial Specified Amount of death benefit on the application. This may not be less than $100,000. This amount, in combination with a death benefit option, will determine the initial death benefit. The Initial Specified Amount is shown on the Policy Specifications page.
Transfers
You may make transfers among the Sub-Accounts and the Fixed Account, subject to certain provisions. You should carefully consider current market conditions and each Underlying Fund’s objective and investment policy before allocating money to the Sub-Accounts. (Note: Prior to moving money into the money market Sub-Account or allowing it to default into the money market Sub-Account as a result of a fund liquidation, refer to your Policy for specific impacts that may apply, if any.)
Up to 24 transfer requests (a request may involve more than a single transfer) may be made in any Insured Employee Coverage Duration without charge. The Company reserves the right to charge $25 for each transfer request after the twenty-fourth request per Insured Employee Coverage Duration.
We reserve the right to restrict transfers of a portion of the Fixed Account Value to one or more Sub-Accounts to a period within 45 days following the Policy Anniversary. The transfer will be effective as of the next Valuation Period after your request is received by our Administrative Office. The amount of such transfer cannot exceed the greater of 20% of the greatest amount held in the Fixed Account Value during the prior 5 years or $1,000. Due to these limitations, if you want to transfer all of your policy value from the Fixed Account to one or more Sub-Accounts, it may take several years to do so.
Requests for transfers must be made in writing, or electronically, if you have previously authorized electronic transfers in writing, subject to our consent. We will use reasonable procedures, such as requiring identifying information from callers, recording telephone instructions, and providing written confirmation of transactions, in order to confirm instructions are genuine. Any instructions, which we reasonably believe to be genuine, will be your responsibility, including losses arising from any errors in the communication of instructions. As a result of this procedure, you will bear the risk of loss. If we do not use reasonable procedures, as described above, we may be liable for losses due to unauthorized instructions.
Any transfer among the Sub-Accounts or to the Fixed Account will result in the crediting and cancellation of accumulation units. This will be based on the accumulation unit values determined after our Administrative Office receives a request in writing or adequately authenticated electronic transfer request. Transfer and financial requests received in Good Order before the close of regular trading on the NYSE (generally 4pm Eastern time on a business day) will normally be effective that day. There may be circumstances under which the NYSE may close before 4pm. In such circumstances transactions requested after such early closing will be processed using the accumulation unit value computed the following trading day.
Some of the Underlying Funds have reserved the right to temporarily or permanently refuse payments or transfer requests from us if, in the judgment of the Underlying Fund's investment advisor, the Underlying 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 Underlying Funds, including any refusal or restriction on purchases or redemptions of the Sub-Account units as a result of the Underlying Funds'
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own policies and procedures on market timing activities. We may also defer or reject an allocation or transfer request that is subject to a restriction that is imposed by the Underlying Fund at any time. If an Underlying Fund refuses to accept a transfer request we have already processed, we will reverse the transaction within 1-2 business days of the day on which we receive notice of the refusal. We will notify you in writing if we have reversed, restricted or refused any of your transfer requests.
Market Timing
Frequent, large, or short-term transfers among Sub-Accounts and the Fixed Account, such as those associated with “market timing” transactions, can affect the Underlying Funds and their investment returns. Such transfers may dilute the value of the fund shares, interfere with the efficient management of the Underlying Fund's portfolio, and increase brokerage and administrative costs of the Underlying Funds. As an effort to protect our Owners and the Underlying 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 Sub-Accounts and the Fixed Account that may affect other Owners or shareholders.
In addition, the Underlying Funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the Underlying 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 Sub-Accounts. While we reserve the right to enforce these policies and procedures, Owners and other persons with interests under the Policies 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 Underlying Funds. You should note that, these policies and procedures may result in an Underlying Fund deferring or permanently refusing to accept Premium Payments or transfers for the reasons described in “Transfers”, above. In such case, our rights and obligations will be as described in “Transfers”. Some of the Underlying Funds may also impose Redemption Fees on short-term trading (i.e., redemptions of Underlying 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 Underlying Funds. You should read the prospectuses of the Underlying Funds for more details on their ability to refuse or restrict purchases or redemptions of their shares.
However, under the SEC rules, we are required to: (1) enter into written agreement with each Underlying Fund or its principal underwriter that obligates us to provide to the Underlying Fund promptly upon request certain information about the trading activity of individual Owners, and (2) execute instructions from the Underlying Fund to restrict or prohibit further purchases or transfers by specific Owners who violate excessive trading policies established by the Underlying Fund.
You should be aware that the purchase and redemption orders received by Underlying Funds generally are “omnibus” orders from intermediaries such as retirement plans or Separate Accounts to which Premium Payments and policy values of variable insurance policies are allocated. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and/or individual Owners of variable insurance policies. The omnibus nature of these orders may limit the Underlying Funds' ability to apply their respective disruptive trading policies and procedures. We cannot guarantee that the Underlying Funds (and thus our Owners) will not be harmed by transfer activity relating to the retirement plans and/or other insurance companies that may purchase the Underlying Funds. In addition, if an Underlying Fund believes that an omnibus order we submit may reflect one or more transfer requests from Owners engaged in disruptive trading activity, the Underlying Fund may reject the entire omnibus order.
Our Market Timing Procedures detect potential “market timers” by examining the number of transfers made by Owners within given periods of time. In addition, managers of the Underlying Funds might contact us if they believe or suspect that there is market timing. If requested by an Underlying Fund company, we may vary our Market Timing Procedures from Sub-Accounts to Sub-Accounts to comply with specific Underlying Fund policies and procedures.
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We may increase our monitoring of Owners who we have previously identified as market timers. When applying the parameters used to detect market timers, we will consider multiple policies owned by the same Owner if that Owner has been identified as a market timer. For each Owner, 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 Underlying Funds that may not have been captured by our Market Timing Procedures.
Once an Owner has been identified as a “market timer” under our Market Timing Procedures, we will notify the Owner in writing that future transfers (among the Sub-Accounts and/or the Fixed Account) will be temporarily permitted to be made only by original signature sent to us by U.S. mail, standard delivery for the remainder of the Policy Year. 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 from or on behalf of an Owner who has been identified as a market timer are inadvertently accepted, we will reverse the transaction within 1 - 2 business days of our discovery of such acceptance. We will impose this “original signature” restriction on that Owner even if we cannot identify, in the particular circumstances, any harmful effect from that Owner's particular transfers.
Owners 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 Owners determined to be engaged in such transfer activity that may adversely affect other Owners or Underlying 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 Underlying Fund shares and increased brokerage and administrative costs in the Underlying Funds. This may result in lower long-term returns for your investments.
Our Market Timing Procedures are applied consistently to all Owners. An exception for any Owner will be made only in the event we are required to do so by a court of law. In addition, certain Underlying Funds available as investment options in your Policy 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 Underlying Funds, we cannot guarantee that the Underlying Funds will not suffer harm from frequent, large, or short-term transfer activity among Sub-Accounts and the Fixed Accounts of variable contracts issued by other insurance companies or among investment options available to retirement plan participants.
In our sole discretion, we may revise our Market Timing Procedures at any time without prior notice as necessary to better detect and deter frequent, large, or short-term transfer activity, to comply with state or federal regulatory requirements, and/or to impose additional or alternate restrictions on market timers (such as dollar or percentage limits on transfers). If we modify our Market Timing Procedures, they will be applied uniformly to all Owners or as applicable to all Owners with policy values allocated to Sub-Accounts investing in particular Underlying Funds. We also reserve the right to implement and administer Redemption Fees imposed by one or more of the Underlying Funds in the future.
Dollar Cost Averaging
Dollar Cost Averaging systematically transfers amounts from the money market Sub-Account. Transfer allocations may be made to one or more of the Sub-Accounts and the Fixed Account on a monthly or quarterly basis. These transfers do not count against the free transfers available. Transfers may be elected at any time while your Policy is in force.
By making allocations on a regularly scheduled basis, instead of on a lump sum basis, you may reduce exposure to market volatility. Dollar Cost Averaging will not assure a profit or protect against a declining market.
You may elect Dollar Cost Averaging on your application, or contact our Administrative Office for information.
Dollar Cost Averaging terminates automatically:
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1) if the value in the money market Sub-Account is insufficient to complete the next transfer;
2) one week after our Administrative Office receives a request for termination in writing, with adequate authentication;
3) after 12 or 24 months (as elected on your application); or
4) if your Policy is surrendered.
Automatic Rebalancing
You may elect to participate in Automatic Rebalancing. There is currently no charge for this program.
Automatic Rebalancing periodically restores to a pre-determined level the percentage of policy value allocated to each Sub-Account. The Fixed Account is not subject to rebalancing. The pre-determined level is the allocation initially selected on the application supplement, until changed by the Owner. If Automatic Rebalancing is elected, all Net Premium Payments allocated to the Sub-Accounts will be subject to Automatic Rebalancing.
Automatic Rebalancing provides a method for reestablishing fixed proportions among your allocations to your Sub-Accounts on a systematic basis. Automatic Rebalancing helps to maintain your allocation among market segments, although it entails reducing your policy values allocated to the better performing segments. Therefore, you should carefully consider market conditions and the investment objectives of each Sub-Account and Underlying Fund before electing to participate in Automatic Rebalancing.
You may select Automatic Rebalancing on a quarterly, semi-annual or annual basis. Automatic Rebalancing may be elected, terminated or the allocation may be changed at any time, by contacting our Administrative Office.
Riders
We may offer you riders to your Policy from time to time. Riders may alter the benefits or charges in your Policy and their election may have tax consequences to you. Also, if you elect a particular rider, it may restrict or enhance the terms of your Policy, or of other riders in force. Consult your financial and tax advisors before adding riders to, or deleting them from, your Policy.
Adjustable Benefit Enhancement Rider.   The Policy can be issued with an Adjustable Benefit Enhancement Rider. This rider provides additional Surrender Value on a temporary basis for a minimum of seven years after the Policy is issued. The Owner chooses the level of Surrender Value enhancement to be provided, up to a maximum amount determined by the Company. See the sections headed “Requested Adjustable Benefit Enhancement Amount” and “Maximum Adjustable Benefit Enhancement Amount” for more information.
The greater the amount of additional Surrender Value provided by this rider each year, the shorter the duration of the benefit. The amount of additional Surrender Value provided by this rider decreases each year and eventually equals zero. See section headed “Adjustable Benefit Enhancement Balance” for more information.
The maximum enhanced Surrender Value provided by this rider is based on the Policy’s face amount, but the benefit is not increased or decreased by any term insurance that may be added to the Policy. See section headed “Term Blend Adjustment Factor” for more information.
This rider must be elected at application, may not be available on all policies, and is subject to underwriting criteria. It may not be elected if you have elected the Enhanced Surrender Value Rider.
Under this rider, the Full Surrender Value of the Policy will equal:
1) the policy value on the date of surrender; less
2) the sum of the loan balance plus any accrued interest not yet charged; plus
3) the adjustable benefit enhancement amount, if any.
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Adjustable Benefit Enhancement Amount.   On each Policy Anniversary, this amount will equal the lesser of a. or b., where:
a) is the requested adjustable benefit enhancement amount; and
b) is the maximum adjustable benefit enhancement amount.
This amount will remain level throughout the Insured Employee Coverage Duration, unless a Partial Surrender has been made since the preceding Policy Anniversary. If a Partial Surrender is made, the adjustable benefit enhancement amount will be recalculated to reflect changes to the maximum adjustable benefit enhancement amount.
Requested Adjustable Benefit Enhancement Amount.   At policy issue, the Owner selects a percentage of the available adjustable benefit enhancement balance. The selected percentage determines the adjustable benefit enhancement amount. The requested adjustable benefit enhancement amount will equal:
1) the percentage of the available adjustable benefit enhancement balance selected by the Owner; multiplied by
2) the available adjustable benefit enhancement balance.
Maximum Adjustable Benefit Enhancement Amount.   This is the maximum amount available upon Full Surrender of the Policy during the Insured Employee Coverage Duration. The amount will equal:
1) the maximum adjustable benefit enhancement rate as determined by the Company; multiplied by
2) the adjustable benefit enhancement balance, less the amount of Partial Surrenders since the preceding Policy Anniversary, if any; multiplied by
3) the Term Blend Adjustment Factor.
Maximum Adjustable Benefit Enhancement Rate.   This rate may be changed at any time while this rider is in effect if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing, but is guaranteed to be at least 2% in any Insured Employee Coverage Duration.
The current maximum adjustable benefit enhancement rates and guaranteed minimum adjustable benefit enhancement rates are:
Insured Employee Coverage Duration   Current Rate   Guaranteed Rate
1   11%   2%
2   19.6%   2%
3   27.7%   2%
4   35.4%   2%
5   53.2%   2%
6   66.1%   2%
7+   100%   2%
Adjustable Benefit Enhancement Balance.   This is the basis for the total amount of the adjustable benefit enhancement amount available upon Full Surrender of the Policy. On each Monthly Deduction day, the balance will be calculated as:
1) the adjustable benefit enhancement balance on the preceding Monthly Deduction day; minus
2) the adjustable benefit enhancement deduction amount; minus
3) the amount of any Partial Surrenders since the preceding Monthly Deduction day, if any; plus
4) the equivalent interest on items 1, 2 and 3, calculated at an annual interest rate of 3%.
The duration of the benefit depends on the requested adjustable benefit enhancement amount chosen by the Owner. A requested adjustable benefit enhancement amount less than the maximum will extend the duration of the benefit.
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Unless terminated under this rider’s provisions, the benefit will last for a minimum of seven years. This rider provides no benefits after the adjustable benefit enhancement deductions reduce the adjustable benefit enhancement amount to zero.
On the Date of Issue of the rider, the adjustable benefit enhancement balance will be the lesser of a) or b), where:
a) is the sum of Premiums paid on the Date of Issue of the Policy; and
b) is the Target Premium for the Insured Employee Coverage Duration, as shown in the Policy Specifications. If a term insurance rider is attached to your Policy, the Target Premium will be multiplied by the ratio of the target face amount to the basic Policy Specified Amount for use here; this information is also shown in the Policy Specifications.
The initial adjustable benefit enhancement balance will not be increased or decreased by any term insurance that may be added through another rider.
Adjustable Benefit Enhancement Deduction Amount.   This is the amount of adjustable benefit enhancement that was available in the previous Insured Employee Coverage Duration. The adjustable benefit enhancement balance will be permanently decreased by this amount each Insured Employee Coverage Duration. For the Monthly Deduction day coinciding with the Policy Anniversary, this deduction amount is equal to the lesser of a. or b., where:
a) is the requested adjustable benefit enhancement amount; and
b) is the maximum adjustable benefit enhancement amount.
For other Monthly Deduction days, the deduction amount will be zero.
Term Blend Adjustment Factor.   This factor is equal to 1.0 unless a term insurance rider is attached to your Policy. If a term insurance rider is attached to your Policy, the Term Blend Adjustment Factor will equal (1) plus (2) multiplied by (3) where :
1) is the minimum adjustment factor, as shown in the Policy Specifications;
2) is one minus the minimum adjustment factor; and
3) is the ratio of the basic Policy Specified Amount to the target face amount.
If term insurance is added to the Policy, the Term Blend Adjustment Factor will reduce the maximum adjustable benefit enhancement amount, and limit the amount of benefit available under this rider, as though no term insurance is in force. If no term insurance is added to the Policy, the Term Blend Adjustment Factor will have no effect on the maximum adjustable benefit enhancement amount. Therefore, the benefit provided by this rider is not increased or decreased by any term insurance that may be added to the Policy.
This rider will terminate without value on the date of any change in, or assignment of, ownership rights to the Policy for the purpose of effecting an exchange for another policy under Section 1035 of the Internal Revenue Code. In the event of a Section 1035 exchange, the adjustable benefit enhancement amount will not be payable.
The rider otherwise terminates on the earliest of:
1) the death of the Insured, or
2) the maturity date of the Policy, as shown in the Policy Specifications; or
3) the date this Policy is terminated, as provided under the Grace Period provision of the Policy; or
4) the next Monthly Deduction day after we receive your written request to terminate this rider.
Change of Insured Rider.  With this rider, you may name a new Insured Employee in place of the current Insured Employee. Underwriting and policy value requirements must be met. There is no separate charge for this rider. Policy charges applicable to the new Insured Employee may differ from charges applicable to the current Insured Employee. Exercising the Change of Insured Rider is a fully taxable event.
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Enhanced Surrender Value Rider.  This rider is no longer available for new sales. This rider was generally elected at application and was offered with all Policies described in this prospectus. Availability of the rider was subject to underwriting requirements for total Premiums expected to be paid, and other underwriting criteria. It could not be elected if you have elected the Adjustable Benefit Enhancement Rider or the Load Amortization Rider. It may be added after the Date of Issue of the Policy only with Lincoln’s consent. There is no cost for this rider.
This rider provides two additional benefits:
(a) Surrender Value benefit: an extra benefit in the event of a Full Surrender of the Policy, and
(b) expense reduction benefit: a reduction in expense charges and fees in the Policy.
A. Surrender Value benefit:
Under this rider, the Full Surrender Value of the Policy will equal:
(a) the policy value on the date of surrender; less
(b) the loan balance plus any accrued interest; plus
(c) the Surrender Value benefit.
The Surrender Value enhancement benefit is an amount equal to the lesser of (a) or (b), where:
(a) is the Target Enhancement Amount; and
(b) is the Maximum Enhancement Amount.
Target Enhancement Amount.  On any Monthly Deduction Day, the Target Enhancement Amount is equal to the Target Surrender Value less the Total Account Value of the Policy. For purposes of this rider, if the Target Enhancement Amount is negative, it will be considered to be zero.
Target Surrender Value.  On each Monthly Deduction day, the Target Surrender Value will be calculated as (1), plus (2), plus (3), minus (4), where:
(1) is the Target Surrender Value on the immediately preceding Monthly Deduction day.
(2) is all Premiums received since the immediately preceding Monthly Deduction day.
(3) is monthly equivalent interest on items (1) and (2) calculated using the annual Target Yield rate shown on Target Yield rate table.
(4) is the amount of any Partial Surrenders since the immediately preceding Monthly Deduction day.
On the Date of Issue, the Target Surrender Value will be the initial Premium received. On any day other than the Date of Issue or a Monthly Deduction day, the Target Surrender Value will be the Target Surrender Value as of the preceding Monthly Deduction day, plus all Premiums received and less any Partial Surrenders taken since the preceding Monthly Deduction day.
Target Yield.  The Target Yield is not guaranteed and may be changed at any time if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing this life insurance product. The current annual Target Yield rates are:
Insured Employee
Coverage Duration 		  Target
Yield Rate 		  Insured Employee
Coverage Duration 		  Target
Yield Rate
1   7%   7   4%
2   7%   8   3%
3   7%   9   2%
4   6%   10   1%
5   5.5%   11+   0%
6   5%        
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The Target Yield rate will not exceed 15% in any Insured Employee Coverage Duration.
Maximum Enhancement Amount.  The Maximum Enhancement Amount is equal to the Cumulative Surrender Value Premium times the maximum enhancement rate for any Insured Employee Coverage Duration times the term blend adjustment factor.
Cumulative Surrender Value Premium.  The Cumulative Surrender Value Premium for any Insured Employee Coverage Duration is the lesser of (a) or (b), where:
(a) Is the sum of the Premiums paid during the Insured Employee Coverage Duration; less the sum of any Partial Surrenders during the Insured Employee Coverage Duration; and
(b) Is the Target Premium for the Insured Employee Coverage Duration; times the ratio of the target face amount to the basic Policy Specified Amount if a term insurance rider is attached to this Policy.
During the first Insured Employee Coverage Duration, the Cumulative Surrender Value Premium for all prior Insured Employee Coverage Durations is zero.
Maximum Enhancement Rate.  The Maximum Enhancement Rate is not guaranteed and may be changed at any time if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing this life insurance product. The current annual Maximum Enhancement Rates are:
Insured Employee
Coverage Duration 		  Maximum
Enhancement Rate 		  Insured Employee
Coverage Duration 		  Maximum
Enhancement Rate
1   16%   7   5%
2   15%   8   3%
3   15%   9   2%
4   12%   10   1%
5   9%   11+   0%
6   7%        
The Maximum Enhancement Rate will not exceed 25% in any Insured Employee Coverage Duration.
Term Blend Adjustment Factor.  The Term Blend Adjustment Factor is equal to 1.0 unless a term insurance rider is attached to the Policy. If a term insurance rider is attached to this Policy, the Term Blend Adjustment Factor will equal the minimum adjustment factor plus one minus the minimum adjustment factor times the ratio of the basic Policy Specified Amount to the target face amount shown in the Policy Specifications. The current value of the minimum adjustment factor is shown in the Policy Specifications.
B. Expense reduction benefit.
In Insured Employee Coverage Durations six through ten, this rider will provide a reduction to the expense charges deducted under the Policy. This amount is equal to the following:
Insured Employee
Coverage Duration 		  Expense Reduction Amount
6-10   The lesser of (a) or (b) where:
 
(a) is the expense reduction rate times the accumulated premiums paid for Insured Employee Coverage Durations one through five; and
 
(b) is the expense charges due under the Policy.
There is no expense reduction in Insured Employee Coverage Durations 1 through 5 or in Insured Employee Coverage Duration 11 and beyond.
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Expense Reduction Rate.  The Expense Reduction Rate is not guaranteed and may be changed at any time if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing this life insurance product. The current expense reduction rates are:
Insured Employee
Coverage Duration 		  Monthly Expense
Reduction Rate 		  Insured Employee
Coverage Duration 		  Monthly Expense
Reduction Rate
1   0%   7   0.00833%
2   0%   8   0.00833%
3   0%   9   0.00833%
4   0%   10   0.00833%
5   0%   11+   0%
6   0.00833%        
The Expense Reduction Rate will not exceed an annual rate of 5% in any Insured Employee Coverage Duration.
If this rider is elected, in lieu of the Monthly Deduction as described in the Policy, the Monthly Deduction for a Policy Month beginning in Insured Employee Coverage Duration 6 will be calculated as (1) plus (2) less the expense reduction amount, where:
(1) is the cost of insurance for the base Policy and the cost of any supplemental riders or optional benefits, and
(2) is the monthly Administrative Fee for the base Policy.
This rider will terminate without value in the event that this Policy is exchanged for another under §1035 of the Internal Revenue Code.
This rider otherwise terminates on the earliest of:
(1) the death of the Insured Employee; or
(2) the maturity date of this Policy; or
(3) the date this Policy ends; or
(4) the next Monthly Deduction day after we receive your written request to terminate this rider.
Term Insurance Rider.  The Policy can be issued with a term insurance rider as a portion of the total death benefit. The rider provides term life insurance on the life of the Insured Employee, which is annually renewable to Attained Age 100. This rider will continue in effect unless canceled by the Owner. The amount of coverage provided under the rider’s benefit amount varies from month to month.
The benefit amount is the target face amount minus the basic Policy Specified Amount. Refer to your Policy Specifications for the benefit amount.
The cost of the rider is added to the Monthly Deductions, and is based on the Insured Employee’s premium class, issue age and the number of Insured Employee Coverage Durations elapsed. We may adjust the monthly rider rate from time to time, but the rate will never exceed the guaranteed cost of insurance rates for the rider for that Policy Year.
The rider’s death benefit is included in the total death benefit paid under the Policy.
Continuation of Coverage
Coverage of this Policy will continue to the maturity date if your Surrender Value is sufficient to cover each Monthly Deduction. The maturity date for this Policy is the Policy Anniversary nearest the Insured Employee’s 100th birthday. As of the maturity date, the death benefit will be equal to the Surrender Value.
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Paid-Up Nonforfeiture Option
You may elect, any time prior to the maturity date, to continue this Policy as paid-up life insurance. The effective date of the paid-up insurance will be the Monthly Deduction day following the receipt of your written request at our Administrative Office. As of the effective date:
• the Specified Amount will be the amount which the Surrender Value will purchase as a net single Premium at the Insured Employee’s then Attained Age, using the guaranteed interest and mortality basis of the original Policy (this may not exceed the death benefit),
• no further Premium Payments, Monthly Deductions, interest credits or changes in coverage may be made,
• we will transfer the Separate Account Value to the Fixed Account Value, and
• all extra benefit riders will terminate.
Coverage Beyond Maturity
At any time prior to the maturity date of this Policy, you may, by written request, elect to continue coverage beyond the maturity date. Any extra benefit riders will be terminated on the maturity date.
If elected, the following will apply:
• we will transfer the value of the Separate Account to the Fixed Account,
• we will credit interest on the policy value,
• where permitted by law we will continue to charge you Monthly Deductions, except we will not charge you any cost of insurance,
• loan interest on any loans outstanding on the maturity date will continue to accrue,
• the death benefit will be equal to the policy value and the Death Benefit Proceeds will be the policy value less any Indebtedness.
This provision is not available if you select the Paid-Up Non-Forfeiture Option. Also, the Paid-Up Non-Forfeiture Option will not be available when the coverage beyond maturity provision takes effect.
At this time, uncertainties exist about the tax treatment of the Policy if it should continue beyond the maturity date. Therefore, you should consult your tax advisor before the Policy becomes eligible for coverage beyond maturity.
Termination of Coverage
All policy coverage terminates on the earliest of:
1) Full Surrender of the Policy;
2) death of the Insured Employee;
3) failure to pay the necessary amount of Premium to keep your Policy in force; or
4) the maturity date, unless coverage beyond maturity is elected.
Loan interest will continue to accrue on any outstanding loans.
State Regulation
New York regulations will govern whether or not certain features, riders, charges and fees will be allowed in your Policy.
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PREMIUMS
You may select and vary the frequency and the amount of Premium Payments and the allocation of Net Premium Payments. After the initial Premium Payment is made there is no minimum Premium required except to keep the Policy in force. Premium Payments may be required from time to time in order to insure that the Net Accumulation Value of the Policy is sufficient to pay the Monthly Deductions. Otherwise, the Policy will lapse. (See the “Lapse and Reinstatement” section of this prospectus.) Premiums may be paid anytime before the Insured Employee reaches age 100, subject to our right to limit the amount or frequency of additional Premium Payments. (See the “Planned Premiums; Additional Premiums” section of this prospectus.)
The initial Premium must be paid for policy coverage to be effective. This payment must be equal to or exceed the amount necessary to provide for two Monthly Deductions.
Allocation of Net Premium Payments
Your Net Premium Payment is the portion of a Premium Payment remaining, after deduction of the Premium Load. The Net Premium Payment is available for allocation to the Sub-Accounts or the Fixed Account.
You first designate the allocation of Net Premium Payments among the Sub-Accounts and Fixed Account on a form provided by us for that purpose. Net Premium Payments will be allocated on the same basis as the initial Net Premium Payment unless we are instructed otherwise, in writing or electronically. You may change the allocation of Net Premium Payments among the Sub-Accounts and Fixed Account at any time.
The percentages of Net Premium Payments allocated to the Sub-Accounts and Fixed Account must be in whole percentages and must total 100%. We credit Net Premium Payments to your Policy as of the end of the Valuation Period in which it is received in Good Order at our Administrative Office. Premium Payments received from you or your broker-dealer in Good Order at our Administrative Office prior to the close of the NYSE (normally 4:00 p.m., Eastern time on a business day), will be processed using the accumulation unit value computed on that Valuation Date. Premium Payments received in Good Order after market close will be processed using the accumulation unit value computed on the next Valuation Date. Premium Payments submitted to your registered representative will generally not be processed by us until they are received from your representative’s broker-dealer. Premium Payments placed with your broker-dealer after market close will be processed using the accumulation unit value computed on the next Valuation Date. There may be circumstances under which the NYSE may close early (prior to 4:00 p.m., Eastern time). In such instances, Premium Payments received after such early market close will be processed using the accumulation unit value computed on the next Valuation Date.
The Valuation Period is the time between Valuation Days. A Valuation Day is every day on which the New York Stock Exchange is open and trading is unrestricted. Your policy values are calculated on every Valuation Day.
Planned Premiums; Additional Premiums
Planned Premiums are the amount of periodic Premium (as shown in the Policy Specifications) you choose to pay the Company on a scheduled basis. This is the amount for which we send a Premium reminder notice. Premium Payments may be billed annually, semi-annually, quarterly, or monthly.
In addition to any Planned Premium, you may make additional Premium Payments. These additional payments must be sent directly to our Administrative Office, and will be credited when received by us.
You may increase Planned Premiums, or pay additional Premiums, subject to certain limitations. We reserve the right to limit the amount or frequency of additional Premium Payments. You may decrease Planned Premiums. However, doing so will impact your policy values and may impact how long your Policy remains in force.
We may require evidence of insurability if any payment of additional Premium (including Planned Premium) would increase the difference between the death benefit and the Total Account Value. If we are unwilling to accept the risk, your increase in Premium will be refunded without interest.
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We may decline any additional Premium (including Planned Premium) or a portion of a Premium that would cause total Premium Payments to exceed the limit for life insurance under federal tax laws. Our test for whether or not your Policy exceeds the limit is referred to as the Guideline Premium Test or, if you so elected at the time you applied for the Policy, the Cash Value Accumulation Test. The excess amount of Premium will be returned to you. We may accept alternate instructions from you to prevent your Policy from becoming a MEC. Refer to the section headed “Tax Issues” for more information.
Life Insurance Qualification
A policy must satisfy either of two testing methods to qualify as a life insurance contract for tax purposes under Section 7702 of the Internal Revenue Code (“Code”). At the time of purchase, you may choose either the Guideline Premium Test or the Cash Value Accumulation Test.
The Guideline Premium Test limits the amount of Premiums that may be paid into the Policy in relation to the death benefit and requires a minimum amount of death benefit in relation to policy value. The death benefit that results from the Guideline Premium Test is usually less than the amount of death benefit that results from the Cash Value Accumulation Test.
The Cash Value Accumulation Test does not limit the amount of Premiums that may be paid into the Policy, as long as there is enough death benefit in relation to policy value at all times. The minimum death benefit that is required in relation to policy value depends on the Insured Employee’s age, gender, and risk classification.
Both tests require increases in death benefit as policy value increases. Increases in the minimum death benefit required under the Cash Value Accumulation Test are usually greater than those required under the Guideline Premium Test. Increases in the death benefit required by either test will increase the cost of insurance under the Policy, which can reduce policy value. Refer to your Policy Specifications page for the limits applicable to your Policy.
Discuss this choice with your financial representative and tax advisor before purchasing the Policy. Once your Policy is issued, the qualification method cannot be changed.
Policy Values
Policy value in your variable life insurance policy is also called the “Accumulation Value”.
The Total Account Value equals the sum of the Fixed Account Value, the Separate Account Value, and the loan balance. At any point in time, the Total Account Value reflects:
1) Net Premium Payments made;
2) the amount of any Partial Surrenders;
3) any increases or decreases as a result of market performance of the Sub-Accounts;
4) interest credited to the Fixed Account or the Loan Collateral Account; and
5) all charges and fees deducted.
The Separate Account Value, if any, is the portion of the Total Account Value attributable to the Separate Account. This value is equal to the sum of the current values of all the Sub-Accounts in which you have invested. The current value of each Sub-Account is determined by multiplying the number of Variable Accumulation Units credited or debited to that Sub-Account with respect to this Policy by the Variable Accumulation Unit Value of that Sub-Account for such Valuation Period.
The “Variable Accumulation Unit” is a unit of measure used in the calculation of the value of each Sub-Account. It may increase or decrease from one Valuation Period to the next. The Variable Accumulation Unit Value for a Sub-Account for a Valuation Period is determined as follows:
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1) the total value of Underlying Fund shares held in the Sub-Account is calculated by multiplying the number of Underlying Fund shares owned by the Sub-Account at the beginning of the Valuation Period by the net asset value per share of the fund at the end of the Valuation Period, and adding any dividend or other distribution of the Underlying Fund made during the Valuation Period; minus
2) the liabilities of the Sub-Account at the end of the Valuation Period. Such liabilities include daily charges imposed on the Sub-Account, and may include a charge or credit with respect to any taxes paid or reserved for by Lincoln Life that we determine result from the operations of the Separate Account; and
3) the result of (1) minus (2) is divided by the number of Variable Accumulation Units for that Sub-Account outstanding at the beginning of the Valuation Period.
In certain circumstances, and when permitted by law, we may 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.
The daily charge imposed on a Sub-Account for any Valuation Period is equal to the daily Mortality and Expense Risk Charge multiplied by the number of calendar days in the Valuation Period.
The Fixed Account Value, if any, reflects amounts allocated or transferred to the Fixed Account, plus interest credited, and less any deductions or Partial Surrenders. Fixed Account principal is not subject to market fluctuation and interest is credited at an annual rate of but not less than 3%.
The Loan Collateral Account, if any, reflects  amounts held as collateral on any outstanding Policy Loans, including any interest charged on the loans. This amount is held in the Company’s General Account. Amounts transferred to the loan balance do not participate in the performance of the Sub-Accounts or the Fixed Account. We do not guarantee the loan balance. The loan balance will earn interest at an annual rate of but not less than 3%.
We will notify you of the current Policy Loan Interest rate for this Policy at the time a Policy Loan is taken. If the Policy has a loan balance, we will notify you of any change in the interest rate before the new rate becomes effective.
The interest earned by the loan balance will be added to the Fixed Account Value and the Separate Account Value in the same proportion in which the loan amount was originally deducted from these values.
The “Net Total Account Value” is the Total Account Value less the loan balance. It represents the net value of your Policy and is the basis for calculating the Surrender Value.
Annual Statement
We will tell you at least annually the Total Account Value, the number of accumulation units credited to your Policy, current accumulation unit values, Sub-Account values, the Fixed Account Value and the loan balance. We strongly suggest that you review your statements to determine whether additional Premium Payments may be necessary to avoid lapse of your Policy.
DEATH BENEFITS
The Death Benefit Proceeds is the amount payable to the Beneficiary upon the death of the Insured Employee, based upon the death benefit option in effect. Loans, loan interest, and overdue charges, if any, are deducted from the Death Benefit Proceeds prior to payment.
Death Benefit Options
Three different death benefit options are available. Regardless of which death benefit option you choose, the Death Benefit Proceeds payable will be the greater of:
1) the amount determined by the death benefit option in effect on the date of the death of the Insured Employee, or
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2) a percentage of the Total Account Value equal to that required by the Internal Revenue Code to maintain the Policy as a life insurance policy. This is also called the minimum required death benefit, and will vary depending on the life insurance qualification method you have chosen for your Policy.
Death Benefit Proceeds under either calculation will be reduced by any loan balance plus any accrued interest, and any overdue deductions.
The following table provides more information about the death benefit options.
Option Death Benefit Proceeds Equal to the Variability
1 Specified Amount, which includes the Total Account Value as of the date of the Insured Employee’s death. Generally provides a level death benefit
2 Sum of the Specified Amount plus the Total Account Value as of the date of the Insured Employee’s death. May increase or decrease over time, depending on the amount of Premium paid and the investment performance of the underlying Sub-Accounts or the Fixed Account.
3 Specified Amount plus the accumulated Premiums (all Premiums paid from the Date of Issue accumulated at the Premium accumulation rate chosen by you before policy issue and shown in the Policy Specifications pages), less withdrawals as of the date of the Insured Employee’s death. Will generally increase, depending on the amount of Premium paid.
If your Policy includes a term insurance rider, the target face amount replaces the Specified Amount in each of the death benefit options.
If for any reason the Owner does not elect a particular death benefit option, Option 1 will apply until changed by the Owner.
Changes to the Initial Specified Amount and Death Benefit Options
Within certain limits, you may decrease or, with satisfactory evidence of insurability, increase the Specified Amount. The minimum Specified Amount is currently $100,000.
The death benefit option may be changed by the Owner, subject to our consent, as long as the Policy is in force.
You must submit all requests for changes among death benefit options and changes in the Specified Amount in writing to our Administrative Office. If you request a change, a supplemental application and evidence of insurability must also be submitted to us.
Option change Impact
1 to 2 The new Specified Amount will equal the Specified Amount prior to the change minus the Total Account Value at the time of the change.
2 to 1 The new Specified Amount will equal the Specified Amount prior to the change plus the Total Account Value at the time of the change.
1 to 3 Changes from Option 1 to Option 3 are not allowed.
3 to 1 The new Specified Amount will equal the Specified Amount prior to the change plus the accumulated Premiums, less withdrawals (all Premiums paid from the Date of Issue accumulated at the Premium accumulation rate chosen by you before policy issue and shown in the Policy Specifications pages), at the time of the change.
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Option change Impact
2 to 3 Changes from Option 2 to Option 3 are not allowed.
3 to 2 Changes from Option 3 to Option 2 are not allowed.
Any Reductions in Specified Amount will be made against the Initial Specified Amount and any later increase in the Specified Amount on a last in, first out basis. Changes in Specified Amount do not affect the Premium Load as a percentage of Premium.
We may decline any request for change of the death benefit option or Reduction in Specified Amount if, after the change, the Specified Amount would be less than the minimum Specified Amount or would reduce the Specified Amount below the level required to maintain the Policy as life insurance for purposes of federal income tax law.
Any change is effective on the first Monthly Deduction day on, or after, the date of approval of the request by Lincoln Life. If the Monthly Deduction amount would increase as a result of the change, the change will be effective on the first Monthly Deduction day on which the Total Account Value is equal to, or greater than, the Monthly Deduction amount.
Death Benefit Proceeds
Proof of death should be furnished to us at our Administrative Office as soon as possible after the death of the Insured Employee. This notification must include a certified copy of an official death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or any other proof satisfactory to us.
After receipt at our Administrative Office of proof of death of the Insured Employee, the Death Benefit Proceeds will ordinarily be paid within seven days. The proceeds will be paid in a lump sum or in accordance with any settlement option selected by the Owner or the Beneficiary. Payment of the Death Benefit Proceeds may be delayed if your Policy is contested or if Separate Account Values cannot be determined.
Every state has unclaimed property laws which generally declare property, including monies owed (such as death benefits) to be abandoned if unclaimed or uncashed after a period of three to five years from the date the property is intended to be delivered or date the death benefit is due and payable. For example, if the payment of a death benefit has been triggered and, if after 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 paid to the abandoned property division or unclaimed property office of the state in which the Beneficiary or the Owner 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 contact us and update your Beneficiary designations, including addresses, if and as they change.
POLICY SURRENDERS
You may surrender your Policy at any time by sending us your Policy along with a written request for surrender. If you surrender your Policy, all coverage will automatically terminate and may not be reinstated. Consult your tax advisor to understand tax consequences of any surrender you are considering.
The Surrender Value of your Policy is the amount you can receive by surrendering the Policy. This equals the Total Account Value minus the loan balance including any accrued interest, plus any amount that may be provided by a rider. All or part of the Surrender Value may be applied to one or more of the settlement options.
If we receive a surrender or Partial Surrender request in Good Order at our Administrative Office before the close of the NYSE (normally 4 p.m., Eastern time on a business day), we will process the request using the accumulation unit value computed on that Valuation Date.  If we receive a surrender or Partial Surrender request in our Administrative Office after market close, we will process the request using the accumulation unit value computed on the next Valuation Date.  There may be circumstances under which the NYSE
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may close early (prior to 4 p.m., Eastern time). In such circumstances, surrenders or Partial Surrenders requested after such early market close will be processed using the accumulation unit value computed on the next Valuation Date.
Any surrender results in a withdrawal of values from the Sub-Accounts and Fixed Account that have values allocated to them. Any surrender from a Sub-Account will result in the cancellation of Variable Accumulation Units. The cancellation of such units will be based on the Variable Accumulation Unit Value determined at the close of the Valuation Period during which the surrender is effective. Surrender proceeds will generally be paid within seven days of our receipt of your request.
Partial Surrender
You may make a Partial Surrender, withdrawing a portion of your policy values, anytime after the first Insured Employee Coverage Duration, while the Policy is in force. You must request a Partial Surrender in writing. The total of all Partial Surrenders may not exceed 90% of the Surrender Value of your Policy. We may limit Partial Surrenders to the extent necessary to meet the federal tax law requirements. Each Partial Surrender must be at least $500. Partial Surrenders are subject to other limitations as described below.
Partial Surrenders may reduce the Total Account Value, the death benefit, and the Specified Amount. The amount of the Partial Surrender will be withdrawn from the Sub-Accounts and Fixed Account in proportion to their values. The effect of Partial Surrenders on the Death Benefit Proceeds depends on the death benefit option in effect at the time of the Partial Surrender.
Death Benefit
Option in Effect 		Impact of Partial Surrender
1 Will reduce the Total Account Value, death benefit and the Specified Amount.
2 Will reduce the Total Account Value and the death benefit, but not the Specified Amount.
3 Will reduce the Total Account Value, accumulated Premiums (all Premiums paid from the Date of Issue accumulated at the premium accumulation rate, less any prior withdrawals), death benefit and may reduce the Specified Amount.
Partial Surrender proceeds will generally be paid within seven days of our receipt of your request.
POLICY LOANS
You may borrow against the Surrender Value of your Policy. We reserve the right to limit the amount of your loan so that total Policy Indebtedness will not exceed 90% of an amount equal to the Total Account Value minus the loan balance. A loan agreement must be executed and your Policy assigned to us free of any other assignments. Outstanding Policy Loans and accrued interest reduce the Policy’s death benefit and Total Account Value.
An amount equal to the amount of any loans you take will be withdrawn from the Sub-Accounts and Fixed Account in proportion to their values and transferred to the Loan Collateral Account. The amount allocated to the Loan Collateral Account will always equal the total amount of all loans taken and any interest accrued but not paid on them (the “loan balance”.) Amounts transferred to the Loan Collateral Account do not participate in the performance of the Sub-Accounts or Fixed Account other than as noted below . Unless paid in advance, loan interest will be treated as an additional Policy Loan and added to the loan balance. Amounts equal to due and unpaid interest are also proportionally transferred to the Loan Collateral Account. Loans, therefore, can affect the Policy's death benefit and Accumulation Value whether or not they are repaid. Policy Values in the Loan Collateral Account are part of the Company's General Account.
Your outstanding loan balance may be repaid at any time during the lifetime of the Insured employee. The loan balance will be reduced by the amount of any loan repayment. An amount equal to any repayment will be
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transferred from the Loan Collateral Account and allocated to the Sub-Accounts and Fixed Account in the same proportion in which Net Premium Payments are then being allocated.
If at any time the total Indebtedness against your Policy, including interest accrued but not due, equals or exceeds the then current Total Account Value, the Policy will terminate subject to the conditions in the Grace Period provision. If your Policy lapses while a loan is outstanding, there may be adverse tax consequences.
The annual loan interest rate we charge during any Insured Employee Coverage Duration will be:
• the monthly average (Moody’s Investors Service, Inc. Composite Yield on Corporate Bonds) for the calendar month which ends two months before the month in which the Policy Anniversary occurs, or, if greater,
• 3.5%
This rate may increase only when it would be at least 0.5% higher than the prior Insured Employee Coverage Duration’s rate and decrease only when it would be at least 0.5% lower than the prior Insured Employee Coverage Duration’s rate. We will not change the loan interest rate we charge if the new rate would be less than 0.5% higher or lower than the rate we charged for the prior Insured Employee Coverage Duration.
When you take a loan, we will tell you the current Policy Loan Interest rate. We will tell you in advance of any interest rate change. You must pay interest on the anniversary of the loan, or earlier upon surrender, payment of proceeds, or maturity of a policy. Any unpaid interest is added to the loan and will be taken proportionally from the amount in each funding option.
Amounts in the Loan Collateral Account shall earn interest at a lower rate than the Policy Loan Interest rate. The difference between the rates will never exceed 0.50%.
Please note that there may be adverse tax consequences in the event that your Policy lapses with an outstanding loan balance.
POLICY LAPSE
If at any time the Total Account Value less the Loan Collateral Account value is insufficient to pay the Monthly Deduction, all policy coverage will terminate. This is referred to as Policy Lapse.
The Total Account Value less the Loan Collateral Account value may be insufficient:
1) because it has been exhausted by earlier deductions;
2) as a result of poor investment performance;
3) due to Partial Surrenders;
4) due to Indebtedness for Policy Loans; or
5) because of a combination of any of these factors.
If we have not received your Premium Payment (or payment of Indebtedness on Policy Loans) necessary so that the Total Account Value less the Loan Collateral Account value of your Policy is sufficient to pay the Monthly Deduction amount on a Monthly Deduction day, we will send a written notice to you, or any assignee of record. The notice will state the amount of the Premium Payment (or payment of Indebtedness on Policy Loans) that must be paid to avoid termination of your Policy.
If the amount in the notice is not paid to us within the Grace Period, then the Policy will terminate. The Grace Period is the later of (a) 31 days after the notice was mailed, and (b) 61 days after the Monthly Deduction day on which the Monthly Deduction could not be paid. If the Insured Employee dies during the Grace Period, we will deduct any charges due to us from any death benefit that may be payable under the terms of the Policy.
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Reinstatement of a Lapsed Policy
There is no reinstatement provision for this Policy.
TAX ISSUES
The federal income tax treatment of your Policy is complex and sometimes uncertain. The federal income tax rules may vary with your particular circumstances. This discussion does not include all the federal income tax rules that may affect you and your Policy and is not intended as tax advice. This discussion also does not address other federal tax consequences, such as estate, gift and generation-skipping transfer taxes, or any state and local income, estate and inheritance tax consequences, associated with the Policy. You should always consult a tax advisor about the application of tax rules to your individual situation.
Taxation of Life Insurance Contracts in General
Tax Status of the Policy.  Section 7702 of the Internal Revenue Code of 1986 as amended (“Code”) establishes a statutory definition of life insurance for federal tax purposes. We believe that the Policy will meet the statutory definition of life insurance under one of two tests recognized by the Code. The Guideline Premium Test, which limits Premiums paid depending upon the Insured's age, gender, and risk classification, provides for a maximum amount of Premium paid in relation to the death benefit and a minimum amount of death benefit in relation to policy value. The Cash Value Accumulation Test, which does not limit Premiums paid, requires the Policy to provide a minimum death benefit in relation to the policy value, depending on the Insured's age, gender, and risk classification. Once your Policy is issued, the qualification test elected at Policy issue cannot be changed. As a result, the death benefit payable will generally be excludable from the Beneficiary’s gross income, and interest and other income credited will not be taxable unless certain withdrawals are made (or are deemed to be made) from the Policy prior to the death of the Insured, as discussed below. This tax treatment will only apply, however, if (1) the investments of the Separate Account are “adequately diversified” in accordance with U.S. Treasury Department (“Treasury”) regulations, and (2) we, rather than you, are considered the Owner of the assets of the Separate Account for federal income tax purposes.
Investments in the Separate Account Must be Diversified.  For your Policy to be treated as a life insurance contract for federal income tax purposes, the investments of the Separate Account must be “adequately diversified.” Treasury regulations define standards for determining whether the investments of the Separate Account are adequately diversified. If the Separate Account fails to comply with these diversification standards, you could be required to pay tax currently on the excess of the policy value over the Premium Payments. Although we do not control the investments of the Sub-Accounts, we expect that the Sub-Accounts will comply with the Treasury regulations so that the Separate Account will be considered “adequately diversified.”
Restriction on Investment Options.  Federal income tax law limits your right to choose particular investments for the Policy. Because the IRS has issued little guidance specifying those limits, the limits are uncertain and your right to allocate policy values among the Sub-Accounts may exceed those limits. If so, you would be treated as the Owner of the assets of the Separate Account and thus subject to current taxation on the income and gains from those assets. We do not know what limits may be set by the IRS in any guidance that it may issue and whether any such limits will apply to existing Policies. We reserve the right to modify the Policy without your consent to try to prevent the tax law from considering you as the Owner of the assets of the Separate Account.
No Guarantees Regarding Tax Treatment.  We make no guarantee regarding the tax treatment of any life insurance policy or of any transaction involving a life insurance policy. However, the remainder of this discussion assumes that your Policy will be treated as a life insurance contract for federal income tax purposes and that the tax law will not impose tax on any increase in your policy value until there is a distribution from your Policy.
Tax Treatment of Life Insurance Death Benefit Proceeds.  In general, the amount of the death benefit payable from a life insurance policy because of the death of the Insured is excludable from gross income. Certain transfers of the Policy for valuable consideration, however, may result in a portion of the death benefit being taxable. If the death benefit is not received in a lump sum and is, instead, applied to one of the settlement options, payments generally
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will be prorated between amounts attributable to the death benefit, which will be excludable from the Beneficiary’s income, and amounts attributable to interest (accruing after the Insured’s death) which will be includible in the Beneficiary’s income.
Tax Deferral During Accumulation Period.  Under existing provisions of the Code, except as described below, any increase in your policy value is generally not taxable to you unless amounts are received (or are deemed to be received) from the Policy prior to the Insured’s death. If there is a total withdrawal from the Policy, the Surrender Value will be includible in your income to the extent the amount received exceeds the “investment in the contract.” (If there is any debt at the time of a total withdrawal, such debt will be treated as an amount received by the Owner.) The “investment in the contract” generally is the aggregate amount of Premium Payments and other consideration paid for the Policy, less the aggregate amount received previously to the extent such amounts received were excludable from gross income. Whether Partial Surrenders (or other amounts deemed to be distributed) from the Policy constitute income to you depends, in part, upon whether the Policy is considered a MEC for federal income tax purposes.
Policies That Are MECs
Characterization of a Policy as a Modified Endowment Contract (“MEC”).  A MEC is a life insurance policy that meets the requirements of Section 7702 and fails the “7-Pay Test” of 7702A of the Code. Your Policy will be classified as a MEC if Premiums are paid more rapidly than allowed by the “7-Pay Test,” a test that compares actual paid Premium in the first seven years against a pre-determined Premium amount as defined in 7702A of the Code. Your Policy may also be classified as a MEC if it is received in exchange for another policy that is a MEC. In addition, even if your Policy initially is not a MEC, it may in certain circumstances become a MEC. The circumstances under which your Policy may become a MEC include a material change to your Policy (within the meaning of tax law), a Policy Lapse and reinstatement more than 90 days following the lapse, or a withdrawal or a reduction in the death benefit during the first seven Policy Years.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs.  If your Policy is a MEC, withdrawals from your Policy will be treated first as withdrawals of income and then as a recovery of Premium Payments. Thus, withdrawals will be includible in income to the extent the policy value exceeds the investment in your Policy. The Code treats any amount received as a loan under a policy, and any assignment or pledge (or agreement to assign or pledge) of any portion of your policy value, and any monthly charge for additional benefits that are not qualified additional benefits, as a withdrawal of such amount or portion. The investment in your Policy is increased by the amount includible in income with respect to such assignment, pledge, or loan.
Additional Taxes Payable on Withdrawals.  A 10% additional tax may be imposed on any withdrawal (or any deemed distribution) from your MEC which you must include in your gross income. The 10% additional tax does not apply if one of several exceptions exists. These exceptions include withdrawals or surrenders that: you receive on or after you reach age 59 1/2, you receive because you became disabled (as defined in the tax law), or you receive as a series of substantially equal periodic payments for your life (or life expectancy). None of the additional tax exceptions apply to a taxpayer who is not an individual.
Special Rules if You Own More than One MEC.  In certain circumstances, you must combine some or all of the life insurance contracts which are MECs that you own in order to determine the amount of withdrawal (including a deemed withdrawal) that you must include in income. For example, if you purchase two or more MECs from the same life insurance company (or its affiliates) during any calendar year, the Code treats all such policies as one contract. Treating two or more policies as one contract could affect the amount of a withdrawal (or a deemed withdrawal) that you must include in income and the amount that might be subject to the 10% additional tax described above.
Policies That Are Not MECs
Tax Treatment of Withdrawals.  If your Policy is not a MEC, the amount of any withdrawal from the Policy will generally be treated first as a non-taxable recovery of Premium Payments and then as income from the Policy.
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Thus, a withdrawal from your Policy that is not a MEC will not be includible in income except to the extent it exceeds the investment in the Policy immediately before the withdrawal.
Certain Distributions Required by the Tax Law in the First 15 Policy Years.  Section 7702 places limitations on the amount of Premium Payments that may be made and the policy values that can accumulate relative to the death benefit. Where cash distributions are required under Section 7702 in connection with a reduction in benefits during the first 15 years after the Policy is issued (or if withdrawals are made in anticipation of a reduction in benefits, within the meaning of the tax law, during this period), some or all of such amounts may be includible in income. A reduction in benefits may occur when the face amount is decreased, withdrawals are made, and in certain other instances.
Tax Treatment of Loans.  If your Policy is not a MEC, a loan you receive under the Policy is generally treated as your Indebtedness. As a result, no part of any loan constitutes income to you so long as the Policy remains in force. Nevertheless, in those situations where the interest rate credited to the Loan Collateral Account equals the interest rate charged to you for the loan, such as in the case of an alternative Policy Loan, it is possible that some or all of the loan proceeds may be includible in your income. If your Policy lapses (or if all policy value is withdrawn or exchanged to a new policy in a tax-free policy exchange) when a loan is outstanding, the amount of the loan outstanding will be treated as withdrawal proceeds for purposes of determining whether any amounts are includible in your income.
Other Considerations
Insured Lives Past Age 100.  If the Insured survives beyond the end of the mortality table, which is used to measure charges for the Policy and which ends at age 100, and an option 1 death benefit is in effect, in some circumstances the policy value may equal or exceed the Specified Amount level death benefit. Thus, the policy value may equal the Death Benefit Proceeds. In such a case, we believe your Policy will continue to qualify as life insurance for federal tax purposes. However, there is some uncertainty regarding this treatment, and it is possible that you would be viewed as constructively receiving the Total Account Value in the year the Insured attains age 100.
Compliance with the Tax Law.  We believe that the maximum amount of Premium Payments we have determined for the Policies will comply with the federal tax definition of life insurance. We will monitor the amount of Premium Payments, and, if the Premium Payments during a Policy Year exceed those permitted by the tax law, we will refund the excess Premiums within 60 days of the end of the Policy Year and will pay interest and other earnings (which will be includible in income subject to tax) as required by law on the amount refunded. We may accept alternate instructions from you to prevent your policy from becoming a MEC. We also reserve the right to increase the death benefit (which may result in larger charges under a policy) or to take any other action deemed necessary to maintain compliance of the Policy with the federal tax definition of life insurance.
Disallowance of Interest Deductions.  Interest on Policy Loan Indebtedness is not deductible.
If an entity (such as a corporation or a trust, not an individual) purchases a policy or is the Beneficiary of a policy issued after June 8, 1997, a portion of the interest on Indebtedness unrelated to the Policy may not be deductible by the entity. However, this rule does not apply to a policy owned by an entity engaged in a trade or business which covers the life of 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 Policy. This rule also does not apply to a policy owned by an entity engaged in a trade or business which covers the joint lives of the 20% Owner of the entity and the Owner’s spouse at the time first covered by the Policy.
Employer-Owned Contracts. In the case of an “employer-owned life insurance contract” as defined in the tax law that is issued (or deemed to be issued) after August 17, 2006, the portion of the death benefit excludable from gross income generally will be limited to the premiums paid for the contract. However, this limitation on the death benefit exclusion will not apply if certain notice and consent requirements are satisfied and one of several exceptions is satisfied. These exceptions include circumstances in which the death benefit is payable to certain heirs of the Insured to acquire an ownership interest in a business, or where the contract covers the life of a director or an Insured who is “highly compensated” within the meaning of the tax law. These rules, including the
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definition of an employer-owned life insurance contract, are complex, and you should consult with your advisors for guidance as to their application.
Federal Income Tax Withholding.  We will withhold and remit to the IRS a part of the taxable portion of each distribution made under your Policy unless you notify us in writing at or before the time of the distribution that tax is not to be withheld. Regardless of whether you request that no taxes be withheld or whether the Company withholds a sufficient amount of taxes, you will be responsible for the payment of any taxes and early distribution penalties that may be due on the amounts received. You may also be required to pay penalties under the estimated tax rules, if your withholding and estimated tax payments are insufficient to satisfy your total tax liability.
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 any annuitized distributions that you take from your Policy, but does not apply to any lump sum distribution, Full Surrender, or other non-annuitized distribution. The tax is effective for tax years beginning after December 31, 2012. Please consult your tax advisor to determine whether any distributions you take from your Policy are subject to this tax.
Changes in the Policy or Changes in the Law.  Changing the Owner, exchanging your Policy, and other changes under your Policy may have tax consequences (in addition to those discussed herein) depending on the circumstances of such change. The above discussion is based on the Code, IRS regulations, and interpretations existing on the date of this prospectus. However, Congress, the IRS, and the courts may modify these authorities, sometimes retroactively.
Reportable Policy Sales. Section 6050Y, added to the Code on December 22, 2017, imposes information reporting requirements on the acquirer and issuer in the case of the acquisition, or notice of the acquisition, of an existing life insurance contract in a reportable policy sale. In addition, there is a new reporting requirement on each person who makes a payment of reportable death benefits. A reportable policy sale means the acquisition of an interest in a life insurance contract, directly or indirectly, where the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer’s interest in such life insurance contract. A reportable death benefit means the amount paid by reason of the death of the insured under a life insurance contract that has been transferred in a reportable policy sale.
The IRS and Treasury issued Final Regulations under section 6050Y in 2019. Under the Regulations, compliance with 6050Y is required for any reportable policy sale that occurred after December 31, 2018, and any reportable death benefits paid after December 31, 2018.
Fair Market Value of Your Policy
It is sometimes necessary for tax and other reasons to determine the “value” of your Policy. The value can be measured differently for different purposes. It is not necessarily the same as the Total Account Value or the Net Accumulation Value. You, as the Owner, should consult with your advisors for guidance as to the appropriate methodology for determining the fair market value of your Policy.
Tax Status of Lincoln Life
Under existing federal income tax laws, the Company does not pay tax on investment income and realized capital gains of the Separate Account. However, the Company does expect, to the extent permitted under Federal tax law, to claim the benefit of the foreign tax credit as the Owner of the assets of the Separate Account. Lincoln Life does not expect that it will incur any federal income tax liability on the income and gains earned by the Separate Account. We, therefore, do not impose a charge for federal income taxes. If federal income tax law changes and we must pay tax on some or all of the income and gains earned by the Separate Account, we may impose a charge against the Separate Account to pay the taxes.
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RESTRICTIONS ON FINANCIAL TRANSACTIONS
In accordance with money laundering laws and federal economic sanction policy, the Company may be required in a given instance to reject a Premium Payment and/or freeze an Owner’s account. This means we could refuse to honor requests for transfers, withdrawals, surrenders, loans, assignments, Beneficiary changes or death benefit payments. Once frozen, monies would be moved from the Separate Account to a segregated interest-bearing account maintained for the Owner, and held in that account until instructions are received from the appropriate regulator. We also may be required to provide additional information about an Owner's account to government regulators.
Also, we may postpone payment whenever: (a) the New York Stock Exchange is closed, (b) trading on the New York Stock Exchange is restricted by the SEC, (c) the SEC determines if an emergency exists as a result of which disposal of securities held in the Variable Account is not reasonably practicable or is not reasonably practicable to determine the value of the Variable Account's net assets (d) if, pursuant to SEC rules, an underlying money market fund suspends payment of redemption proceeds in connection with a liquidation of the fund, we may delay payment of any transfer, Partial Surrender, Full Surrender, or death benefit from a money market Sub-Account until the fund is liquidated, or (e) during any other period when the SEC, by order, so permits for the protection of the Owner.
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 regulatory or 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 proceedings, it is reasonably possible that an adverse outcome in certain matters could be material to the Company's operating results for any particular reporting period. Please refer to the Statement of Additional Information for possible additional information regarding legal proceedings.
FINANCIAL STATEMENTS
The December 31, 2019 financial statements of the Separate Account and the December 31, 2019 financial statements of the Company are located in the SAI.
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CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Additional information about Lincoln Life, the Separate Account and your Policy may be found in the Statement of Additional Information (SAI).
Contents of the SAI
GENERAL INFORMATION  
Lincoln Life  
Capital Markets  
Registration Statement  
Changes of Investment Policy  
Principal Underwriter  
Disaster Plan  
Advertising & Ratings  
Unclaimed Property  
SERVICES  
Independent Registered Public Accounting Firm  
Accounting Services  
Transfer Agent  
Administrative Services  
POLICY INFORMATION  
Assignment  
Change of Ownership  
Beneficiary  
Change of Plan  
Settlement Options  
Deferral of Payments  
Incontestability  
Misstatement of Age  
Suicide  
PERFORMANCE DATA  
FINANCIAL STATEMENTS  
Separate Account  
Company  
 
The SAI may be obtained, at no cost to you, by contacting our Administrative Office at the address or telephone number listed on the first page of this prospectus. Your SAI will be sent to you via first class mail within three business days of your request. You may make inquiries about your Policy to this same address and telephone number.
You may request personalized illustrations of death benefits and policy values from your registered representative without charge.
You may review or copy this prospectus, the SAI, or obtain other information about the Separate Account at the Securities and Exchange Commission’s Public Reference Room. You should contact the SEC at (202) 551-8090 to obtain information regarding days and hours the reference room is open. You may also view information at the SEC’s Internet site, http://www.sec.gov. Copies of information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section, Securities and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549-0102.
This prospectus, the Underlying Funds' prospectuses, and the SAI are also available on our internet site, www.LincolnEB.com
LLANY Separate Account S for Flexible Premium Variable Life Insurance
1933 Act Registration No. 333-141769
1940 Act Registration No. 811-09257
End of Prospectus
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GLOSSARY OF TERMS
The following terms may appear in your prospectus and are defined below:
7-Pay Test—A test that compares actual paid Premium in the first seven years against a pre-determined Premium amount as defined in 7702A of the Code.
1933 Act—The Securities Act of 1933, as amended.
1940 Act—The Investment Company Act of 1940, as amended.
Accumulation Value (Total Account Value)—An amount equal to the sum of the Fixed Account Value, the Separate Account Value, and the Loan Account Value.
Administrative Fee—The fee which compensates the Company for administrative expenses associated with policy issue and ongoing policy maintenance including Premium billing and collection, policy value calculation, confirmations, periodic reports and other similar matters.
Attained Age—An Insured’s Issue Age (shown in the Policy Specifications) plus the number of completed Policy Years.
Beneficiary—The person designated to receive the Death Benefit Proceeds.
Case—All in force policies issued within the same company and having the same case name and case number.
Cash Value Accumulation Test—A provision of the Code that requires that the death benefit be sufficient to prevent the Accumulation Value from ever exceeding the net single Premium required to fund the future benefits under the Policy.
Code—Internal Revenue Code of 1986, as amended.
Cost of Insurance Charge—This charge is the portion of the Monthly Deduction designed to compensate the Company for the anticipated cost of paying death benefits in excess of the policy value. It is determined by multiplying the Policy's Net Amount at Risk by the Cost of Insurance Rate.
Death Benefit Proceeds—The amount payable to the Beneficiary upon the death of the Insured, based upon the death benefit option in effect. Loans, loan interest, Partial Surrenders, and overdue charges, if any, are deducted from the Death Benefit Proceeds prior to
payment. Riders may impact the amount payable as Death Benefit Proceeds in your Policy.
Fixed Account—An allocation option under the Policy, which is a part of our General Account, to which we credit a guaranteed minimum interest rate.
Fixed Account Value—An amount equal to the value of amounts allocated or transferred to the Fixed Account, plus interest credited, and less any deductions or Partial Surrenders.
Full Surrender—The withdrawal of all policy values.
Good Order—The actual receipt of the requested transaction in writing (or other form subject to our consent) along with all information and supporting legal documentation necessary to effect the transaction.
Grace Period—The period during which you may make Premium Payments (or repay Indebtedness) to prevent Policy Lapse. That period is the later of (a) 31 days after the notice was mailed, and (b) 61 days after the Monthly Anniversary Day on which the Policy enters the Grace Period.
Guideline Premium Test—A provision of the Code under which the maximum amount of Premium paid in relation to the death benefit and a minimum amount of death benefit in relation to policy value is determined.
Indebtedness—The sum of all outstanding loans and accrued interest.
Insured—The person on whose life the Policy is issued.
Lapse Notice—Written notice to you (or any assignee of record) that your Policy will terminate unless we receive payment of Premiums (or payment of Indebtedness on Policy Loans). The notice will state the amount of Premium Payment (or payment of Indebtedness on Policy Loans) that must be paid to avoid termination of your Policy.
Loan Account (Loan Collateral Account)—The account in which policy Indebtedness accrues once it is transferred out of the Sub-Accounts and/or the Fixed Account. The Loan Account is part of our General Account.
 
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Loan Account Value—An amount equal to any outstanding Policy Loans, including any interest charged on the loans. This amount is held in the Company's General Account.
Market Timing Procedures—Policies and procedures from time to time adopted by us as an effort to protect our Owners and the funds from potentially harmful trading activity.
Modified Endowment Contract (MEC)—A life insurance policy that meets the requirements of Section 7702 and fails the “7-Pay Test” of 7702A of the Code. If the policy is a MEC, withdrawals from your Policy will be treated first as withdrawals of income and then as a recovery of Premium Payments.
Monthly Anniversary Day—The Policy Date and the same day of each month thereafter. If the day that would otherwise be a Monthly Anniversary Day is non-existent for that month, or is not a Valuation Day, then the Monthly Anniversary Day is the next Valuation Day. The Monthly Deductions are made on the Monthly Anniversary Day.
Monthly Deduction—The amount of the monthly charges for the Cost of Insurance Charge, the Administrative Fee, and charges for riders to your Policy.
Net Accumulation Value—An amount equal to the Accumulation Value less the Loan Account Value. 
Net Amount at Risk—The death benefit minus the greater of zero or the Accumulation Value. The Net Amount at Risk may vary with investment performance, Premium Payment patterns, and charges.
Net Premium Payment—An amount equal to the Premium Payment, minus the Premium Load.
Owner—The person or entity designated as Owner in the Policy Specifications unless a new Owner is thereafter named, and we receive written notification of such change.
Partial Surrender—A withdrawal of a portion of your policy values.
Planned Premium—The amount of periodic Premium (as shown in the Policy Specifications) you have chosen to pay the Company on a scheduled basis. This is the amount for which we send a Premium reminder notice.
Policy Anniversary—The same date (month and day) each Policy Year equal to the Policy Date, or the next
Valuation Day if the Policy Anniversary is not a Valuation Day or is nonexistent for the year.
Policy Date—The date (shown on the Policy Specification pages) on which life insurance begins if the necessary Premium has been paid.
Policy Loan—The amount you have borrowed against the Surrender Value of your Policy.
Policy Loan Interest—The charge made by the Company to cover the cost of your borrowing against your Policy.
Policy Lapse—The day on which coverage under the Policy ends as described in the Grace Period.
Policy Month— The period from one Monthly Anniversary Day up to, but not including, the next Monthly Anniversary Day.
Policy Specifications— The pages of the Policy which show your benefits, Premium, costs, and other policy information.
Policy Year—Twelve month period(s) beginning on the Policy Date and extending up to but not including the next Policy Anniversary.
Premium (Premium Payment)—The amount paid to us for a life insurance policy.
Premium Load—A deduction from each Premium Payment which covers certain policy-related state and federal tax liabilities as well as a portion of the sales expenses incurred by the Company.
Reduction in Specified Amount—A decrease in the Specified Amount of your Policy.
Right to Examine Period—The period during which the Policy may be returned to us for cancellation.
SAI—Statement of Additional Information.
SEC—The Securities and Exchange Commission.
Separate Account Value (Variable Accumulation Value)—An amount equal to the values in the Sub-Accounts.
Specified Amount (Initial Specified Amount)—The amount chosen by you which is used to determine the amount of death benefit and the amount of rider benefits, if any. The Specified Amount chosen at the time of issue is the “Initial Specified Amount”. The Specified Amount may be increased or decreased after issue if allowed by and described in the Policy.
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Sub-Account(s)—Divisions of the Separate Account created by the Company to which you may allocate your Net Premium Payments and among which you may transfer Separate Account Values.
Surrender Charge—The charge we may make if you request a Full Surrender of your Policy or request a Reduction in Specified Amount. The Surrender Charge is in part a deferred sales charge and in part a recovery of certain first year administrative costs. A schedule of Surrender Charges is included in each Policy.
Surrender Value—An amount equal to the Net Accumulation Value less any applicable Surrender Charge, less any accrued loan interest not yet charged.
Underlying Fund—The mutual fund the shares of which are purchased for all amounts you allocate or transfer to a Sub-Account.
Valuation Day—Each day on which the New York Stock Exchange is open and trading is unrestricted.
Valuation Period—The time between Valuation Days.
Variable Accumulation Unit—A unit of measure used in the calculation of the value of each Sub-Account.
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SAI 1

 

STATEMENT OF ADDITIONAL INFORMATION (SAI)
Dated May 1, 2020
Relating to Prospectus Dated May 1, 2020 for
Lincoln Corporate Variable 5 product
LLANY Separate Account S for Flexible Premium Variable Life Insurance, Registrant
Lincoln Life & Annuity Company of New York, Depositor
The SAI is not a prospectus. The SAI provides you with additional information about Lincoln Life, the Separate Account and your Policy. It should be read in conjunction with the product prospectus.
A copy of the product prospectus may be obtained without charge by writing to our Administrative Office:
Lincoln Executive Benefits
350 Church Street - MEM4
Hartford, CT 06103-1106
or by telephoning (877) 533-0117, and requesting a copy of the Lincoln NY Corporate Variable 5 product prospectus.
TABLE OF CONTENTS OF THE SAI
 
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GENERAL INFORMATION
Lincoln Life
Lincoln Life & Annuity Company of New York (Lincoln Life, the Company, we, us, our) (EIN 22-0832760), is a stock life insurance company chartered in New Jersey in 1897 and redomesticated to New York on April 2, 2007. It is engaged primarily in the direct issuance of life insurance policies and annuities. Lincoln Life is an indirect wholly owned subsidiary of Lincoln National Corporation (LNC), a publicly held insurance and financial services holding company incorporated in Indiana. Lincoln Life is obligated to pay all amounts promised to Owners under the policies. Death Benefit Proceeds and rider benefits to the extent those proceeds and benefits exceed the then current Accumulation Value of your Policy are backed by the claims-paying ability of Lincoln Life.
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.
Lincoln Life is subject to the laws of New York governing insurance companies and to regulation by the New York State Department of Financial Services (“Insurance Department”). An annual statement in a prescribed form is filed with the Insurance Department each year covering the operation of the Company for the preceding year along with the Company’s financial condition as of the end of that year. Regulation by the Insurance Department includes periodic examination to determine our contract liabilities and reserves. Our books and accounts are subject to review by the Insurance Department at all times and a full examination of our operations is conducted periodically by the Insurance Department. 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. Such regulation does not, however, involve any supervision of management practices or policies, or our investment practices or policies.
On March 2, 1999, the LLANY Separate Account S for Flexible Premium Variable Life Insurance (“Separate Account”) 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 Separate Account 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 Separate Account are, in accordance with the applicable variable life policies, credited to or charged against the Separate Account. They are credited or charged without regard to any other income, gains or losses of Lincoln New York. We are the issuer of the policies and the obligations set forth in the Policy, other than those of the Owner, are ours. The Separate Account satisfies the definition of a separate account under the federal securities laws. We do not guarantee the investment performance of the Separate Account. Any investment gain or loss depends on the investment performance of the funds. You assume the full investment risk for all amounts allocated to the Separate Account.
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.
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Registration Statement
A Registration Statement has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the policies offered. The Registration Statement, its amendments and exhibits, contain information beyond that found in the prospectus and the SAI. Statements contained in the prospectus and the SAI as to the content of policies and other legal instruments are summaries.
Changes of Investment Policy
We may change the investment policy of the Separate Account at any time. If required by the Insurance Commissioner, we will file any such change for approval with the Department of Insurance in our state of domicile, and in any other state or jurisdiction where this Policy is issued.
In the event of a material change in the investment strategy of any Sub-Account, you may transfer the amount in that Sub-Account to any other Sub-Account or the Fixed Account, without a transfer charge, even if the 24 free transfers have already been used. You must exercise this option to transfer within 60 days after the effective date of such a change in the investment strategy of the Sub-Account.
Principal Underwriter
Lincoln Financial Distributors, Inc. (“LFD”), 130 North Radnor Chester Road, Radnor, PA 19087, is the principal underwriter for the policies, which are offered continuously. LFD is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the Financial Industry Regulatory Authority (“FINRA”). The principal underwriter has overall responsibility for establishing a selling plan for the policies. LFD received $192,572 in 2019, $145,664 in 2018 and $201,629 in 2017 for the sale of policies offered through the Separate Account. LFD retains no underwriting commissions from the sale of the policies. The maximum total compensation we pay to any broker-dealer firm in the form of commission or expense reimbursement allowance, inclusive of any bonus incentives, with respect to policy sales is 50% of the first year Premium and 20% of all other Premiums paid.
Disaster Plan
Lincoln's business continuity and disaster recovery strategy employs system and telecommunication accessibility, system back-up and recovery, and employee safety and communication. The plan includes documented and tested procedures that will assist in ensuring the availability of critical resources and in maintaining continuity of operations during an emergency situation.
Advertising & Ratings
We may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Lincoln Life or its 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 Policy and do not refer to the performance of the Policy, or any Separate Account, including the underlying investment options. Ratings are not recommendations to buy our policies. 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 stable for Moody’s, A.M. Best and Standard & Poor’s, and positive for Fitch. Our financial strength ratings, which are intended to measure our ability to meet Owners obligations, are an important factor affecting public confidence in most of our policies and, as a result, our competitiveness. A downgrade of our financial strength rating could affect our competitive position in the insurance industry by making
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it more difficult for us to market our policies 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. The S&P 500 Index (hereinafter “Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by Lincoln Variable Insurance Products Trust and its affiliates (hereinafter “Licensee”).  Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).  The fund(s) are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”).  S&P Dow Jones Indices do not make any representation or warranty, express or implied, to the owners of the funds or any member of the public regarding the advisability of investing in securities generally or in the funds particularly or the ability of the Index to track general market performance.  S&P Dow Jones Indices only relationship to Licensee with respect to the Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors.  The Index is determined, composed and calculated by S&P Dow Jones Indices without regard to Licensee or the funds.  S&P Dow Jones Indices have no obligation to take the needs of Licensee or the owners of the funds into consideration in determining, composing or calculating the Index.  S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of the funds or the timing of the issuance or sale of the funds or in the determination or calculation of the equation by which the funds are to be converted into cash, surrendered or redeemed, as the case may be.  S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the funds. There is no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns.  S&P Dow Jones Indices LLC is not an investment advisor.  Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO.  S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN.  S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.  WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.  THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND LICENSEE, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Unclaimed Property
We have entered into a Global Resolution Agreement with a third party auditor representing multiple states and jurisdictions. Under the terms of the Global Resolution Agreement, the third party auditor has compared expanded matching criteria to the Social Security Master Death File (“SSMDF”) to identify deceased Insureds and policy or contract holders where a valid claim has not been made. We have also entered into a Regulatory Settlement Agreement with multiple states and jurisdictions. The Regulatory Settlement Agreement applies prospectively and requires us to adopt and implement additional procedures comparing our records to the SSMDF to identify unclaimed death benefits and prescribes procedures for identifying and locating Beneficiaries once deaths are identified. Other jurisdictions that are not signatories to the Regulatory Settlement Agreement are conducting
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examinations and audits of our compliance with unclaimed property laws. Any escheatable property identified as a result of the audits and inquiries could result in additional payments of previously unclaimed death benefits or the payment of abandoned funds to U.S. jurisdictions.
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) the financial statements of each of the subaccounts listed in the appendix to the opinion that comprise LLANY Separate Account S for Flexible Premium Variable Life Insurance, as of December 31, 2019, and the related statement of operations and the statements of changes in net assets for each of the periods indicated in the appendix to the opinion; and b) the financial statements of Lincoln Life & Annuity Company of New York as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 as set forth in their reports, 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.
Accounting Services
All accounts, books, records and other documents which are required to be maintained for the Separate Account are maintained by us or by third parties responsible to Lincoln Life. We have entered into an agreement with State Street Bank and Trust Company, 801 Pennsylvania Ave, Kansas City, MO 64105, to provide accounting services to the Separate Account. No separate charge against the assets of the Separate Account is made by us for this service.
Transfer Agent
Andesa Services, Inc., 3435 Winchester Road, Suite 401, Allentown, Pennsylvania, will act as a Transfer Agent on behalf of Lincoln Life as it relates to the policies described in this prospectus. In the role of a Transfer Agent, Andesa will perform administrative functions, such as decreases, increases, Surrenders and Partial Surrenders, fund allocation changes and transfers on behalf of the Company.
Administrative Services
Lincoln Life & Annuity Company of New York is an affiliate of The Lincoln National Life Insurance Company, 1300 South Clinton Street, Fort Wayne, Indiana 46802, which provides administrative services for the policies. The Lincoln National Life Insurance Company receives no compensation from the Separate Account for these services.
POLICY INFORMATION
Assignment
While the Insured Employee is living, you may assign your rights in the Policy, including the right to change the Beneficiary designation. The assignment must be in writing, signed by you and recorded at our Administrative Office. We will not be responsible for any assignment that is not submitted for recording, nor will we be responsible for the sufficiency or validity of any assignment. Any assignment is subject to any indebtedness owed to Lincoln Life at the time the assignment is recorded and any interest accrued on such indebtedness after we have recorded any assignment.
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Once recorded, the assignment remains effective until released by the assignee in writing. As long as an effective assignment remains outstanding, the Owner will not be permitted to take any action with respect to the Policy without the consent of the assignee in writing.
Change of Ownership
As long as the Insured Employee is living, you may name a new Owner by recording a change in ownership in writing at our Administrative Office. The change will be effective the later of the date of execution of the document of transfer or the date we record it. We may require that the Policy be submitted to us for endorsement before making a change.
Beneficiary
The Beneficiary is initially designated on the application and is the person who will receive the Death Benefit Proceeds payable. Multiple Beneficiaries will be paid in equal shares, unless otherwise specified to the Company.
You may change the Beneficiary at any time while the Insured Employee is living, and before the maturity date, except when we have recorded an assignment of your Policy or an agreement not to change the Beneficiary. Any request for a change in the Beneficiary must be in writing, signed by you, and recorded at our Administrative Office. If the Owner has not reserved the right to change the Beneficiary, such a request requires the consent of the Beneficiary. The change will be effective as of the date of signature or, if there is no such date, the date recorded.
If any Beneficiary dies before the Insured Employee, the Beneficiary’s potential interest shall pass to any surviving Beneficiaries, unless otherwise specified to the Company. If no named Beneficiary survives the Insured Employee, any Death Benefit Proceeds will be paid to you, as the Owner, or to your executor, administrator or assignee.
Change of Plan
Within 18 months of the date we issue your Policy, you may exchange your Policy without any evidence of insurability, for any one of the permanent life insurance policies then being issued by the Company which belong to the same class as this Policy. Your request for exchange must be in writing. Unless agreed otherwise, the new policy will have the same initial amount of insurance, Date of Issue and age of the Insured Employee as the original Policy.
Settlement Options
Proceeds will be paid in a lump sum unless you choose a settlement option we make available.
Deferral of Payments
Amounts payable as a result of Policy Loans, Surrenders or Partial Surrenders will be paid within seven calendar days of our receipt of such a request in a form acceptable to us. In the event of a deferral of a surrender, loan or payment of the Death Benefit Proceeds beyond 10 days from receipt of the request, interest will accrue and be paid as required by law. We may defer payment or transfer from the Fixed Account up to six months at our option. If we exercise our right to defer any payment from the Fixed Account, interest will accrue and be paid (as required by law) from the date you would otherwise have been entitled to receive the payment. We will not defer any payment used to pay Premiums on policies with us.
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Incontestability
The Company will not contest your Policy or payment of the Death Benefit Proceeds based on the initial Specified Amount, or an increase in the Specified Amount requiring evidence of insurability, after your Policy or increase has been in force for two years from Date of Issue or increase.
Misstatement of Age
If the age of the Insured Employee is misstated at the time of application, the amount payable upon death will be adjusted to the benefit amount that would have been purchased with the most recent monthly deduction at the correct age.
Suicide
If the Insured Employee dies by suicide, while sane or insane, within two years from the Date of Issue, the Company will pay no more than the sum of the Premiums paid, less any Indebtedness and the amount of any Partial Surrenders. If the Insured Employee dies by suicide, while sane or insane, within two years from the date an application is accepted for an increase in the Specified Amount, the Company will pay no more than a refund of the monthly charges for the cost of the increased amount.
PERFORMANCE DATA
Performance data may appear in sales literature or reports to Owners or prospective buyers.
Past performance cannot guarantee comparable future results. Performance data reflects the time period shown on a rolling monthly basis and is based on Sub-Account level values adjusted for your Policy’s expenses.
Data reflects:
• an annual reduction for fund management fees and expenses, but
• no deductions for additional policy expenses (i.e., Premium Loads, Mortality and Expense Charges, Administrative Fees and Cost of Insurance Charges), which, if included, would have resulted in lower performance.
These charges and deductions can have a significant effect on policy values and benefits. Ask your financial representative for a personalized illustration reflecting these costs.
Sub-Account performance figures are historical and include change in share price, reinvestment of dividends and capital gains and are net of the asset management expenses that can be levied against the Sub-Account.
The Average Annual Returns in the table below are calculated in two ways, one for Money Market Sub-Account, one for all other Sub-Accounts. Both are according to methods prescribed by the SEC.
Money Market Sub-Account:
The Average Annual Return is the income generated by an investment in the Money Market Sub-Account over a seven-day period, annualized. The process of annualizing results when the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment.
The Money Market Sub-Account’s return is determined by:
a) calculating the change in unit value for the base period (the 7-day period ended December 31, of the previous year); then
b) dividing this figure by the account value at the beginning of the period; then
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c) annualizing this result by the factor of 365/7.
Other Sub-Accounts:
The Average Annual Return for each period is determined by finding the average annual compounded rate of return over each period that would equate the initial amount invested to the ending redeemable value for that period, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial purchase payment of $1,000
  T = average annual total return for the period in question
  N = number of years
  ERV = ending redeemable value (as of the end of the period in question) of a hypothetical $1,000 purchase payment made at the beginning of the 1-year, 3-year, 5-year, or 10-year period in question (or fractional period thereof)
The formula assumes that:
(1) all recurring fees have been charged to the Owner’s accounts; and
(2) there will be a complete redemption upon the anniversary of the 1-year, 3-year, 5-year, or 10-year period in question.
In accordance with SEC guidelines, we report Sub-Account performance back to the first date that the fund became available, which could pre-date its inclusion in this product. Where the length of the performance reporting period exceeds the period for which the fund was available, Sub-Account performance will show an “N/A”.
FINANCIAL STATEMENTS
The December 31, 2019 financial statements of the Separate Account and the December 31, 2019 financial statements of the Company follow.
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Supplement Dated May 1, 2020

To the Product Prospectuses Dated May 1, 2020 for:

 

LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK

 

LLANY Separate Account S for Flexible Premium Variable Life Insurance

Lincoln Corporate Variable 5, Lincoln Corporate Commitment® VUL

 

If your financial advisor is a member of M Financial Group:

 

This supplement provides information about four additional funds offered under your policy. A separate funds prospectus supplement for these four funds has also been prepared, and should be presented to you along with this product prospectus supplement. Except as amended by this supplement, all information in your product prospectus applies. The funds and their investment advisers and objectives are listed below.

 

M Fund, Inc., advised by M Financial Investment Advisers, Inc. (MFIA)

 

·                  M Capital Appreciation Fund: Maximum capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

·                  M International Equity Fund: Long-term capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

·                  M Large Cap Growth Fund: Long-term capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

·                  M Large Cap Value Fund: Long-term capital appreciation.

This fund is available only to existing policy holders as of May 18, 2009.  Consult your financial adviser.

 

Please retain this Supplement for future reference.

 

 

Prospectus 2

 

LLANY Separate Account S for Flexible Premium Variable Life Insurance
Lincoln Life & Annuity Company of New York
Home Office Location:
120 Madison Street
Suite 1310
Syracuse, NY 13202
(888) 223-1860
Administrative Office:
Lincoln Executive Benefits
350 Church Street - MEM4
Hartford, CT 06103-1106
(877) 533-0117
 
A Flexible Premium Variable Life Insurance Policy
This prospectus describes Lincoln Corporate Commitment VUL, a flexible premium variable life insurance contract (the “Policy”), offered by Lincoln Life & Annuity Company of New York (“Lincoln Life”, the “Company”, “We”, “Us”, “Our”). This corporate-owned Policy provides for a death benefit on an employee or other individual in whom the corporate owner has an insurable interest (the “Insured Employee”), and policy values that may vary with the performance of the underlying investment options. Read this prospectus carefully to understand the Policy being offered. Remember, you are looking to the financial strength of the Company for fulfillment of the contractual promises and guarantees, including those related to death benefits.
The Policy described in this prospectus is available only in New York.
You, the Owner, may allocate Net Premiums to the variable Sub-Accounts of our Flexible Premium Variable Life Account S, established on March 2, 1999 (“Separate Account”), or to the Fixed Account. Each Sub-Account invests in shares of a certain fund offered by the following fund families. These funds are collectively known as the Elite Series. Comprehensive information on the funds may be found in the funds' prospectuses which is furnished with this prospectus.
• AIM Variable Insurance Funds (Invesco Variable Insurance Funds)
• AllianceBernstein Variable Products Series Fund
• American Century Variable Portfolios II, Inc.
• American Funds Insurance Series®
• BlackRock Variable Series Funds, Inc.
• BlackRock Variable Series Funds II, Inc.
• Delaware VIP® Trust
• Deutsche DWS Variable Series II
• Eaton Vance Variable Trust
• Fidelity® Variable Insurance Products
• Franklin Templeton Variable Insurance Products Trust
• Goldman Sachs Variable Insurance Trust
• Ivy Variable Insurance Portfolios
• JPMorgan Insurance Trust
• Legg Mason Partners Variable Equity Trust
• Lincoln Variable Insurance Products Trust
• MFS® Variable Insurance Trust
• MFS® Variable Insurance Trust II
• MFS® Variable Insurance Trust III
• Neuberger Berman Advisers Management Trust
• Northern Lights Variable Trust
• PIMCO Variable Insurance Trust
• Putnam Variable Trust
• T. Rowe Price Equity Series, Inc.
• Wells Fargo Variable Trust

 

Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, you may not be receiving paper copies of the funds’ shareholder reports from us by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and we will notify you by mail each time a report is posted and will provide you with a website link to access the report. We will also provide instructions for requesting paper copies.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. At any time, you may elect to receive shareholder reports and other communications electronically by following the instructions we have provided.
You may elect to receive all future reports in paper free of charge by informing us that you wish to continue receiving paper copies of your shareholder reports by contacting us at the telephone number listed on the first page of this prospectus. Your election to receive reports in paper will apply to all funds available under your Policy.
Additional information on Lincoln Life, the Separate Account and this Policy may be found in the Statement of Additional Information (the “SAI”). See the last page of this prospectus for information on how you may obtain the SAI.
Certain terms used in this prospectus are defined within the sentences where they appear, within relevant provisions of the prospectus, including footnotes or they may be found in the prospectus Glossary, if one is provided, at the back of the prospectus.
To be valid, this prospectus must have the current funds’ prospectuses with it. Keep all prospectuses for future reference.
The Securities and Exchange Commission has not approved or disapproved these securities or determined this prospectus is accurate or complete. It is a criminal offense to state otherwise.
Prospectus Dated: May 1, 2020

 

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POLICY SUMMARY
Benefits of Your Policy
Death Benefit Protection.  The Policy described in this prospectus is a variable life insurance policy which provides death benefit protection. Variable life insurance is a flexible tool for financial and investment planning for persons needing death benefit protection. It is not meant to be used for speculation, arbitrage, viatical arrangements or other collective investment schemes. The Policy may not be traded on any stock exchange and is not intended to be sold on any secondary market. You should consider other forms of investments if you do not need death benefit protection, as there are additional costs and expenses in providing the insurance. Benefits of the Policy will be impacted by a number of factors discussed in this prospectus, including adverse investment performance and the amount and timing of Premium Payments.
Tax Deferred Accumulation.  Variable life insurance has significant tax advantages under current tax law. Policy values accumulate on a tax-deferred basis. A transfer of values from one Sub-Account to another within the Policy currently generates no current taxable gain or loss. Any investment income and realized capital gains within a Sub-Account, or interest from the Fixed Account, is automatically reinvested without being taxed to the Owner.
Access to Your Policy Values.  Variable life insurance offers access to policy values. You may borrow against your Policy or surrender all or a portion of your Policy. Your Policy can support a variety of personal and business financial planning needs.
Flexibility.  The Policy is a flexible premium variable life insurance contract in which flexible Premium Payments are permitted. You may select death benefit options and policy riders. You may increase or decrease the amount of death benefit. You are able to select, monitor, and change investment Sub-Account choices within your Policy. With the wide variety of investment Sub-Accounts available, it is possible to fine tune an investment mix to meet changing personal objectives or investment conditions. Premium Payments and policy values you choose to allocate to Sub-Accounts are used by us to purchase shares of funds which follow investment objectives similar to the investment objectives of the corresponding Sub-Account. Those funds are referred to in this prospectus as “Underlying Funds”. You should refer to this prospectus and the prospectus for each Underlying Fund for comprehensive information on the Sub-Accounts and the Underlying Funds. You may also allocate Premiums and policy values to the Fixed Account.
Risks of Your Policy
Fluctuating Investment Performance.  Sub-Accounts and policy values in the Sub-Accounts are not guaranteed and will increase and decrease in value according to investment performance of the Underlying Fund. If you put money into the Sub-Accounts, you assume all the investment risk on that money. A comprehensive discussion of each Sub-Account’s objective and risk is found in this prospectus. A comprehensive discussion of each Underlying Fund's objective and risk is found in each Underlying Fund's prospectus. You should review these prospectuses before making your investment decision. Your choice of Sub-Accounts and the performance of the Underlying Funds will impact the Policy's Accumulation Value (may also be referred to in some riders as “Total Account Value”) and will impact how long the Policy remains in force, its tax status, and the amount of Premium you need to pay to keep the Policy in force.
Policy Values in the Fixed Account.  Premium Payments and policy values allocated to the Fixed Account are held in the Company's General Account. Note that there are significant limitations on your right to transfer amounts in the Fixed Account and, due to these limitations, if you want to transfer the entire balance of the Fixed Account to one or more Sub-Accounts, it may take several years to do so. Therefore, you should carefully consider whether the Fixed Account meets your investment needs. We issue other types of insurance policies and financial products as well. In addition to any amounts we are obligated to pay in excess of policy value under the Policy, we also pay our obligations under these products from our assets in the General Account. Moreover, unlike assets held in the Separate Account, the assets of the General Account are subject to the general liabilities of the Company and,
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therefore, to the Company’s General Account creditors. In the event of an insolvency of receivership, payments we make from our General Account to satisfy claims under the Policy would generally receive the same priority as our other Owners’ 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 company’s fulfillment of the contractual promises and guarantees we make to you in the Policy, including those relating to the payment of death benefits. 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.
For more information, please see “Lincoln Life, The Separate Account and The General Account” and “Transfers” sections of this prospectus.
Unsuitable for Short-Term Investment.  This Policy is intended for long-term financial and investment planning for persons needing death benefit protection. It is unsuitable for short-term goals and is not designed to serve as a vehicle for frequent trading.
Policy Lapse.  Sufficient Premiums must be paid to keep your Policy in force. There is a risk of lapse if Premiums are too low in relation to the insurance amount or if investment results of the Sub-Accounts you have chosen are adverse or are less favorable than anticipated. In addition, outstanding Policy Loans and Partial Surrenders will increase the risk of lapse.
Decreasing Death Benefit.  Outstanding Policy Loans or any amounts that you have surrendered will reduce your Policy’s death benefit. Depending upon your choice of death benefit option, adverse performance of the Sub-Accounts you choose may also decrease your Policy's death benefit.
Consequences of Surrender.  Partial Surrenders may reduce the policy value and death benefit, and may increase the risk of lapse. To avoid lapse, you may be required to make additional Premium Payments. Full or Partial Surrenders may result in tax consequences.
Tax Consequences.  You should always consult a tax advisor about the application of federal and state tax rules to your individual situation. The federal income tax treatment of life insurance is complex and current tax treatment of life insurance may change. There are other federal tax consequences such as estate, gift and generation skipping transfer taxes, as well as state and local income, estate and inheritance tax consequences.
Tax Treatment of Life Insurance Contracts.  Your Policy is designed to enjoy the favorable tax treatment afforded life insurance, including the exclusion of death benefits from income tax, the ability to take distributions and loans over the life of your Policy, and the deferral of taxation of any increase in the value of your Policy. If the Policy does fail to qualify, you will be subject to the denial of those important benefits. In addition, if you pay more Premiums than permitted under the federal tax law your Policy may still be life insurance but will be classified as a Modified Endowment Contract (“MEC”) whereby only the tax benefits applicable to death benefits will apply and distributions will be subject to immediate taxation and to an added penalty tax.
Tax Law Compliance.   We believe that the Policy will satisfy the federal tax law definition of life insurance, and we will monitor your Policy for compliance with the tax law requirements. The discussion of the tax treatment of your Policy is based on the current Policy, as well as the current rules and regulations governing life insurance. Please note that changes made to the Policy, as well as any changes in the current tax law requirements, may affect the Policy's qualification as life insurance or may have other tax consequences.
Cyber-Security and Business Interruption Risks. We rely heavily on interconnected computer systems and digital data to conduct our variable products business.  Because our business is highly dependent upon the effective operation of our computer systems and those of our business partners, our business is vulnerable to disruptions from utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions), and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service, attacks on websites and other operational disruption and unauthorized release of confidential
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customer information. Such systems failures and cyber-attacks affecting us, any third-party administrator, the Underlying Funds, intermediaries and other affiliated or third-party service providers may adversely affect us and your policy value. For instance, systems failures and cyber-attacks may interfere with our processing of policy transactions, including the processing of orders from our website or with the Underlying Funds, impact our ability to calculate your policy value, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the Underlying Funds invest, which may cause the funds underlying your Policy to lose policy value. There can be no assurance that we or the Underlying Funds or our service providers will avoid losses affecting your Policy due to cyber-attacks or information security breaches in the future. In addition to cyber security risks, we are subject to business interruption risks caused by catastrophes, both natural and man-made, associated with pandemics, terrorist attacks or inclement weather events. Such events may cause systems upon which we rely to be inaccessible to our employees, customers or business partners for an extended period of time, causing a negative impact on our ability to provide services and products.
Charges and Fees
This section describes the fees and expenses that you will pay when buying, owning or surrendering your Policy. Refer to the “Policy Charges and Fees” section later in this prospectus for more information.
The fees shown in the tables below are the maximums we can charge.
Table I describes the fees and expenses that you will pay at the time you purchase your Policy, surrender your Policy, or transfer policy values between Sub-Accounts.
Table I: Transaction Fees
Charge When Charge
is Deducted 		Amount
Deducted
Maximum sales charge imposed on Premiums When you pay a Premium. 5%.
Maximum Premium Tax When you pay a Premium. 5%
Deferred Acquisition Cost (DAC) Tax When you pay a Premium. 1%
Surrender Charge Upon Full Surrender of your Policy. There is no charge for surrendering your Policy.
Partial Surrender Fee When you take a Partial Surrender of your Policy. There is no charge for a Partial Surrender.
Maximum Fund Transfer Fee Applied to any transfer request in excess of 24 made during any Insured Employee Coverage Duration. $25
Table II describes the fees and expenses that you will pay periodically during the time that you own your Policy, not including the fund operating expenses shown in Table III.
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Table II: Periodic Charges Other Than Fund Operating Expenses
Charge When Charge
is Deducted 		Amount
Deducted
Cost of Insurance* Monthly  
A dollar amount per $1,000 of Net Amount at Risk    
Maximum Charge1   $34.26 per $1,000.
Minimum Charge   $0.00 per $1,000.
Maximum Charge for a Representative Insured Employee: male, age 45, nonsmoker.   $0.22 per $1,000.
Mortality and Expense Risk Charge (“M&E”) Monthly  
A percentage of the value of the Sub-Accounts.    
Maximum Charge   0.50%
Administrative Fee* Monthly  
Flat Fee; plus   $10 in all years
A monthly fee per $1,000 of Specified Amount:    
Maximum Charge   $0.17 per $1,000.
Minimum Charge   $0.00 per $1,000.
Maximum Charge for a Representative Insured Employee: male, age 45.   $0.17 per $1,000.
Policy Loan Interest Annually The greater of 3.5%, or Moody’s Investors Service, Inc. Corporate Bond Yield Average — Monthly Average Corporates for the calendar month which ends two months prior to the Policy Anniversary.
    
Table II: Periodic Charges Other Than Fund Operating Expenses (continued)
Charge When Charge
is Deducted 		Amount
Deducted
Rider Charges   Individualized based on optional Rider(s) selected.
Adjustable Benefit Enhancement Rider N/A There is no charge for this rider.
Change of Insured Rider N/A There is no charge for this rider.
Enhanced Surrender Value Rider N/A There is no charge for this rider.
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Table II: Periodic Charges Other Than Fund Operating Expenses (continued)
Charge When Charge
is Deducted 		Amount
Deducted
Term Insurance Rider* Monthly  
A dollar amount per $1,000 of Net Amount at Risk.    
Maximum Charge1   $34.26 per $1,000.
Minimum Charge   $0.00 per $1,000.
Maximum Charge for a Representative Insured Employee: male, age 45, nonsmoker.   $0.22 per $1,000.
* These charges and costs vary based on individual characteristics. The charges and costs shown in the tables may not be representative of the charges and costs that a particular Owner will pay. You may obtain more information about the particular charges, cost of insurance, and the cost of certain riders that would apply to you by requesting a personalized policy illustration from your registered representative.
1 Individuals with higher mortality risk than standard issue individuals can be charged from 125% to 800% of the standard rate. However, under no circumstances would it be higher than the maximum amount shown in the table above.
Table III shows the annual fund fees and expenses for the year ended December 31, 2019. The fees that are deducted daily from the Underlying Funds in which your Sub-Account invests. The table shows the minimum and maximum total operating expenses charged by the Underlying Funds that you may pay during the time you own your Policy. More detail concerning each Underlying Fund’s fees and expenses is contained in the prospectus for each Underlying Fund.
These fees and expenses may change at any time.
Table III: Total Annual Fund Operating Expenses (expenses that are deducted from fund assets)
Total Annual Operating Expense Maximum Minimum
Total management fees, distribution and/or service (12b-1) fees, and other expenses. 2.27% 1 0.23%
1 The Total Annual Operating Expenses shown in the table do not reflect waivers and reductions. Underlying Funds may offer waivers and reductions to lower their fees. Currently such waivers and reductions range from 0% to 1.35%. These waivers and reductions generally extend through April 30, 2021 but may be terminated at any time by the Underlying Fund. Refer to the Underlying Fund’s prospectus for specific information on any waivers or reductions in effect. The minimum and maximum percentages shown in the table include Fund Operating Expenses of mutual funds, if any, which may be acquired by the Underlying Funds which operate as Fund of Funds. Refer to such Underlying Fund’s prospectus for details concerning Fund Operating Expenses of mutual fund shares acquired by it, if any. In addition, certain Underlying Funds have reserved the right to impose fees when fund shares are redeemed within a specified period of time of purchase (“Redemption Fees”) not reflected in the table above. As of the date of this prospectus, none have done so. Redemption Fees are discussed in the Market Timing section of this prospectus and further information about Redemption Fees is contained in the prospectus for such Underlying Fund, copies of which accompany this prospectus or may be obtained by calling 1-877-533-0117.
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LINCOLN LIFE, THE SEPARATE ACCOUNT AND THE GENERAL ACCOUNT
Lincoln Life & Annuity Company of New York (Lincoln Life, the Company, we, us, our) (EIN 22-0832760), is a stock life insurance company chartered in New Jersey in 1897 and redomesticated in New York on April 2, 2007. It is engaged primarily in the direct issuance of life insurance policies and annuities. Lincoln Life is an indirect wholly owned subsidiary of Lincoln National Corporation (LNC), a publicly held insurance and financial services holding company incorporated in Indiana. Lincoln Life is obligated to pay all amounts promised to owners under the policies. Death Benefit Proceeds and rider benefits to the extent those proceeds and benefits exceed the then current Accumulation Value of your Policy are backed by the claims-paying ability of Lincoln Life. Our claims paying ability is rated from time to time by various rating agencies. Information with respect to our current ratings is available at our website noted below under “How to Obtain More Information.” Those ratings do not apply to the Separate Account, but reflect the opinion of the rating agency companies as to our relative financial strength and ability to meet contractual obligations to owners of our policies. Ratings can and do change from time to time. Additional information about ratings 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.
General Account. 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. The General Account represents all of the general assets of the Company. Our general assets include all assets other than those held in separate accounts which we sponsor. We will invest the assets of the General Account in accordance with applicable law. Additional information concerning laws and regulations applicable to the investment of the assets of the General Account is included in the Statement of Additional Information.
Fixed Account. The Fixed Account assets are general assets of the Company, and are held in the Company’s General Account. Amounts allocated to the Fixed Account are not subject to market fluctuation.
Separate Account. The investment performance of assets in the Separate Account is kept separate from that of the Company’s General Account. Separate Account assets attributable to the Policies are not charged with the general liabilities of the Company. Separate Account income, gains and losses are credited to or charged against the Separate Account without regard to the Company’s other income, gains or losses. The Separate Account’s values and investment performance are not guaranteed. It is registered with the Securities and Exchange Commission (the “SEC” or the “Commission”) as a unit investment trust under the Investment Company Act of 1940 (“1940 Act”) and meets the definition of “separate account.” We may change the investment policy of the Separate Account at any time. If required by the Insurance Commissioner, we will file any such change for approval with the Department of Insurance in our state of domicile.
Our Financial Condition.  As an insurance company, we are required by state insurance regulation to hold a specified amount of reserves in order to meet all the contractual obligations of our General Account to our Owners. In order to meet our claims-paying obligations, we regularly monitor our reserves to ensure we hold sufficient amounts to cover actual or expected policy and claim payments.
State insurance regulators also require insurance companies to maintain a minimum amount of capital in excess of reserves, 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.
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How to Obtain More Information.   We encourage both existing and prospective Owners 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 Separate Account, are located in the Statement of Additional Information. If you would like a free copy of the Statement of Additional Information please contact our Administration Office at the address or telephone number listed on the first page of this prospectus. 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, any unaudited statutory financial statements that may be available as well as ratings information by visiting our website at www.LincolnFinancial.com.
Fund Participation Agreements
In order to make the Underlying Funds available, Lincoln Life has entered into agreements with the Underlying Fund company and their advisors or distributors. In some of these agreements, we must perform certain services for the Underlying Fund advisors or distributors. Such services include, but are not limited to, recordkeeping; aggregating and processing purchase and redemption orders; providing Owners with statements showing their positions within the funds; processing dividend payments; providing sub-accounting services for shares held by Owners; and forwarding shareholder communications, such as proxies, shareholder reports, dividend and tax notices, and printing and delivering prospectuses and updates to Owners. For these administrative functions, we may be compensated at annual rates of between 0% and 0.30% based upon the assets of an Underlying Fund attributable to the Policies. Additionally, an Underlying Fund’s advisor and/or distributor (or its affiliates) may provide us with certain services that assist us in the distribution of the Policies and may pay us and/or certain affiliates amounts to participate in sales meetings. We may also receive compensation for marketing and distribution which may come from 12b-1 fees, or be paid by the advisors or distributors. The Underlying Funds offered by the following trusts or corporations make payments to Lincoln Life under their distribution plans in consideration of the administrative functions Lincoln Life performs: American Century Investments Variable Portfolios, Inc., American Funds Insurance Series, Eaton Vance Variable Trust, Fidelity Variable Insurance Products, Franklin Templeton Variable Insurance Products Trust, Goldman Sachs Variable Insurance Trust, Ivy Variable Insurance Portfolios, Lincoln Variable Insurance Products Trust, Northern Lights Variable Trust, PIMCO Variable Insurance Trust and Wells Fargo Variable Trust.
Payments made out of the assets of an Underlying Fund will reduce the amount of assets that otherwise would be available for investment and will reduce the return on your investment. The dollar amount of future asset-based fees is not predictable because these fees are a percentage of the Underlying Fund’s average net assets, which can fluctuate over time. If, however, the value of the Underlying Fund goes up, then so would the payment to us (or our affiliates). Conversely, if the value of the Underlying Fund goes down, payments to us (or our affiliates) would decrease.
Distribution of the Policies and Compensation
The Policy is distributed by broker-dealer firms through their registered representatives who are appointed as life insurance agents for the Company, subject to the terms of selling agreements entered into by such firms, the Company and the Company’s Principal Underwriter, Lincoln Financial Distributors, Inc. (“LFD”). The Company’s affiliates, Lincoln Financial Advisors Corporation and Lincoln Financial Services Corporation (collectively, “LFN”), have such agreements in effect with LFD and the Company. In addition to compensation for distributing the Policy as described below, the Company provides financial and personnel support to LFD and LFN for operating and other expenses, including amounts used for recruitment and training of personnel, production of literature and similar services.
The maximum total compensation we pay to any broker-dealer firm in the form of commission or expense reimbursement allowance, inclusive of any bonus incentives, with respect to policy sales is 50% of the first year Premium and 20% of all other Premiums paid. The actual amount of such compensation or the timing and manner of its receipt may be affected by a number of factors including: (a) choices the Owner has made at the time of
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application for the Policy, including the choice of riders; (b) the volume of business produced by the firm and its representatives; or (c) the profitability of the business the firm has placed with the Company. Also, in lieu of premium-based commission, equivalent amounts may be paid over time based on Accumulation Value.
In some situations, the broker-dealer may elect to share its commission or expense reimbursement allowance with its registered representatives. Registered representatives of broker-dealer firms may also be eligible for cash bonuses and “non-cash compensation.” “Non-cash compensation”, as defined under FINRA’s rules, includes but is not limited to, merchandise, gifts, marketing support, sponsorships, seminars, entertainment and travel expenses.
Broker-dealers or their affiliates may be paid additional amounts for: (1) “preferred product” treatment of the Policies in their marketing programs, which may include marketing services and increased access to sales representatives; (2) sales promotions relating to the Policies; (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 broker-dealer offers. Loans may be provided to broker-dealers or their affiliates to help finance marketing and distribution of the Policies, and those loans may be forgiven if aggregate sales goals are met. In addition, staffing or other administrative support and services may be provided to broker-dealers who distribute the Policies.
These additional types of compensation are not offered to all broker-dealers. The terms of any particular agreement governing compensation may vary among broker-dealers and the amounts may be significant. The prospect of receiving, or the receipt of, additional compensation may provide broker-dealers and/or their registered representatives with an incentive to favor sales of the Policies over other variable life insurance policies (or other investments) with respect to which a broker-dealer does not receive additional compensation, or receives lower levels of additional compensation. You may ask your registered representative how he/she will personally be compensated, in whole or in part, for the sale of the Policy to you or for any alternative proposal that may have been presented to you. You may wish to take such payments into account when considering and evaluating any recommendation made to you in connection with the purchase of a Policy.
Depending on the particular selling arrangements, there may be others who are compensated for 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 policies. LFD may compensate marketing organizations, associations, brokers or consultants which provide marketing assistance and other services to broker-dealers who distribute the policies, and which may be affiliated with those broker-dealers. Commissions and other incentives or payments described above are not charged directly to Owners or the Separate Account. The potential of receiving, or the receipt of, such marketing assistance or other services and the payment to those who control access or for referrals, may provide broker-dealers and/or their registered representatives an incentive to favor sales of the Policies over other variable life insurance policies (or other investments) with respect to which a broker-dealer does not receive similar assistance or disadvantage issuers of other variable life insurance policies (or other investments) which do not compensate for access or referrals. All compensation is paid from our resources, which include fees and charges imposed on your Policy.
Sub-Accounts and Funds
The variable investment options in the Policy are Sub-Accounts of the Separate Account (“Sub-Accounts”). Each Sub-Account invests in shares in a single Underlying Fund. All amounts allocated or transferred to a Sub-Account are used to purchase shares of the appropriate Underlying Fund. You do not invest directly in these Underlying Funds. The investment performance of each Sub-Account will reflect the investment performance of the Underlying Fund.
We create Sub-Accounts and select the Underlying Funds, the shares of which are purchased by amounts allocated or transferred to the Sub-Accounts, 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
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whether the fund (or an affiliate, investment advisor or distributor of the fund) being evaluated is an affiliate of ours and whether we are compensated for provided administrative, marketing, and/or support services that would otherwise be provided by the fund, its investment advisor or its distributor. Some funds pay us significantly more than others and the amount we receive may be substantial. We often receive more revenue from an affiliated fund than one that is not affiliated with us. These factors give us an incentive to select a fund that yields more revenue, and this is often an affiliated fund.
We review each Underlying Fund periodically after it is selected. Upon review, we may either close a Sub-Account or restrict allocation of additional Premium Payments to a Sub-Account if we determine the Underlying Fund no longer meets one or more of the factors and/or if the Sub-Account has not attracted significant Owner assets. Alternatively, we may seek to substitute another fund which follows a similar investment objective as the Underlying Fund, subject to receipt of applicable regulatory approvals. Finally, when we develop a variable life insurance 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.
A given Underlying Fund may have an investment objective and principal investment strategy similar to those for another fund managed by the same investment advisor or subadvisor. However, because of timing of investments and other variables, there will be no correlation between the two investments. Even though the management strategy and the objectives of the funds are similar, the investment results may vary.
Certain Underlying Funds invest 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”, which may have higher expenses than funds that invest directly in debt or equity securities. An advisor affiliated with us manages some of the available funds of funds. Our affiliates may promote the benefits of such funds to Owners and/or suggest that Owners consider whether allocating some or all of their policy value to such portfolios is consistent with their desired investment objectives. In doing so, we may be subject to conflicts of interest insofar as we may derive greater revenues from the affiliated fund of funds than certain other funds available to you under your Policy.
Certain of the Underlying Funds, including funds managed by an advisor affiliated with us, employ risk management strategies that are intended to control the Underlying Funds’ overall volatility, and for some Underlying Funds, to also reduce the downside exposure of the Underlying Funds during significant market downturns. These funds usually, but not always, have “Managed Risk” or “Managed Volatility” in the name of the fund. These risk management strategies could limit the upside participation of the Underlying Fund in rising equity markets relative to other funds. Also, several of the Underlying Funds may invest in non-investment grade, high-yield, and high-risk debt securities (commonly referred to as “junk bonds”) as detailed in the individual Underlying Fund prospectus. For more information about the Underlying Funds and the investment strategies they employ, please refer to the Underlying Funds’ current prospectuses.
Shares of the Underlying Fund are available to insurance company separate accounts which fund variable annuity contracts and variable life insurance policies, including the Policy described in this prospectus. Because shares are offered to separate accounts of both affiliated and unaffiliated insurance companies, it is conceivable that, in the future, it may not be advantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in these Underlying Funds simultaneously, since the interests of such Owners or contractholders may differ. Although neither the Company nor the Underlying Funds currently foresees any such disadvantages either to variable life insurance or to variable annuity Owners, each Underlying Fund’s Board of Trustees/Directors has agreed to monitor events in order to identify any material irreconcilable conflicts which may possibly arise and to determine what action, if any, should be taken in response thereto. If such a conflict were to occur, the Separate Account might withdraw its investment in an Underlying Fund. This might force that Underlying Fund to sell the securities it holds at disadvantageous prices. Owners will not bear the attendant expense.
There is no assurance that the investment objective of any of the Underlying Funds will be met. You assume all of the investment performance risk for the Sub-Accounts you select. The amount of risk varies significantly among the Sub-Accounts. You should read each Underlying Fund’s prospectus carefully before making investment choices. In
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particular, also please note, 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 Policy fees and expenses, the yields of any Sub-Account investing in a money market fund may become extremely low and possibly negative.
Additional Sub-Accounts and Underlying Funds may be made available in our discretion. The right to select among Sub-Accounts will be limited by the terms and conditions imposed by the Company.
If an Underlying Fund imposes restrictions with respect to the acceptance of premium allocations or transfers, we reserve the right to reject an allocation or transfer request at any time that the Underlying Fund has notified us that such would not be accepted. We will notify you if your allocation or transfer request is or becomes subject to such restrictions.
The Underlying Funds and their investment advisors and objectives are listed below. Comprehensive information on each Underlying Fund, its objectives and past performance may be found in that Underlying Fund’s prospectus or summary prospectus. Prospectuses for each of the Underlying Funds listed below accompany this prospectus and are available by calling 1-877-533-0117 or by referring to the contact information provided by the Underlying Fund’s on the cover page of its summary prospectus.
AIM Variable Insurance Funds (Invesco Variable Insurance Funds), advised by Invesco Advisers, Inc.
• Invesco Oppenheimer V. I. Main Street Small Cap Fund® (Series I Shares): Capital appreciation.
• Invesco V.I. Comstock Fund (Series I Shares): To seek capital growth and income through investments in equity securities, including common stocks, preferred stocks and securities convertible into common and preferred stocks.
• Invesco V.I. Growth and Income Fund (Series I Shares): Long-term growth of capital and income.
AllianceBernstein Variable Products Series Fund, advised by AllianceBernstein, L.P.
• AB VPS Global Thematic Growth Portfolio (Class A): Long-term growth of capital.
• AB VPS Growth and Income Portfolio (Class A): Long-term growth of capital.
This fund is available only to existing Cases as of May 2, 2011. Consult your registered representative.
• AB VPS International Value Portfolio (Class A): Long-term growth of capital.
This fund is available only to existing Cases as of May 1, 2012. Consult your registered representative.
• AB VPS Small/Mid Cap Value Portfolio (Class A): Long-term growth of capital.
American Century Variable Portfolios II, Inc., advised by American Century Investment Management, Inc.
• American Century VP Inflation Protection Fund (Class II): Long-term total return using a strategy that seeks to protect against U.S. inflation.
• American Century VP Mid Cap Value Fund (Class I): Long-term capital growth; income is a secondary objective.
American Funds Insurance Series®, advised by Capital Research and Management Company.
• American Funds Bond Fund (Class 2): To provide as high a level of current income as is consistent with the preservation of capital.
• American Funds Capital Income Builder® (Class 2): Seeks to provide a level of current income that exceeds the average yield on U.S. stocks generally and to provide a growing stream of income over the years.
• American Funds Global Growth Fund (Class 2): Long-term growth of capital.
• American Funds Global Small Capitalization Fund (Class 2): Long-term capital growth.
• American Funds Growth Fund (Class 2): Growth of capital.
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• American Funds Growth-Income Fund (Class 2): Long-term growth of capital and income.
• American Funds High-Income Bond Fund (Class 2): To provide investors with a high level of current income; capital appreciation is the secondary objective.
• American Funds International Fund (Class 2): Long-term growth of capital.
• American Funds U.S. Government/AAA-Rated Securities Fund (Class 2): To provide a high level of current income consistent with preservation of capital.
BlackRock Variable Series Funds, Inc., advised by BlackRock Advisors, LLC
• BlackRock Equity Dividend V.I. Fund (Class I): Long-term total return and current income.
• BlackRock Global Allocation V.I. Fund (Class I): High total investment return.
BlackRock Variable Series Funds II, Inc., advised by BlackRock Advisors, LLC
• BlackRock High Yield V.I. Fund (Class I): To maximize total return, consistent with income generation and prudent investment management.
Delaware VIP® Trust, advised by Delaware Management Company.*
• Delaware VIP® Diversified Income Series (Standard Class): Maximum long-term total return consistent with reasonable risk.
• Delaware VIP® Emerging Markets Series (Standard Class): Long-term capital appreciation.
• Delaware VIP® High Yield Series (Standard Class): Total return and, as a secondary objective, high current income.
This fund is available only to existing Cases as of May 17, 2010. Consult your registered representative.
• Delaware VIP® Limited-Term Diversified Income Series (Standard Class): Maximum total return, consistent with reasonable risk.
• Delaware VIP® REIT Series (Standard Class): Maximum long-term total return, with capital appreciation as a secondary objective.
• Delaware VIP® Small Cap Value Series (Standard Class): Capital appreciation.
• Delaware VIP® Smid Cap Core Series (Standard Class): Long-term capital appreciation.
• Delaware VIP® U. S. Growth Series (Standard Class): Long-term capital appreciation.
• Delaware VIP® Value Series (Standard Class): Long-term capital appreciation.
Deutsche DWS Variable Series II, advised by DWS Investment Management Americas, Inc.
• DWS Alternative Asset Allocation VIP Portfolio (Class A): Capital appreciation; a fund of funds.
Eaton Vance Variable Trust, advised by Eaton Vance Management
• Eaton Vance VT Floating-Rate Income Fund (Initial Class): To provide a high level of current income.
Fidelity® Variable Insurance Products, advised by Fidelity Management & Research Company
• Fidelity® VIP Contrafund® Portfolio (Service Class): Long-term capital appreciation.
• Fidelity® VIP Freedom 2020 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2025 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2030 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
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• Fidelity® VIP Freedom 2035 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2040 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2045 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2050 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2055 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2060 PortfolioSM (Service Class): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom Income PortfolioSM (Service Class): High total return with a secondary objective of principal preservation; a fund of funds.
• Fidelity® VIP Growth Portfolio (Service Class): To achieve capital appreciation.
• Fidelity® VIP Investment Grade Bond Portfolio (Service Class): As high a level of current income as is consistent with the preservation of capital.
• Fidelity® VIP Mid Cap Portfolio (Service Class): Long-term growth of capital.
• Fidelity® VIP Overseas Portfolio (Service Class): Long-term growth of capital.
• Fidelity® VIP Real Estate Portfolio (Service Class): Above average income and long-term capital growth, consistent with reasonable investment risk.
Franklin Templeton Variable Insurance Products Trust, advised by Franklin Advisers, Inc. for the Franklin Income VIP Fund, the Franklin Small-Mid Cap Growth VIP Fund, the Templeton Global Bond VIP Fund, and the Franklin U.S. Government Securities VIP Fund, and by Franklin Mutual Advisers, LLC for the Franklin Mutual Shares VIP Fund.
• Franklin Income VIP Fund (Class 1): To maximize income while maintaining prospects for capital appreciation.
• Franklin Mutual Shares VIP Fund (Class 1): Capital appreciation; income is a secondary consideration.
• Franklin Rising Dividends VIP Fund (Class 1): Long-term capital appreciation; preservation of capital is also an important consideration.
• Franklin Small Cap Value VIP Fund (Class 2): Long-term total return.
• Franklin Small-Mid Cap Growth VIP Fund (Class 1): Long-term capital growth.
• Franklin U.S. Government Securities VIP Fund (Class 1): Income.
• Templeton Global Bond VIP Fund (Class 1): High current income consistent with preservation of capital; capital appreciation is a secondary objective.
Goldman Sachs Variable Insurance Trust, advised by Goldman Sachs Asset Management, L.P.
• Goldman Sachs VIT Global Trends Allocation Fund (Service Shares): Total return while seeking to provide volatility management.
• Goldman Sachs VIT Mid Cap Value Fund (Service Shares): Long-term capital appreciation.
Ivy Variable Insurance Portfolios, advised by Waddell & Reed Investment Management Company.
• Ivy VIP Asset Strategy Portfolio (Class II): Total return.
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JPMorgan Insurance Trust, advised by J.P. Morgan Investment Management Inc.
• JPMorgan Insurance Trust Core Bond Portfolio (Class 1): To maximize total return by investing primarily in a diversified portfolio of intermediate- and long-term debt securities.
• JPMorgan Insurance Trust Global Allocation Portfolio (Class 1): Maximize long-term total return.
• JPMorgan Insurance Trust Income Builder Portfolio (Class 1): Maximize income while maintaining prospects for capital appreciation.
• JPMorgan Insurance Trust Small Cap Core Portfolio (Class 1): Capital growth over the long term.
Legg Mason Partners Variable Equity Trust, advised by LeggMason Partners Fund Advisor, LLC.
• ClearBridge Variable Aggressive Growth Portfolio (Class I): Capital appreciation.
• ClearBridge Variable Mid Cap Portfolio (Class I): Long-term growth of capital.
• ClearBridge Variable Small Cap Growth Portfolio (Class I): Long-term growth of capital.
Lincoln Variable Insurance Products Trust, advised by Lincoln Investment Advisors Corporation.
• LVIP Baron Growth Opportunities Fund (Service Class): Capital appreciation.
• LVIP BlackRock Dividend Value Managed Volatility Fund (Standard Class): Reasonable income by investing primarily in income-producing equity securities.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP BlackRock Global Real Estate Fund (Standard Class): Total return through a combination of current income and long-term capital appreciation.
• LVIP BlackRock Inflation Protected Bond Fund (Standard Class): To maximize real return, consistent with preservation of real capital and prudent investment management.
• LVIP Blended Large Cap Growth Managed Volatility Fund (Standard Class): Long-term growth of capital in a manner consistent with the preservation of capital.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Blended Mid Cap Managed Volatility Fund (Standard Class): Capital appreciation.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP ClearBridge QS Select Large Cap Managed Volatility Fund (Standard Class): Capital appreciation.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Delaware Bond Fund (Standard Class)*: Maximum current income (yield) consistent with a prudent investment strategy.
• LVIP Delaware Diversified Floating Rate Fund (Standard Class)*: Total return.
• LVIP Delaware Mid Cap Value Fund (Standard Class)*: To maximize long-term capital appreciation.
(formerly LVIP Delaware Special Opportunities Fund)
• LVIP Delaware Social Awareness Fund (Standard Class)*: To maximize long-term capital appreciation.
• LVIP Delaware Wealth Builder Fund (Standard Class)*: To provide a responsible level of income and the potential for capital appreciation.
This fund is available only to existing Cases as of May 18, 2009. Consult your registered representative.
• LVIP Dimensional International Equity Managed Volatility Fund (Standard Class): Long-term capital appreciation; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Dimensional U.S. Core Equity 1 Fund (Standard Class): Long-term capital appreciation.
• LVIP Dimensional U.S. Core Equity 2 Fund (Standard Class): Long-term capital appreciation.
• LVIP Dimensional U.S. Equity Managed Volatility Fund (Standard Class): Long-term capital appreciation;
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  a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Dimensional/Vanguard Total Bond Fund (Standard Class): Total return consistent with preservation of capital; a fund of funds.
• LVIP Franklin Templeton Global Equity Managed Volatility Fund (Standard Class): Long-term capital growth.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Franklin Templeton Multi-Asset Opportunities Fund (Standard Class): Long-term growth of capital.
• LVIP Global Conservative Allocation Managed Risk Fund (Standard Class): A high level of current income with some consideration given to growth of capital; a fund of funds.
• LVIP Global Growth Allocation Managed Risk Fund (Standard Class): 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.
• LVIP Global Income Fund (Standard Class): Current income consistent with the preservation of capital.
• LVIP Global Moderate Allocation Managed Risk Fund (Standard Class): A balance between a high level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds.
• LVIP Goldman Sachs Income Builder Fund (Standard Class): To seek a balance of current income and capital appreciation.
• LVIP Government Money Market Fund (Standard Class): Current income while (i) maintaining a stable value of your shares (providing stability of net asset value) and (ii) preserving the value of your initial investment (preservation of capital).
• LVIP JPMorgan High Yield Fund (Standard Class): A high level of current income; capital appreciation is the secondary objective.
• LVIP JPMorgan Retirement Income Fund (Standard Class): Current income and some capital appreciation.
• LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund (Standard Class): Long-term capital appreciation.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP Loomis Sayles Global Growth Fund (Standard Class): To provide investment results over a full market cycle that, before fees and expenses, are superior to an index that tracks global equities.
• LVIP MFS International Growth Fund (Standard Class): Long-term capital appreciation.
• LVIP MFS Value Fund (Standard Class): Capital appreciation.
• LVIP Mondrian International Value Fund (Standard Class): Long-term capital appreciation as measured by the change in the value of fund shares over a period of three years or longer.
• LVIP Multi-Manager Global Equity Managed Volatility Fund (Standard Class): Long-term growth of capital; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP PIMCO Low Duration Bond Fund (Standard Class): To seek a high level of current income consistent with preservation of capital.
• LVIP SSGA Bond Index Fund (Standard Class): To match as closely as practicable, before fees and expenses, the performance of the Barclays Capital U.S. Aggregate Index.
• LVIP SSGA Conservative Index Allocation Fund (Standard Class): A high level of current income, with some consideration given to growth of capital; a fund of funds.
• LVIP SSGA Conservative Structured Allocation Fund (Standard Class): A high level of current income, with some consideration given to growth of capital; a fund of funds.
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• LVIP SSGA Developed International 150 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP SSGA Emerging Markets 100 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP SSGA Emerging Market Equity Index Fund (Standard Class): A balance between current income and growth of capital, with a greater emphasis on growth of capital.
• LVIP SSGA Global Tactical Allocation Managed Volatility Fund (Standard Class): Long-term growth of capital; a fund of funds.
This fund is available only to existing Cases as of May 2, 2016. Consult your registered representative.
• LVIP SSGA International Index Fund (Standard Class): To approximate as closely as practicable, before fees and expenses, the performance of a broad market index of non-U.S. foreign securities.
• LVIP SSGA International Managed Volatility Fund (Standard Class): Capital appreciation; a fund of funds.
This fund is available only to existing Cases as of November 7, 2016. Consult your registered representative.
• LVIP SSGA Large Cap 100 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP SSGA Mid-Cap Index Fund (Standard Class): Seek to approximate as closely as practicable, before fees and expenses, the performance of a broad market index that emphasizes stocks of mid-sized U.S. companies.
• LVIP SSGA Moderate Index Allocation Fund (Standard Class): 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.
• LVIP SSGA Moderate Structured Allocation Fund (Standard Class): A balance between a high level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds.
• LVIP SSGA Moderately Aggressive Index Allocation Fund (Standard Class): A balance between high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds.
• LVIP SSGA Moderately Aggressive Structured Allocation Fund (Standard Class): A balance between high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds.
• LVIP SSGA S&P 500 Index Fund (Standard Class)(1): 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.
• LVIP SSGA Short-Term Bond Index Fund (Standard Class): To provide investment results that, before fees and expenses, correspond generally to the price and yield performance of an index that tracks the short-term U.S. corporate bond market.
• LVIP SSGA Small-Cap Index Fund (Standard Class): To approximate as closely as practicable, before fees and expenses, the performance of the Russell 2000® Index, which emphasizes stocks of small U.S. companies.
• LVIP SSGA Small-Mid Cap 200 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP T. Rowe Price 2010 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2020 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2030 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2040 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
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• LVIP T. Rowe Price 2050 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
• LVIP T. Rowe Price 2060 Fund (Standard Class): The highest total return over time consistent with an emphasis on both capital growth and income; a fund of funds.
This fund will be available on or about May 1, 2020. Consult your registered representative.
• LVIP T. Rowe Price Growth Stock Fund (Standard Class): Long-term capital growth.
• LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Standard Class): To maximize capital appreciation.
• LVIP U.S. Growth Allocation Managed Risk Fund (Standard Class): High level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds.
• LVIP Vanguard Domestic Equity ETF Fund (Standard Class): Long-term capital appreciation; a fund of funds.
• LVIP Vanguard International Equity ETF Fund (Standard Class): Long-term capital appreciation; a fund of funds.
• LVIP Wellington Capital Growth Fund (Standard Class): Capital growth.
• LVIP Wellington Mid-Cap Value Fund (Standard Class): Long-term capital appreciation.
• LVIP Western Asset Core Bond Fund (Standard Class): Maximize total return.
MFS® Variable Insurance Trust, advised by Massachusetts Financial Services Company
• MFS® VIT Growth Series (Initial Class): Capital appreciation.
• MFS® VIT Mid Cap Growth Series (Initial Class): Capital appreciation.
• MFS® VIT New Discovery Series (Initial Class): Capital appreciation.
• MFS® VIT Total Return Bond Series (Initial Class): Total return with an emphasis on current income.
• MFS® VIT Total Return Series (Initial Class): Total return.
• MFS® VIT Utilities Series (Initial Class): Total return.
MFS® Variable Insurance Trust II, advised by Massachusetts Financial Services Company
• MFS® VIT II Technology Portfolio (Initial Class): Capital appreciation.
MFS® Variable Insurance Trust III, advised by Massachusetts Financial Services Company
• MFS® VIT III Mid Cap Value Portfolio (Initial Class): Capital appreciation.
Neuberger Berman Advisers Management Trust, advised by Neuberger Berman Management Inc.
• Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio (I Class): Growth of capital.
Northern Lights Variable Trust, advised by Valmark Advisers, Inc.
• TOPS® Aggressive Growth ETF Portfolio (Class 2 Shares): Capital appreciation.
• TOPS® Balanced ETF Portfolio (Class 2 Shares): Income and capital appreciation; a fund of funds.
• TOPS® Conservative ETF Portfolio (Class 2 Shares): Preserve capital and provide moderate income and moderate capital appreciation.
• TOPS® Growth ETF Portfolio (Class 2 Shares): Capital appreciation.
• TOPS® Moderate Growth ETF Portfolio (Class 2 Shares): Capital appreciation; a fund of funds.
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PIMCO Variable Insurance Trust, advised by PIMCO
• PIMCO VIT CommodityRealReturn® Strategy Portfolio (Administrative Class): Maximum real return, consistent with prudent investment management.
• PIMCO VIT Global Bond Opportunities Portfolio (Unhedged) (Administrative Class): To seek maximum total return, consistent with preservation of capital and prudent investment management.
• PIMCO VIT Real Return Portfolio (Administrative Class): Growth of capital.
• PIMCO VIT Total Return Portfolio (Administrative Class): Maximum total return, consistent with preservation of capital and prudent investment management.
Putnam Variable Trust, advised by Putnam Investment Management, LLC
• Putnam VT Multi-Asset Absolute Return Fund (Class IA): To seek positive total return.
T. Rowe Price Equity Series, Inc., advised by T. Rowe Price Associates, Inc.
• T. Rowe Price Equity Income Portfolio: To provide substantial dividend income as well as long-term growth of capital through investments in the common stocks of established companies.
Wells Fargo Variable Trust, advised by Wells Fargo Funds Management, LLC.
• Wells Fargo VT Discovery Fund (Class 2): Long-term capital appreciation.
* Investments in Delaware VIP Series, Delaware Funds, LVIP Delaware Funds or Lincoln Life accounts managed by Macquarie Investment Management Advisers, a series of Macquarie Investments 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.
(1) The Index to which this fund is managed is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed for use by one or more of the portfolio’s service providers (licensee). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the licensees. S&P®, S&P GSCI® and the Index are trademarks of S&P and have been licensed for use by SPDJI and its affiliates and sublicensed for certain purposes by the licensee. The Index is not owned, endorsed, or approved by or associated with any additional third party. The licensee’s products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or their third party licensors, and none of these parties or their respective affiliates or third party licensors make any representation regarding the advisability of investing in such products, nor do they have any liability for any errors, omissions, or interruptions of the Index.
Sub-Account Availability and Substitution of Funds
We may add, change or eliminate any Underlying Funds that the Separate Account or the Sub-Accounts invest in, subject to state or federal laws and regulations. An Underlying Fund may also discontinue offering their shares to the Sub-Accounts.
We may choose to add or remove Sub-Accounts as investment options under the Policies. If we change any Sub-Accounts or substitute any Underlying Funds, we will make appropriate endorsements to the Policies.
Placing or transferring money into the money market Sub-Account may have impacts on other features of your Policy. Prior to moving money into the money market Sub-Account or allowing it to default into the money market Sub-Account as a result of a fund liquidation, refer to your Policy for specific impacts that may apply, if any. We will notify you of any change that is made.
If we obtain appropriate approvals from Owners and securities regulators, we may:
• Change the investment objective of the Separate Account;
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• Operate the Separate Account as a management investment company, unit investment trust, or any other form permitted under applicable securities laws;
• Deregister the Separate Account; or
• Combine the Separate Account with another Separate Account.
If required by law, we will obtain any required approvals from Owners, the SEC, and state insurance regulators before substituting any Underlying Funds. Substitute Underlying Funds may have higher charges than the Underlying Funds being replaced.
We may close Sub-Accounts to Owners that purchase a new Policy after a specified date, and these Owners may not allocate Net Premium Payments or policy value to the closed Sub-Account. Owners that purchased a Policy prior to the specified date may continue to allocate Net Premium Payments and policy value to the Sub-Account.
From time to time, certain of the Underlying Funds may merge with other funds. If a merger of an Underlying Fund occurs, the policy value allocated to the existing fund will be transferred into the surviving fund. Any future Net Premium Payments allocated to the existing fund will automatically be allocated to the surviving fund unless otherwise instructed by you.
In addition, a Sub-Account may become unavailable due to the liquidation of its Underlying Fund portfolio. To the extent permitted by applicable law, upon notice to you and unless you otherwise instruct us, we will transfer any policy value in the liquidated Underlying Fund to the money market Sub-Account or a Sub-Account investing in another Underlying Fund designated by us. Any future Net Premium Payments allocated to the liquidated fund will automatically be allocated to the money market Sub-Account or a Sub-Account investing in another Underlying Fund designated by us unless otherwise instructed by you.
Voting Rights
The Underlying Funds do not hold regularly scheduled shareholder meetings. When an Underlying Fund holds a special meeting for the purpose of approving changes in the ownership or operation of the Underlying Fund, the Company is entitled to vote the shares held by our Sub-Account in that Underlying Fund. Under our current interpretation of applicable law, you may instruct us how to vote those shares. If the 1940 Act or any other 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.
We will notify you when your instructions are needed and will provide information from the Underlying Fund about the matters requiring the special meeting. We will calculate the number of votes for which you may instruct us based on the amount you have allocated to that Sub-Account, and the value of a share of the corresponding Underlying Fund, as of a date chosen by the Underlying Fund (record date). If we receive instructions from you, we will follow those instructions in voting the shares attributable to your Policy. If we do not receive instructions from you, we will vote the shares attributable to your Policy in the same proportion as we vote other shares based on instructions received from other Owners. Since Underlying Funds may also offer their shares to entities other than the Company, those other entities also may vote shares of the Underlying Funds, and those votes may affect the outcome.
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 shareholders present in person or by proxy which must vote in favor of matters presented. Because shares of the Underlying Fund held in the Separate Account are owned by the Company, and because under the 1940 Act the Company will vote all such shares in the same proportion as the voting instructions which we receive, it is important that each Owner provide their voting instructions to the Company. For funds un-affiliated with Lincoln, even though Owners may choose not to provide voting instructions, the shares of an Underlying Fund to which such Owners would have been entitled to provide voting instructions will be voted by the Company in the same proportion as the voting instructions which we actually receive. For funds affiliated with Lincoln, shares of a fund to which such Owners would have been entitled
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to provide voting instructions will, once we receive a sufficient number of instructions we deem appropriate to ensure a fair representation of Owners eligible to vote, be voted on by the Company in the same proportion as the voting instructions which we actually receive. As a result, the instructions of a small number of Owners could determine the outcome of matters subject to shareholder vote. In addition, because the Company expects to vote all shares of the Underlying Fund which it owns at a meeting of the shareholders of an Underlying Fund, all shares voted by the Company 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.
POLICY CHARGES AND FEES
Policy charges and fees compensate us for providing your insurance benefit, administering your Policy, assuming risks associated with your Policy, and incurring sales related expenses. We may profit from any of these charges, and we may use this profit for any purpose, including covering shortfalls from other charges. Certain charges vary based on “Insured Employee Coverage Duration”, which is each twelve-month period, beginning on the Date of Issue of initial coverage on any Insured Employee.
The current charges for Premium Load and mortality and expense risk vary by specific criteria of your Policy. These criteria include:
    
• the initial policy Premium, and the total Premiums expected to be paid,
• total assets under management with the Company ,
• the purpose for which the Policies are being pur chased,
• the level of plan administration ser vices required.
Differences in charges will not be unfairly discriminatory to any Owners. Specific charges are shown on the Policy Specifications page.
In addition to policy charges, the investment advisor for each of the Underlying Funds deducts a daily charge as a percent of the value in each Underlying Fund as an asset management charge. The charge reflects asset management fees of the investment advisor. Other expenses are incurred by the Underlying Funds (including 12b-1 fees for Class 2 shares and other expenses) and are deducted from Underlying Fund assets as described in the fund prospectus. Values in the Sub-Accounts are reduced by these charges. Future Underlying Fund expenses may vary. Detailed information about charges and expenses incurred by each Underlying Fund is contained in that Underlying Fund’s prospectus.
The Monthly Deductions, including the Cost of Insurance Charges, are deducted proportionately from the value of each of the Sub-Accounts and the Fixed Account unless you or the Company agree otherwise. The Monthly Deductions are made on the “Monthly Anniversary Day,” which is the Date of Issue and the same day of each month thereafter. If the day that would otherwise be a Monthly Deduction Day is non-existent for that month, or is not a Valuation Day, then the Monthly Deduction Day is the next Valuation Day.
If the Net Accumulation Value is insufficient to cover the current Monthly Deduction, you have a 61-day Grace Period to make a payment sufficient to cover that deduction.
Premium Load; Net Premium Payment
We deduct a portion from each Premium Payment. This amount, referred to as “Premium Load,” covers a portion of the sales expenses incurred by the Company and certain policy-related state and federal tax liabilities. The Premium Payment, after deduction of the Premium Load, is called the “Net Premium Payment.” Target Premium is based on the maximum annual Premium allowed under the Internal Revenue Code for a policy which is not a MEC, providing a death benefit equal to the Specified Amount and paying seven level, annual Premiums. See the Tax Issues section later in this prospectus. The Target Premium is shown in the Policy Specifications.
Sales Charge.     The current sales charge ranges are:
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Insured Employee Coverage Duration   Portion of Premium
Paid up to
Target Premium 		  Portion of Premium
Paid greater than
Target Premium
1   3.5%   1%
2   3%   1%
3-4   2%   1%
5-7   1.5%   1%
8+   1%   1%
The sales charge is guaranteed to be no higher than 5% of the total Premium paid in any Insured Employee Coverage Duration.
Premium Tax.     We deduct an explicit premium tax equal to state and municipal premium tax from each Premium Payment.
Deferred Acquisition Cost (DAC) Tax.     We deduct a 1% charge from each Premium Payment to help offset the Company's tax liability associated with the Policy's acquisition costs.
For the purpose of calculating current and maximum Premium Loads, an increase in Specified Amount is treated as a newly issued policy.
Surrender Charges
There are no Surrender Charges for your Policy.
Partial Surrender Fee
There is no Surrender Charge or Administrative Fee imposed on Partial Surrenders.
Transfer Fee
The Company reserves the right to charge $25 for each transfer after the twenty-fourth transfer per Insured Employee Coverage Duration.
In the event that we make a material change in the investment strategy of a Sub-Account, you may transfer the Accumulation Values allocated to that Sub-Account to any other Sub-Account or to the Fixed Account without being charged a fee and may do so even if you have requested 24 transfers during that Policy Year. This option to transfer from a Sub-Account must be exercised within 60 days after the effective date of such change in investment strategy of that Sub-Account. You will be provided with a supplement to your prospectus in the event that such a change is made.
Mortality and Expense Risk Charge
We assess a monthly Mortality and Expense Risk Charge (“M&E”) as a percentage of the Policy's Separate Account Value. The mortality risk assumed is that the Insured Employee may live for a shorter period than we originally estimated. The expense risk assumed is that our expenses incurred in issuing and administering the Policies will be greater than we originally estimated.
Current Mortality and Expense Risk Charges, on an annualized basis, are within the ranges below, based on the level of average annual Planned Premium:
Insured Employee Coverage Duration   Annualized Mortality
Expense Risk Charge
1-10   0.10%-0.30%
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Insured Employee Coverage Duration   Annualized Mortality
Expense Risk Charge
11-20   0.10%-0.15%
21 and after   0.10%
     
The Company reserves the right to increase the Mortality and Expense Risk Charge if it believes that circumstances have changed so that current charges are no longer adequate. In no event will the charge exceed 0.50%.
Cost of Insurance Charge
A significant cost of variable life insurance is the “Cost of Insurance Charge”. This charge is the portion of the Monthly Deduction designed to compensate the Company for the anticipated cost of paying death benefits in excess of the policy value.
The Cost of Insurance Charge for your Policy depends on the current “Net Amount at Risk”. The Net Amount at Risk is the death benefit, without regard to any benefits payable at the Insured's death under any riders, minus the Policy's Accumulation Value. Because the Accumulation Value will vary with investment performance, Premium Payment patterns and charges, the Net Amount at Risk will vary accordingly.
The Cost of Insurance Charge is determined by subtracting the Accumulation Value from the death benefit at the beginning of the Policy Month, and multiplying the result (the “Net Amount at Risk”) by the applicable current cost of insurance rate as determined by the Company. The maximum rates that we may use are found in the guaranteed maximum cost of insurance rate table in your Policy’s specifications. The applicable cost of insurance rate used in this monthly calculation for your Policy depends upon the Policy’s duration, the age, gender (in accordance with state law) and underwriting category of the Insured Employee. Please note that it will generally increase each Policy Year as the Insured Employee ages and are lower for healthy individuals. Current cost of insurance rates, in general, are determined based on our expectation of future mortality, investment earnings, persistency and expenses (including, but not limited to, taxes and reinsurance). For this reason, they may be less than the guaranteed maximum rates shown in the Policy. Accordingly, your monthly Cost of Insurance Charge may be less than the amount that would be calculated using the guaranteed maximum cost of insurance rate shown in the table in your Policy. Also, your monthly Cost of Insurance Charge will never be calculated at a rate higher than the maximum Cost of Insurance Charge shown in “Table II: Periodic Charges Other Than Fund Operating Expenses” in this prospectus.
Administrative Fee
The monthly Administrative Fee as of the date of policy issue is $6.00 per month in all Insured Employee Coverage Durations. The Company may change this fee after the first Insured Employee Coverage Duration based on its expectations of future expenses, but is guaranteed not to exceed $10.00 per month. There is an additional charge per $1,000 of Specified Amount that varies with the Insured Employee's age. This charge will never exceed $0.17 per $1,000 of Specified Amount. This fee compensates the Company for administrative expenses associated with policy issue and ongoing policy maintenance including premium billing and collection, policy value calculation, confirmations, periodic reports and other similar matters.
Policy Loan Interest
If you borrow against your Policy, interest will accrue on the loan balance. The interest rate will be the greater of 3.5%, or Moody’s Investors Service, Inc. Corporate Bond Yield Average – Monthly Average Corporates for the calendar month which ends two months prior to the Policy Anniversary. You may obtain the applicable monthly average at any time by contacting the Company. The interest rate will never exceed the maximum interest rate allowed by law in the state in which the Policy is issued.
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We will notify you of the current Policy Loan Interest rate for this Policy at the time a Policy Loan is taken. If the Policy has a loan balance, we will notify you of any change in the interest rate at least 30 days before the new rate becomes effective.
Rider Charges
The following paragraphs describe the charges for the riders listed below. The features of the riders available with this Policy and any limitations on the selection of riders are discussed in the section headed “Riders”.
Term Insurance Rider.  This optional rider provides term life insurance on the life of the Insured Employee, which is annually renewable to Attained Age 100. There are monthly Cost of Insurance Charges for this rider, based on the Policy duration, and the age and underwriting category of the Insured Employee. We may adjust the monthly rider rate from time to time, but the rate will never exceed the guaranteed cost of insurance rates for the rider for that Policy Year.
Case Exceptions
We reserve the right to reduce Premium Loads or any other charges on certain multiple life sales (“Cases”) where it is expected that the amount or nature of such Cases will result in savings of sales, underwriting, administrative or other costs. Eligibility for these reductions and the amount of reductions will be determined by a number of factors, including but not limited to:
• the number of lives to be insured,
• the total Premiums expected to be paid,
• total assets under management with the Company,
• the nature of the relationship among the Insured individuals,
• the purpose for which the Policies are being purchased,
• expected persistency of the individual policies, and
• any other circumstances which we believe to be relevant to the expected reduction of our expenses.
Some of these reductions may be guaranteed but we may withdraw or modify others on a uniform Case basis. Reductions in charges will not be unfairly discriminatory to any Owners.
YOUR INSURANCE POLICY
Your Policy is a life insurance contract that provides for a death benefit payable on the death of the Insured Employee. The Policy and the application constitute the entire contract between you and Lincoln Life.
The Policy includes Policy Specifications pages, with supporting schedules. These pages and schedules provide important information about your Policy such as: the identity of the Insured Employee and Owner; Date of Issue; the Initial Specified Amount; the death benefit option selected; issue age; named Beneficiary; initial Premium Payment; expense charges and fees; and guaranteed maximum cost of insurance rates.
Note: The Policy Specifications pages (and any specifications pages relating to riders you may purchase) reference certain dates that are very important in understanding when your coverage begins and ends, when certain benefits become available and when certain rights or obligations arise or terminate. Generally, terms such as “Policy Date”, “Effective Date” or “Policy Effective Date” (or “Rider Date”, “Rider Effective Date”) refer to the date that coverage under the Policy (or rider) becomes effective and is the date from which Policy Years, Policy Anniversary and ages are determined. Terms such as “Issue Date” or “Policy Issue Date” (or “Rider Issue Date”) generally refer to when we print or produce the Policy (or rider), but such dates may have importance beyond that date. For example, the period of time we may have to contest a claim submitted in the first couple years of the Policy will typically start on
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the date the Policy is issued and not the date the Policy goes into effect. Please read your Policy carefully and make sure you understand which dates are important and why.
When your Policy is delivered to you, you should review it promptly to confirm that it reflects the information you provided in your application. If not, please notify us immediately.
The Policy is nonparticipating. This means that no dividends are payable to you. In addition, your Policy does not share in the profits or surplus earnings of the Company.
Before purchasing the Policy to replace, or to be funded with proceeds from an existing life insurance policy or annuity, make sure you understand the potential impact. The Insured Employee will need to prove current insurability and there may be a new contestable period for the new Policy. The death benefit and policy values may be less for some period of time in the new Policy.
Once your Policy is in force, the effective date of payments and requests you send us is usually determined by the day and time we receive them.
We cannot process your requests for transactions relating to the Policy until we have received the request in “Good Order” at our Home Office. “Good Order” means the actual receipt of the requested transaction in writing (or other form subject to our consent) along with all information and supporting legal documentation necessary to effect the transaction. 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.
We allow telephone or other electronic transactions when you complete our authorization form and return it to us. Contact our Administrative Office for information on permitted electronic transactions and authorization for electronic transactions.
Any telephone or other electronic transmission, whether it is yours, your service provider’s, your agent’s, or ours, can experience outages or slowdowns for a variety of reasons. Although we have taken precautions to help our systems handle heavy use, we cannot promise complete reliability under all circumstances. If you experience problems, you should send your request in writing to our Administrative Office.
Application
If you decide to purchase a Policy, you must first complete an application. A completed application identifies the proposed Insured Employee and provides sufficient information to permit us to begin underwriting risks in the Policy. We require a medical history and examination of the proposed Insured Employee. Based on our review of medical information about the proposed Insured Employee,  if required, we may decline to provide insurance, or we may place the proposed Insured Employee in a special underwriting category. The monthly Cost of Insurance Charge deducted from the policy value after issue varies depending on the Insured Employee's age, underwriting category, the Policy duration, and the current Net Amount at Risk.
A Policy may only be issued upon receipt of satisfactory evidence of insurability, and generally when the Insured Employee is at least age 18 and at most age 85. Age will be determined by the nearest birthday of the Insured Employee.
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 applies for a Policy. When you apply for a Policy, 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. If this Policy is corporate owned, we may ask for date and state of incorporation.
Owner
The Owner on the date of policy issue is designated in the Policy Specifications. You, as Owner, will make the following choices:
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1) initial death benefit amount and death benefit option;
2) either of two life insurance qualification methods;
3) the amount and frequency of Premium Payments; and
4) the amount of Net Premium Payment to be allocated to the selected Sub-Accounts or the Fixed Account.
You are entitled to exercise rights and privileges of your Policy as long as the Insured Employee is living  and before the maturity date. These rights generally include the power to select the Beneficiary, request Policy Loans, make Partial Surrenders, surrender the Policy entirely, name a new Owner, and assign the Policy. You must inform us of any change in writing. We will record change of Owner and Beneficiary forms to be effective as of the date of the latest signature on the written request. In addition to changes in ownership or Beneficiary designations, you should make certain that our records are up to date with respect to your address and contact information and, to the extent possible, the address and contact information of any Beneficiaries. This will ensure that there are no unnecessary delays in effecting any changes you wish to make, ownership privileges you wish to exercise or payments of proceeds to you or your Beneficiaries. Exercising a change in ownership may cause a taxable event. You should consult a tax advisor prior to exercising a change in ownership to determine the tax consequences of such exercise.
Right to Examine Period
You may return your Policy to us for cancellation within the greater of 45 days after the application is signed or 10 days after you receive it (60 days after receipt for policies issued in replacement of other insurance). This is called the Right to Examine Period. If the Policy is returned for cancellation within the Right to Examine Period, we will refund to you the greater of (a) all Premium Payments less any Indebtedness; or (b) the sum of (i) the Accumulation Value less any Indebtedness, on the date the returned Policy is received by us, plus (ii) any charges and fees imposed under the Policy's terms. If a Premium Payment was made by check, there may be a delay until the check clears.
Any Net Premium Payments received by us within 10 days of the date the Policy was issued will be held in the money market Sub-Account. At the end of that period, it will be allocated to the Sub-Accounts and the Fixed Account, if applicable, which you designated.
Initial Specified Amount
You will select the Initial Specified Amount of death benefit on the application. This may not be less than $100,000. This amount, in combination with a death benefit option, will determine the initial death benefit. The Initial Specified Amount is shown on the Policy Specifications page.
Transfers
You may make transfers among the Sub-Accounts and the Fixed Account, subject to certain provisions. You should carefully consider current market conditions and each Underlying Fund’s objective and investment policy before allocating money to the Sub-Accounts. (Note: Prior to moving money into the money market Sub-Account or allowing it to default into the money market Sub-Account as a result of a fund liquidation, refer to your Policy for specific impacts that may apply, if any.)
Up to 24 transfer requests (a request may involve more than a single transfer) may be made in any Insured Employee Coverage Duration without charge. The Company reserves the right to charge $25 for each transfer request after the twenty-fourth request per Insured Employee Coverage Duration.
We reserve the right to restrict transfers of a portion of the Fixed Account Value to one or more Sub-Accounts to a period within 45 days following the Policy Anniversary. The transfer will be effective as of the next Valuation Period after your request is received by our Administrative Office. The amount of such transfer cannot exceed the greater of 20% of the greatest amount held in the Fixed Account Value during the prior 5 years or $1,000. Due to these
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limitations, if you want to transfer all of your policy value from the Fixed Account to one or more Sub-Accounts, it may take several years to do so.
Requests for transfers must be made in writing, or electronically, if you have previously authorized electronic transfers in writing, subject to our consent. We will use reasonable procedures, such as requiring identifying information from callers, recording telephone instructions, and providing written confirmation of transactions, in order to confirm instructions are genuine. Any instructions, which we reasonably believe to be genuine, will be your responsibility, including losses arising from any errors in the communication of instructions. As a result of this procedure, you will bear the risk of loss. If we do not use reasonable procedures, as described above, we may be liable for losses due to unauthorized instructions.
Any transfer among the Sub-Accounts or to the Fixed Account will result in the crediting and cancellation of accumulation units. This will be based on the accumulation unit values determined after our Administrative Office receives a request in writing or adequately authenticated electronic transfer request. Transfer and financial requests received in Good Order before the close of regular trading on the NYSE (generally 4pm Eastern time on a business day) will normally be effective that day. There may be circumstances under which the NYSE may close before 4pm. In such circumstances transactions requested after such early closing will be processed using the accumulation unit value computed the following trading day.
Some of the Underlying Funds have reserved the right to temporarily or permanently refuse payments or transfer requests from us if, in the judgment of the Underlying Fund's investment advisor, the Underlying 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 Underlying Funds, including any refusal or restriction on purchases or redemptions of the Sub-Account units as a result of the Underlying Funds' own policies and procedures on market timing activities. We may also defer or reject an allocation or transfer request that is subject to a restriction that is imposed by the Underlying Fund at any time. If an Underlying Fund refuses to accept a transfer request we have already processed, we will reverse the transaction within 1-2 business days of the day on which we receive notice of the refusal. We will notify you in writing if we have reversed, restricted or refused any of your transfer requests.
Market Timing
Frequent, large, or short-term transfers among Sub-Accounts and the Fixed Account, such as those associated with “market timing” transactions, can affect the Underlying Funds and their investment returns. Such transfers may dilute the value of the fund shares, interfere with the efficient management of the Underlying Fund's portfolio, and increase brokerage and administrative costs of the Underlying Funds. As an effort to protect our Owners and the Underlying 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 Sub-Accounts and the Fixed Account that may affect other Owners or shareholders.
In addition, the Underlying Funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the Underlying 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 Sub-Accounts. While we reserve the right to enforce these policies and procedures, Owners and other persons with interests under the Policies 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 Underlying Funds. You should note that, these policies and procedures may result in an Underlying Fund deferring or permanently refusing to accept Premium Payments or transfers for the reasons described in “Transfers”, above. In such case, our rights and obligations will be as described in “Transfers”. Some of the Underlying Funds may also impose Redemption Fees on short-term trading (i.e., redemptions of Underlying 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 Underlying
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Funds. You should read the prospectuses of the Underlying Funds for more details on their ability to refuse or restrict purchases or redemptions of their shares.
However, under the SEC rules, we are required to: (1) enter into written agreement with each Underlying Fund or its principal underwriter that obligates us to provide to the Underlying Fund promptly upon request certain information about the trading activity of individual Owners, and (2) execute instructions from the Underlying Fund to restrict or prohibit further purchases or transfers by specific Owners who violate excessive trading policies established by the Underlying Fund.
You should be aware that the purchase and redemption orders received by Underlying Funds generally are “omnibus” orders from intermediaries such as retirement plans or Separate Accounts to which Premium Payments and policy values of variable insurance policies are allocated. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan participants and/or individual Owners of variable insurance policies. The omnibus nature of these orders may limit the Underlying Funds' ability to apply their respective disruptive trading policies and procedures. We cannot guarantee that the Underlying Funds (and thus our Owners) will not be harmed by transfer activity relating to the retirement plans and/or other insurance companies that may purchase the Underlying Funds. In addition, if an Underlying Fund believes that an omnibus order we submit may reflect one or more transfer requests from Owners engaged in disruptive trading activity, the Underlying Fund may reject the entire omnibus order.
Our Market Timing Procedures detect potential “market timers” by examining the number of transfers made by Owners within given periods of time. In addition, managers of the Underlying Funds might contact us if they believe or suspect that there is market timing. If requested by an Underlying Fund company, we may vary our Market Timing Procedures from Sub-Accounts to Sub-Accounts to comply with specific Underlying Fund policies and procedures.
We may increase our monitoring of Owners who we have previously identified as market timers. When applying the parameters used to detect market timers, we will consider multiple policies owned by the same Owner if that Owner has been identified as a market timer. For each Owner, 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 Underlying Funds that may not have been captured by our Market Timing Procedures.
Once an Owner has been identified as a “market timer” under our Market Timing Procedures, we will notify the Owner in writing that future transfers (among the Sub-Accounts and/or the Fixed Account) will be temporarily permitted to be made only by original signature sent to us by U.S. mail, standard delivery for the remainder of the Policy Year. 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 from or on behalf of an Owner who has been identified as a market timer are inadvertently accepted, we will reverse the transaction within 1 - 2 business days of our discovery of such acceptance. We will impose this “original signature” restriction on that Owner even if we cannot identify, in the particular circumstances, any harmful effect from that Owner's particular transfers.
Owners 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 Owners determined to be engaged in such transfer activity that may adversely affect other Owners or Underlying 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 Underlying Fund shares and increased brokerage and administrative costs in the Underlying Funds. This may result in lower long-term returns for your investments.
Our Market Timing Procedures are applied consistently to all Owners. An exception for any Owner will be made only in the event we are required to do so by a court of law. In addition, certain Underlying Funds available as investment options in your Policy may also be available as investment options for Owners of other, older life insurance policies issued by us.
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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 Underlying Funds, we cannot guarantee that the Underlying Funds will not suffer harm from frequent, large, or short-term transfer activity among Sub-Accounts and the Fixed Accounts of variable contracts issued by other insurance companies or among investment options available to retirement plan participants.
In our sole discretion, we may revise our Market Timing Procedures at any time without prior notice as necessary to better detect and deter frequent, large, or short-term transfer activity, to comply with state or federal regulatory requirements, and/or to impose additional or alternate restrictions on market timers (such as dollar or percentage limits on transfers). If we modify our Market Timing Procedures, they will be applied uniformly to all Owners or as applicable to all Owners with policy values allocated to Sub-Accounts investing in particular Underlying Funds. We also reserve the right to implement and administer Redemption Fees imposed by one or more of the Underlying Funds in the future.
Dollar Cost Averaging
Dollar Cost Averaging systematically transfers amounts from the money market Sub-Account. Transfer allocations may be made to one or more of the Sub-Accounts and the Fixed Account on a monthly or quarterly basis. These transfers do not count against the free transfers available. Transfers may be elected at any time while your Policy is in force.
By making allocations on a regularly scheduled basis, instead of on a lump sum basis, you may reduce exposure to market volatility. Dollar Cost Averaging will not assure a profit or protect against a declining market.
You may elect Dollar Cost Averaging on your application, or contact our Administrative Office for information.
Dollar Cost Averaging terminates automatically:
1) if the value in the money market Sub-Account is insufficient to complete the next transfer;
2) one week after our Administrative Office receives a request for termination in writing, with adequate authentication;
3) after 12 or 24 months (as elected on your application); or
4) if your Policy is surrendered.
Automatic Rebalancing
You may elect to participate in Automatic Rebalancing. There is currently no charge for this program.
Automatic Rebalancing periodically restores to a pre-determined level the percentage of policy value allocated to each Sub-Account. The Fixed Account is not subject to rebalancing. The pre-determined level is the allocation initially selected on the application supplement, until changed by the Owner. If Automatic Rebalancing is elected, all Net Premium Payments allocated to the Sub-Accounts will be subject to Automatic Rebalancing.
Automatic Rebalancing provides a method for reestablishing fixed proportions among your allocations to your Sub-Accounts on a systematic basis. Automatic Rebalancing helps to maintain your allocation among market segments, although it entails reducing your policy values allocated to the better performing segments. Therefore, you should carefully consider market conditions and the investment objectives of each Sub-Account and Underlying Fund before electing to participate in Automatic Rebalancing.
You may select Automatic Rebalancing on a quarterly, semi-annual or annual basis. Automatic Rebalancing may be elected, terminated or the allocation may be changed at any time, by contacting our Administrative Office.
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Riders
We may offer you riders to your Policy from time to time. Riders may alter the benefits or charges in your Policy and their election may have tax consequences to you. Also, if you elect a particular rider, it may restrict or enhance the terms of your Policy, or of other riders in force. Consult your financial and tax advisors before adding riders to, or deleting them from, your Policy.
Adjustable Benefit Enhancement Rider.   The Policy can be issued with an Adjustable Benefit Enhancement Rider. This rider provides additional Surrender Value on a temporary basis for a minimum of seven years after the Policy is issued. The Owner chooses the level of Surrender Value enhancement to be provided, up to a maximum amount determined by the Company. See the sections headed “Requested Adjustable Benefit Enhancement Amount” and “Maximum Adjustable Benefit Enhancement Amount” for more information.
The greater the amount of additional Surrender Value provided by this rider each year, the shorter the duration of the benefit. The amount of additional Surrender Value provided by this rider decreases each year and eventually equals zero. See section headed “Adjustable Benefit Enhancement Balance” for more information.
The maximum enhanced Surrender Value provided by this rider is based on the Policy’s face amount, but the benefit is not increased or decreased by any term insurance that may be added to the Policy. See section headed “Term Blend Adjustment Factor” for more information.
This rider must be elected at application, may not be available on all policies, and is subject to underwriting criteria. It may not be elected if you have elected the Enhanced Surrender Value Rider.
Under this rider, the Full Surrender Value of the Policy will equal:
1) the policy value on the date of surrender; less
2) the sum of the loan balance plus any accrued interest not yet charged; plus
3) the adjustable benefit enhancement amount, if any.
Adjustable Benefit Enhancement Amount.   On each Policy Anniversary, this amount will equal the lesser of a. or b., where:
a) is the requested adjustable benefit enhancement amount; and
b) is the maximum adjustable benefit enhancement amount.
This amount will remain level throughout the Insured Employee Coverage Duration, unless a Partial Surrender has been made since the preceding Policy Anniversary. If a Partial Surrender is made, the adjustable benefit enhancement amount will be recalculated to reflect changes to the maximum adjustable benefit enhancement amount.
Requested Adjustable Benefit Enhancement Amount.   At policy issue, the Owner selects a percentage of the available adjustable benefit enhancement balance. The selected percentage determines the adjustable benefit enhancement amount. The requested adjustable benefit enhancement amount will equal:
1) the percentage of the available adjustable benefit enhancement balance selected by the Owner; multiplied by
2) the available adjustable benefit enhancement balance.
Maximum Adjustable Benefit Enhancement Amount.   This is the maximum amount available upon Full Surrender of the Policy during the Insured Employee Coverage Duration. The amount will equal:
1) the maximum adjustable benefit enhancement rate as determined by the Company; multiplied by
2) the adjustable benefit enhancement balance, less the amount of Partial Surrenders since the preceding Policy Anniversary, if any; multiplied by
3) the Term Blend Adjustment Factor.
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Maximum Adjustable Benefit Enhancement Rate.   This rate may be changed at any time while this rider is in effect if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing, but is guaranteed to be at least 2% in any Insured Employee Coverage Duration.
The current maximum adjustable benefit enhancement rates and guaranteed minimum adjustable benefit enhancement rates are:
Insured Employee Coverage Duration   Current Rate   Guaranteed Rate
1   11%   2%
2   19.6%   2%
3   27.7%   2%
4   35.4%   2%
5   53.2%   2%
6   66.1%   2%
7+   100%   2%
Adjustable Benefit Enhancement Balance.   This is the basis for the total amount of the adjustable benefit enhancement amount available upon Full Surrender of the Policy. On each Monthly Deduction day, the balance will be calculated as:
1) the adjustable benefit enhancement balance on the preceding Monthly Deduction day; minus
2) the adjustable benefit enhancement deduction amount; minus
3) the amount of any Partial Surrenders since the preceding Monthly Deduction day, if any; plus
4) the equivalent interest on items 1, 2 and 3, calculated at an annual interest rate of 3%.
The duration of the benefit depends on the requested adjustable benefit enhancement amount chosen by the Owner. A requested adjustable benefit enhancement amount less than the maximum will extend the duration of the benefit. Unless terminated under this rider’s provisions, the benefit will last for a minimum of seven years. This rider provides no benefits after the adjustable benefit enhancement deductions reduce the adjustable benefit enhancement amount to zero.
On the Date of Issue of the rider, the adjustable benefit enhancement balance will be the lesser of a) or b), where:
a) is the sum of Premiums paid on the Date of Issue of the Policy; and
b) is the Target Premium for the Insured Employee Coverage Duration, as shown in the Policy Specifications. If a term insurance rider is attached to your Policy, the Target Premium will be multiplied by the ratio of the target face amount to the basic Policy Specified Amount for use here; this information is also shown in the Policy Specifications.
The initial adjustable benefit enhancement balance will not be increased or decreased by any term insurance that may be added through another rider.
Adjustable Benefit Enhancement Deduction Amount.   This is the amount of adjustable benefit enhancement that was available in the previous Insured Employee Coverage Duration. The adjustable benefit enhancement balance will be permanently decreased by this amount each Insured Employee Coverage Duration. For the Monthly Deduction day coinciding with the Policy Anniversary, this deduction amount is equal to the lesser of a. or b., where:
a) is the requested adjustable benefit enhancement amount; and
b) is the maximum adjustable benefit enhancement amount.
For other Monthly Deduction days, the deduction amount will be zero.
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Term Blend Adjustment Factor.   This factor is equal to 1.0 unless a term insurance rider is attached to your Policy. If a term insurance rider is attached to your Policy, the Term Blend Adjustment Factor will equal (1) plus (2) multiplied by (3) where :
1) is the minimum adjustment factor, as shown in the Policy Specifications;
2) is one minus the minimum adjustment factor; and
3) is the ratio of the basic Policy Specified Amount to the target face amount.
If term insurance is added to the Policy, the Term Blend Adjustment Factor will reduce the maximum adjustable benefit enhancement amount, and limit the amount of benefit available under this rider, as though no term insurance is in force. If no term insurance is added to the Policy, the Term Blend Adjustment Factor will have no effect on the maximum adjustable benefit enhancement amount. Therefore, the benefit provided by this rider is not increased or decreased by any term insurance that may be added to the Policy.
This rider will terminate without value on the date of any change in, or assignment of, ownership rights to the Policy for the purpose of effecting an exchange for another policy under Section 1035 of the Internal Revenue Code. In the event of a Section 1035 exchange, the adjustable benefit enhancement amount will not be payable.
The rider otherwise terminates on the earliest of:
1) the death of the Insured, or
2) the maturity date of the Policy, as shown in the Policy Specifications; or
3) the date this Policy is terminated, as provided under the Grace Period provision of the Policy; or
4) the next Monthly Deduction day after we receive your written request to terminate this rider.
Change of Insured Rider.  With this rider, you may name a new Insured Employee in place of the current Insured Employee. Underwriting and policy value requirements must be met. There is no separate charge for this rider. Policy charges applicable to the new Insured Employee may differ from charges applicable to the current Insured Employee. Exercising the Change of Insured Rider is a fully taxable event.
Enhanced Surrender Value Rider.  This rider is no longer available for new sales. This rider was generally elected at application and was offered with all Policies described in this prospectus. Availability of the rider was subject to underwriting requirements for total Premiums expected to be paid, and other underwriting criteria. It could not be elected if you have elected the Adjustable Benefit Enhancement Rider or the Load Amortization Rider. It may be added after the Date of Issue of the Policy only with Lincoln’s consent. There is no cost for this rider.
This rider provides two additional benefits:
(a) Surrender Value benefit: an extra benefit in the event of a Full Surrender of the Policy, and
(b) expense reduction benefit: a reduction in expense charges and fees in the Policy.
A. Surrender Value benefit:
Under this rider, the Full Surrender Value of the Policy will equal:
(a) the policy value on the date of surrender; less
(b) the loan balance plus any accrued interest; plus
(c) the Surrender Value benefit.
The Surrender Value enhancement benefit is an amount equal to the lesser of (a) or (b), where:
(a) is the Target Enhancement Amount; and
(b) is the Maximum Enhancement Amount.
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Target Enhancement Amount.  On any Monthly Deduction Day, the Target Enhancement Amount is equal to the Target Surrender Value less the Accumulation Value of the Policy. For purposes of this rider, if the Target Enhancement Amount is negative, it will be considered to be zero.
Target Surrender Value.  On each Monthly Deduction day, the Target Surrender Value will be calculated as (1), plus (2), plus (3), minus (4), where:
(1) is the Target Surrender Value on the immediately preceding Monthly Deduction day.
(2) is all Premiums received since the immediately preceding Monthly Deduction day.
(3) is monthly equivalent interest on items (1) and (2) calculated using the annual Target Yield rate shown on Target Yield rate table.
(4) is the amount of any Partial Surrenders since the immediately preceding Monthly Deduction day.
On the Date of Issue, the Target Surrender Value will be the initial Premium received. On any day other than the Date of Issue or a Monthly Deduction day, the Target Surrender Value will be the Target Surrender Value as of the preceding Monthly Deduction day, plus all Premiums received and less any Partial Surrenders taken since the preceding Monthly Deduction day.
Target Yield.  The Target Yield is not guaranteed and may be changed at any time if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing this life insurance product. The current annual Target Yield rates are:
Insured Employee
Coverage Duration 		  Target
Yield Rate 		  Insured Employee
Coverage Duration 		  Target
Yield Rate
1   7%   7   4%
2   7%   8   3%
3   7%   9   2%
4   6%   10   1%
5   5.5%   11+   0%
6   5%        
The Target Yield rate will not exceed 15% in any Insured Employee Coverage Duration.
Maximum Enhancement Amount.  The Maximum Enhancement Amount is equal to the Cumulative Surrender Value Premium times the maximum enhancement rate for any Insured Employee Coverage Duration times the term blend adjustment factor.
Cumulative Surrender Value Premium.  The Cumulative Surrender Value Premium for any Insured Employee Coverage Duration is the lesser of (a) or (b), where:
(a) Is the sum of the Premiums paid during the Insured Employee Coverage Duration; less the sum of any Partial Surrenders during the Insured Employee Coverage Duration; and
(b) Is the Target Premium for the Insured Employee Coverage Duration; times the ratio of the target face amount to the basic Policy Specified Amount if a term insurance rider is attached to this Policy.
During the first Insured Employee Coverage Duration, the Cumulative Surrender Value Premium for all prior Insured Employee Coverage Durations is zero.
Maximum Enhancement Rate.  The Maximum Enhancement Rate is not guaranteed and may be changed at any time if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing this life insurance product. The current annual Maximum Enhancement Rates are:
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Insured Employee
Coverage Duration 		  Maximum
Enhancement Rate 		  Insured Employee
Coverage Duration 		  Maximum
Enhancement Rate
1   16%   7   5%
2   15%   8   3%
3   15%   9   2%
4   12%   10   1%
5   9%   11+   0%
6   7%        
The Maximum Enhancement Rate will not exceed 25% in any Insured Employee Coverage Duration.
Term Blend Adjustment Factor.  The Term Blend Adjustment Factor is equal to 1.0 unless a term insurance rider is attached to the Policy. If a term insurance rider is attached to this Policy, the Term Blend Adjustment Factor will equal the minimum adjustment factor plus one minus the minimum adjustment factor times the ratio of the basic Policy Specified Amount to the target face amount shown in the Policy Specifications. The current value of the minimum adjustment factor is shown in the Policy Specifications.
B. Expense reduction benefit.
In Insured Employee Coverage Durations six through ten, this rider will provide a reduction to the expense charges deducted under the Policy. This amount is equal to the following:
Insured Employee
Coverage Duration 		  Expense Reduction Amount
6-10   The lesser of (a) or (b) where:
 
(a) is the expense reduction rate times the accumulated premiums paid for Insured Employee Coverage Durations one through five; and
 
(b) is the expense charges due under the Policy.
There is no expense reduction in Insured Employee Coverage Durations 1 through 5 or in Insured Employee Coverage Duration 11 and beyond.
Expense Reduction Rate.  The Expense Reduction Rate is not guaranteed and may be changed at any time if future expectations in investment earnings, persistency and/or expenses (including taxes) differ from assumptions made in pricing this life insurance product. The current expense reduction rates are:
Insured Employee
Coverage Duration 		  Monthly Expense
Reduction Rate 		  Insured Employee
Coverage Duration 		  Monthly Expense
Reduction Rate
1   0%   7   0.00833%
2   0%   8   0.00833%
3   0%   9   0.00833%
4   0%   10   0.00833%
5   0%   11+   0%
6   0.00833%        
The Expense Reduction Rate will not exceed an annual rate of 5% in any Insured Employee Coverage Duration.
If this rider is elected, in lieu of the Monthly Deduction as described in the Policy, the Monthly Deduction for a Policy Month beginning in Insured Employee Coverage Duration 6 will be calculated as (1) plus (2) less the expense reduction amount, where:
(1) is the cost of insurance for the base Policy and the cost of any supplemental riders or optional benefits, and
(2) is the monthly Administrative Fee for the base Policy.
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This rider will terminate without value in the event that this Policy is exchanged for another under §1035 of the Internal Revenue Code.
This rider otherwise terminates on the earliest of:
(1) the death of the Insured Employee; or
(2) the maturity date of this Policy; or
(3) the date this Policy ends; or
(4) the next Monthly Deduction day after we receive your written request to terminate this rider.
Term Insurance Rider.  The Policy can be issued with a term insurance rider as a portion of the total death benefit. The rider provides term life insurance on the life of the Insured Employee, which is annually renewable to Attained Age 100. This rider will continue in effect unless canceled by the Owner. The amount of coverage provided under the rider’s benefit amount varies from month to month.
The benefit amount is the target face amount minus the basic Policy Specified Amount. Refer to your Policy Specifications for the benefit amount.
The cost of the rider is added to the Monthly Deductions, and is based on the Insured Employee’s premium class, issue age and the number of Insured Employee Coverage Durations elapsed. We may adjust the monthly rider rate from time to time, but the rate will never exceed the guaranteed cost of insurance rates for the rider for that Policy Year.
The rider’s death benefit is included in the total death benefit paid under the Policy.
This rider is no longer available after May 1, 2018.
Continuation of Coverage
Coverage of this Policy will continue to the maturity date if your Surrender Value is sufficient to cover each Monthly Deduction. The maturity date for this Policy is the Policy Anniversary nearest the Insured Employee’s 100th birthday. As of the maturity date, the death benefit will be equal to the Surrender Value.
Paid-Up Nonforfeiture Option
You may elect, any time prior to the maturity date, to continue this Policy as paid-up life insurance. The effective date of the paid-up insurance will be the Monthly Deduction day following the receipt of your written request at our Administrative Office. As of the effective date:
• the Specified Amount will be the amount which the Surrender Value will purchase as a net single Premium at the Insured Employee’s then Attained Age, using the guaranteed interest and mortality basis of the original Policy (this may not exceed the death benefit),
• no further Premium Payments, Monthly Deductions, interest credits or changes in coverage may be made,
• we will transfer the Separate Account Value to the Fixed Account Value, and
• all extra benefit riders will terminate.
Coverage Beyond Maturity
At any time prior to the maturity date of this Policy, you may, by written request, elect to continue coverage beyond the maturity date. Any extra benefit riders will be terminated on the maturity date.
If elected, the following will apply:
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• we will transfer the value of the Separate Account to the Fixed Account,
• we will credit interest on the policy value,
• where permitted by law we will continue to charge you Monthly Deductions, except we will not charge you any cost of insurance,
• loan interest on any loans outstanding on the maturity date will continue to accrue,
• the death benefit will be equal to the policy value and the Death Benefit Proceeds will be the policy value less any Indebtedness.
This provision is not available if you select the Paid-Up Non-Forfeiture Option. Also, the Paid-Up Non-Forfeiture Option will not be available when the coverage beyond maturity provision takes effect.
At this time, uncertainties exist about the tax treatment of the Policy if it should continue beyond the maturity date. Therefore, you should consult your tax advisor before the Policy becomes eligible for coverage beyond maturity.
Termination of Coverage
All policy coverage terminates on the earliest of:
1) Full Surrender of the Policy;
2) death of the Insured Employee;
3) failure to pay the necessary amount of Premium to keep your Policy in force; or
4) the maturity date, unless coverage beyond maturity is elected.
Loan interest will continue to accrue on any outstanding loans.
State Regulation
New York regulations will govern whether or not certain features, riders, charges and fees will be allowed in your Policy.
PREMIUMS
You may select and vary the frequency and the amount of Premium Payments and the allocation of Net Premium Payments. After the initial Premium Payment is made there is no minimum Premium required except to keep the Policy in force. Premium Payments may be required from time to time in order to insure that the Net Accumulation Value of the Policy is sufficient to pay the Monthly Deductions. Otherwise, the Policy will lapse. (See the “Lapse and Reinstatement” section of this prospectus.) Premiums may be paid anytime before the Insured Employee reaches age 100, subject to our right to limit the amount or frequency of additional Premium Payments. (See the “Planned Premiums; Additional Premiums” section of this prospectus.)
The initial Premium must be paid for policy coverage to be effective. This payment must be equal to or exceed the amount necessary to provide for two Monthly Deductions.
Allocation of Net Premium Payments
Your Net Premium Payment is the portion of a Premium Payment remaining, after deduction of the Premium Load. The Net Premium Payment is available for allocation to the Sub-Accounts or the Fixed Account.
You first designate the allocation of Net Premium Payments among the Sub-Accounts and Fixed Account on a form provided by us for that purpose. Net Premium Payments will be allocated on the same basis as the initial Net
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Premium Payment unless we are instructed otherwise, in writing or electronically. You may change the allocation of Net Premium Payments among the Sub-Accounts and Fixed Account at any time.
The percentages of Net Premium Payments allocated to the Sub-Accounts and Fixed Account must be in whole percentages and must total 100%. We credit Net Premium Payments to your Policy as of the end of the Valuation Period in which it is received in Good Order at our Administrative Office. Premium Payments received from you or your broker-dealer in Good Order at our Administrative Office prior to the close of the NYSE (normally 4:00 p.m., Eastern time on a business day), will be processed using the accumulation unit value computed on that Valuation Date. Premium Payments received in Good Order after market close will be processed using the accumulation unit value computed on the next Valuation Date. Premium Payments submitted to your registered representative will generally not be processed by us until they are received from your representative’s broker-dealer. Premium Payments placed with your broker-dealer after market close will be processed using the accumulation unit value computed on the next Valuation Date. There may be circumstances under which the NYSE may close early (prior to 4:00 p.m., Eastern time). In such instances, Premium Payments received after such early market close will be processed using the accumulation unit value computed on the next Valuation Date.
The Valuation Period is the time between Valuation Days. A Valuation Day is every day on which the New York Stock Exchange is open and trading is unrestricted. Your policy values are calculated on every Valuation Day.
Planned Premiums; Additional Premiums
Planned Premiums are the amount of periodic Premium (as shown in the Policy Specifications) you choose to pay the Company on a scheduled basis. This is the amount for which we send a Premium reminder notice. Premium Payments may be billed annually, semi-annually, quarterly, or monthly.
In addition to any Planned Premium, you may make additional Premium Payments. These additional payments must be sent directly to our Administrative Office, and will be credited when received by us.
You may increase Planned Premiums, or pay additional Premiums, subject to certain limitations. We reserve the right to limit the amount or frequency of additional Premium Payments. You may decrease Planned Premiums. However, doing so will impact your policy values and may impact how long your Policy remains in force.
We may require evidence of insurability if any payment of additional Premium (including Planned Premium) would increase the difference between the death benefit and the Accumulation Value. If we are unwilling to accept the risk, your increase in Premium will be refunded without interest.
We may decline any additional Premium (including Planned Premium) or a portion of a Premium that would cause total Premium Payments to exceed the limit for life insurance under federal tax laws. Our test for whether or not your Policy exceeds the limit is referred to as the Guideline Premium Test or, if you so elected at the time you applied for the Policy, the Cash Value Accumulation Test. The excess amount of Premium will be returned to you. We may accept alternate instructions from you to prevent your Policy from becoming a MEC. Refer to the section headed “Tax Issues” for more information.
Life Insurance Qualification
A policy must satisfy either of two testing methods to qualify as a life insurance contract for tax purposes under Section 7702 of the Internal Revenue Code (“Code”). At the time of purchase, you may choose either the Guideline Premium Test or the Cash Value Accumulation Test.
The Guideline Premium Test limits the amount of Premiums that may be paid into the Policy in relation to the death benefit and requires a minimum amount of death benefit in relation to policy value. The death benefit that results from the Guideline Premium Test is usually less than the amount of death benefit that results from the Cash Value Accumulation Test.
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The Cash Value Accumulation Test does not limit the amount of Premiums that may be paid into the Policy, as long as there is enough death benefit in relation to policy value at all times. The minimum death benefit that is required in relation to policy value depends on the Insured Employee’s age, gender, and risk classification.
Both tests require increases in death benefit as policy value increases. Increases in the minimum death benefit required under the Cash Value Accumulation Test are usually greater than those required under the Guideline Premium Test. Increases in the death benefit required by either test will increase the cost of insurance under the Policy, which can reduce policy value. Refer to your Policy Specifications page for the limits applicable to your Policy.
Discuss this choice with your financial representative and tax advisor before purchasing the Policy. Once your Policy is issued, the qualification method cannot be changed.
Policy Values
Policy value in your variable life insurance policy is also called the “Accumulation Value”.
The Accumulation Value equals the sum of the Fixed Account Value, the Separate Account Value, and the loan balance. At any point in time, the Accumulation Value reflects:
1) Net Premium Payments made;
2) the amount of any Partial Surrenders;
3) any increases or decreases as a result of market performance of the Sub-Accounts;
4) interest credited to the Fixed Account or the Loan Collateral Account; and
5) all charges and fees deducted.
The Separate Account Value, if any, is the portion of the Accumulation Value attributable to the Separate Account. This value is equal to the sum of the current values of all the Sub-Accounts in which you have invested. The current value of each Sub-Account is determined by multiplying the number of Variable Accumulation Units credited or debited to that Sub-Account with respect to this Policy by the Variable Accumulation Unit Value of that Sub-Account for such Valuation Period.
The “Variable Accumulation Unit” is a unit of measure used in the calculation of the value of each Sub-Account. It may increase or decrease from one Valuation Period to the next. The Variable Accumulation Unit Value for a Sub-Account for a Valuation Period is determined as follows:
1) the total value of Underlying Fund shares held in the Sub-Account is calculated by multiplying the number of Underlying Fund shares owned by the Sub-Account at the beginning of the Valuation Period by the net asset value per share of the fund at the end of the Valuation Period, and adding any dividend or other distribution of the Underlying Fund made during the Valuation Period; minus
2) the liabilities of the Sub-Account at the end of the Valuation Period. Such liabilities include daily charges imposed on the Sub-Account, and may include a charge or credit with respect to any taxes paid or reserved for by Lincoln Life that we determine result from the operations of the Separate Account; and
3) the result of (1) minus (2) is divided by the number of Variable Accumulation Units for that Sub-Account outstanding at the beginning of the Valuation Period.
In certain circumstances, and when permitted by law, we may 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.
The daily charge imposed on a Sub-Account for any Valuation Period is equal to the daily Mortality and Expense Risk Charge multiplied by the number of calendar days in the Valuation Period.
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The Fixed Account Value, if any, reflects amounts allocated or transferred to the Fixed Account, plus interest credited, and less any deductions or Partial Surrenders. Fixed Account principal is not subject to market fluctuation and interest is credited at an annual rate of  but not less than 3%.
The Loan Collateral Account, if any, reflects  amounts held as collateral on any outstanding Policy Loans, including any interest charged on the loans. This amount is held in the Company’s General Account. Amounts transferred to the loan balance do not participate in the performance of the Sub-Accounts or the Fixed Account. We do not guarantee the loan balance. The loan balance will earn interest at an annual rate of but not less than 3%.
We will notify you of the current Policy Loan Interest rate for this Policy at the time a Policy Loan is taken. If the Policy has a loan balance, we will notify you of any change in the interest rate before the new rate becomes effective.
The interest earned by the loan balance will be added to the Fixed Account Value and the Separate Account Value in the same proportion in which the loan amount was originally deducted from these values.
The “Net Accumulation Value” is the Accumulation Value less the loan balance. It represents the net value of your Policy and is the basis for calculating the Surrender Value.
Annual Statement
We will tell you at least annually the Accumulation Value, the number of accumulation units credited to your Policy, current accumulation unit values, Sub-Account values, the Fixed Account Value and the loan balance. We strongly suggest that you review your statements to determine whether additional Premium Payments may be necessary to avoid lapse of your Policy.
DEATH BENEFITS
The Death Benefit Proceeds is the amount payable to the Beneficiary upon the death of the Insured Employee, based upon the death benefit option in effect. Loans, loan interest, and overdue charges, if any, are deducted from the Death Benefit Proceeds prior to payment.
Death Benefit Options
Three different death benefit options are available. Regardless of which death benefit option you choose, the Death Benefit Proceeds payable will be the greater of:
1) the amount determined by the death benefit option in effect on the date of the death of the Insured Employee, or
2) a percentage of the Accumulation Value equal to that required by the Internal Revenue Code to maintain the Policy as a life insurance policy. This is also called the minimum required death benefit, and will vary depending on the life insurance qualification method you have chosen for your Policy.
Death Benefit Proceeds under either calculation will be reduced by any loan balance plus any accrued interest, and any overdue deductions.
The following table provides more information about the death benefit options.
Option Death Benefit Proceeds Equal to the Variability
1 Specified Amount, which includes the Accumulation Value as of the date of the Insured Employee’s death. Generally provides a level death benefit
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Option Death Benefit Proceeds Equal to the Variability
2 Sum of the Specified Amount plus the Accumulation Value as of the date of the Insured Employee’s death. May increase or decrease over time, depending on the amount of Premium paid and the investment performance of the underlying Sub-Accounts or the Fixed Account.
3 Specified Amount plus the accumulated Premiums (all Premiums paid from the Date of Issue accumulated at the Premium accumulation rate chosen by you before policy issue and shown in the Policy Specifications pages), less withdrawals as of the date of the Insured Employee’s death. Will generally increase, depending on the amount of Premium paid.
If your Policy includes a term insurance rider, the target face amount replaces the Specified Amount in each of the death benefit options.
If for any reason the Owner does not elect a particular death benefit option, Option 1 will apply until changed by the Owner.
Changes to the Initial Specified Amount and Death Benefit Options
Within certain limits, you may decrease or, with satisfactory evidence of insurability, increase the Specified Amount. The minimum Specified Amount is currently $100,000.
The death benefit option may be changed by the Owner, subject to our consent, as long as the Policy is in force.
You must submit all requests for changes among death benefit options and changes in the Specified Amount in writing to our Administrative Office. If you request a change, a supplemental application and evidence of insurability must also be submitted to us.
Option change Impact
1 to 2 The new Specified Amount will equal the Specified Amount prior to the change minus the Accumulation Value at the time of the change.
2 to 1 The new Specified Amount will equal the Specified Amount prior to the change plus the Accumulation Value at the time of the change.
1 to 3 Changes from Option 1 to Option 3 are not allowed.
3 to 1 The new Specified Amount will equal the Specified Amount prior to the change plus the accumulated Premiums, less withdrawals (all Premiums paid from the Date of Issue accumulated at the Premium accumulation rate chosen by you before policy issue and shown in the Policy Specifications pages), at the time of the change.
2 to 3 Changes from Option 2 to Option 3 are not allowed.
3 to 2 Changes from Option 3 to Option 2 are not allowed.
Any Reductions in Specified Amount will be made against the Initial Specified Amount and any later increase in the Specified Amount on a last in, first out basis. Changes in Specified Amount do not affect the Premium Load as a percentage of Premium.
We may decline any request for change of the death benefit option or Reduction in Specified Amount if, after the change, the Specified Amount would be less than the minimum Specified Amount or would reduce the Specified Amount below the level required to maintain the Policy as life insurance for purposes of federal income tax law.
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Any change is effective on the first Monthly Deduction day on, or after, the date of approval of the request by Lincoln Life. If the Monthly Deduction amount would increase as a result of the change, the change will be effective on the first Monthly Deduction day on which the Accumulation Value is equal to, or greater than, the Monthly Deduction amount.
Death Benefit Proceeds
Proof of death should be furnished to us at our Administrative Office as soon as possible after the death of the Insured Employee. This notification must include a certified copy of an official death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death, or any other proof satisfactory to us.
After receipt at our Administrative Office of proof of death of the Insured Employee, the Death Benefit Proceeds will ordinarily be paid within seven days. The proceeds will be paid in a lump sum or in accordance with any settlement option selected by the Owner or the Beneficiary. Payment of the Death Benefit Proceeds may be delayed if your Policy is contested or if Separate Account Values cannot be determined.
Every state has unclaimed property laws which generally declare property, including monies owed (such as death benefits) to be abandoned if unclaimed or uncashed after a period of three to five years from the date the property is intended to be delivered or date the death benefit is due and payable. For example, if the payment of a death benefit has been triggered and, if after 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 paid to the abandoned property division or unclaimed property office of the state in which the Beneficiary or the Owner 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 contact us and update your Beneficiary designations, including addresses, if and as they change.
POLICY SURRENDERS
You may surrender your Policy at any time by sending us your Policy along with a written request for surrender. If you surrender your Policy, all coverage will automatically terminate and may not be reinstated. Consult your tax advisor to understand tax consequences of any surrender you are considering.
The Surrender Value of your Policy is the amount you can receive by surrendering the Policy. This equals the Accumulation Value minus the loan balance including any accrued interest, plus any amount that may be provided by a rider. All or part of the Surrender Value may be applied to one or more of the settlement options.
If we receive a surrender or Partial Surrender request in Good Order at our Administrative Office before the close of the NYSE (normally 4 p.m., Eastern time on a business day), we will process the request using the accumulation unit value computed on that Valuation Date.  If we receive a surrender or Partial Surrender request in our Administrative Office after market close, we will process the request using the accumulation unit value computed on the next Valuation Date.  There may be circumstances under which the NYSE may close early (prior to 4 p.m., Eastern time). In such circumstances, surrenders or Partial Surrenders requested after such early market close will be processed using the accumulation unit value computed on the next Valuation Date.
Any surrender results in a withdrawal of values from the Sub-Accounts and Fixed Account that have values allocated to them. Any surrender from a Sub-Account will result in the cancellation of Variable Accumulation Units. The cancellation of such units will be based on the Variable Accumulation Unit Value determined at the close of the Valuation Period during which the surrender is effective. Surrender proceeds will generally be paid within seven days of our receipt of your request.
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Partial Surrender
You may make a Partial Surrender, withdrawing a portion of your policy values, anytime after the first Insured Employee Coverage Duration, while the Policy is in force. You must request a Partial Surrender in writing. The total of all Partial Surrenders may not exceed 90% of the Surrender Value of your Policy. We may limit Partial Surrenders to the extent necessary to meet the federal tax law requirements. Each Partial Surrender must be at least $500. Partial Surrenders are subject to other limitations as described below.
Partial Surrenders may reduce the Accumulation Value, the death benefit, and the Specified Amount. The amount of the Partial Surrender will be withdrawn from the Sub-Accounts and Fixed Account in proportion to their values. The effect of Partial Surrenders on the Death Benefit Proceeds depends on the death benefit option in effect at the time of the Partial Surrender.
Death Benefit
Option in Effect 		Impact of Partial Surrender
1 Will reduce the Accumulation Value, death benefit and the Specified Amount.
2 Will reduce the Accumulation Value and the death benefit, but not the Specified Amount.
3 Will reduce the Accumulation Value, accumulated Premiums (all Premiums paid from the Date of Issue accumulated at the premium accumulation rate, less any prior withdrawals), death benefit and may reduce the Specified Amount.
Partial Surrender proceeds will generally be paid within seven days of our receipt of your request.
POLICY LOANS
You may borrow against the Surrender Value of your Policy. We reserve the right to limit the amount of your loan so that total Policy Indebtedness will not exceed 90% of an amount equal to the Accumulation Value minus the loan balance. A loan agreement must be executed and your Policy assigned to us free of any other assignments. Outstanding Policy Loans and accrued interest reduce the Policy’s death benefit and Accumulation Value.
An amount equal to the amount of any loans you take will be withdrawn from the Sub-Accounts and Fixed Account in proportion to their values and transferred to the Loan Collateral Account. The amount allocated to the Loan Collateral Account will always equal the total amount of all loans taken and any interest accrued but not paid on them (the “loan balance”.) Amounts transferred to the Loan Collateral Account do not participate in the performance of the Sub-Accounts or Fixed Account other than as noted below . Unless paid in advance, loan interest will be treated as an additional Policy Loan and added to the loan balance. Amounts equal to due and unpaid interest are also proportionally transferred to the Loan Collateral Account. Loans, therefore, can affect the Policy's death benefit and Accumulation Value whether or not they are repaid. Policy Values in the Loan Collateral Account are part of the Company's General Account.
Your outstanding loan balance may be repaid at any time during the lifetime of the Insured employee. The loan balance will be reduced by the amount of any loan repayment. An amount equal to any repayment will be transferred from the Loan Collateral Account and allocated to the Sub-Accounts and Fixed Account in the same proportion in which Net Premium Payments are then being allocated.
If at any time the total Indebtedness against your Policy, including interest accrued but not due, equals or exceeds the then current Accumulation Value, the Policy will terminate subject to the conditions in the Grace Period provision. If your Policy lapses while a loan is outstanding, there may be adverse tax consequences.
The annual loan interest rate we charge during any Insured Employee Coverage Duration will be:
• the monthly average (Moody’s Investors Service, Inc. Composite Yield on Corporate Bonds) for the calendar month which ends two months before the month in which the Policy Anniversary occurs, or, if greater,
• 3.5%
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This rate may increase only when it would be at least 0.5% higher than the prior Insured Employee Coverage Duration’s rate and decrease only when it would be at least 0.5% lower than the prior Insured Employee Coverage Duration’s rate. We will not change the loan interest rate we charge if the new rate would be less than 0.5% higher or lower than the rate we charged for the prior Insured Employee Coverage Duration.
When you take a loan, we will tell you the current Policy Loan Interest rate. We will tell you in advance of any interest rate change. You must pay interest on the anniversary of the loan, or earlier upon surrender, payment of proceeds, or maturity of a policy. Any unpaid interest is added to the loan and will be taken proportionally from the amount in each funding option.
Amounts in the Loan Collateral Account shall earn interest at a lower rate than the Policy Loan Interest rate. The difference between the rates will never exceed 0.50%.
Please note that there may be adverse tax consequences in the event that your Policy lapses with an outstanding loan balance.
POLICY LAPSE
If at any time the Accumulation Value less the Loan Collateral Account value is insufficient to pay the Monthly Deduction, all policy coverage will terminate. This is referred to as Policy Lapse.
The Accumulation Value less the Loan Collateral Account value may be insufficient:
1) because it has been exhausted by earlier deductions;
2) as a result of poor investment performance;
3) due to Partial Surrenders;
4) due to Indebtedness for Policy Loans; or
5) because of a combination of any of these factors.
If we have not received your Premium Payment (or payment of Indebtedness on Policy Loans) necessary so that the Accumulation Value less the Loan Collateral Account value of your Policy is sufficient to pay the Monthly Deduction amount on a Monthly Deduction day, we will send a written notice to you, or any assignee of record. The notice will state the amount of the Premium Payment (or payment of Indebtedness on Policy Loans) that must be paid to avoid termination of your Policy.
If the amount in the notice is not paid to us within the Grace Period, then the Policy will terminate. The Grace Period is the later of (a) 31 days after the notice was mailed, and (b) 61 days after the Monthly Deduction day on which the Monthly Deduction could not be paid. If the Insured Employee dies during the Grace Period, we will deduct any charges due to us from any death benefit that may be payable under the terms of the Policy.
Reinstatement of a Lapsed Policy
There is no reinstatement provision for this Policy.
TAX ISSUES
The federal income tax treatment of your Policy is complex and sometimes uncertain. The federal income tax rules may vary with your particular circumstances. This discussion does not include all the federal income tax rules that may affect you and your Policy and is not intended as tax advice. This discussion also does not address other federal tax consequences, such as estate, gift and generation-skipping transfer taxes, or any state and local income, estate and inheritance tax consequences, associated with the Policy. You should always consult a tax advisor about the application of tax rules to your individual situation.
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Taxation of Life Insurance Contracts in General
Tax Status of the Policy.  Section 7702 of the Internal Revenue Code of 1986 as amended (“Code”) establishes a statutory definition of life insurance for federal tax purposes. We believe that the Policy will meet the statutory definition of life insurance under one of two tests recognized by the Code. The Guideline Premium Test, which limits Premiums paid depending upon the Insured's age, gender, and risk classification, provides for a maximum amount of Premium paid in relation to the death benefit and a minimum amount of death benefit in relation to policy value. The Cash Value Accumulation Test, which does not limit Premiums paid, requires the Policy to provide a minimum death benefit in relation to the policy value, depending on the Insured's age, gender, and risk classification. Once your Policy is issued, the qualification test elected at Policy issue cannot be changed. As a result, the death benefit payable will generally be excludable from the Beneficiary’s gross income, and interest and other income credited will not be taxable unless certain withdrawals are made (or are deemed to be made) from the Policy prior to the death of the Insured, as discussed below. This tax treatment will only apply, however, if (1) the investments of the Separate Account are “adequately diversified” in accordance with U.S. Treasury Department (“Treasury”) regulations, and (2) we, rather than you, are considered the Owner of the assets of the Separate Account for federal income tax purposes.
Investments in the Separate Account Must be Diversified.  For your Policy to be treated as a life insurance contract for federal income tax purposes, the investments of the Separate Account must be “adequately diversified.” Treasury regulations define standards for determining whether the investments of the Separate Account are adequately diversified. If the Separate Account fails to comply with these diversification standards, you could be required to pay tax currently on the excess of the policy value over the Premium Payments. Although we do not control the investments of the Sub-Accounts, we expect that the Sub-Accounts will comply with the Treasury regulations so that the Separate Account will be considered “adequately diversified.”
Restriction on Investment Options.  Federal income tax law limits your right to choose particular investments for the Policy. Because the IRS has issued little guidance specifying those limits, the limits are uncertain and your right to allocate policy values among the Sub-Accounts may exceed those limits. If so, you would be treated as the Owner of the assets of the Separate Account and thus subject to current taxation on the income and gains from those assets. We do not know what limits may be set by the IRS in any guidance that it may issue and whether any such limits will apply to existing Policies. We reserve the right to modify the Policy without your consent to try to prevent the tax law from considering you as the Owner of the assets of the Separate Account.
No Guarantees Regarding Tax Treatment.  We make no guarantee regarding the tax treatment of any life insurance policy or of any transaction involving a life insurance policy. However, the remainder of this discussion assumes that your Policy will be treated as a life insurance contract for federal income tax purposes and that the tax law will not impose tax on any increase in your policy value until there is a distribution from your Policy.
Tax Treatment of Life Insurance Death Benefit Proceeds.  In general, the amount of the death benefit payable from a life insurance policy because of the death of the Insured is excludable from gross income. Certain transfers of the Policy for valuable consideration, however, may result in a portion of the death benefit being taxable. If the death benefit is not received in a lump sum and is, instead, applied to one of the settlement options, payments generally will be prorated between amounts attributable to the death benefit, which will be excludable from the Beneficiary’s income, and amounts attributable to interest (accruing after the Insured’s death) which will be includible in the Beneficiary’s income.
Tax Deferral During Accumulation Period.  Under existing provisions of the Code, except as described below, any increase in your policy value is generally not taxable to you unless amounts are received (or are deemed to be received) from the Policy prior to the Insured’s death. If there is a total withdrawal from the Policy, the Surrender Value will be includible in your income to the extent the amount received exceeds the “investment in the contract.” (If there is any debt at the time of a total withdrawal, such debt will be treated as an amount received by the Owner.) The “investment in the contract” generally is the aggregate amount of Premium Payments and other consideration paid for the Policy, less the aggregate amount received previously to the extent such amounts received were
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excludable from gross income. Whether Partial Surrenders (or other amounts deemed to be distributed) from the Policy constitute income to you depends, in part, upon whether the Policy is considered a MEC for federal income tax purposes.
Policies That Are MECs
Characterization of a Policy as a Modified Endowment Contract (“MEC”).  A MEC is a life insurance policy that meets the requirements of Section 7702 and fails the “7-Pay Test” of 7702A of the Code. Your Policy will be classified as a MEC if Premiums are paid more rapidly than allowed by the “7-Pay Test,” a test that compares actual paid Premium in the first seven years against a pre-determined Premium amount as defined in 7702A of the Code. Your Policy may also be classified as a MEC if it is received in exchange for another policy that is a MEC. In addition, even if your Policy initially is not a MEC, it may in certain circumstances become a MEC. The circumstances under which your Policy may become a MEC include a material change to your Policy (within the meaning of tax law), a Policy Lapse and reinstatement more than 90 days following the lapse, or a withdrawal or a reduction in the death benefit during the first seven Policy Years.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs.  If your Policy is a MEC, withdrawals from your Policy will be treated first as withdrawals of income and then as a recovery of Premium Payments. Thus, withdrawals will be includible in income to the extent the policy value exceeds the investment in your Policy. The Code treats any amount received as a loan under a policy, and any assignment or pledge (or agreement to assign or pledge) of any portion of your policy value, and any monthly charge for additional benefits that are not qualified additional benefits, as a withdrawal of such amount or portion. The investment in your Policy is increased by the amount includible in income with respect to such assignment, pledge, or loan.
Additional Taxes Payable on Withdrawals.  A 10% additional tax may be imposed on any withdrawal (or any deemed distribution) from your MEC which you must include in your gross income. The 10% additional tax does not apply if one of several exceptions exists. These exceptions include withdrawals or surrenders that: you receive on or after you reach age 59 1/2, you receive because you became disabled (as defined in the tax law), or you receive as a series of substantially equal periodic payments for your life (or life expectancy). None of the additional tax exceptions apply to a taxpayer who is not an individual.
Special Rules if You Own More than One MEC.  In certain circumstances, you must combine some or all of the life insurance contracts which are MECs that you own in order to determine the amount of withdrawal (including a deemed withdrawal) that you must include in income. For example, if you purchase two or more MECs from the same life insurance company (or its affiliates) during any calendar year, the Code treats all such policies as one contract. Treating two or more policies as one contract could affect the amount of a withdrawal (or a deemed withdrawal) that you must include in income and the amount that might be subject to the 10% additional tax described above.
Policies That Are Not MECs
Tax Treatment of Withdrawals.  If your Policy is not a MEC, the amount of any withdrawal from the Policy will generally be treated first as a non-taxable recovery of Premium Payments and then as income from the Policy. Thus, a withdrawal from your Policy that is not a MEC will not be includible in income except to the extent it exceeds the investment in the Policy immediately before the withdrawal.
Certain Distributions Required by the Tax Law in the First 15 Policy Years.  Section 7702 places limitations on the amount of Premium Payments that may be made and the policy values that can accumulate relative to the death benefit. Where cash distributions are required under Section 7702 in connection with a reduction in benefits during the first 15 years after the Policy is issued (or if withdrawals are made in anticipation of a reduction in benefits, within the meaning of the tax law, during this period), some or all of such amounts may be includible in income. A reduction in benefits may occur when the face amount is decreased, withdrawals are made, and in certain other instances.
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Tax Treatment of Loans.  If your Policy is not a MEC, a loan you receive under the Policy is generally treated as your Indebtedness. As a result, no part of any loan constitutes income to you so long as the Policy remains in force. Nevertheless, in those situations where the interest rate credited to the Loan Collateral Account equals the interest rate charged to you for the loan, such as in the case of an alternative Policy Loan, it is possible that some or all of the loan proceeds may be includible in your income. If your Policy lapses (or if all policy value is withdrawn or exchanged to a new policy in a tax-free policy exchange) when a loan is outstanding, the amount of the loan outstanding will be treated as withdrawal proceeds for purposes of determining whether any amounts are includible in your income.
Other Considerations
Insured Lives Past Age 100.  If the Insured survives beyond the end of the mortality table, which is used to measure charges for the Policy and which ends at age 100, and an option 1 death benefit is in effect, in some circumstances the policy value may equal or exceed the Specified Amount level death benefit. Thus, the policy value may equal the Death Benefit Proceeds. In such a case, we believe your Policy will continue to qualify as life insurance for federal tax purposes. However, there is some uncertainty regarding this treatment, and it is possible that you would be viewed as constructively receiving the Accumulation Value in the year the Insured attains age 100.
Compliance with the Tax Law.  We believe that the maximum amount of Premium Payments we have determined for the Policies will comply with the federal tax definition of life insurance. We will monitor the amount of Premium Payments, and, if the Premium Payments during a Policy Year exceed those permitted by the tax law, we will refund the excess Premiums within 60 days of the end of the Policy Year and will pay interest and other earnings (which will be includible in income subject to tax) as required by law on the amount refunded. We may accept alternate instructions from you to prevent your policy from becoming a MEC. We also reserve the right to increase the death benefit (which may result in larger charges under a policy) or to take any other action deemed necessary to maintain compliance of the Policy with the federal tax definition of life insurance.
Disallowance of Interest Deductions.  Interest on Policy Loan Indebtedness is not deductible.
If an entity (such as a corporation or a trust, not an individual) purchases a policy or is the Beneficiary of a policy issued after June 8, 1997, a portion of the interest on Indebtedness unrelated to the Policy may not be deductible by the entity. However, this rule does not apply to a policy owned by an entity engaged in a trade or business which covers the life of 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 Policy. This rule also does not apply to a policy owned by an entity engaged in a trade or business which covers the joint lives of the 20% Owner of the entity and the Owner’s spouse at the time first covered by the Policy.
Employer-Owned Contracts. In the case of an “employer-owned life insurance contract” as defined in the tax law that is issued (or deemed to be issued) after August 17, 2006, the portion of the death benefit excludable from gross income generally will be limited to the premiums paid for the contract. However, this limitation on the death benefit exclusion will not apply if certain notice and consent requirements are satisfied and one of several exceptions is satisfied. These exceptions include circumstances in which the death benefit is payable to certain heirs of the Insured to acquire an ownership interest in a business, or where the contract covers the life of a director or an Insured who is “highly compensated” within the meaning of the tax law. These rules, including the definition of an employer-owned life insurance contract, are complex, and you should consult with your advisors for guidance as to their application.
Federal Income Tax Withholding.  We will withhold and remit to the IRS a part of the taxable portion of each distribution made under your Policy unless you notify us in writing at or before the time of the distribution that tax is not to be withheld. Regardless of whether you request that no taxes be withheld or whether the Company withholds a sufficient amount of taxes, you will be responsible for the payment of any taxes and early distribution penalties that may be due on the amounts received. You may also be required to pay penalties under the estimated tax rules, if your withholding and estimated tax payments are insufficient to satisfy your total tax liability.
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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 any annuitized distributions that you take from your Policy, but does not apply to any lump sum distribution, Full Surrender, or other non-annuitized distribution. The tax is effective for tax years beginning after December 31, 2012. Please consult your tax advisor to determine whether any distributions you take from your Policy are subject to this tax.
Changes in the Policy or Changes in the Law.  Changing the Owner, exchanging your Policy, and other changes under your Policy may have tax consequences (in addition to those discussed herein) depending on the circumstances of such change. The above discussion is based on the Code, IRS regulations, and interpretations existing on the date of this prospectus. However, Congress, the IRS, and the courts may modify these authorities, sometimes retroactively.
Reportable Policy Sales. Section 6050Y, added to the Code on December 22, 2017, imposes information reporting requirements on the acquirer and issuer in the case of the acquisition, or notice of the acquisition, of an existing life insurance contract in a reportable policy sale. In addition, there is a new reporting requirement on each person who makes a payment of reportable death benefits. A reportable policy sale means the acquisition of an interest in a life insurance contract, directly or indirectly, where the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer’s interest in such life insurance contract. A reportable death benefit means the amount paid by reason of the death of the insured under a life insurance contract that has been transferred in a reportable policy sale.
The IRS and Treasury issued Final Regulations under section 6050Y in 2019. Under the Regulations, compliance with 6050Y is required for any reportable policy sale that occurred after December 31, 2018, and any reportable death benefits paid after December 31, 2018.
Fair Market Value of Your Policy
It is sometimes necessary for tax and other reasons to determine the “value” of your Policy. The value can be measured differently for different purposes. It is not necessarily the same as the Accumulation Value or the Net Accumulation Value. You, as the Owner, should consult with your advisors for guidance as to the appropriate methodology for determining the fair market value of your Policy.
Tax Status of Lincoln Life
Under existing federal income tax laws, the Company does not pay tax on investment income and realized capital gains of the Separate Account. However, the Company does expect, to the extent permitted under Federal tax law, to claim the benefit of the foreign tax credit as the Owner of the assets of the Separate Account. Lincoln Life does not expect that it will incur any federal income tax liability on the income and gains earned by the Separate Account. We, therefore, do not impose a charge for federal income taxes. If federal income tax law changes and we must pay tax on some or all of the income and gains earned by the Separate Account, we may impose a charge against the Separate Account to pay the taxes.
RESTRICTIONS ON FINANCIAL TRANSACTIONS
In accordance with money laundering laws and federal economic sanction policy, the Company may be required in a given instance to reject a Premium Payment and/or freeze an Owner’s account. This means we could refuse to honor requests for transfers, withdrawals, surrenders, loans, assignments, Beneficiary changes or death benefit payments. Once frozen, monies would be moved from the Separate Account to a segregated interest-bearing
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account maintained for the Owner, and held in that account until instructions are received from the appropriate regulator. We also may be required to provide additional information about an Owner's account to government regulators.
Also, we may postpone payment whenever: (a) the New York Stock Exchange is closed, (b) trading on the New York Stock Exchange is restricted by the SEC, (c) the SEC determines if an emergency exists as a result of which disposal of securities held in the Variable Account is not reasonably practicable or is not reasonably practicable to determine the value of the Variable Account's net assets (d) if, pursuant to SEC rules, an underlying money market fund suspends payment of redemption proceeds in connection with a liquidation of the fund, we may delay payment of any transfer, Partial Surrender, Full Surrender, or death benefit from a money market Sub-Account until the fund is liquidated, or (e) during any other period when the SEC, by order, so permits for the protection of the Owner.
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 regulatory or 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 proceedings, it is reasonably possible that an adverse outcome in certain matters could be material to the Company's operating results for any particular reporting period. Please refer to the Statement of Additional Information for possible additional information regarding legal proceedings.
FINANCIAL STATEMENTS
The December 31, 2019 financial statements of the Separate Account and the December 31, 2019 financial statements of the Company are located in the SAI.
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CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Additional information about Lincoln Life, the Separate Account and your Policy may be found in the Statement of Additional Information (SAI).
Contents of the SAI
GENERAL INFORMATION  
Lincoln Life  
Capital Markets  
Registration Statement  
Changes of Investment Policy  
Principal Underwriter  
Disaster Plan  
Advertising & Ratings  
Unclaimed Property  
SERVICES  
Independent Registered Public Accounting Firm  
Accounting Services  
Transfer Agent  
Administrative Services  
POLICY INFORMATION  
Assignment  
Change of Ownership  
Beneficiary  
Change of Plan  
Settlement Options  
Deferral of Payments  
Incontestability  
Misstatement of Age  
Suicide  
PERFORMANCE DATA  
FINANCIAL STATEMENTS  
Separate Account  
Company  
 
The SAI may be obtained, at no cost to you, by contacting our Administrative Office at the address or telephone number listed on the first page of this prospectus. Your SAI will be sent to you via first class mail within three business days of your request. You may make inquiries about your Policy to this same address and telephone number.
You may request personalized illustrations of death benefits and policy values from your registered representative without charge.
You may review or copy this prospectus, the SAI, or obtain other information about the Separate Account at the Securities and Exchange Commission’s Public Reference Room. You should contact the SEC at (202) 551-8090 to obtain information regarding days and hours the reference room is open. You may also view information at the SEC’s Internet site, http://www.sec.gov. Copies of information may be obtained, upon payment of a duplicating fee, by writing the Public Reference Section, Securities and Exchange Commission, 100 F Street, NE, Washington, D.C. 20549-0102.
This prospectus, the Underlying Funds' prospectuses, and the SAI are also available on our internet site, www.LincolnEB.com
LLANY Separate Account S for Flexible Premium Variable Life Insurance
1933 Act Registration No. 333-141769
1940 Act Registration No. 811-09257
End of Prospectus
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GLOSSARY OF TERMS
The following terms may appear in your prospectus and are defined below:
7-Pay Test—A test that compares actual paid Premium in the first seven years against a pre-determined Premium amount as defined in 7702A of the Code.
1933 Act—The Securities Act of 1933, as amended.
1940 Act—The Investment Company Act of 1940, as amended.
Accumulation Value (Total Account Value)—An amount equal to the sum of the Fixed Account Value, the Separate Account Value, and the Loan Account Value.
Administrative Fee—The fee which compensates the Company for administrative expenses associated with policy issue and ongoing policy maintenance including Premium billing and collection, policy value calculation, confirmations, periodic reports and other similar matters.
Attained Age—An Insured’s Issue Age (shown in the Policy Specifications) plus the number of completed Policy Years.
Beneficiary—The person designated to receive the Death Benefit Proceeds.
Case—All in force policies issued within the same company and having the same case name and case number.
Cash Value Accumulation Test—A provision of the Code that requires that the death benefit be sufficient to prevent the Accumulation Value from ever exceeding the net single Premium required to fund the future benefits under the Policy.
Code—Internal Revenue Code of 1986, as amended.
Cost of Insurance Charge—This charge is the portion of the Monthly Deduction designed to compensate the Company for the anticipated cost of paying death benefits in excess of the policy value. It is determined by multiplying the Policy's Net Amount at Risk by the Cost of Insurance Rate.
Death Benefit Proceeds—The amount payable to the Beneficiary upon the death of the Insured, based upon the death benefit option in effect. Loans, loan interest, Partial Surrenders, and overdue charges, if any, are deducted from the Death Benefit Proceeds prior to
payment. Riders may impact the amount payable as Death Benefit Proceeds in your Policy.
Fixed Account—An allocation option under the Policy, which is a part of our General Account, to which we credit a guaranteed minimum interest rate.
Fixed Account Value—An amount equal to the value of amounts allocated or transferred to the Fixed Account, plus interest credited, and less any deductions or Partial Surrenders.
Full Surrender—The withdrawal of all policy values.
Good Order—The actual receipt of the requested transaction in writing (or other form subject to our consent) along with all information and supporting legal documentation necessary to effect the transaction.
Grace Period—The period during which you may make Premium Payments (or repay Indebtedness) to prevent Policy Lapse. That period is the later of (a) 31 days after the notice was mailed, and (b) 61 days after the Monthly Anniversary Day on which the Policy enters the Grace Period.
Guideline Premium Test—A provision of the Code under which the maximum amount of Premium paid in relation to the death benefit and a minimum amount of death benefit in relation to policy value is determined.
Indebtedness—The sum of all outstanding loans and accrued interest.
Insured—The person on whose life the Policy is issued.
Lapse Notice—Written notice to you (or any assignee of record) that your Policy will terminate unless we receive payment of Premiums (or payment of Indebtedness on Policy Loans). The notice will state the amount of Premium Payment (or payment of Indebtedness on Policy Loans) that must be paid to avoid termination of your Policy.
Loan Account (Loan Collateral Account)—The account in which policy Indebtedness accrues once it is transferred out of the Sub-Accounts and/or the Fixed Account. The Loan Account is part of our General Account.
 
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Loan Account Value—An amount equal to any outstanding Policy Loans, including any interest charged on the loans. This amount is held in the Company's General Account.
Market Timing Procedures—Policies and procedures from time to time adopted by us as an effort to protect our Owners and the funds from potentially harmful trading activity.
Modified Endowment Contract (MEC)—A life insurance policy that meets the requirements of Section 7702 and fails the “7-Pay Test” of 7702A of the Code. If the policy is a MEC, withdrawals from your Policy will be treated first as withdrawals of income and then as a recovery of Premium Payments.
Monthly Anniversary Day—The Policy Date and the same day of each month thereafter. If the day that would otherwise be a Monthly Anniversary Day is non-existent for that month, or is not a Valuation Day, then the Monthly Anniversary Day is the next Valuation Day. The Monthly Deductions are made on the Monthly Anniversary Day.
Monthly Deduction—The amount of the monthly charges for the Cost of Insurance Charge, the Administrative Fee, and charges for riders to your Policy.
Net Accumulation Value—An amount equal to the Accumulation Value less the Loan Account Value. 
Net Amount at Risk—The death benefit minus the greater of zero or the Accumulation Value. The Net Amount at Risk may vary with investment performance, Premium Payment patterns, and charges.
Net Premium Payment—An amount equal to the Premium Payment, minus the Premium Load.
Owner—The person or entity designated as Owner in the Policy Specifications unless a new Owner is thereafter named, and we receive written notification of such change.
Partial Surrender—A withdrawal of a portion of your policy values.
Planned Premium—The amount of periodic Premium (as shown in the Policy Specifications) you have chosen to pay the Company on a scheduled basis. This is the amount for which we send a Premium reminder notice.
Policy Anniversary—The same date (month and day) each Policy Year equal to the Policy Date, or the next
Valuation Day if the Policy Anniversary is not a Valuation Day or is nonexistent for the year.
Policy Date—The date (shown on the Policy Specification pages) on which life insurance begins if the necessary Premium has been paid.
Policy Loan—The amount you have borrowed against the Surrender Value of your Policy.
Policy Loan Interest—The charge made by the Company to cover the cost of your borrowing against your Policy.
Policy Lapse—The day on which coverage under the Policy ends as described in the Grace Period.
Policy Month— The period from one Monthly Anniversary Day up to, but not including, the next Monthly Anniversary Day.
Policy Specifications— The pages of the Policy which show your benefits, Premium, costs, and other policy information.
Policy Year—Twelve month period(s) beginning on the Policy Date and extending up to but not including the next Policy Anniversary.
Premium (Premium Payment)—The amount paid to us for a life insurance policy.
Premium Load—A deduction from each Premium Payment which covers certain policy-related state and federal tax liabilities as well as a portion of the sales expenses incurred by the Company.
Reduction in Specified Amount—A decrease in the Specified Amount of your Policy.
Right to Examine Period—The period during which the Policy may be returned to us for cancellation.
SAI—Statement of Additional Information.
SEC—The Securities and Exchange Commission.
Separate Account Value (Variable Accumulation Value)—An amount equal to the values in the Sub-Accounts.
Specified Amount (Initial Specified Amount)—The amount chosen by you which is used to determine the amount of death benefit and the amount of rider benefits, if any. The Specified Amount chosen at the time of issue is the “Initial Specified Amount”. The Specified Amount may be increased or decreased after issue if allowed by and described in the Policy.
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Sub-Account(s)—Divisions of the Separate Account created by the Company to which you may allocate your Net Premium Payments and among which you may transfer Separate Account Values.
Surrender Charge—The charge we may make if you request a Full Surrender of your Policy or request a Reduction in Specified Amount. The Surrender Charge is in part a deferred sales charge and in part a recovery of certain first year administrative costs. A schedule of Surrender Charges is included in each Policy.
Surrender Value—An amount equal to the Net Accumulation Value less any applicable Surrender Charge, less any accrued loan interest not yet charged.
Underlying Fund—The mutual fund the shares of which are purchased for all amounts you allocate or transfer to a Sub-Account.
Valuation Day—Each day on which the New York Stock Exchange is open and trading is unrestricted.
Valuation Period—The time between Valuation Days.
Variable Accumulation Unit—A unit of measure used in the calculation of the value of each Sub-Account.
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SAI 2

 

STATEMENT OF ADDITIONAL INFORMATION (SAI)
Dated May 1, 2020
Relating to Prospectus Dated May 1, 2020 for
Lincoln Corporate Commitment VUL product
LLANY Separate Account S for Flexible Premium Variable Life Insurance, Registrant
Lincoln Life & Annuity Company of New York, Depositor
The SAI is not a prospectus. The SAI provides you with additional information about Lincoln Life, the Separate Account and your Policy. It should be read in conjunction with the product prospectus.
A copy of the product prospectus may be obtained without charge by writing to our Administrative Office:
Lincoln Executive Benefits
350 Church Street - MEM4
Hartford, CT 06103-1106
or by telephoning (877) 533-0117, and requesting a copy of the Lincoln NY Corporate Variable 5 product prospectus.
TABLE OF CONTENTS OF THE SAI
 
1

 

GENERAL INFORMATION
Lincoln Life
Lincoln Life & Annuity Company of New York (Lincoln Life, the Company, we, us, our) (EIN 22-0832760), is a stock life insurance company chartered in New Jersey in 1897 and redomesticated to New York on April 2, 2007. It is engaged primarily in the direct issuance of life insurance policies and annuities. Lincoln Life is an indirect wholly owned subsidiary of Lincoln National Corporation (LNC), a publicly held insurance and financial services holding company incorporated in Indiana. Lincoln Life is obligated to pay all amounts promised to Owners under the policies. Death Benefit Proceeds and rider benefits to the extent those proceeds and benefits exceed the then current Accumulation Value of your Policy are backed by the claims-paying ability of Lincoln Life.
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.
Lincoln Life is subject to the laws of New York governing insurance companies and to regulation by the New York State Department of Financial Services (“Insurance Department”). An annual statement in a prescribed form is filed with the Insurance Department each year covering the operation of the Company for the preceding year along with the Company’s financial condition as of the end of that year. Regulation by the Insurance Department includes periodic examination to determine our contract liabilities and reserves. Our books and accounts are subject to review by the Insurance Department at all times and a full examination of our operations is conducted periodically by the Insurance Department. 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. Such regulation does not, however, involve any supervision of management practices or policies, or our investment practices or policies.
On March 2, 1999, the LLANY Separate Account S for Flexible Premium Variable Life Insurance (“Separate Account”) 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 Separate Account 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 Separate Account are, in accordance with the applicable variable life policies, credited to or charged against the Separate Account. They are credited or charged without regard to any other income, gains or losses of Lincoln New York. We are the issuer of the policies and the obligations set forth in the Policy, other than those of the Owner, are ours. The Separate Account satisfies the definition of a separate account under the federal securities laws. We do not guarantee the investment performance of the Separate Account. Any investment gain or loss depends on the investment performance of the funds. You assume the full investment risk for all amounts allocated to the Separate Account.
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.
2

 

Registration Statement
A Registration Statement has been filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, with respect to the policies offered. The Registration Statement, its amendments and exhibits, contain information beyond that found in the prospectus and the SAI. Statements contained in the prospectus and the SAI as to the content of policies and other legal instruments are summaries.
Changes of Investment Policy
We may change the investment policy of the Separate Account at any time. If required by the Insurance Commissioner, we will file any such change for approval with the Department of Insurance in our state of domicile, and in any other state or jurisdiction where this Policy is issued.
In the event of a material change in the investment strategy of any Sub-Account, you may transfer the amount in that Sub-Account to any other Sub-Account or the Fixed Account, without a transfer charge, even if the 24 free transfers have already been used. You must exercise this option to transfer within 60 days after the effective date of such a change in the investment strategy of the Sub-Account.
Principal Underwriter
Lincoln Financial Distributors, Inc. (“LFD”), 130 North Radnor Chester Road, Radnor, PA 19087, is the principal underwriter for the policies, which are offered continuously. LFD is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 as a broker-dealer and is a member of the Financial Industry Regulatory Authority (“FINRA”). The principal underwriter has overall responsibility for establishing a selling plan for the policies. LFD received $192,572 in 2019, $145,664 in 2018 and $201,629 in 2017 for the sale of policies offered through the Separate Account. LFD retains no underwriting commissions from the sale of the policies. The maximum total compensation we pay to any broker-dealer firm in the form of commission or expense reimbursement allowance, inclusive of any bonus incentives, with respect to policy sales is 50% of the first year Premium and 20% of all other Premiums paid.
Disaster Plan
Lincoln's business continuity and disaster recovery strategy employs system and telecommunication accessibility, system back-up and recovery, and employee safety and communication. The plan includes documented and tested procedures that will assist in ensuring the availability of critical resources and in maintaining continuity of operations during an emergency situation.
Advertising & Ratings
We may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Lincoln Life or its 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 Policy and do not refer to the performance of the Policy, or any Separate Account, including the underlying investment options. Ratings are not recommendations to buy our policies. 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 stable for Moody’s, A.M. Best and Standard & Poor’s, and positive for Fitch. Our financial strength ratings, which are intended to measure our ability to meet Owners obligations, are an important factor affecting public confidence in most of our policies and, as a result, our competitiveness. A downgrade of our financial strength rating could affect our competitive position in the insurance industry by making
3

 

it more difficult for us to market our policies 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. The S&P 500 Index (hereinafter “Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by Lincoln Variable Insurance Products Trust and its affiliates (hereinafter “Licensee”).  Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”).  The fund(s) are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, “S&P Dow Jones Indices”).  S&P Dow Jones Indices do not make any representation or warranty, express or implied, to the owners of the funds or any member of the public regarding the advisability of investing in securities generally or in the funds particularly or the ability of the Index to track general market performance.  S&P Dow Jones Indices only relationship to Licensee with respect to the Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors.  The Index is determined, composed and calculated by S&P Dow Jones Indices without regard to Licensee or the funds.  S&P Dow Jones Indices have no obligation to take the needs of Licensee or the owners of the funds into consideration in determining, composing or calculating the Index.  S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of the funds or the timing of the issuance or sale of the funds or in the determination or calculation of the equation by which the funds are to be converted into cash, surrendered or redeemed, as the case may be.  S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the funds. There is no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns.  S&P Dow Jones Indices LLC is not an investment advisor.  Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO.  S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN.  S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.  WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.  THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND LICENSEE, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Unclaimed Property
We have entered into a Global Resolution Agreement with a third party auditor representing multiple states and jurisdictions. Under the terms of the Global Resolution Agreement, the third party auditor has compared expanded matching criteria to the Social Security Master Death File (“SSMDF”) to identify deceased Insureds and policy or contract holders where a valid claim has not been made. We have also entered into a Regulatory Settlement Agreement with multiple states and jurisdictions. The Regulatory Settlement Agreement applies prospectively and requires us to adopt and implement additional procedures comparing our records to the SSMDF to identify unclaimed death benefits and prescribes procedures for identifying and locating Beneficiaries once deaths are identified. Other jurisdictions that are not signatories to the Regulatory Settlement Agreement are conducting
4

 

examinations and audits of our compliance with unclaimed property laws. Any escheatable property identified as a result of the audits and inquiries could result in additional payments of previously unclaimed death benefits or the payment of abandoned funds to U.S. jurisdictions.
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) the financial statements of each of the subaccounts listed in the appendix to the opinion that comprise LLANY Separate Account S for Flexible Premium Variable Life Insurance, as of December 31, 2019, and the related statement of operations and the statements of changes in net assets for each of the periods indicated in the appendix to the opinion; and b) the financial statements of Lincoln Life & Annuity Company of New York as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 as set forth in their reports, 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.
Accounting Services
All accounts, books, records and other documents which are required to be maintained for the Separate Account are maintained by us or by third parties responsible to Lincoln Life. We have entered into an agreement with State Street Bank and Trust Company, 801 Pennsylvania Ave, Kansas City, MO 64105, to provide accounting services to the Separate Account. No separate charge against the assets of the Separate Account is made by us for this service.
Transfer Agent
Andesa Services, Inc., 3435 Winchester Road, Suite 401, Allentown, Pennsylvania, will act as a Transfer Agent on behalf of Lincoln Life as it relates to the policies described in this prospectus. In the role of a Transfer Agent, Andesa will perform administrative functions, such as decreases, increases, Surrenders and Partial Surrenders, fund allocation changes and transfers on behalf of the Company.
Administrative Services
Lincoln Life & Annuity Company of New York is an affiliate of The Lincoln National Life Insurance Company, 1300 South Clinton Street, Fort Wayne, Indiana 46802, which provides administrative services for the policies. The Lincoln National Life Insurance Company receives no compensation from the Separate Account for these services.
POLICY INFORMATION
Assignment
While the Insured Employee is living, you may assign your rights in the Policy, including the right to change the Beneficiary designation. The assignment must be in writing, signed by you and recorded at our Administrative Office. We will not be responsible for any assignment that is not submitted for recording, nor will we be responsible for the sufficiency or validity of any assignment. Any assignment is subject to any indebtedness owed to Lincoln Life at the time the assignment is recorded and any interest accrued on such indebtedness after we have recorded any assignment.
5

 

Once recorded, the assignment remains effective until released by the assignee in writing. As long as an effective assignment remains outstanding, the Owner will not be permitted to take any action with respect to the Policy without the consent of the assignee in writing.
Change of Ownership
As long as the Insured Employee is living, you may name a new Owner by recording a change in ownership in writing at our Administrative Office. The change will be effective the later of the date of execution of the document of transfer or the date we record it. We may require that the Policy be submitted to us for endorsement before making a change.
Beneficiary
The Beneficiary is initially designated on the application and is the person who will receive the Death Benefit Proceeds payable. Multiple Beneficiaries will be paid in equal shares, unless otherwise specified to the Company.
You may change the Beneficiary at any time while the Insured Employee is living, and before the maturity date, except when we have recorded an assignment of your Policy or an agreement not to change the Beneficiary. Any request for a change in the Beneficiary must be in writing, signed by you, and recorded at our Administrative Office. If the Owner has not reserved the right to change the Beneficiary, such a request requires the consent of the Beneficiary. The change will be effective as of the date of signature or, if there is no such date, the date recorded.
If any Beneficiary dies before the Insured Employee, the Beneficiary’s potential interest shall pass to any surviving Beneficiaries, unless otherwise specified to the Company. If no named Beneficiary survives the Insured Employee, any Death Benefit Proceeds will be paid to you, as the Owner, or to your executor, administrator or assignee.
Change of Plan
Within 18 months of the date we issue your Policy, you may exchange your Policy without any evidence of insurability, for any one of the permanent life insurance policies then being issued by the Company which belong to the same class as this Policy. Your request for exchange must be in writing. Unless agreed otherwise, the new policy will have the same initial amount of insurance, Date of Issue and age of the Insured Employee as the original Policy.
Settlement Options
Proceeds will be paid in a lump sum unless you choose a settlement option we make available.
Deferral of Payments
Amounts payable as a result of Policy Loans, Surrenders or Partial Surrenders will be paid within seven calendar days of our receipt of such a request in a form acceptable to us. In the event of a deferral of a surrender, loan or payment of the Death Benefit Proceeds beyond 10 days from receipt of the request, interest will accrue and be paid as required by law. We may defer payment or transfer from the Fixed Account up to six months at our option. If we exercise our right to defer any payment from the Fixed Account, interest will accrue and be paid (as required by law) from the date you would otherwise have been entitled to receive the payment. We will not defer any payment used to pay Premiums on policies with us.
6

 

Incontestability
The Company will not contest your Policy or payment of the Death Benefit Proceeds based on the initial Specified Amount, or an increase in the Specified Amount requiring evidence of insurability, after your Policy or increase has been in force for two years from Date of Issue or increase.
Misstatement of Age
If the age of the Insured Employee is misstated at the time of application, the amount payable upon death will be adjusted to the benefit amount that would have been purchased with the most recent monthly deduction at the correct age.
Suicide
If the Insured Employee dies by suicide, while sane or insane, within two years from the Date of Issue, the Company will pay no more than the sum of the Premiums paid, less any Indebtedness and the amount of any Partial Surrenders. If the Insured Employee dies by suicide, while sane or insane, within two years from the date an application is accepted for an increase in the Specified Amount, the Company will pay no more than a refund of the monthly charges for the cost of the increased amount.
PERFORMANCE DATA
Performance data may appear in sales literature or reports to Owners or prospective buyers.
Past performance cannot guarantee comparable future results. Performance data reflects the time period shown on a rolling monthly basis and is based on Sub-Account level values adjusted for your Policy’s expenses.
Data reflects:
• an annual reduction for fund management fees and expenses, but
• no deductions for additional policy expenses (i.e., Premium Loads, Mortality and Expense Charges, Administrative Fees and Cost of Insurance Charges), which, if included, would have resulted in lower performance.
These charges and deductions can have a significant effect on policy values and benefits. Ask your financial representative for a personalized illustration reflecting these costs.
Sub-Account performance figures are historical and include change in share price, reinvestment of dividends and capital gains and are net of the asset management expenses that can be levied against the Sub-Account.
The Average Annual Returns in the table below are calculated in two ways, one for Money Market Sub-Account, one for all other Sub-Accounts. Both are according to methods prescribed by the SEC.
Money Market Sub-Account:
The Average Annual Return is the income generated by an investment in the Money Market Sub-Account over a seven-day period, annualized. The process of annualizing results when the amount of income generated by the investment during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment.
The Money Market Sub-Account’s return is determined by:
a) calculating the change in unit value for the base period (the 7-day period ended December 31, of the previous year); then
b) dividing this figure by the account value at the beginning of the period; then
7

 

c) annualizing this result by the factor of 365/7.
Other Sub-Accounts:
The Average Annual Return for each period is determined by finding the average annual compounded rate of return over each period that would equate the initial amount invested to the ending redeemable value for that period, according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial purchase payment of $1,000
  T = average annual total return for the period in question
  N = number of years
  ERV = ending redeemable value (as of the end of the period in question) of a hypothetical $1,000 purchase payment made at the beginning of the 1-year, 3-year, 5-year, or 10-year period in question (or fractional period thereof)
The formula assumes that:
(1) all recurring fees have been charged to the Owner’s accounts; and
(2) there will be a complete redemption upon the anniversary of the 1-year, 3-year, 5-year, or 10-year period in question.
In accordance with SEC guidelines, we report Sub-Account performance back to the first date that the fund became available, which could pre-date its inclusion in this product. Where the length of the performance reporting period exceeds the period for which the fund was available, Sub-Account performance will show an “N/A”.
FINANCIAL STATEMENTS
The December 31, 2019 financial statements of the Separate Account and the December 31, 2019 financial statements of the Company follow.
8









Lincoln Life & Annuity Company of New York

 





Lincoln Life & Annuity Company of New York



Financial Statements

December 31, 2019 and 2018



 

 

 

 

 

Report of Independent Registered Public Accounting Firm



To the Stockholder and the Board of Directors of Lincoln Life & Annuity Company of New York



Opinion on the Financial Statements



We have audited the accompanying balance sheets of Lincoln Life & Annuity Company of New York (the Company) as of December 31, 2019 and 2018, 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, 2019, and the related notes (collectively referred to as the “financial statements”).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.



Basis for Opinion



These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.    The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.    As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.



Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.  We believe that our audits provide a reasonable basis for our opinion.



/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1996.

Philadelphia, Pennsylvania

April 1, 2019



 

 

1

 

LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK

BALANCE SHEETS

(in millions, except share data)





 

 

 

 

 

 

 

 



 

As of December 31,

 



 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Available-for-sale securities, at fair value:

 

 

 

 

 

 

 

 

Fixed maturity securities (amortized cost:  2019 – $7,147; 2018 – $7,200)

 

$

 8,033 

 

 

$

 7,280 

 

Equity securities

 

 

 2 

 

 

 

 2 

 

Mortgage loans on real estate

 

 

 916 

 

 

 

 817 

 

Policy loans

 

 

 245 

 

 

 

 261 

 

Derivative investments

 

 

 11 

 

 

 

 -

 

Other investments

 

 

 20 

 

 

 

 1 

 

Total investments

 

 

 9,227 

 

 

 

 8,361 

 

Cash and invested cash

 

 

 82 

 

 

 

 31 

 

Deferred acquisition costs and value of business acquired

 

 

 453 

 

 

 

 578 

 

Premiums and fees receivable

 

 

 10 

 

 

 

 6 

 

Accrued investment income

 

 

 92 

 

 

 

 94 

 

Reinsurance recoverables

 

 

 536 

 

 

 

 527 

 

Reinsurance related embedded derivatives

 

 

 15 

 

 

 

 12 

 

Goodwill

 

 

 26 

 

 

 

 26 

 

Other assets

 

 

 1,677 

 

 

 

 1,670 

 

Separate account assets

 

 

 7,095 

 

 

 

 6,028 

 

Total assets

 

$

 19,213 

 

 

$

 17,333 

 



 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDER’S EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Future contract benefits

 

$

 1,757 

 

 

$

 1,652 

 

Other contract holder funds

 

 

 5,485 

 

 

 

 5,518 

 

Funds withheld reinsurance liabilities

 

 

 1,546 

 

 

 

 1,503 

 

Income taxes payable

 

 

 359 

 

 

 

 211 

 

Other liabilities

 

 

 83 

 

 

 

 111 

 

Separate account liabilities

 

 

 7,095 

 

 

 

 6,028 

 

Total liabilities

 

 

 16,325 

 

 

 

 15,023 

 



 

 

 

 

 

 

 

 

Contingencies and Commitments (See Note 10)

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Stockholder’s Equity

 

 

 

 

 

 

 

 

Common stock – 132,000 shares authorized, issued and outstanding

 

 

 941 

 

 

 

 941 

 

Retained earnings

 

 

 1,468 

 

 

 

 1,349 

 

Accumulated other comprehensive income (loss)

 

 

 479 

 

 

 

 20 

 

Total stockholder’s equity

 

 

 2,888 

 

 

 

 2,310 

 

 Total liabilities and stockholder’s equity

 

$

 19,213 

 

 

$

 17,333 

 





See accompanying Notes to Financial Statements

2

 

LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 

 

2019

 

2018

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

Insurance premiums

$

 167

 

$

 152

 

$

 156

 

Fee income

 

 337

 

 

 343

 

 

 338

 

Net investment income

 

 399

 

 

 391

 

 

 416

 

Realized gain (loss):

 

 

 

 

 

 

 

 

 

Total other-than-temporary impairment losses on securities

 

 -

 

 

 -

 

 

 (1

)

Portion of loss recognized in other comprehensive income

 

 -

 

 

 -

 

 

 -

 

Net other-than-temporary impairment losses on securities recognized in earnings

 

 -

 

 

 -

 

 

 (1

)

Realized gain (loss), excluding other-than-temporary impairment losses on securities

 

 29

 

 

 (19

)

 

 (15

)

Total realized gain (loss)

 

 29

 

 

 (19

)

 

 (16

)

Other revenues

 

 1

 

 

 -

 

 

 1

 

Total revenues

 

 933

 

 

 867

 

 

 895

 

Expenses

 

 

 

 

 

 

 

 

 

Interest credited

 

 198

 

 

 197

 

 

 202

 

Benefits

 

 405

 

 

 364

 

 

 334

 

Commissions and other expenses

 

 78

 

 

 233

 

 

 194

 

Impairment of intangibles

 

 -

 

 

 -

 

 

 34

 

Total expenses

 

 681

 

 

 794

 

 

 764

 

Income (loss) before taxes

 

 252

 

 

 73

 

 

 131

 

Federal income tax expense (benefit)

 

 47

 

 

 2

 

 

 (150

)

Net income (loss)

 

 205

 

 

 71

 

 

 281

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses)

 

 459

 

 

 (360

)

 

 139

 

Total other comprehensive income (loss), net of tax

 

 459

 

 

 (360

)

 

 139

 

Comprehensive income (loss)

$

 664

 

$

 (289

)

$

 420

 



 

 

 

 

 

 

 

 

 



See accompanying Notes to Financial Statements

3

 

LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK

STATEMENTS OF STOCKHOLDER’S EQUITY

(in millions)











 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 



 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 941

 

$

 941

 

$

 941

 

Balance as of end-of-year

 

 941

 

 

 941

 

 

 941

 



 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

 

 1,349

 

 

 1,459

 

 

 1,298

 

Cumulative effect from adoption of new accounting standards

 

 -

 

 

 (62

)

 

 -

 

Net income (loss)

 

 205

 

 

 71

 

 

 281

 

Dividends paid to The Lincoln National Life Insurance Company

 

 (86

)

 

 (119

)

 

 (120

)

Balance as of end-of-year

 

 1,468

 

 

 1,349

 

 

 1,459

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

 

 20

 

 

 318

 

 

 179

 

Cumulative effect from adoption of new accounting standards

 

 -

 

 

 62

 

 

 -

 

Other comprehensive income (loss), net of tax

 

 459

 

 

 (360

)

 

 139

 

Balance as of end-of-year

 

 479

 

 

 20

 

 

 318

 

Total stockholder’s equity as of end-of-year

$

 2,888

 

$

 2,310

 

$

 2,718

 



See accompanying Notes to Financial Statements

4

 

LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK

STATEMENTS OF CASH FLOWS

(in millions)









 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net income (loss)

$

 205

 

$

 71

 

$

 281

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating

 

 

 

 

 

 

 

 

 

activities:

 

 

 

 

 

 

 

 

 

Change in:

 

 

 

 

 

 

 

 

 

Deferred acquisition costs, value of business acquired, deferred sales inducements

 

 

 

 

 

 

 

 

 

and deferred front-end loads deferrals and interest, net of amortization

 

 (96

)

 

 76

 

 

 18

 

Premiums and fees receivable

 

 (4

)

 

 -

 

 

 -

 

Accrued investment income

 

 2

 

 

 12

 

 

 (1

)

Future contract benefits and other contract holder funds

 

 (134

)

 

 (12

)

 

 (246

)

Reinsurance related assets and liabilities

 

 (3

)

 

 (145

)

 

 59

 

Accrued expenses

 

 (4

)

 

 (14

)

 

 14

 

Federal income tax accruals

 

 40

 

 

 (25

)

 

 (211

)

Realized (gain) loss

 

 (29

)

 

 19

 

 

 16

 

Impairment of intangibles

 

 -

 

 

 -

 

 

 34

 

Other

 

 12

 

 

 12

 

 

 (27

)

Net cash provided by (used in) operating activities

 

 (11

)

 

 (6

)

 

 (63

)



 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities and equity securities

 

 (723

)

 

 (713

)

 

 (770

)

Sales of available-for-sale securities and equity securities

 

 266

 

 

 200

 

 

 113

 

Maturities of available-for-sale securities

 

 510

 

 

 467

 

 

 654

 

Issuance of mortgage loans on real estate

 

 (194

)

 

 (133

)

 

 (136

)

Repayment and maturities of mortgage loans on real estate

 

 96

 

 

 80

 

 

 42

 

Issuance and repayment of policy loans, net

 

 16

 

 

 22

 

 

 21

 

Net change in collateral on derivatives and related settlements

 

 46

 

 

 (1

)

 

 -

 

Net cash provided by (used in) investing activities

 

 17

 

 

 (78

)

 

 (76

)



 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

Issuance (payment) of short-term debt

 

 (24

)

 

 49

 

 

 -

 

Deposits of fixed account values, including the fixed portion of variable

 

 587

 

 

 593

 

 

 601

 

Withdrawals of fixed account values, including the fixed portion of variable

 

 (345

)

 

 (332

)

 

 (335

)

Transfers to and from separate accounts, net

 

 (84

)

 

 (139

)

 

 (101

)

Common stock issued for benefit plans

 

 (3

)

 

 (2

)

 

 (2

)

Dividends paid to The Lincoln National Life Insurance Company

 

 (86

)

 

 (119

)

 

 (120

)

Net cash provided by (used in) financing activities

 

 45

 

 

 50

 

 

 43

 



 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, invested cash and restricted cash

 

 51

 

 

 (34

)

 

 (96

)

Cash, invested cash and restricted cash as of beginning-of-year

 

 31

 

 

 65

 

 

 161

 

Cash, invested cash and restricted cash as of end-of-year

$

 82

 

$

 31

 

$

 65

 





 

See accompanying Notes to Financial Statements

5

 

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”), is domiciled in the state of New York.  LLANY is principally engaged in the sale of wealth protection, accumulation, retirement income and group protection products and solutions.  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 U.S. and several U.S. territories.  See Note 15 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 condition, 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 investments and derivatives, other-than-temporary impairment (“OTTI”) and 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.



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 (“NPR”), 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 CodificationTM (“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:



·

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;

·

Level 2 – inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and

·

Level 3 – inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and 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.





6

 

Fixed Maturity Available-For-Sale Securities – Fair Valuation Methodologies and Associated Inputs



Securities classified as available-for-sale (“AFS”) consist of fixed maturity 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, future contract benefits, other contract holder funds and deferred income taxes. 



We measure the fair value of our securities classified as fixed maturity 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 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 fixed maturity 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 fixed maturity 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 fixed maturity AFS securities discussed above:



·

Corporate bonds and U.S. government bonds – We also use Trade Reporting and Compliance EngineTM reported tables for our corporate bonds and vendor trading platform data for our U.S. government bonds. 

·

Mortgage- and asset-backed securities (“ABS”) – We also utilize additional inputs, which include new issues data, monthly payment information and 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”), collateralized loan obligations (“CLOs”) and collateralized debt obligations (“CDOs”).

·

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.

·

Hybrid and redeemable preferred securities – We also utilize additional inputs of exchange prices (underlying and common stock of the same issuer) for our hybrid and redeemable preferred 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. 



Fixed Maturity AFS Securities – Evaluation for Recovery of Amortized Cost



We regularly review our fixed maturity AFS securities (also referred to as “debt securities”) for declines in fair value that we determine to be other-than-temporary. For our debt securities, we generally consider the following to determine whether our debt securities with unrealized losses are other-than-temporarily impaired:



·

The estimated range and average period until recovery;

·

The estimated range and average holding period to maturity;

·

Remaining payment terms of the security;

·

Current delinquencies and nonperforming assets of underlying collateral;

·

Expected future default rates;

·

Collateral value by vintage, geographic region, industry concentration or property type;

·

Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and

·

Contractual and regulatory cash obligations.



7

 

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 fixed maturity 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.  Management considers the following as part of the evaluation:



·

The current economic environment and market conditions;

·

Our business strategy and current business plans;

·

The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk;

·

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;

·

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;

·

The capital risk limits approved by management; and

·

Our current financial condition and liquidity demands.



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, that we use to determine the amount of a credit loss.  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:



·

Historical and implied volatility of the security;

·

Length of time and extent to which the fair value has been less than amortized cost;

·

Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area;

·

Failure, if any, of the issuer of the security to make scheduled payments; and

·

Recoveries or additional declines in fair value subsequent to the balance sheet date.



In periods subsequent to the recognition of an OTTI, the fixed maturity 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, CLO or CDO, we perform additional analysis related to the underlying issuer including, but not limited to, the following:



·

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;

·

Fundamentals of the industry in which the issuer operates;

·

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;

·

Expected cash flows of the issuer (e.g., whether the issuer has cash flows in excess of what is required to fund its operations);

·

Expectations regarding defaults and recovery rates;

·

Changes to the rating of the security by a rating agency; and

·

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. 









8

 

To determine recovery value of a MBS, we perform additional analysis related to the underlying issuer including, but not limited to, the following:



·

Discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover;

·

Level of creditworthiness of the home equity loans or residential mortgages that back an RMBS or commercial mortgages that back a CMBS;

·

Susceptibility to fair value fluctuations for changes in the interest rate environment;

·

Susceptibility to reinvestment risks, in cases where market yields are lower than the securities’ book yield earned;

·

Susceptibility to reinvestment risks, in cases where market yields are higher than the book yields earned on a security;

·

Expectations of sale of such a security where market yields are higher than the book yields earned on a security; and

·

Susceptibility to variability of prepayments.



When evaluating MBS and mortgage-related 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 the credit characteristics of borrowers, 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 fixed maturity AFS securities backed by mortgages 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 fixed maturity 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.



Equity Securities



Equity securities are carried at fair value, and changes in fair value are recorded in realized gain (loss) on our Statements of Comprehensive Income (Loss) as they occur.  Equity securities consist primarily of common stock of publicly-traded companies, privately placed securities and mutual fund shares.  We measure the fair value of our equity securities 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 equity security.  Fair values of publicly-traded equity securities are determined using quoted prices in active markets for identical or comparable securities.  When quoted prices are not available, we use valuation methodologies most appropriate for the specific asset.  Fair values for private placement securities are determined using discounted cash flow, earnings multiple and other valuation models.  The fair values of mutual fund shares that transact regularly are based on transaction prices of identical fund shares.    



Mortgage Loans on Real Estate



Mortgage loans on real estate consist of commercial mortgage loans and 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 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 collectability 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 valuation allowance, and subsequent recoveries, if any, are credited to the valuation allowance.  



9

 

We establish a valuation allowance to provide for the risk of credit losses inherent in our portfolio.  The valuation allowance includes specific valuation allowances for loans that are deemed to be impaired as well as general valuation allowances for pools of loans with similar risk characteristics where a property risk or market specific risk has not been identified but for which we anticipate a loss may occur.  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 specific 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.  Changes in valuation allowances are reported in realized gain (loss) on our Statements of Comprehensive Income (Loss).  General valuation allowances are primarily based on loss history adjusted for current conditions.



Valuation allowances are maintained at a level we believe is adequate to absorb estimated probable credit losses.  Our periodic evaluation of the adequacy of the valuation allowances is based on historical 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. 



Our commercial loan portfolio is primarily comprised of long-term loans secured by existing commercial real estate.  We believe all of the commercial loans in our portfolio share three primary risks:  borrower credit worthiness; sustainability of the cash flow of the property; and market risk; therefore, our methods of monitoring and assessing credit risk are consistent for our entire portfolio.



For our commercial mortgage loan portfolio, 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) a valuation allowance.  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 tenants with deteriorating credit profiles.  Where warranted, we establish or increase a valuation allowance for a specific loan based upon this analysis. 



We measure and assess the credit quality of our commercial 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 hedge certain portions of our exposure to interest rate risk, foreign currency exchange risk, and equity market risk by entering into derivative transactions.  All of our derivative instruments are recognized as either assets or liabilities on our Balance Sheets at estimated fair value.  We categorized derivatives into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique as discussed above in “Fair Value Measurement.”  The accounting for changes in the estimated fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship.  For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument based upon the exposure being hedged: as a cash flow hedge or a fair value hedge.



For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI and reclassified into net income in the same period or periods during which the hedged transaction affects net income.  The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of designated future cash flows of the hedged item (hedge ineffectiveness), if any, is recognized in net income during the period of change.  For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in net income during the period of change in estimated fair values.  For derivative instruments not designated as hedging instruments, but that are economic hedges, the gain or loss is recognized in net income. 



We have certain variable annuity products with guaranteed withdrawal benefits (“GWB”) and guaranteed income benefits (“GIB”) features that are embedded derivatives and reported as either assets or liabilities on our Balance Sheets. When it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. These embedded derivatives are carried at fair value with changes in fair value recognized in net income during the period of change.



We employ several different methods for determining the fair value of our derivative instruments.  The fair value of our derivative contracts are measured based on current settlement values, which are based on quoted market prices, industry standard models that are

10

 

commercially available and broker quotes.  These techniques project cash flows of the derivatives using current and implied future market conditions.  We calculate the present value of the cash flows to measure the current fair market value of the derivative.



Other Investments



Other investments consists primarily of initial margin posted as collateral for entering into derivative transactions.



Cash and Invested Cash



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 universal life insurance (“UL”), variable universal life insurance (“VUL”), 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 fee income 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 based on the expected lives of the contracts.  Contract lives for fixed and variable deferred annuities are generally between 15 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 lower 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 the expected premium-paying period that generally results in amortization less than 30 years.  Acquisition costs are either amortized on 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 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 fixed maturity 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.  These assumptions include, but are not limited to, capital markets, 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.

11

 

 

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 in the normal course of business to limit our exposure to the risk of loss and to enhance our capital management.



In order for a reinsurance agreement to qualify for reinsurance accounting, the agreement must satisfy certain risk transfer conditions that include, among other items, a reasonable possibility of a significant loss for the assuming entity.  When we apply reinsurance accounting, premiums, benefits and DAC amortization are reported net of insurance ceded on our Statements of Comprehensive Income (Loss).  Amounts currently recoverable, such as ceded reserves, are reported in reinsurance recoverables and amounts currently payable to the reinsurers, such as premiums, are included in other liabilities on our Balance Sheets.  Assets and liabilities and premiums and benefits from certain reinsurance contracts that grant statutory surplus relief are netted on our Balance Sheets and Statements of Comprehensive Income (Loss), respectively, if there is a contractual right of offset.



We use deposit accounting to recognize reinsurance agreements that do not transfer significant insurance risk.  This accounting treatment results in amounts paid or received to be considered on deposit with the reinsurer and such amounts are reported in other assets on our Balance Sheets.  As amounts are paid or received, consistent with the underlying contracts, deposit assets are adjusted.



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 for impairment annually as of October 1 and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. 



We perform a quantitative goodwill impairment test where the fair value of the reporting unit is determined and compared to the carrying value of the reporting unit.  If the carrying value of the reporting unit is greater than the reporting unit’s fair value, goodwill is impaired and written down to the reporting unit’s fair value; and a charge is reported in impairment of intangibles on our Statements of Comprehensive Income (Loss).  The results of one goodwill impairment test on one reporting unit cannot subsidize the results of another reporting unit.

 

Other Assets and Other Liabilities



Other assets consist primarily of certain reinsurance assets, prepaid expenses, service agreement receivables, receivables resulting from sales of securities that had not yet settled as of the balance sheet date, DSI and specifically identifiable intangible assets.  Other liabilities consist primarily of employee benefit liabilities, certain reinsurance payables, payables resulting from purchases of securities that had not yet settled as of the balance sheet date, collateral payable for derivative investments, short-term debt and other accrued expenses.



Other assets and other liabilities on our Balance Sheets include guaranteed living benefit (“GLB”) features and remaining guaranteed interest and similar contracts that are carried at fair value, which may be reported in either other assets or other liabilities.  The fair value of these items represents approximate exit price including an estimate for our NPR. Certain of these features have elements of both insurance benefits and embedded derivatives.  Through our hybrid accounting approach, for reserve calculation purposes we assign product cash flows to the embedded derivative or insurance portion of the reserves based on the life-contingent nature of the benefits. We classify these GLB reserves embedded derivatives in Level 3 within the hierarchy levels described above in “Fair Value Measurement.”  We report the insurance portion of the reserves in future contract benefits. 



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 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.



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 may include various types of guaranteed death benefit (“GDB”), GWB and GIB features.  The GDB features include those where we contractually guarantee to the contract holder either:  return of no less than total deposits made to

12

 

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. 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 reduce the 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 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 GLB 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.  We use risk-neutral Monte Carlo simulations in our calculation to value the entire block of guarantees, which involve 100 unique scenarios per policy or approximately 2 million scenarios.  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, but are not limited to, assumptions for capital markets (e.g., implied volatilities, correlation among indices, risk-free swap curve, etc.), policyholder behavior (e.g., policy lapse, rider utilization, etc.), mortality, risk margins, maintenance 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 as 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 are equal to deposits net of withdrawals, excluding surrender charges and fees, plus interest credited, and if applicable an additional reserve for other insurance benefit guarantees.  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 annuities range from 1.25% 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 in benefits on our Statements of Comprehensive Income (Loss).



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.  Dividends to participating policies were $20 million, $21 million and $21 million for the years ended December 31, 2019, 2018 and 2017, 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.



Certain of our variable annuity contracts reported within future contract benefits contain GLB reserves embedded derivatives, a portion of which may be reported in either other assets or other liabilities, and include guaranteed interest and similar contracts, that are carried at

13

 

fair value on our Balance Sheets, which represents approximate exit price including an estimate for our NPR.  Certain of these features have elements of both insurance benefits and embedded derivatives.  Through our hybrid accounting approach, for reserve calculation purposes we assign product cash flows to the embedded derivative or insurance portion of the reserves based on the life-contingent nature of the benefits.  We classify these GLB reserves embedded derivatives items in Level 3 within the hierarchy levels described above in “Fair Value Measurement.”  We report the insurance portion of the reserves in future contract benefits.



The fair value of our indexed annuity contracts is based on their approximate surrender values.



Contingencies and Commitments



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.



Fee Income



Fee income for investment and interest-sensitive life insurance contracts consists of asset-based fees, 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 fee income 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 and contract administration charges are assessed on a daily or monthly basis and recognized as revenue as performance obligations are met, over the period underlying customer assets are owned.  Wholesaling-related 12b-1 fees received from separate account fund sponsors as compensation for servicing the underlying mutual funds are recorded as revenues based on a contractual percentage of the market value of mutual fund assets over the period shares are owned by customers.  Percent of premium charges are assessed at the time of premium payment and recognized as revenue when assessed and earned.  Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited.  Surrender charges are recognized upon surrender of a contract by the contract holder in accordance with contractual terms.



For investment and interest-sensitive life insurance contracts, the amounts collected from contract holders are considered deposits and are not included in revenue.



Insurance Premiums



Our insurance premiums for traditional life insurance and group insurance products are recognized as revenue when due from the contract holder.  Our traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies.  Our group insurance products consist primarily of term life, disability and dental.



Net Investment Income



We earn investment income on the underlying general account investments supporting our fixed products less related expenses.  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 CLOs and MBS, included in the fixed maturity AFS 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) includes realized gains and losses from the sale of investments, write-downs for other-than-temporary impairments of investments, changes in fair value of equity securities, 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

14

 

(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



We credit interest to our contract holder account balances based on the contractual terms supporting our products.



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, 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 following post-retirement benefit plans that are sponsored by LNC and LNL:



·

Defined benefit pension plans for certain employees and agents;

·

Other post-retirement benefit plans for certain retired employees and agents that provide health care and life insurance;

·

Tax-qualified defined contribution plans for eligible employees and agents; and

·

Non-qualified deferred compensation plans for certain current and former employees, agents and non-employee directors.



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.  The mortality assumption is based on actual and anticipated plan experience, determined using acceptable actuarial methods.  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



Our employees and agents are included in LNC’s stock-based incentive compensation plans that provide for the issuance of stock options, performance shares and restricted stock units.  In general, we expense the fair value of stock awards included in LNC’s incentive compensation plans.  As of the date LNC’s Board of Directors approves stock awards, the fair value of stock options is determined using a Black-Scholes options valuation methodology, and the fair value of other stock awards is based upon the market value of the stock.  The fair value of the awards is expensed over the 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 apply an estimated forfeiture rate to our accrual of compensation cost.  Stock-based compensation expense is reflected in commissions and other expenses on our Statements of Comprehensive Income (Loss). 



Income Taxes



LNC files a U.S. consolidated income tax return that includes us and LNC’s other eligible subsidiaries.  Pursuant to an inter-company 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 that 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. 



15

 

2.  New Accounting Standards



Adoption of New Accounting Standards



The following table provides a description of our adoption of new Accounting Standards Updates (“ASU”) issued by the FASB and the impact of the adoption on our financial statements.  ASUs not listed below were assessed and determined to be either not applicable or insignificant in presentation or amount.



 

 

 



 

 

 

Standard

Description

Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities

These amendments require an entity to shorten the amortization period for certain callable debt securities held at a premium so that the premium is amortized to the earliest call date.  Early adoption is permitted, and the ASU requires adoption under a modified retrospective basis through a cumulative effect adjustment to the beginning balance of retained earnings.

January 1, 2019

We adopted the provisions of this ASU, which did not result in a change to our existing practices; therefore, no cumulative effect adjustment was recorded.  As such, there was no impact on our financial condition or results of operations.

ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities

These amendments change both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  These amendments retain the threshold of highly effective for hedging relationships, remove the requirement to bifurcate between the portions of the hedging relationship that are effective and ineffective, record hedge item and hedging instrument results in the same financial statement line item, require quantitative assessment initially for all hedging relationships unless the hedging relationship meets the definition of either the shortcut method or critical terms match method and allow the contractual specified index rate to be designated as the hedged risk in a cash flow hedge of interest rate risk of a variable rate financial instrument.  These amendments also eliminate the benchmark interest rate concept for variable rate instruments.  Early adoption is permitted.   

January 1, 2019

We adopted the provisions of this ASU, which did not have an impact on our financial condition or results of operations.  This ASU does result in our modification of certain hedge documentation and effectiveness methods, which we have reflected in applicable disclosures in Note 4.



 

 

 



 

 

 



16

 

Future Adoption of New Accounting Standards



The following table provides a description of future adoptions of new accounting standards that may have an impact on our financial statements when adopted:





 

 

 

Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2016-13, Measurement of Credit Losses on Financial Instruments and related amendments

These amendments adopt a new model in ASC Topic 326 to measure and recognize credit losses for most financial assets.  The ASU requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected over the life of the asset using an allowance for credit losses. Changes in the allowance are charged to earnings.  The measurement of expected credit losses is based on relevant information about past events, including historical experience, as well as current economic conditions and reasonable and supportable forecasts that affect the collectability of the financial asset.  The method used to measure estimated credit losses for fixed maturity AFS securities will be unchanged from current GAAP; however, the amendments require credit losses to be recognized through an allowance rather than as a reduction to the amortized cost of those securities.  The amendments will permit entities to recognize improvements in credit loss estimates on fixed maturity AFS securities by reducing the allowance account immediately through earnings.  The amendments will be adopted through a cumulative effect adjustment to the beginning balance of retained earnings as of the first reporting period in which the amendments are effective.  Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein.                    

January 1, 2020

The adoption of this standard and related amendments will result in the recognition of a cumulative effect adjustment that is not expected to be material to our retained earnings, to record allowances for credit losses as of the date of adoption, primarily related to commercial and residential mortgage loans, as well as reinsurance recoverables.

ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging and Topic 825, Financial Instruments

These amendments clarify the measurement, recognition and presentation of the allowance for credit losses on accrued interest receivable balances; the inclusion of recoveries when estimating the allowance for credit losses; the inclusion of all ASC Topic 944 – Financial Services – Insurance reinsurance recoverables within the scope of ASC 326-20; and provide additional targeted clarifications on the calculation of the allowance for credit losses.

These amendments also make targeted clarifications to ASC Topics 815 and 825.  Early adoption is permitted.

January 1, 2020

Our adoption of ASU 2016-13 and related amendments is discussed above.  The adoption of the remainder of this guidance will not have a material impact on our financial condition and results of operations.



 

 

 

17

 

Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments

These amendments make changes to the accounting and reporting for long-duration contracts issued by an insurance entity that will significantly change how insurers account for long-duration contracts, including how they measure, recognize and make disclosures about insurance liabilities and DAC.  Under this ASU, insurers will be required to review cash flow assumptions at least annually and update them if necessary.  They also will have to make quarterly updates to the discount rate assumptions they use to measure the liability for future policyholder benefits.  The ASU creates a new category of market risk benefits (i.e., features that protect the contract holder from capital market risk and expose the insurer to that risk) that insurers will have to measure at fair value.  The ASU provides various transition methods by topic that entities may elect upon adoption.  The ASU is currently effective January 1, 2022, and early adoption is permitted.    

January 1, 2022

We are currently evaluating the impact of adopting this ASU on our financial condition and results of operations.

ASU 2020-04, Reference Rate Reform (Topic 848)

The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.  The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform.  If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform.  Additionally, changes to the critical terms of a hedging relationship affected by reference rate reform will not require entities to de-designate the relationship if certain requirements are met.  The expedients and exceptions provided by the amendments do not apply to contracts modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.  Adoption was permitted at the time of issuance.

Not yet determined

We are currently evaluating the impact of adopting this ASU on our financial condition and results of operations.



18

 

3.  Investments



Fixed Maturity AFS Securities



The amortized cost, gross unrealized gains, losses and OTTI and fair value of fixed maturity AFS securities (in millions) were as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 



Amortized

 

Gross Unrealized

 

 

 

 

Fair

 



Cost

 

Gains

 

Losses

 

OTTI (1)

 

Value

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 6,192

 

$

 790

 

$

 26

 

$

 -

 

$

 6,956

 

U.S. government bonds

 

 15

 

 

 3

 

 

 -

 

 

 -

 

 

 18

 

State and municipal bonds

 

 413

 

 

 78

 

 

 1

 

 

 -

 

 

 490

 

Foreign government bonds

 

 32

 

 

 4

 

 

 -

 

 

 -

 

 

 36

 

RMBS

 

 333

 

 

 21

 

 

 1

 

 

 (2

)

 

 355

 

CMBS

 

 24

 

 

 1

 

 

 -

 

 

 -

 

 

 25

 

ABS

 

 107

 

 

 2

 

 

 2

 

 

 (7

)

 

 114

 

Hybrid and redeemable preferred securities

 

 31

 

 

 8

 

 

 -

 

 

 -

 

 

 39

 

Total fixed maturity AFS securities

$

 7,147

 

$

 907

 

$

 30

 

$

 (9

)

$

 8,033

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2018

 



Amortized

 

Gross Unrealized

 

 

 

 

Fair

 



Cost

 

Gains

 

Losses

 

OTTI (1)

 

Value

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 6,321

 

$

 250

 

$

 233

 

$

 -

 

$

 6,338

 

U.S. government bonds

 

 15

 

 

 3

 

 

 -

 

 

 -

 

 

 18

 

State and municipal bonds

 

 377

 

 

 48

 

 

 4

 

 

 -

 

 

 421

 

Foreign government bonds

 

 32

 

 

 3

 

 

 -

 

 

 -

 

 

 35

 

RMBS

 

 292

 

 

 11

 

 

 5

 

 

 (2

)

 

 300

 

CMBS

 

 16

 

 

 -

 

 

 -

 

 

 -

 

 

 16

 

ABS

 

 101

 

 

 1

 

 

 3

 

 

 (4

)

 

 103

 

Hybrid and redeemable preferred securities

 

 46

 

 

 4

 

 

 1

 

 

 -

 

 

 49

 

Total fixed maturity AFS securities

$

 7,200

 

$

 320

 

$

 246

 

$

 (6

)

$

 7,280

 



(1)

Includes unrealized (gains) and losses on credit-impaired securities related to changes in the fair value of such securities subsequent to the impairment measurement date.



The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of December 31, 2019, were as follows:





 

 

 

 

 

 



 

 

 

 

 

 



Amortized

 

Fair

 



Cost

 

Value

 

Due in one year or less

$

 201 

 

$

 181 

 

Due after one year through five years

 

 754 

 

 

 786 

 

Due after five years through ten years

 

 1,084 

 

 

 1,212 

 

Due after ten years

 

 4,644 

 

 

 5,360 

 

Subtotal

 

 6,683 

 

 

 7,539 

 

Structured securities (RMBS, CMBS, ABS)

 

 464 

 

 

 494 

 

Total fixed maturity AFS securities

$

 7,147 

 

$

 8,033 

 



Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.



19

 

The fair value and gross unrealized losses, including the portion of OTTI recognized in OCI, of fixed maturity 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, 2019

 

 

Less Than or Equal

 

Greater Than

 

 

 

 

 

 

 

 



to Twelve Months

 

Twelve Months

 

Total

 



 

 

Gross 

 

 

 

Gross 

 

 

 

 

 

Gross 

 

 

 

Unrealized

 

Unrealized

 

 

 

Unrealized



Fair

Losses and

Fair

Losses and

Fair

 

Losses and



Value

 

OTTI

 

Value

 

OTTI

 

Value

 

 

OTTI

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 121 

 

$

 2 

 

$

 95 

 

$

 24 

 

$

 216 

 

 

$

 26 

 

State and municipal bonds

 

 30 

 

 

 1 

 

 

 -

 

 

 -

 

 

 30 

 

 

 

 1 

 

RMBS

 

 61 

 

 

 1 

 

 

 -

 

 

 -

 

 

 61 

 

 

 

 1 

 

ABS

 

 18 

 

 

 -

 

 

 11 

 

 

 2 

 

 

 29 

 

 

 

 2 

 

Total fixed maturity AFS securities

$

 230 

 

$

 4 

 

$

 106 

 

$

 26 

 

$

 336 

 

 

$

 30 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total number of fixed maturity AFS securities in an unrealized loss position

 

 

 

 94 

 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2018

 

 

Less Than or Equal

 

Greater Than

 

 

 

 

 

 

 

 



to Twelve Months

 

Twelve Months

 

Total

 



 

 

Gross 

 

 

 

Gross 

 

 

 

 

 

Gross 

 

 

 

Unrealized

 

Unrealized

 

 

 

Unrealized



Fair

Losses and

Fair

Losses and

Fair

 

Losses and



Value

 

OTTI

 

Value

 

OTTI

 

Value

 

 

OTTI

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 2,469 

 

$

 157 

 

$

 533 

 

$

 76 

 

$

 3,002 

 

 

$

 233 

 

State and municipal bonds

 

 65 

 

 

 3 

 

 

 8 

 

 

 1 

 

 

 73 

 

 

 

 4 

 

RMBS

 

 56 

 

 

 1 

 

 

 54 

 

 

 4 

 

 

 110 

 

 

 

 5 

 

ABS

 

 10 

 

 

 -

 

 

 25 

 

 

 5 

 

 

 35 

 

 

 

 5 

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 -

 

 

 -

 

 

 18 

 

 

 1 

 

 

 18 

 

 

 

 1 

 

Total fixed maturity AFS securities

$

 2,600 

 

$

 161 

 

$

 638 

 

$

 87 

 

$

 3,238 

 

 

$

 248 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total number of fixed maturity AFS securities in an unrealized loss position

 

 

 

 589 

 





 

 

 

 

 

 

 

 

 



20

 

The fair value, gross unrealized losses, the portion of OTTI recognized in OCI (in millions) and number of fixed maturity AFS securities where the fair value had declined and remained below amortized cost by greater than 20% were as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 



 

 

 

 

 

 

 

 

 

 

Number

 



Fair

 

Gross Unrealized

 

 

of

 



Value

 

Losses

 

OTTI

 

Securities (1)

Twelve months or greater

$

 36 

 

$

 21 

 

$

 -

 

 

 

 7 

 

Total

$

 36 

 

$

 21 

 

$

 -

 

 

 

 7 

 





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2018

 



 

 

 

 

 

 

 

 

 

 

Number

 



Fair

 

Gross Unrealized

 

 

of

 



Value

 

Losses

 

OTTI

 

Securities (1)

Less than six months

$

 31 

 

$

 9 

 

$

 -

 

 

 

 6 

 

Six months or greater, but less than nine months

 

 25 

 

 

 14 

 

 

 -

 

 

 

 3 

 

Nine months or greater, but less than twelve months

 

 11 

 

 

 8 

 

 

 -

 

 

 

 2 

 

Twelve months or greater

 

 14 

 

 

 4 

 

 

 2 

 

 

 

 7 

 

Total

$

 81 

 

$

 35 

 

$

 2 

 

 

 

 18 

 



(1)

We may reflect a security in more than one aging category based on various purchase dates. 



We regularly review our investment holdings for OTTI.  Our gross unrealized losses, including the portion of OTTI recognized in OCI, on fixed maturity AFS securities decreased by $218 million for the year ended December 31, 2019.  As discussed further below, we believe the unrealized loss position as of December 31, 2019, did not represent OTTI as (i) we did not intend to sell these fixed maturity AFS securities; (ii) 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; and (iii) the estimated future cash flows were equal to or greater than the amortized cost basis of the debt securities.



Based upon this evaluation as of December 31, 2019, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums, fee income 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, 2019, the unrealized losses associated with our corporate bond securities were attributable primarily to widening credit spreads and rising interest rates since purchase.  We performed a detailed analysis of the financial performance of the underlying issuers and determined that we expected to recover the entire amortized cost for each temporarily-impaired security.



As of December 31, 2019, the unrealized losses associated with our MBS and ABS were attributable primarily to widening credit spreads and rising interest rates since purchase.  We assessed for credit impairment using a cash flow model that incorporates key assumptions including 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 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 of each temporarily-impaired security.



As of December 31, 2019, 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 underlying issuers.  For our hybrid and redeemable preferred securities, we evaluated the financial performance of the underlying issuers based upon credit performance and investment ratings and determined that we expected to recover the entire amortized cost of each temporarily-impaired security.



21

 

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,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 39

 

$

 39

 

$

 47

 

Increases attributable to:

 

 

 

 

 

 

 

 

 

Credit losses on securities for which an

 

 

 

 

 

 

 

 

 

OTTI was not previously recognized

 

 -

 

 

 -

 

 

 1

 

Decreases attributable to:

 

 

 

 

 

 

 

 

 

Securities sold, paid down or matured

 

 (18

)

 

 -

 

 

 (9

)

Balance as of end-of-year

$

 21

 

$

 39

 

$

 39

 



During 2019 and 2018, there were no credit losses on securities for which an OTTI was not previously recognized.  During 2017, 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:



·

Failure of the issuer of the security to make scheduled payments;

·

Deterioration of creditworthiness of the issuer;

·

Deterioration of conditions specifically related to the security;

·

Deterioration of fundamentals of the industry in which the issuer operates; and

·

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 fixed maturity AFS securities.



Determination of Credit Losses on Corporate Bonds



As of December 31, 2019 and 2018, we reviewed our corporate bond portfolio for potential shortfalls 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. 



Determination of Credit Losses on MBS and ABS



As of December 31, 2019 and 2018, default rates were projected by considering underlying MBS and ABS loan performance and collateral type.  Projected default rates on existing delinquencies vary 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 adjusted by housing price assumptions.  With the default rate timing curve and loan-level loss severity, we derive the future expected credit losses.



22

 

Mortgage Loans on Real Estate



There were no past due or impaired mortgage loans on real estate as of December 31, 2019 and 2018.



As described in Note 1, we use loan-to-value and debt-service coverage ratios as credit quality indicators for our commercial mortgage loans on real estate (dollars in millions) as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



 

 

 

 

 

Debt-

 

 

 

 

 

 

Debt-

 



 

 

 

 

 

Service

 

 

 

 

 

 

Service

 



Carrying

 

% of

 

Coverage

 

Carrying

 

% of

 

Coverage

 

Loan-to-Value Ratio

Value

 

Total

 

Ratio

 

Value

 

Total

 

Ratio

 

Less than 65%

$

 888 

 

 96.9% 

 

2.90

 

$

 784 

 

 96.0% 

 

2.70

 

65% to 74%

 

 28 

 

 3.1% 

 

1.39

 

 

 33 

 

 4.0% 

 

1.42

 

Total

$

 916 

 

 100.0% 

 

 

 

$

 817 

 

 100.0% 

 

 

 



Our commercial mortgage loan portfolio is geographically diversified with the largest concentrations in New York, which accounted for 45% and 55% of commercial mortgage loans on real estate as of December 31, 2019 and 2018, respectively, and California, which accounted for 18% and 15% of commercial mortgage loans on real estate as of December 31, 2019 and 2018, respectively.



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,

 



2019

 

2018

 

2017

 

Fixed maturity AFS securities

$

 340

 

$

 349

 

$

 358

 

Mortgage loans on real estate

 

 36

 

 

 32

 

 

 30

 

Policy loans

 

 15

 

 

 5

 

 

 18

 

Invested cash

 

 1

 

 

 1

 

 

 1

 

Commercial mortgage loan prepayment

 

 

 

 

 

 

 

 

 

and bond make-whole premiums

 

 10

 

 

 7

 

 

 11

 

Consent fees

 

 -

 

 

 -

 

 

 1

 

Investment income

 

 402

 

 

 394

 

 

 419

 

Investment expense

 

 (3

)

 

 (3

)

 

 (3

)

Net investment income

$

 399

 

$

 391

 

$

 416

 



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,

 



2019

 

2018

 

2017

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Gross gains

$

 3

 

$

 1

 

$

 -

 

Gross losses

 

 (7

)

 

 (8

)

 

 (1

)

Gross OTTI

 

 -

 

 

 -

 

 

 (1

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 

 

 

 

 

 

 

 

and changes in other contract holder funds

 

 -

 

 

 (1

)

 

 (1

)

Total realized gain (loss) related to certain investments

 

 (4

)

 

 (8

)

 

 (3

)

Realized gain (loss) on the mark-to-market on certain

 

 

 

 

 

 

 

 

 

instruments (1)

 

 43

 

 

 1

 

 

 -

 

GLB fees ceded to LNL and attributed fees:

 

 

 

 

 

 

 

 

 

Gross gain (loss)

 

 (8

)

 

 (10

)

 

 (11

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 (2

)

 

 (2

)

 

 (2

)

Total realized gain (loss)

$

 29

 

$

 (19

)

$

 (16

)



(1)

Represents changes in the fair values of certain derivative investments and reinsurance related embedded derivatives.  See Notes 4 and 7 for information regarding modified coinsurance (“Modco”).



23

 

Details underlying write-downs taken as a result of OTTI that were recognized in net income (loss) and included in realized gain (loss) on

fixed maturity AFS securities above (in millions) were as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

OTTI Recognized in Net Income (Loss)

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 -

 

$

 -

 

$

 (1

)

Gross OTTI recognized in net income (loss)

 

 -

 

 

 -

 

 

 (1

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 -

 

 

 -

 

 

 -

 

Net OTTI recognized in net income (loss)

$

 -

 

$

 -

 

$

 (1

)



 

 

 

 

 

 

 

 

 

We recognized less than $1 million of OTTI in OCI for the years ended December 31, 2019, 2018 and 2017.



Payables for Collateral on Investments



The carrying value of the payables for collateral on investments included on our Balance Sheets and the fair value of the related investments or collateral (in millions) consisted of the following:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



Carrying

 

Fair

 

Carrying

 

Fair

 



Value

 

Value

 

Value

 

Value

 

Collateral payable for derivative investments (1)

$

 14 

 

$

 14 

 

$

 -

 

$

 -

 



(1)

We obtain collateral based upon contractual provisions with our counterparties.  These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash.  See Note 4 for additional information.



Increase (decrease) in payables for collateral on investments (in millions) consisted of the following:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Collateral payable for derivative investments

$

 14 

 

$

 -

 

$

 -

 



Investment Commitments



As of December 31, 2019, our investment commitments were $68 million, which included $42 million of mortgage loans on real estate and $26 million of private placement securities.



Concentrations of Financial Instruments



As of December 31, 2019, our most significant investments in one issuer were our investments in securities issued by the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association with a fair value of $125 million and $113 million, respectively, or 1% of total investments.  As of December 31, 2018, our most significant investments in one issuer were our investments in securities issued by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association with a fair value of $128 million and $77 million, respectively, or 2% and 1%, respectively, of total investments.  These concentrations include fixed maturity AFS and equity securities.



As of December 31, 2019 and 2018, our most significant investments in one industry were our investments in securities in the consumer non-cyclical industry with a fair value of $1.3 billion and $1.2 billion, respectively, or 14% of total investments, and our investments in securities in the financial services industry with a fair value of $1.2 billion and $1.1 billion, respectively, or 13% of total investments.  These concentrations include fixed maturity AFS and equity securities.



Assets on Deposit



We had investment assets on deposit with regulatory agencies with a fair value of $15 million as of December 31, 2019 and 2018.



4.  Derivative Instruments

 

We maintain an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate risk, foreign currency exchange risk and equity market risk.  We assess these risks by continually identifying and monitoring changes in our exposures that may adversely affect expected future cash flows and by evaluating hedging opportunities. 

24

 



Derivative activities are monitored by various management committees.  The committees are responsible for overseeing the implementation of various hedging strategies that are developed through the analysis of financial simulation models and other internal and industry sources.  The resulting hedging strategies are incorporated into our overall risk management strategies.    



See Note 1 for a detailed discussion of the accounting treatment for derivative instruments.  See Note 14 for additional disclosures related to the fair value of our derivative instruments.



Interest Rate Contracts



We use derivative instruments as part of our interest rate risk management strategy.  These instruments are economic hedges unless otherwise noted and include:



Forward-Starting Interest Rate Swaps



We use forward-starting interest rate swaps to hedge the interest rate exposure within our life products related to the forecasted purchases of certain assets. 



Reverse Treasury Locks



We use reverse treasury locks designated and qualifying as cash flow hedges to hedge the interest rate exposure related to the anticipated purchase of fixed-rate securities.  These derivatives are primarily structured to hedge interest rate risk inherent in the assumptions used to price certain liabilities.



Foreign Currency Contracts



We use derivative instruments as part of our foreign currency risk management strategy. These instruments are economic hedges unless otherwise noted and include:



Foreign Currency Swaps



We use foreign currency swaps designated and qualifying as cash flow hedges to hedge foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies. A foreign currency swap is a contractual agreement to exchange one currency for another at specified dates in the future at a specified exchange rate.



Equity Market Contracts



We use derivative instruments as part of our equity market risk management strategy that are economic hedges and include:



Call Options Based on the S&P 500 Index®



Our indexed annuity and indexed universal life (“IUL”) contracts permit the holder to elect an interest rate return or an equity market component, where interest credited to the contracts is linked to the performance of the S&P 500. Contract holders may elect to rebalance index options at renewal dates. At the end of each indexed term, we have the opportunity to re-price the indexed component by establishing participation rates, caps, spreads and specified rates, subject to contractual guarantees. We use call options that are highly correlated to the portfolio allocation decisions of our contract holders, such that we are economically hedged with respect to equity returns for the current reset period.



Embedded Derivatives



We have embedded derivatives that include:



GLB Reserves Embedded Derivatives



We transfer the majority of the liability for our GWB and GIB features to LNL, who uses 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 hedge the income statement effect of changes in embedded derivative GLB reserves caused by those same factors.  The hedge positions are rebalanced based upon changes in these factors as needed.  While we actively manage the hedge positions, 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 our ability to purchase hedging instruments at prices consistent with the desired risk and return trade-off. 



25

 

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 benefit reserves and the embedded derivative reserves based on the specific characteristics of each GLB feature.



Indexed Annuity and IUL Contracts Embedded Derivatives



Our indexed annuity and IUL contracts permit the holder to elect an interest rate return or an equity market component, where interest credited to the contracts is linked to the performance of the S&P 500 Index®.  Contract holders may elect to rebalance index options at renewal dates, either annually or biannually.  As of each renewal date, we have the opportunity to re-price the indexed component by establishing participation rates, caps, spreads and specified rates, subject to contractual guarantees. 



Reinsurance Related Embedded Derivatives



We have certain modified coinsurance (“Modco”) and coinsurance with funds withheld reinsurance agreements 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 agreements.



We have derivative instruments with off-balance-sheet risks whose notional or contract amounts exceed the related credit exposure.  Outstanding derivative instruments with off-balance-sheet risks (in millions) were as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



Notional

 

Fair Value

 

Notional

 

Fair Value

 



Amounts

 

Asset

 

Liability

 

Amounts

 

Asset

 

Liability

 

Qualifying Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

$

 150 

 

$

 15 

 

$

 2 

 

$

 150 

 

$

 1 

 

$

 2 

 

Foreign currency contracts (1)

 

 27 

 

 

 -

 

 

 3 

 

 

 -

 

 

 -

 

 

 -

 

Total cash flow hedges

 

 177 

 

 

 15 

 

 

 5 

 

 

 150 

 

 

 1 

 

 

 2 

 

Non-Qualifying Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Economic hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

 

 250 

 

 

 -

 

 

 -

 

 

 100 

 

 

 1 

 

 

 -

 

Equity market contracts (1)

 

 12 

 

 

 1 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Embedded derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct (2)

 

 -

 

 

 -

 

 

 4 

 

 

 -

 

 

 -

 

 

 16 

 

GLB ceded (2)

 

 -

 

 

 4 

 

 

 -

 

 

 -

 

 

 15 

 

 

 -

 

Reinsurance related (3)

 

 -

 

 

 15 

 

 

 -

 

 

 -

 

 

 12 

 

 

 -

 

Indexed annuity and IUL contracts (4)

 

 -

 

 

 -

 

 

 2 

 

 

 -

 

 

 -

 

 

 1 

 

Total derivative instruments

$

 439 

 

$

 35 

 

$

 11 

 

$

 250 

 

$

 29 

 

$

 19 

 



(1)

Reported in derivative investments and other liabilities on our Balance Sheets.

(2)

Reported in other assets and other liabilities on our Balance Sheets.

(3)

Reported in reinsurance related embedded derivatives on our Balance Sheets.

(4)

Reported in future contract benefits on our Balance Sheets.



26

 

The maturity of the notional amounts of derivative instruments (in millions) was as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Remaining Life as of December 31, 2019

 



Less Than

 

1 – 5

 

6 – 10

 

11 – 30

 

Over 30

 

 

 



1 Year

 

Years

 

Years

 

Years

 

Years

 

Total

 

Interest rate contracts (1)

$

 90 

 

$

 60 

 

$

 -

 

$

 -

 

$

 250 

 

$

 400 

 

Foreign currency contracts (2)

 

 -

 

 

 -

 

 

 3 

 

 

 11 

 

 

 13 

 

 

 27 

 

Equity market contracts

 

 12 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 12 

 

Total derivative instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with notional amounts

$

 102 

 

$

 60 

 

$

 3 

 

$

 11 

 

$

 263 

 

$

 439 

 



(1)

As of December 31, 2019, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was November 24, 2021.

(2)

As of December 31, 2019, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was February 26, 2050.



The change in our unrealized gain (loss) on derivative instruments within accumulated other comprehensive income (loss) (“AOCI”) (in millions) was as follows:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Unrealized Gain (Loss) on Derivative Instruments

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 -

 

$

 1

 

$

 -

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the year:

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 13

 

 

 (1

)

 

 1

 

Foreign currency contracts

 

 (1

)

 

 -

 

 

 -

 

Change in foreign currency exchange rate adjustment

 

 (1

)

 

 -

 

 

 -

 

Change in DAC, VOBA, DSI and DFEL

 

 (1

)

 

 -

 

 

 -

 

Income tax benefit (expense)

 

 (2

)

 

 -

 

 

 -

 

Balance as of end-of-year

$

 8

 

$

 -

 

$

 1

 



The effects of qualifying and non-qualifying hedges (in millions) on the Statements of Comprehensive Income (Loss) were as follows:







 

 

 

 

 

 

 

 

 



Gain (Loss)

 

 

 



Recognized in Income

 

 

 



For the Year Ended

 

 

 



December 31, 2019

 

 

 



Realized

 

Net

 

 

 



Gain

 

Investment

 

 

 



(Loss)

 

Income

 

 

 

Total Line Items in which the Effects of Fair Value

 

 

 

 

 

 

 

 

 

or Cash Flow Hedges are Recorded

 

$

 29

 

$

 399

 

 

 



 

 

 

 

 

 

 

 

 

Non-Qualifying Hedges

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 

 43

 

 

 -

 

 

 

Embedded derivatives:

 

 

 

 

 

 

 

 

 

GLB

 

 

 1

 

 

 -

 

 

 

Indexed annuity and IUL contracts

 

 

 (1

)

 

 -

 

 

 



27

 

The gains (losses) on derivative instruments (in millions) recorded within net income (loss) on our Statements of Comprehensive Income (Loss) were as follows:







 

 

 

 

 



For the Years Ended December 31,



2018

 

2017

Non-Qualifying Hedges

 

 

 

 

 

Interest rate contracts (1)

$

 1

 

$

 -

Embedded derivatives:

 

 

 

 

 

GLB reserves (1)

 

 (1

)

 

 -

Total derivative instruments

$

 -

 

$

 -



(1)

Reported in realized gain (loss) on our Statements of Comprehensive Income (Loss).



As of December 31, 2019, less than $1 million of the deferred net gains (losses) on derivative instruments in AOCI were expected to be reclassified to earnings during the next 12 months.



Credit Risk



We are exposed to credit losses in the event of non-performance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or Non-Performance Risk (“NPR”).  The NPR is based upon assumptions for each counterparty’s credit spread over the estimated weighted average life of the counterparty exposure, less collateral held.  As of December 31, 2019, the NPR adjustment was zero.  The credit risk associated with such agreements is minimized by entering into agreements with financial institutions with long-standing, superior performance records.  Additionally, we maintain a policy of requiring derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement.  We are required to maintain minimum ratings as a matter of routine practice in negotiating ISDA agreements. Under some ISDA agreements, we have agreed to maintain certain financial strength or claims-paying ratings. A downgrade below these levels could result in termination of derivative contracts, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contracts.  Our ISDA agreements are supported by credit support annexes requiring the parties to collateralize outstanding exposures.  The amount of such exposure is essentially the net replacement cost or market value less collateral held for such agreements with each counterparty if the net market value is in our favor.  We did not have any exposure as of December 31, 2019 or 2018.



The amounts recognized (in millions) by Standard & Poor (“S&P”) credit rating of counterparty, for which we had the right to reclaim cash collateral or were obligated to return cash collateral, were as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2019

 

As of December 31, 2018

 



 

Collateral

 

Collateral

 

Collateral

 

Collateral

 



 

Posted by

 

Posted by

 

Posted by

 

Posted by

 

S&P

 

Counter-

 

LLANY

 

Counter-

 

LLANY

 

Credit

 

Party

 

(Held by

 

Party

 

(Held by

 

Rating of

 

(Held by

 

Counter-

 

(Held by

 

Counter-

 

Counterparty

 

LLANY)

 

Party)

 

LLANY)

 

Party)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

AA-

 

$

 -

 

$

 -

 

$

 -

 

$

 -

 

A+

 

 

 14

 

 

 -

 

 

 -

 

 

 (1

)

A

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

A-

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

BBB+

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 



 

$

 14

 

$

 -

 

$

 -

 

$

 (1

)



28

 

Balance Sheet Offsetting



Information related to the effects of offsetting on our Balance Sheets (in millions) was as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2019

 



 

 

 

 

Embedded

 

 

 

 



Derivative

Derivative

 

 

 

 



Instruments

Instruments

 

Total

 



 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount of recognized assets

 

$

 16

 

 

$

 19

 

 

$

 35

 

Gross amounts offset

 

 

 (5

)

 

 

 -

 

 

 

 (5

)

Net amount of assets

 

 

 11

 

 

 

 19

 

 

 

 30

 

Gross amounts not offset:

 

 

 

 

 

 

 

 

 

 

 

 

Cash collateral

 

 

 (14

)

 

 

 -

 

 

 

 (14

)

Net amount

 

$

 (3

)

 

$

 19

 

 

$

 16

 



 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount of recognized liabilities

 

$

 -

 

 

$

 6

 

 

$

 6

 

Gross amounts offset

 

 

 -

 

 

 

 -

 

 

 

 -

 

Net amount of liabilities

 

 

 -

 

 

 

 6

 

 

 

 6

 

Gross amounts not offset:

 

 

 

 

 

 

 

 

 

 

 

 

Cash collateral

 

 

 -

 

 

 

 -

 

 

 

 -

 

Net amount

 

$

 -

 

 

$

 6

 

 

$

 6

 



As of December 31, 2018, the offset on our Balance Sheets associated with our derivative instruments was less than $2 million. There was no offsetting on our Balance Sheets associated with our embedded derivative instruments.

29

 



5.  Federal Income Taxes



The federal income tax expense (benefit) (in millions) was as follows:







 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Current

$

 35

 

$

 15

 

$

 72

 

Deferred

 

 12

 

 

 (13

)

 

 (222

)

Federal income tax expense (benefit)

$

 47

 

$

 2

 

$

 (150

)



A reconciliation of the effective tax rate differences (in millions) was as follows:







 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Income (loss) before taxes

$

 252

 

$

 73

 

$

 131

 

Federal statutory rate

 

 21%

 

 

 21%

 

 

 35%

 

Federal income tax expense (benefit) at federal statutory rate

 

 53

 

 

 16

 

 

 46

 

Effect of:

 

 

 

 

 

 

 

 

 

Tax-preferred investment income (1)

 

 (4

)

 

 (3

)

 

 (8

)

Tax credits

 

 (2

)

 

 (1

)

 

 (1

)

Goodwill impairment

 

 -

 

 

 -

 

 

 12

 

Tax impact associated with the Tax Cuts and Jobs Act (2)

 

 (1

)

 

 (9

)

 

 (197

)

Other items

 

 1

 

 

 (1

)

 

 (2

)

Federal income tax expense (benefit)

$

 47

 

$

 2

 

$

 (150

)

Effective tax rate

 

 19%

 

 

 3%

 

 

-115%

 



(1)

Relates primarily to separate account dividends eligible for the dividends-received deduction.  As a result of the Tax Cuts and Jobs Act (the “Tax Act”), the recorded tax benefit for the separate account dividends-received deduction was lower in 2019 and 2018 as compared to 2017. 

(2)

As a result of the enactment of the Tax Act in 2017, we remeasured our existing deferred tax balances at the prevailing corporate federal income tax rate of 21% and recognized a $197 million tax benefit.  In 2018, we recognized a $9 million net tax benefit from the impact of the reduced federal statutory rate under the Tax Act on our adoption of an Internal Revenue Service pronouncement related to variable annuity contracts.  In 2019, we recognized a $1 million net tax benefit from the impact of the reduced corporate tax rate under the Tax Act on our election to revalue policyholder tax reserves.



We file with a consolidated group; however, we calculate our tax expense (benefit) on a separate company basis.



The federal income tax asset (liability) (in millions) was as follows:







 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Current

$

 (15

)

$

 13

 

Deferred

 

 (344

)

 

 (211

)

Total federal income tax asset (liability)

$

 (359

)

$

 (198

)



30

 

Significant components of our deferred tax assets and liabilities (in millions) were as follows:







 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Deferred Tax Assets

 

 

 

 

 

 

Investment activity

$

 26

 

$

 -

 

Other

 

 1

 

 

 1

 

Total deferred tax assets

$

 27

 

$

 1

 

Deferred Tax Liabilities

 

 

 

 

 

 

DAC

$

 10

 

$

 57

 

VOBA

 

 58

 

 

 39

 

Net unrealized gain on fixed maturity AFS securities

 

 186

 

 

 17

 

Future contract benefits and other contract holder funds

 

 112

 

 

 93

 

Other

 

 5

 

 

 6

 

Total deferred tax liabilities

$

 371

 

$

 212

 

Net deferred tax asset (liability)

$

 (344

)

$

 (211

)



Although realization is not assured, management believes that it is more likely than not that we will realize the benefits of all of our deferred tax assets, and, accordingly, no valuation allowance has been recorded.



We recognize interest and penalties accrued, if any, related to unrecognized tax benefits as a component of tax expense.  As of December 31, 2019 and 2018, we did not have any material unrecognized tax benefits; therefore, we did not have any related accrued interest and penalty expense.  Additionally, for the years ended December 31, 2019, 2018 and 2017, we did not recognize any interest and penalty expense related to uncertain tax positions.  We are not aware of any events for which it is likely that unrecognized tax benefits will significantly increase or decrease within the next year.



We are subject to examination by U.S. federal, state, local and non-U.S. income authorities.  We are currently not under examination by the Internal Revenue Service; however, tax years 2016 and forward remain open under the applicable statute of limitations.  We are currently under examination by several state and local taxing jurisdictions; however, we do not expect these examinations will materially impact us.



6.  DAC, VOBA, DSI and DFEL



Changes in DAC (in millions) were as follows:









 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 392

 

$

 372

 

$

 386

 

Deferrals

 

 37

 

 

 31

 

 

 53

 

Amortization, net of interest:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking, net of interest

 

 (39

)

 

 (40

)

 

 (46

)

Unlocking

 

 (33

)

 

 (28

)

 

 4

 

Adjustment related to realized (gains) losses

 

 (2

)

 

 (3

)

 

 (3

)

Adjustment related to unrealized (gains) losses

 

 (178

)

 

 60

 

 

 (22

)

Balance as of end-of-year

$

 177

 

$

 392

 

$

 372

 



Changes in VOBA (in millions) were as follows:









 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 186

 

$

 187

 

$

 225

 

Amortization:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking

 

 (33

)

 

 (33

)

 

 (34

)

Unlocking

 

 150

 

 

 (13

)

 

 4

 

Accretion of interest (1)

 

 12

 

 

 12

 

 

 13

 

Adjustment related to unrealized (gains) losses

 

 (39

)

 

 33

 

 

 (21

)

Balance as of end-of-year

$

 276

 

$

 186

 

$

 187

 



(1)

The interest accrual rates utilized to calculate the accretion of interest ranged from 5.7% to 6.6%.

31

 

Estimated future amortization of VOBA, net of interest (in millions), as of December 31, 2019, was as follows:











 

 

 



 

 

 

2020

$

 16 

 

2021

 

 18 

 

2022

 

 20 

 

2023

 

 19 

 

2024

 

 19 

 



Changes in DSI (in millions) were as follows:













 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 7

 

$

 8

 

$

 9

 

Deferrals

 

 -

 

 

 1

 

 

 1

 

Amortization, net of interest:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking, net of interest

 

 (1

)

 

 (2

)

 

 (2

)

Balance as of end-of-year

$

 6

 

$

 7

 

$

 8

 



Changes in DFEL (in millions) were as follows:













 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 159

 

$

 129

 

$

 131

 

Deferrals

 

 27

 

 

 23

 

 

 23

 

Amortization, net of interest:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking, net of interest

 

 (9

)

 

 (6

)

 

 (11

)

Unlocking

 

 (15

)

 

 (13

)

 

 (1

)

Adjustment related to realized (gains) losses

 

 -

 

 

 (1

)

 

 (1

)

Adjustment related to unrealized (gains) losses

 

 (58

)

 

 27

 

 

 (12

)

Balance as of end-of-year

$

 104

 

$

 159

 

$

 129

 





7.  Reinsurance



The following summarizes reinsurance amounts (in millions) recorded on our Statements of Comprehensive Income (Loss):



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Direct insurance premiums and fee income

$

 691

 

$

 679

 

$

 673

 

Reinsurance ceded

 

 (187

)

 

 (184

)

 

 (179

)

Total insurance premiums and fee income

$

 504

 

$

 495

 

$

 494

 



 

 

 

 

 

 

 

 

 

Direct insurance benefits

$

 587

 

$

 595

 

$

 525

 

Reinsurance recoveries netted against benefits

 

 (182

)

 

 (231

)

 

 (191

)

Total benefits

$

 405

 

$

 364

 

$

 334

 



We cede insurance to other companies.  The portion of our life insurance and annuity risks exceeding our retention limit is reinsured with other insurers.  We seek reinsurance coverage to limit our exposure to mortality losses and to enhance our capital management.  As discussed in Note 17, a portion of this reinsurance activity is with affiliated companies.



As of December 31, 2019, the policy for our reinsurance program was to retain up to $20 million on a single insured life.  As the amount we retain varies by policy, we reinsured approximately 30% of the mortality risk on newly issued life insurance contracts in 2019.    Portions of our variable and 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, 2019 and 2018, the reserves associated with these reinsurance arrangements totaled $3 million.



We focus on obtaining reinsurance from a diverse group of reinsurers, and we monitor concentration as well as financial strength ratings of our reinsurers.  Reinsurance contracts do not relieve an insurer from its primary obligation to policyholders.  Therefore, the failure of a reinsurer to discharge its reinsurance obligations could result in a loss to us.  We regularly evaluate the financial condition of our reinsurers and monitor concentrations of credit risk related to reinsurance activities.  Our amounts recoverable from reinsurers represent receivables from and reserves ceded to reinsurers.  The amounts recoverable from reinsurers were $536 million and $527 million as of December 31, 2019 and 2018, respectively.  



See Note 4 for information on reinsurance related embedded derivatives.

32

 

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, 2019

 



Gross

Accumulated

 

 

 

 

 

 



Goodwill

Impairment

 

 

 

 

 

Net

 



as of

as of

 

 

 

 

Goodwill

 



Beginning-

Beginning-

 

 

 

 

as of End-

 



 

of-Year

 

 

of-Year

 

 

Impairment

 

 

of-Year

 

Annuities

 

$

 26

 

 

$

 -

 

 

$

 -

 

 

$

 26

 

Life Insurance

 

 

 136

 

 

 

 (136

)

 

 

 -

 

 

 

 -

 

Total goodwill

 

$

 162

 

 

$

 (136

)

 

$

 -

 

 

$

 26

 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Year Ended December 31, 2018

 



Gross

Accumulated

 

 

 

 

 

 



Goodwill

Impairment

 

 

 

 

 

Net

 



as of

as of

 

 

 

 

Goodwill

 



Beginning-

Beginning-

 

 

 

 

as of End-

 



 

of-Year

 

 

of-Year

 

 

Impairment

 

 

of-Year

 

Annuities

 

$

 26

 

 

$

 -

 

 

$

 -

 

 

$

 26

 

Life Insurance

 

 

 136

 

 

 

 (136

)

 

 

 -

 

 

 

 -

 

Total goodwill

 

$

 162

 

 

$

 (136

)

 

$

 -

 

 

$

 26

 



The fair values of our reporting units (Level 3 fair value estimates) are comprised of the value of in-force (i.e., existing) business and the value of new business.  Specifically, new business is representative of cash flows and profitability associated with policies or contracts we expect to issue in the future, reflecting our forecasts of future sales volume and product mix over a 10-year period.  To determine the values of in-force and new business, we use a discounted cash flows technique that applies a discount rate reflecting the market expected, weighted-average rate of return adjusted for the risk factors associated with operations to the projected future cash flows for each reporting unit.



As of October 1, 2019 and 2018, we performed our annual quantitative goodwill impairment test for our reporting unit, and, as of each such date, the fair value was in excess of the reporting unit’s carrying value for Annuities.



As of October 1, 2017, the date of our annual quantitative assessment of goodwill, our Annuities reporting unit had a fair value that exceeded its carrying value.  Our early adoption of ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” resulted in impairment of the Life Insurance reporting unit goodwill of $34 million during the fourth quarter of 2017 driven primarily from the impact of the December 22, 2017, enactment of the Tax Act that increased the carrying value of the Life Insurance reporting unit in excess of its fair value, bringing the Life Insurance goodwill to zero as of December 31, 2017. 



The gross carrying amounts and accumulated amortization (in millions) for our major specifically identifiable intangible asset class by reportable segment were as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 



As of December 31, 2019

 

 

As of December 31, 2018

 

 



Gross

 

 

 

 

 

 

Gross

 

 

 

 

 



Carrying

 

Accumulated

 

Carrying

 

Accumulated

 



Amount

 

Amortization

 

Amount

 

Amortization

 

Life Insurance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales force

$

 7 

 

 

$

 4 

 

 

$

 7 

 

 

$

 4 

 

 



Future estimated amortization of the specifically identifiable intangible assets was immaterial as of December 31, 2019. 



33

 

9.  Guaranteed Benefit Features



Information on the GDB features outstanding (dollars in millions) was as follows:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

As of December 31,

 

 



 

2019 (1)

 

 

2018 (1)

 

 

Return of Net Deposits

 

 

 

 

 

 

 

 

 

Total account value

 

$

 4,914 

 

 

$

 4,316 

 

 

Net amount at risk (2)

 

 

 2 

 

 

 

 55 

 

 

Average attained age of contract holders

 

 

64 years

 

 

 

63 years

 

 



 

 

 

 

 

 

 

 

 

Minimum Return (3)

 

 

 

 

 

 

 

 

 

Average attained age of contract holders

 

 

N/A

 

 

 

88 years

 

 

Guaranteed minimum return

 

 

 5% 

 

 

 

 5% 

 

 



 

 

 

 

 

 

 

 

 

Anniversary Contract Value

 

 

 

 

 

 

 

 

 

Total account value

 

$

 1,296 

 

 

$

 1,166 

 

 

Net amount at risk (2)

 

 

 4 

 

 

 

 96 

 

 

Average attained age of contract holders

 

 

70 years

 

 

 

69 years

 

 



(1)    Our variable contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive.

(2)    Represents the amount of death benefit in excess of the account balance that is subject to market fluctuations.

(3)    We had one active policy with a minimum return GDB rider that ended during 2019.  As of December 31, 2019, we had no policies with a minimum return GDB rider.



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 GDBs (in millions), which were recorded in future contract benefits on our Balance Sheets:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 

 



2019

 

2018

 

2017

 

 

Balance as of beginning-of-year

$

 6

 

$

 3

 

$

 3

 

 

Changes in reserves

 

 (2

)

 

 3

 

 

 -

 

 

Balance as of end-of-year

$

 4

 

$

 6

 

$

 3

 

 



Variable Annuity Contracts



Account balances of variable annuity contracts, including those with guarantees, (in millions) were invested in separate account investment options as follows:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

As of December 31,

 

 



 

2019

 

 

2018

 

 

Asset Type

 

 

 

 

 

 

 

 

 

Domestic equity

 

$

 2,507 

 

 

$

 2,079 

 

 

International equity

 

 

 790 

 

 

 

 733 

 

 

Fixed income

 

 

 1,941 

 

 

 

 1,743 

 

 

Total

 

$

 5,238 

 

 

$

 4,555 

 

 



 

 

 

 

 

 

 

 

 

Percent of total variable annuity

 

 

 

 

 

 

 

 

 

separate account values

 

 

 91% 

 

 

 

 91% 

 

 



Secondary Guarantee Products



Future contract benefits and other contract holder funds include reserves for our secondary guarantee products sold through our Life Insurance segment.  Reserves on UL and VUL products with secondary guarantees represented 30% and 32% of total life insurance in-force reserves as of December 31, 2019 and 2018, respectively.





34

 

10.  Contingencies and Commitments



Contingencies



Regulatory and Litigation Matters



Regulatory bodies, such as state insurance departments, the Securities and Exchange Commission, 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. 



From time to time we may have 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 verdicts obtained 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, 2019.  While the potential future charges could be material in the particular period 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.



Cost of Insurance Litigation



Hanks v. The Lincoln Life and Annuity Company of New York and Voya Retirement Insurance and Annuity Company (“Voya”), filed in the U.S. District Court for the Southern District of New York, No. 1:16-cv-6399, is a putative class action that was served on LLANY on August 12, 2016.  Plaintiff owns a universal life policy originally issued by Aetna (now Voya) and alleges that (i) Voya breached the terms of the policy when it increased non-guaranteed cost of insurance rates on Plaintiff’s policy; and (ii) LLANY, as reinsurer and administrator of Plaintiff’s policy, engaged in wrongful conduct related to the cost of insurance increase and was unjustly enriched as a result.  Plaintiff seeks to represent all owners of Aetna life insurance policies that were subject to non-guaranteed cost of insurance rate increases in 2016 and seeks damages on their behalf.  On March 13, 2019, the court issued an order granting plaintiff’s motion for class certification for the breach of contract claim and denying such motion with respect to the unjust enrichment claim against LLANY, and, on September 12, 2019, the court issued an order approving the parties’ joint stipulation of dismissal with respect to the unjust enrichment claim and dismissed LLANY as a defendant in the case.  In light of LLANY’s role as reinsurer and administrator under the 1998 coinsurance agreement with Aetna (now Voya), and of the parties’ rights and obligations thereunder, LLANY continues to be actively engaged in the vigorous defense of this action.



Vida Longevity Fund, LP v. Lincoln Life & Annuity Company of New York, pending in the U.S. District Court for the Southern District of New York, No. 1:19-cv-06004, is a putative class action that was filed on June 27, 2019.  Plaintiff alleges that LLANY charged more for non-guaranteed cost of insurance than was permitted by the policies.  Plaintiff seeks to represent all current and former owners of universal life (including variable universal life) policies who own or owned policies issued by LLANY and its predecessors in interest that were in force at any time on or after June 27, 2013, and which contain non-guaranteed cost of insurance provisions that are similar to those of Plaintiff’s policies.  Plaintiff also seeks to represent a sub-class of such policyholders who own or owned “life insurance policies issued in the State of New York.”  Plaintiff seeks damages on behalf of the policyholder class and sub-class.  We are vigorously defending this matter.



Commitments



Vulnerability from Concentrations



As of December 31, 2019, 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 years ended December 31, 2019 and 2018, 87% and 89%, respectively, of the premiums, on the basis of statutory accounting principles (“SAP”), were generated in New York.

Other Contingency Matters

35

 



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 and the related reductions in future state premium taxes, which net to assessments (recoveries) of $(2) million and $(3) million as of December 31, 2019 and 2018, respectively.



11.  Shares and Stockholder’s Equity



All authorized and issued shares of LLANY are owned by LNL.



AOCI



The following summarizes the components and changes in AOCI (in millions):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Unrealized Gain (Loss) on AFS Securities

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 13

 

$

 310

 

$

 173

 

Cumulative effect from adoption of new accounting standards

 

 -

 

 

 62

 

 

 -

 

Unrealized holding gains (losses) arising during the year

 

 799

 

 

 (573

)

 

 242

 

Change in foreign currency exchange rate adjustment

 

 1

 

 

 -

 

 

 -

 

Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds

 

 (236

)

 

 114

 

 

 (44

)

Income tax benefit (expense)

 

 (118

)

 

 95

 

 

 (63

)

Less:

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains (losses) included in net income (loss)

 

 (4

)

 

 (7

)

 

 (2

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 -

 

 

 (1

)

 

 (1

)

Income tax benefit (expense)

 

 1

 

 

 3

 

 

 1

 

Balance as of end-of-year

$

 462

 

$

 13

 

$

 310

 

Unrealized OTTI on AFS Securities

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 7

 

$

 7

 

$

 5

 

(Increases) attributable to:

 

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

 -

 

 

 1

 

 

 -

 

Decreases attributable to:

 

 

 

 

 

 

 

 

 

Changes in fair value, sales, maturities or other settlements of AFS securities

 

 3

 

 

 (1

)

 

 5

 

Change in DAC, VOBA, DSI and DFEL

 

 -

 

 

 -

 

 

 (1

)

Income tax benefit (expense)

 

 (1

)

 

 -

 

 

 (2

)

Balance as of end-of-year

$

 9

 

$

 7

 

$

 7

 

Unrealized Gain (Loss) on Derivative Instruments

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 -

 

$

 1

 

$

 1

 

Unrealized holding gains (losses) arising during the year

 

 12

 

 

 (1

)

 

 -

 

Change in foreign currency exchange rate adjustment

 

 (1

)

 

 -

 

 

 -

 

Change in DAC, VOBA, DSI and DFEL

 

 (1

)

 

 -

 

 

 -

 

Income tax benefit (expense)

 

 (2

)

 

 -

 

 

 -

 

Balance as of end-of-year

$

 8

 

$

 -

 

$

 1

 



36

 

The following summarizes the reclassifications out of AOCI (in millions) and the associated line item in the Statements of Comprehensive Income (Loss):









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 

 



2019

 

 

2018

 

 

2017

 

 

Unrealized Gain (Loss) on AFS Securities

 

 

 

 

 

 

 

 

 

 

 

 

Gross reclassification

$

 (4

)

 

$

 (7

)

 

$

 (2

)

Total realized gain (loss)

Associated amortization of DAC, 

 

 

 

 

 

 

 

 

 

 

 

 

VOBA, DSI and DFEL

 

 -

 

 

 

 (1

)

 

 

 (1

)

Total realized gain (loss)

Reclassification before income

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing

tax benefit (expense)

 

 (4

)

 

 

 (8

)

 

 

 (3

)

operations before taxes

Income tax benefit (expense)

 

 1

 

 

 

 3

 

 

 

 1

 

Federal income tax expense (benefit)

Reclassification, net of income tax

$

 (3

)

 

$

 (5

)

 

$

 (2

)

Net income (loss)



 

 

 

 

 

 

 

 

 

 

 

 

Unrealized OTTI on AFS Securities

 

 

 

 

 

 

 

 

 

 

Gross reclassification

$

 2

 

 

$

 -

 

 

$

 -

 

Total realized gain (loss)

Change in DAC, VOBA, DSI and DFEL

 

 -

 

 

 

 -

 

 

 

 -

 

Total realized gain (loss)

Reclassification before income

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing

tax benefit (expense)

 

 2

 

 

 

 -

 

 

 

 -

 

operations before taxes

Income tax benefit (expense)

 

 -

 

 

 

 -

 

 

 

 -

 

Federal income tax expense (benefit)

Reclassification, net of income tax

$

 2

 

 

$

 -

 

 

$

 -

 

Net income (loss)





12.  Commissions and Other Expenses



Details underlying commissions and other expenses (in millions) were as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Commissions

$

 66

 

$

 62

 

$

 77

 

General and administrative expenses

 

 75

 

 

 65

 

 

 80

 

Expenses associated with reserve financing and unrelated letters of credit

 

 14

 

 

 13

 

 

 10

 

DAC and VOBA deferrals and interest, net of amortization

 

 (94

)

 

 71

 

 

 6

 

Taxes, licenses and fees

 

 17

 

 

 22

 

 

 21

 

Total

$

 78

 

$

 233

 

$

 194

 











13.  Statutory Information and Restrictions

 

We prepare financial statements in accordance with SAP prescribed or permitted by the New York State Department of Financial Services, 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.



37

 

Specified statutory information (in millions) was as follows:







 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

U.S. capital and surplus

$

 1,106 

 

$

 1,118 

 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

U.S. net gain (loss) from operations, after-tax

$

 102 

 

$

 85 

 

$

 238 

 

U.S. net income (loss)

 

 99 

 

 

 80 

 

 

 237 

 



Comparison of 2019 to 2018



Statutory net income increased due primarily to more favorable reserve strain than experienced in the prior year on certain Annuities and Retirement Plan Services products, partially offset by higher death benefits, general insurance expenses and increased federal and foreign taxes incurred.



Comparison of 2018 to 2017



Statutory net income (loss) decreased due primarily to increased reserve strain on certain annuity products and increased taxes incurred related to reinsurance transactions, partially offset by increased ceded commission allowances and higher fees on separate accounts.



State Prescribed and Permitted Practices



Our state of domicile, New York, has adopted certain prescribed accounting practices that differ from those found in NAIC SAP.  These prescribed practices include the use of a more conservative valuation interest rate on certain annuities. 



The favorable (unfavorable) effect on statutory surplus compared to NAIC statutory surplus from the use of this prescribed practice (in millions) was as follows:



 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

State Prescribed Practices

 

 

 

 

 

 

Conservative valuation rate on certain annuities

$

 (2

)

$

 (3

)



The NAIC has adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks.  The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile.  Under RBC requirements, regulatory compliance is determined by the ratio of a company’s total adjusted capital, as defined by the NAIC, to its company action level of RBC (known as the “RBC ratio”), also as defined by the NAIC.  The company action level may be triggered if the RBC ratio is between 75% and 100%, which would require the insurer to submit a plan to the regulator detailing corrective action it proposes to undertake.  As of December 31, 2019, the Company’s RBC ratio was in excess of 11 times the aforementioned company action level.



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 of the Superintendent of the New York State Department of Financial Services 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 or net gain from operations for the immediately preceding calendar year, not including realized capital gains.  We expect that we could pay dividends of approximately $100 million in 2020 without New York Department of Insurance approval.







38

 

14.  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, 2019

 

As of December 31, 2018

 



Carrying

 

Fair

 

Carrying

 

Fair

 



Value

 

Value

 

Value

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities

$

 8,033

 

$

 8,033

 

$

 7,280

 

$

 7,280

 

Equity securities

 

 2

 

 

 2

 

 

 2

 

 

 2

 

Mortgage loans on real estate

 

 916

 

 

 952

 

 

 817

 

 

 811

 

Derivative investments (1)

 

 11

 

 

 11

 

 

 -

 

 

 -

 

Other investments

 

 20

 

 

 20

 

 

 1

 

 

 1

 

Cash and invested cash

 

 82

 

 

 82

 

 

 31

 

 

 31

 

Reinsurance related embedded derivatives

 

 15

 

 

 15

 

 

 12

 

 

 12

 

Other assets – GLB ceded embedded

 

 

 

 

 

 

 

 

 

 

 

 

derivatives

 

 4

 

 

 4

 

 

 15

 

 

 15

 

Separate account assets

 

 7,095

 

 

 7,095

 

 

 6,028

 

 

 6,028

 



 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

 (2

)

 

 (2

)

 

 (1

)

 

 (1

)

Other contract holder funds:

 

 

 

 

 

 

 

 

 

 

 

 

Remaining guaranteed interest and similar contracts

 

 (24

)

 

 (24

)

 

 (29

)

 

 (29

)

Account values of certain investment contracts

 

 (1,180

)

 

 (1,553

)

 

 (1,234

)

 

 (1,370

)

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Short-term debt

 

 (26

)

 

 (26

)

 

 (49

)

 

 (49

)

GLB direct embedded derivatives

 

 (4

)

 

 (4

)

 

 (16

)

 

 (16

)



(1)

We have master netting agreements with each of our derivative counterparties, which allow for the netting of our derivative asset and liability positions by counterparty.



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 and includes cash collateral receivables.  The inputs used to measure the fair value of these assets are classified as Level 2 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, 2019 and 2018, 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.

Short-Term Debt

39

 



The carrying value of short-term debt approximates fair value.  The inputs used to measure the fair value of our short-term debt are classified as Level 2 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, 2019 or 2018, 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, 2019

 



 

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

 

$

 -

 

 

$

 6,891

 

 

$

 65

 

 

$

 6,956

 

ABS

 

 

 -

 

 

 

 114

 

 

 

 -

 

 

 

 114

 

U.S. government bonds

 

 

 18

 

 

 

 -

 

 

 

 -

 

 

 

 18

 

Foreign government bonds

 

 

 -

 

 

 

 34

 

 

 

 2

 

 

 

 36

 

RMBS

 

 

 -

 

 

 

 352

 

 

 

 3

 

 

 

 355

 

CMBS

 

 

 -

 

 

 

 25

 

 

 

 -

 

 

 

 25

 

State and municipal bonds

 

 

 -

 

 

 

 490

 

 

 

 -

 

 

 

 490

 

Hybrid and redeemable preferred securities

 

 

 -

 

 

 

 38

 

 

 

 1

 

 

 

 39

 

Equity securities

 

 

 2

 

 

 

 -

 

 

 

 -

 

 

 

 2

 

Derivative investments (1)

 

 

 -

 

 

 

 -

 

 

 

 16

 

 

 

 16

 

Cash and invested cash

 

 

 -

 

 

 

 82

 

 

 

 -

 

 

 

 82

 

Reinsurance related embedded derivatives

 

 

 -

 

 

 

 15

 

 

 

 -

 

 

 

 15

 

Other assets – GLB ceded embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 4

 

 

 

 4

 

Separate account assets

 

 

 39

 

 

 

 7,056

 

 

 

 -

 

 

 

 7,095

 

Total assets

 

$

 59

 

 

$

 15,097

 

 

$

 91

 

 

$

 15,247

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

$

 -

 

 

$

 -

 

 

$

 (2

)

 

$

 (2

)

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

 

 -

 

 

 

 (2

)

 

 

 (3

)

 

 

 (5

)

GLB direct embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 (4

)

 

 

 (4

)

Total liabilities

 

$

 -

 

 

$

 (2

)

 

$

 (9

)

 

$

 (11

)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 







 

40

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2018

 



 

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

 

$

 -

 

 

$

 6,275

 

 

$

 63

 

 

$

 6,338

 

ABS

 

 

 -

 

 

 

 103

 

 

 

 -

 

 

 

 103

 

U.S. government bonds

 

 

 18

 

 

 

 -

 

 

 

 -

 

 

 

 18

 

Foreign government bonds

 

 

 -

 

 

 

 33

 

 

 

 2

 

 

 

 35

 

RMBS

 

 

 -

 

 

 

 300

 

 

 

 -

 

 

 

 300

 

CMBS

 

 

 -

 

 

 

 16

 

 

 

 -

 

 

 

 16

 

State and municipal bonds

 

 

 -

 

 

 

 421

 

 

 

 -

 

 

 

 421

 

Hybrid and redeemable preferred securities

 

 

 -

 

 

 

 47

 

 

 

 2

 

 

 

 49

 

Equity securities

 

 

 2

 

 

 

 -

 

 

 

 -

 

 

 

 2

 

Derivative investments (1)

 

 

 -

 

 

 

 -

 

 

 

 2

 

 

 

 2

 

Cash and invested cash

 

 

 -

 

 

 

 31

 

 

 

 -

 

 

 

 31

 

Reinsurance related embedded derivatives

 

 

 -

 

 

 

 12

 

 

 

 -

 

 

 

 12

 

Other assets – GLB direct embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 15

 

 

 

 15

 

Separate account assets

 

 

 39

 

 

 

 5,989

 

 

 

 -

 

 

 

 6,028

 

Total assets

 

$

 59

 

 

$

 13,227

 

 

$

 84

 

 

$

 13,370

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

$

 -

 

 

$

 -

 

 

$

 (1

)

 

$

 (1

)

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

 

 -

 

 

 

 -

 

 

 

 (2

)

 

 

 (2

)

GLB direct embedded derivatives

 

 

 -

 

 

 

 

 

 

 

 (16

)

 

 

 (16

)

Total liabilities

 

$

 -

 

 

$

 -

 

 

$

 (19

)

 

$

 (19

)



(1)

Derivative investment assets and liabilities are presented within the fair value hierarchy on a gross basis by derivative type and not on a master netting basis by counterparty.

41

 

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, 2019

 



 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 



 

 

 

Items

 

(Losses)

Sales,

Into 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

$

 63

 

$

 6

 

$

 2

 

$

 (5

)

$

 (1

)

$

 65

 

ABS

 

 -

 

 

 -

 

 

 -

 

 

 2

 

 

 (2

)

 

 -

 

Foreign government bonds

 

 2

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 2

 

RMBS

 

 -

 

 

 -

 

 

 -

 

 

 3

 

 

 -

 

 

 3

 

CMBS

 

 -

 

 

 1

 

 

 -

 

 

 (1

)

 

 -

 

 

 -

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 2

 

 

 -

 

 

 (1

)

 

 -

 

 

 -

 

 

 1

 

Derivative investments

 

 -

 

 

 -

 

 

 19

 

 

 (6

)

 

 

 

 

 13

 

Other assets – GLB ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives (4)

 

 15

 

 

 (11

)

 

 -

 

 

 -

 

 

 -

 

 

 4

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives (4)

 

 (1

)

 

 (1

)

 

 -

 

 

 -

 

 

 -

 

 

 (2

)

Other liabilities – GLB direct

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives (4)

 

 (16

)

 

 12

 

 

 -

 

 

 -

 

 

 -

 

 

 (4

)

Total, net

$

 65

 

$

 7

 

$

 20

 

$

 (7

)

$

 (3

)

$

 82

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2018

 



 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 



 

 

 

Items

 

(Losses)

Sales,

Into 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

$

 89

 

$

 5

 

$

 (12

)

$

 (19

)

$

 -

 

$

 63

 

ABS

 

 6

 

 

 -

 

 

 -

 

 

 -

 

 

 (6

)

 

 -

 

Foreign government bonds

 

 2

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 2

 

RMBS

 

 5

 

 

 -

 

 

 -

 

 

 -

 

 

 (5

)

 

 -

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 2

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 2

 

Other assets: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 21

 

 

 (21

)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

GLB ceded embedded derivatives

 

 -

 

 

 15

 

 

 -

 

 

 -

 

 

 -

 

 

 15

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives (4)

 

 (2

)

 

 -

 

 

 -

 

 

 1

 

 

 -

 

 

 (1

)

Other liabilities: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 -

 

 

 (16

)

 

 -

 

 

 -

 

 

 -

 

 

 (16

)

GLB ceded embedded derivatives

 

 (21

)

 

 21

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Total, net

$

 102

 

$

 4

 

$

 (12

)

$

 (18

)

$

 (11

)

$

 65

 



42

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2017

 



 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 



 

 

 

Items

 

(Losses)

Sales,

Into 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

$

 72

 

$

 3

 

$

 7

 

$

 (8

)

$

 15

 

$

 89

 

ABS

 

 1

 

 

 -

 

 

 -

 

 

 7

 

 

 (2

)

 

 6

 

Foreign government bonds

 

 2

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 2

 

RMBS

 

 -

 

 

 -

 

 

 -

 

 

 7

 

 

 (2

)

 

 5

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 2

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 2

 

Other assets: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 -

 

 

 21

 

 

 -

 

 

 -

 

 

 -

 

 

 21

 

GLB ceded embedded derivatives

 

 38

 

 

 (38

)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives (4)

 

 (1

)

 

 (1

)

 

 -

 

 

 -

 

 

 -

 

 

 (2

)

Other liabilities: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 (38

)

 

 38

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

GLB ceded embedded derivatives

 

 -

 

 

 (21

)

 

 -

 

 

 -

 

 

 -

 

 

 (21

)

Total, net

$

 76

 

$

 2

 

$

 7

 

$

 6

 

$

 11

 

$

 102

 



(1)

The changes in fair value of the interest rate contracts are offset by an adjustment to derivative investments (see Note 4).

(2)

Transfers into or out of Level 3 for fixed maturity AFS securities are reported at amortized cost as of the beginning-of-year.  The difference between beginning-of-year amortized cost and beginning-of-year fair value was included in OCI and earnings, respectively, in the 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).



The following provides the components of the items included in issuances, sales, maturities, settlements and 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, 2019

 



Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 7

 

$

 -

 

$

 -

 

$

 (1

)

$

 (11

)

$

 (5

)

ABS

 

 2

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 2

 

RMBS

 

 3

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 3

 

CMBS

 

 -

 

 

 -

 

 

 -

 

 

 (1

)

 

 -

 

 

 (1

)

Derivative investments

 

 -

 

 

 (6

)

 

 -

 

 

 -

 

 

 -

 

 

 (6

)

Total, net

$

 12

 

$

 (6

)

$

 -

 

$

 (2

)

$

 (11

)

$

 (7

)











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2018

 



Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 -

 

$

 (11

)

$

 -

 

$

 (1

)

$

 (7

)

$

 (19

)

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

 -

 

 

 -

 

 

 -

 

 

 1

 

 

 -

 

 

 1

 

Total, net

$

 -

 

$

 (11

)

$

 -

 

$

 -

 

$

 (7

)

$

 (18

)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2017

 



Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 1

 

$

 (5

)

$

 -

 

$

 (1

)

$

 (3

)

$

 (8

)

ABS

 

 7

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 7

 

RMBS

 

 7

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 7

 

Total, net

$

 15

 

$

 (5

)

$

 -

 

$

 (1

)

$

 (3

)

$

 6

 



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,

 



2019

 

2018

 

2017

 

Embedded derivatives:

 

 

 

 

 

 

 

 

 

Other assets – GLB direct and ceded

$

 43

 

$

 (7

)

$

 86

 

Other liabilities – GLB direct and ceded

 

 (43

)

 

 7

 

 

 (86

)

Total, net (1)

$

 -

 

$

 -

 

$

 -

 



(1)

Included in realized gain (loss) on our Statements of Comprehensive Income (Loss). 



The following provides the components of the transfers into and out of Level 3 (in millions) as reported above:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2019

 



Transfers

 

Transfers

 

 

 

 



Into

 

Out of

 

 

 

 



Level 3

 

Level 3

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 11

 

$

 (12

)

$

 (1

)

ABS

 

 -

 

 

 (2

)

 

 (2

)

Total, net

$

 11

 

$

 (14

)

$

 (3

)





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2018

 



Transfers

 

Transfers

 

 

 

 



Into

 

Out of

 

 

 

 



Level 3

 

Level 3

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

ABS

$

 -

 

$

 (6

)

$

 (6

)

RMBS

 

 -

 

 

 (5

)

 

 (5

)

Total, net

$

 -

 

$

 (11

)

$

 (11

)







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2017

 



Transfers

 

Transfers

 

 

 

 



Into

 

Out of

 

 

 

 



Level 3

 

Level 3

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 15

 

$

 -

 

$

 15

 

ABS

 

 3

 

 

 (5

)

 

 (2

)

RMBS

 

 -

 

 

 (2

)

 

 (2

)

Total, net

$

 18

 

$

 (7

)

$

 11

 



Transfers into 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, 2019, 2018 and 2017, transfers in and out of Level 3 were attributable primarily to the securities’ observable market information no longer being available or becoming available. 

44

 



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, 2019:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Fair

 

Valuation

 

Significant

 

Assumption or

 



Value

 

Technique

 

Unobservable Inputs

 

Input Ranges

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 57

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 

 0.1

%

 

-

 5.1

%

 

Foreign government bonds

 

 2

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 

 2.1

%

 

-

 2.1

%

 

Other assets – GLB ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 4

 

Discounted cash flow

 

Long-term lapse rate (2)

 

 1

%

 

-

 30

%

 



 

 

 

 

 

 

Utilization of guaranteed withdrawals (3)

 85

%

 

-

 100

%

 



 

 

 

 

 

 

Claims utilization factor (4)

 

 60

%

 

-

 100

%

 



 

 

 

 

 

 

Premiums utilization factor (4)

 

 80

%

 

-

 115

%

 



 

 

 

 

 

 

NPR (5)

 

 0.01

%

 

-

 0.27

%

 



 

 

 

 

 

 

Mortality rate (6)

 

 

 

 

 

(8)

 

 



 

 

 

 

 

 

Volatility (7)

 

 1

%

 

-

 28

%

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

annuity and IUL contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 (2

)

Discounted cash flow

 

Lapse rate (2)

 

 1

%

 

-

 9

%

 



 

 

 

 

 

 

Mortality rate (6)

 

 

 

 

 

(8)

 

 

Other liabilities – GLB direct

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 (4

)

Discounted cash flow

 

Long-term lapse rate (2)

 

 1

%

 

-

 30

%

 



 

 

 

 

 

 

Utilization of guaranteed withdrawals (3)

 85

%

 

-

 100

%

 



 

 

 

 

 

 

Claims utilization factor (4)

 

 60

%

 

-

 100

%

 



 

 

 

 

 

 

Premiums utilization factor (4)

 

 80

%

 

-

 115

%

 



 

 

 

 

 

 

NPR (5)

 

 0.01

%

 

-

 0.27

%

 



 

 

 

 

 

 

Mortality rate (6)

 

 

 

 

 

(8)

 

 



 

 

 

 

 

 

Volatility (7)

 

 1

%

 

-

 28

%

 



(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 and IUL 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 utilization factors are applied to the present value of claims or premiums, as appropriate, in the GLB reserve calculation to estimate the impact of inefficient withdrawal behavior, including taking less than or more than the maximum guaranteed withdrawal.

(5)

The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract.

(6)

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.

(7)

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.

(8)

The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors.



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. 



45

 

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:



·

Investments – An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement. 

·

Indexed annuity and IUL contracts embedded derivatives – For direct embedded derivatives, an increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement.

·

GLB embedded derivatives – Assuming our GLB direct embedded derivatives are in a liability position:  an increase in our lapse rate, NPR or mortality rate inputs would result in a decrease in the fair value measurement; and an increase in the utilization of guaranteed withdrawal or volatility inputs 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 ongoing 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.



15.  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 focuses 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, including short and long-term disability, absence management services, term life, dental, vision and accident and critical illness benefits and services to the employer marketplace through various forms of employee-paid and employer-paid plans.



Other Operations includes investments related to our excess capital; other corporate investments; benefit plan net liability; and the results of certain disability income business.



Segment operating revenues and income (loss) from operations are internal measures used by our management and Board of Directors to evaluate and assess the results of our segments.  Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable:



·

Realized gains and losses associated with the following (“excluded realized gain (loss)”):

§

Sales or disposals and impairments of securities;

§

Changes in the fair value of embedded derivatives within certain reinsurance arrangements;

§

GLB rider fees ceded to LNL;

§

The net valuation premium of the GLB attributed rider fees; and

§

Changes in the fair value of equity securities;

·

Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance;

·

Gains (losses) on early extinguishment of debt;

·

Losses from the impairment of intangible assets;

·

Income (loss) from discontinued operations;

·

Acquisition and integration costs related to mergers and acquisitions; and

·

Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act.

46

 

Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:



·

Excluded realized gain (loss);

·

Revenue adjustments from the initial adoption of new accounting standards;

·

Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and

·

Amortization of deferred gains arising from reserve changes on business sold through reinsurance.



We use our prevailing corporate federal income tax rates of 21% and 35%, where applicable, while taking into account any permanent differences for events recognized differently in our financial statements and federal income tax returns when reconciling our segment measures of performance to the GAAP measures presented in our results of operations.  Operating revenues and income (loss) from operations do not replace revenues and net income as the GAAP measures of our results of operations.



The tables below reconcile our segment measures of performance to the GAAP measures presented in our Statements of Comprehensive Income (Loss) (in millions):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Annuities

$

 162

 

$

 167

 

$

 170

 

Retirement Plan Services

 

 73

 

 

 69

 

 

 67

 

Life Insurance

 

 560

 

 

 548

 

 

 572

 

Group Protection

 

 92

 

 

 82

 

 

 81

 

Other Operations

 

 27

 

 

 30

 

 

 30

 

Excluded realized gain (loss), pre-tax

 

 19

 

 

 (29

)

 

 (25

)

Total revenues

$

 933

 

$

 867

 

$

 895

 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

Annuities

$

 49

 

$

 58

 

$

 54

 

Retirement Plan Services

 

 6

 

 

 4

 

 

 2

 

Life Insurance

 

 121

 

 

 8

 

 

 57

 

Group Protection

 

 (9

)

 

 (8

)

 

 2

 

Other Operations

 

 21

 

 

 23

 

 

 20

 

Excluded realized gain (loss), after-tax

 

 16

 

 

 (23

)

 

 (17

)

Net impact from the Tax Cuts and Jobs Act

 

 1

 

 

 9

 

 

 197

 

Impairment of intangibles, after-tax

 

 -

 

 

 -

 

 

 (34

)

Net income (loss)

$

 205

 

$

 71

 

$

 281

 











47

 

Other segment information (in millions) was as follows:



























 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Net Investment Income

 

 

 

 

 

 

 

 

 

Annuities

$

 34 

 

$

 37 

 

$

 41 

 

Retirement Plan Services

 

 63 

 

 

 60 

 

 

 58 

 

Life Insurance

 

 269 

 

 

 256 

 

 

 279 

 

Group Protection

 

 6 

 

 

 8 

 

 

 8 

 

Other Operations

 

 27 

 

 

 30 

 

 

 30 

 

Total net investment income

$

 399 

 

$

 391 

 

$

 416 

 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Amortization of DAC and VOBA, Net of Interest

 

 

 

 

 

 

 

 

 

Annuities

$

 21

 

$

 16

 

$

 19

 

Retirement Plan Services

 

 1

 

 

 1

 

 

 1

 

Life Insurance

 

 (82

)

 

 84

 

 

 36

 

Group Protection

 

 3

 

 

 2

 

 

 3

 

Total amortization of DAC and VOBA, net of interest

$

 (57

)

$

 103

 

$

 59

 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Federal Income Tax Expense (Benefit)

 

 

 

 

 

 

 

 

 

Annuities

$

 8

 

$

 11

 

$

 14

 

Retirement Plan Services

 

 -

 

 

 -

 

 

 -

 

Life Insurance

 

 32

 

 

 1

 

 

 30

 

Group Protection

 

 (2

)

 

 (2

)

 

 1

 

Other Operations

 

 6

 

 

 7

 

 

 11

 

Excluded realized gain (loss)

 

 4

 

 

 (6

)

 

 (9

)

Net impact from the Tax Cuts and Jobs Act

 

 (1

)

 

 (9

)

 

 (197

)

Total federal income tax expense (benefit)

$

 47

 

$

 2

 

$

 (150

)









 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Assets

 

 

 

 

 

 

Annuities

$

 6,499 

 

$

 5,790 

 

Retirement Plan Services

 

 2,718 

 

 

 2,305 

 

Life Insurance

 

 9,077 

 

 

 8,356 

 

Group Protection

 

 172 

 

 

 156 

 

Other Operations

 

 747 

 

 

 726 

 

Total assets

$

 19,213 

 

$

 17,333 

 







16.  Supplemental Disclosures of Cash Flow Data



The following summarizes our supplemental cash flow data (in millions):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Income taxes paid (received)

$

 7 

 

$

 27 

 

$

 61 

 







48

 

17.  Transactions with Affiliates



The following summarizes transactions with affiliates (in millions) and the associated line item on our Balance Sheets:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

As of December 31,

 

 

 

 

 



 

 

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

Assets with affiliates:

 

 

 

 

 

 

 

 

 

 



Ceded reinsurance contracts

$

 144 

 

$

 131 

 

Reinsurance recoverables



Ceded reinsurance contracts

 

 11 

 

 

 12 

 

Reinsurance related embedded derivatives



Ceded reinsurance contracts

 

 18 

 

 

 24 

 

Other assets



Service agreement receivable 

 

 8 

 

 

 27 

 

Other assets



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities with affiliates:

 

 

 

 

 

 

 

 

 

 



Inter-company short-term debt

 

 26 

 

 

 49 

 

Other liabilities



Ceded reinsurance contracts

 

 -

 

 

 1 

 

Other liabilities



Service agreement payable

 

 1 

 

 

 1 

 

Other liabilities



The following summarizes transactions with affiliates (in millions) and the associated line item on our Statements of Comprehensive Income (Loss):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 



 

 

 

 

 

 

 

 

2019

 

2018

 

2017

 

 

Revenues with affiliates:

 

 

 

 

 

 

 

 

 

 



Premiums received on assumed (paid on ceded)

 

 

 

 

 

 

 

 

 

 



 

reinsurance contracts

$

 (17

)

$

 (10

)

$

 (5

)

Insurance premiums



Fees for management of general account

 

 (2

)

 

 (3

)

 

 (3

)

Net investment income



Realized gains (losses) on ceded reinsurance contracts:  

 

 

 

 

 

 

 

 

 

 



 

GLB reserves embedded derivatives

 

 (12

)

 

 37

 

 

 (59

)

Realized gain (loss)



 

Other gains (losses)

 

 (38

)

 

 (49

)

 

 46

 

Realized gain (loss)



Ceded reinsurance contracts

 

 -

 

 

 1

 

 

 -

 

Other revenues



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefits and expenses with affiliates:

 

 

 

 

 

 

 

 

 

 



Interest credited on ceded reinsurance contracts

 

 (1

)

 

 (2

)

 

 -

 

Interest credited



Reinsurance (recoveries) benefits on ceded reinsurance

 

 (1

)

 

 (16

)

 

 (4

)

Benefits



Ceded reinsurance contracts

 

 (23

)

 

 (23

)

 

 -

 

Commissions and other



 

 

 

 

 

 

 

 

 

 

expenses



Service agreement payments

 

 77

 

 

 68

 

 

 77

 

Commissions and other



 

 

 

 

 

 

 

 

 

 

expenses



Cash Management Agreement



In order to manage our capital more efficiently, we participate in an inter-company cash management program where LNC can lend to or borrow from us to meet short-term borrowing needs.  The cash management program is essentially a series of demand loans, which are permitted under applicable insurance laws, among LNC and its affiliates that reduces overall borrowing costs by allowing LNC and its subsidiaries to access internal resources instead of incurring third-party transaction costs.  The borrowing limit is currently 2% of our admitted assets as of December 31, 2019.



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 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:  headcount, capital, investments by product, assets under management, weighted policies in force and sales.  



Ceded Reinsurance Contracts



We cede business to two affiliated companies, LNL, our parent, and Lincoln National Reinsurance Company (Barbados) Ltd., a wholly-owned subsidiary of LNC.  As discussed in Note 4, we cede the GLB reserves embedded derivatives and the related hedge results to LNL.





49

 

18.  Subsequent Events



Management evaluated subsequent events for the Company through April 1, 2020, the date the financial statements were available to be issued.  On March 23, 2020, LLANY paid a cash dividend in the amount of $102 million to LNL.



The worldwide coronavirus, or COVID-19, outbreak in the first quarter of 2020 has led to an extreme downturn in and volatility of the financial markets, record-low interest rates and wide-ranging changes in consumer behavior.  As the economic and regulatory environment continues to react and evolve, we cannot reasonably estimate the length or severity of this event or the impact to our results of operations, financial condition and cash flows.  However, in general, a deterioration in general economic and business conditions can have a negative impact on our account values, investment results and claims experience, while declines in or sustained low interest rates can cause a reduction in investment income, the interest margins of our businesses and demand for our products.



Management identified no other items or events required for disclosure.





 

50

LLANY Separate Account S For Flexible Premium Variable Life Insurance


C-1


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of assets and liabilities

December 31, 2019

Subaccount

  

Investments

  

Total Assets

  

Net Assets

  

AB VPS Global Thematic Growth Portfolio - Class A

  

$

97,782

    

$

97,782

    

$

97,782

    

AB VPS Growth and Income Portfolio - Class A

    

349,506

      

349,506

      

349,506

    

AB VPS International Value Portfolio - Class A

    

30,955

      

30,955

      

30,955

    

AB VPS Small/Mid Cap Value Portfolio - Class A

    

146,901

      

146,901

      

146,901

    

American Century VP Income & Growth Fund - Class I

    

36,224

      

36,224

      

36,224

    

American Century VP Inflation Protection Fund - Class II

    

45,973

      

45,973

      

45,973

    

American Century VP International Fund - Class I

    

70,688

      

70,688

      

70,688

    

American Funds Global Growth Fund - Class 2

    

410,097

      

410,097

      

410,097

    

American Funds Global Small Capitalization Fund - Class 2

    

405,854

      

405,854

      

405,854

    

American Funds Growth Fund - Class 2

    

180,872

      

180,872

      

180,872

    

American Funds High-Income Bond Fund - Class 2

    

30,102

      

30,102

      

30,102

    

American Funds International Fund - Class 2

    

1,567,704

      

1,567,704

      

1,567,704

    

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

    

3,057

      

3,057

      

3,057

    

BlackRock Equity Dividend V.I. Fund - Class I

    

73,379

      

73,379

      

73,379

    

BlackRock Global Allocation V.I. Fund - Class I

    

33,554

      

33,554

      

33,554

    

BlackRock High Yield V.I. Fund - Class I

    

177,112

      

177,112

      

177,112

    

ClearBridge Variable Small Cap Growth Portfolio - Class I

    

49,374

      

49,374

      

49,374

    

Delaware VIP® Diversified Income Series - Standard Class

    

113,207

      

113,207

      

113,207

    

Delaware VIP® Emerging Markets Series - Standard Class

    

428,953

      

428,953

      

428,953

    

Delaware VIP® High Yield Series - Standard Class

    

83,590

      

83,590

      

83,590

    

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

    

363,494

      

363,494

      

363,494

    

Delaware VIP® REIT Series - Standard Class

    

115,058

      

115,058

      

115,058

    

Delaware VIP® Small Cap Value Series - Standard Class

    

191,102

      

191,102

      

191,102

    

Delaware VIP® U.S. Growth Series - Standard Class

    

96,939

      

96,939

      

96,939

    

Delaware VIP® Value Series - Standard Class

    

569,947

      

569,947

      

569,947

    

DWS Equity 500 Index VIP Portfolio - Class A

    

534,934

      

534,934

      

534,934

    

DWS Small Cap Index VIP Portfolio - Class A

    

122,534

      

122,534

      

122,534

    

Fidelity® VIP Asset Manager Portfolio - Service Class

    

175,334

      

175,334

      

175,334

    

Fidelity® VIP Contrafund® Portfolio - Service Class

    

524,602

      

524,602

      

524,602

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

    

333,489

      

333,489

      

333,489

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

    

127,226

      

127,226

      

127,226

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

    

14,589

      

14,589

      

14,589

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

    

16,201

      

16,201

      

16,201

    

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

    

449,030

      

449,030

      

449,030

    

Fidelity® VIP Growth Portfolio - Service Class

    

162,221

      

162,221

      

162,221

    

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

    

542,904

      

542,904

      

542,904

    

Fidelity® VIP Mid Cap Portfolio - Service Class

    

41,955

      

41,955

      

41,955

    

Fidelity® VIP Overseas Portfolio - Service Class

    

37,919

      

37,919

      

37,919

    

Franklin Mutual Shares VIP Fund - Class 1

    

38,236

      

38,236

      

38,236

    

Janus Henderson Balanced Portfolio - Service Shares

    

648,927

      

648,927

      

648,927

    

LVIP Baron Growth Opportunities Fund - Service Class

    

52,331

      

52,331

      

52,331

    

LVIP Baron Growth Opportunities Fund - Standard Class

    

126,670

      

126,670

      

126,670

    

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

    

13,352

      

13,352

      

13,352

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

24,082

      

24,082

      

24,082

    

LVIP Delaware Bond Fund - Standard Class

    

1,902,149

      

1,902,149

      

1,902,149

    

LVIP Delaware Social Awareness Fund - Standard Class

    

39,550

      

39,550

      

39,550

    

LVIP Delaware Special Opportunities Fund - Standard Class

    

3,002

      

3,002

      

3,002

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

46,799

      

46,799

      

46,799

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

163,074

      

163,074

      

163,074

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

13,180

      

13,180

      

13,180

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

20,667

      

20,667

      

20,667

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

2,196

      

2,196

      

2,196

    

LVIP Government Money Market Fund - Standard Class

    

8,144,330

      

8,144,330

      

8,144,330

    

LVIP JPMorgan High Yield Fund - Standard Class

    

712,235

      

712,235

      

712,235

    

LVIP MFS Value Fund - Standard Class

    

729,152

      

729,152

      

729,152

    

LVIP Mondrian International Value Fund - Standard Class

    

73,306

      

73,306

      

73,306

    

LVIP SSGA Bond Index Fund - Standard Class

    

330,604

      

330,604

      

330,604

    

LVIP SSGA International Index Fund - Standard Class

    

1,139,004

      

1,139,004

      

1,139,004

    

LVIP SSGA Mid-Cap Index Fund - Standard Class

    

2,144,826

      

2,144,826

      

2,144,826

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

3,338,629

      

3,338,629

      

3,338,629

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

480,039

      

480,039

      

480,039

    

See accompanying notes.
C-2


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of assets and liabilities (continued)

December 31, 2019

Subaccount

  

Investments

  

Total Assets

  

Net Assets

  

LVIP T. Rowe Price Growth Stock Fund - Standard Class

  

$

2,271,464

    

$

2,271,464

    

$

2,271,464

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

474,500

      

474,500

      

474,500

    

MFS® VIT Growth Series - Initial Class

    

39,864

      

39,864

      

39,864

    

MFS® VIT Total Return Series - Initial Class

    

1,520,951

      

1,520,951

      

1,520,951

    

MFS® VIT Utilities Series - Initial Class

    

57,073

      

57,073

      

57,073

    

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

    

147,245

      

147,245

      

147,245

    

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

    

31,311

      

31,311

      

31,311

    

PIMCO VIT Real Return Portfolio - Administrative Class

    

56,983

      

56,983

      

56,983

    

T. Rowe Price Equity Income Portfolio

    

70,517

      

70,517

      

70,517

    

Templeton Global Bond VIP Fund - Class 1

    

286,297

      

286,297

      

286,297

    

Templeton Growth VIP Fund - Class 1

    

4,377

      

4,377

      

4,377

    

See accompanying notes.
C-3


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of operations

Year Ended December 31, 2019


Subaccount		   Dividends
from
Investment
Income		   Mortality and
Expense
Guarantee Charges		   Net
Investment
Income (Loss)		   Net Realized
Gain (Loss)
on Investments		   Dividends
from
Net Realized
Gain
on Investments		  

AB VPS Global Thematic Growth Portfolio - Class A

  

$

381

    

$

(180

)

  

$

201

    

$

1,456

    

$

4,885

    

AB VPS Growth and Income Portfolio - Class A

    

3,221

      

(509

)

    

2,712

      

(7,936

)

    

27,358

    

AB VPS International Value Portfolio - Class A

    

274

      

(52

)

    

222

      

(1,264

)

    

—

    

AB VPS Small/Mid Cap Value Portfolio - Class A

    

824

      

(13

)

    

811

      

(3,591

)

    

15,370

    

American Century VP Income & Growth Fund - Class I

    

695

      

(68

)

    

627

      

494

      

2,774

    

American Century VP Inflation Protection Fund - Class II

    

193

      

(25

)

    

168

      

—

      

—

    

American Century VP International Fund - Class I

    

129

      

(62

)

    

67

      

(1,450

)

    

775

    

American Funds Global Growth Fund - Class 2

    

4,158

      

(181

)

    

3,977

      

(2,004

)

    

20,122

    

American Funds Global Small Capitalization Fund - Class 2

    

571

      

(95

)

    

476

      

1,103

      

20,535

    

American Funds Growth Fund - Class 2

    

2,104

      

(662

)

    

1,442

      

(5,176

)

    

49,435

    

American Funds Growth-Income Fund - Class 2

    

92

      

(32

)

    

60

      

(4,208

)

    

3,102

    

American Funds High-Income Bond Fund - Class 2

    

2,624

      

(133

)

    

2,491

      

1,043

      

—

    

American Funds International Fund - Class 2

    

20,859

      

(1,354

)

    

19,505

      

480

      

27,270

    

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

    

61

      

(7

)

    

54

      

—

      

—

    

BlackRock Equity Dividend V.I. Fund - Class I

    

1,384

      

(233

)

    

1,151

      

(48

)

    

4,699

    

BlackRock Global Allocation V.I. Fund - Class I

    

420

      

(65

)

    

355

      

(541

)

    

1,200

    

BlackRock High Yield V.I. Fund - Class I

    

5,133

      

—

      

5,133

      

120

      

—

    

ClearBridge Variable Small Cap Growth Portfolio - Class I

    

—

      

(57

)

    

(57

)

    

28

      

3,773

    

Delaware VIP® Diversified Income Series - Standard Class

    

13,928

      

(77

)

    

13,851

      

2,517

      

—

    

Delaware VIP® Emerging Markets Series - Standard Class

    

2,185

      

(600

)

    

1,585

      

(156

)

    

6,767

    

Delaware VIP® High Yield Series - Standard Class

    

10,540

      

(56

)

    

10,484

      

(11,883

)

    

—

    

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

    

3,094

      

(246

)

    

2,848

      

(48

)

    

—

    

Delaware VIP® REIT Series - Standard Class

    

338

      

(71

)

    

267

      

(6,302

)

    

—

    

Delaware VIP® Small Cap Value Series - Standard Class

    

971

      

(216

)

    

755

      

(1,997

)

    

7,254

    

Delaware VIP® Smid Cap Core Series - Standard Class

    

84

      

—

      

84

      

(2,703

)

    

822

    

Delaware VIP® U.S. Growth Series - Standard Class

    

—

      

(502

)

    

(502

)

    

(33,159

)

    

52,046

    

Delaware VIP® Value Series - Standard Class

    

4,289

      

(648

)

    

3,641

      

135

      

16,964

    

DWS Equity 500 Index VIP Portfolio - Class A

    

17,575

      

(1,621

)

    

15,954

      

23,188

      

43,035

    

DWS Small Cap Index VIP Portfolio - Class A

    

586

      

(221

)

    

365

      

76

      

4,823

    

Fidelity® VIP Asset Manager Portfolio - Service Class

    

2,855

      

(217

)

    

2,638

      

(7,247

)

    

3,232

    

Fidelity® VIP Contrafund® Portfolio - Service Class

    

1,779

      

(269

)

    

1,510

      

(32

)

    

57,246

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

    

6,212

      

—

      

6,212

      

(111

)

    

9,874

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

    

2,107

      

—

      

2,107

      

202

      

3,121

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

    

230

      

—

      

230

      

266

      

348

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

    

214

      

—

      

214

      

2,934

      

1,016

    

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

    

8,719

      

—

      

8,719

      

1,294

      

6,014

    

Fidelity® VIP Growth Portfolio - Service Class

    

272

      

—

      

272

      

6,411

      

11,334

    

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

    

12,165

      

(819

)

    

11,346

      

390

      

—

    

Fidelity® VIP Mid Cap Portfolio - Service Class

    

398

      

(93

)

    

305

      

(5,084

)

    

10,406

    

Fidelity® VIP Overseas Portfolio - Service Class

    

581

      

(28

)

    

553

      

25

      

1,209

    

Franklin Mutual Shares VIP Fund - Class 1

    

716

      

(77

)

    

639

      

(1,689

)

    

3,324

    

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares

    

—

      

(1,219

)

    

(1,219

)

    

49,369

      

—

    

Janus Henderson Balanced Portfolio - Service Shares

    

9,905

      

(2,100

)

    

7,805

      

2,418

      

15,456

    

LVIP Baron Growth Opportunities Fund - Service Class

    

—

      

(214

)

    

(214

)

    

11,647

      

3,837

    

LVIP Baron Growth Opportunities Fund - Standard Class

    

—

      

(224

)

    

(224

)

    

699

      

3,191

    

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

    

239

      

(62

)

    

177

      

2,866

      

1,629

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

157

      

(77

)

    

80

      

147

      

2,360

    

LVIP Delaware Bond Fund - Standard Class

    

57,698

      

(1,816

)

    

55,882

      

(2,587

)

    

17,128

    

LVIP Delaware Social Awareness Fund - Standard Class

    

752

      

(51

)

    

701

      

99

      

1,774

    

LVIP Delaware Special Opportunities Fund - Standard Class

    

33

      

(4

)

    

29

      

(600

)

    

322

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

1,303

      

(141

)

    

1,162

      

(10,964

)

    

3,189

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

2,812

      

(342

)

    

2,470

      

(1,296

)

    

8,607

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

333

      

(23

)

    

310

      

11

      

496

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

459

      

(38

)

    

421

      

(14

)

    

896

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

50

      

(3

)

    

47

      

(5

)

    

90

    

LVIP Government Money Market Fund - Standard Class

    

136,580

      

(3,292

)

    

133,288

      

—

      

28

    

LVIP JPMorgan High Yield Fund - Standard Class

    

38,963

      

(633

)

    

38,330

      

(2,645

)

    

—

    

See accompanying notes.
C-4



Subaccount		   Miscellaneous
Loss on
Investments		   Total
Net Realized
Gain (Loss)
on Investments		   Net Change
in Unrealized
Appreciation or
Depreciation
on Investments		   Net Increase
in Net Assets
Resulting
from Operations		  

AB VPS Global Thematic Growth Portfolio - Class A

  

$

—

    

$

6,341

    

$

17,373

    

$

23,915

    

AB VPS Growth and Income Portfolio - Class A

    

—

      

19,422

      

33,317

      

55,451

    

AB VPS International Value Portfolio - Class A

    

—

      

(1,264

)

    

6,077

      

5,035

    

AB VPS Small/Mid Cap Value Portfolio - Class A

    

—

      

11,779

      

17,464

      

30,054

    

American Century VP Income & Growth Fund - Class I

    

—

      

3,268

      

3,449

      

7,344

    

American Century VP Inflation Protection Fund - Class II

    

—

      

—

      

(80

)

    

88

    

American Century VP International Fund - Class I

    

—

      

(675

)

    

10,242

      

9,634

    

American Funds Global Growth Fund - Class 2

    

—

      

18,118

      

86,758

      

108,853

    

American Funds Global Small Capitalization Fund - Class 2

    

—

      

21,638

      

66,161

      

88,275

    

American Funds Growth Fund - Class 2

    

—

      

44,259

      

44,447

      

90,148

    

American Funds Growth-Income Fund - Class 2

    

—

      

(1,106

)

    

16,236

      

15,190

    

American Funds High-Income Bond Fund - Class 2

    

—

      

1,043

      

5,361

      

8,895

    

American Funds International Fund - Class 2

    

—

      

27,750

      

166,445

      

213,700

    

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

    

—

      

—

      

91

      

145

    

BlackRock Equity Dividend V.I. Fund - Class I

    

—

      

4,651

      

10,067

      

15,869

    

BlackRock Global Allocation V.I. Fund - Class I

    

—

      

659

      

5,286

      

6,300

    

BlackRock High Yield V.I. Fund - Class I

    

—

      

120

      

3,189

      

8,442

    

ClearBridge Variable Small Cap Growth Portfolio - Class I

    

—

      

3,801

      

(1,502

)

    

2,242

    

Delaware VIP® Diversified Income Series - Standard Class

    

—

      

2,517

      

18,499

      

34,867

    

Delaware VIP® Emerging Markets Series - Standard Class

    

—

      

6,611

      

50,761

      

58,957

    

Delaware VIP® High Yield Series - Standard Class

    

—

      

(11,883

)

    

20,669

      

19,270

    

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

    

—

      

(48

)

    

219

      

3,019

    

Delaware VIP® REIT Series - Standard Class

    

—

      

(6,302

)

    

12,646

      

6,611

    

Delaware VIP® Small Cap Value Series - Standard Class

    

—

      

5,257

      

23,464

      

29,476

    

Delaware VIP® Smid Cap Core Series - Standard Class

    

—

      

(1,881

)

    

4,388

      

2,591

    

Delaware VIP® U.S. Growth Series - Standard Class

    

—

      

18,887

      

44,370

      

62,755

    

Delaware VIP® Value Series - Standard Class

    

—

      

17,099

      

24,557

      

45,297

    

DWS Equity 500 Index VIP Portfolio - Class A

    

—

      

66,223

      

102,944

      

185,121

    

DWS Small Cap Index VIP Portfolio - Class A

    

—

      

4,899

      

12,272

      

17,536

    

Fidelity® VIP Asset Manager Portfolio - Service Class

    

—

      

(4,015

)

    

22,167

      

20,790

    

Fidelity® VIP Contrafund® Portfolio - Service Class

    

—

      

57,214

      

71,750

      

130,474

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

    

—

      

9,763

      

23,314

      

39,289

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

    

—

      

3,323

      

15,491

      

20,921

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

    

—

      

614

      

2,377

      

3,221

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

    

—

      

3,950

      

4,232

      

8,396

    

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

    

—

      

7,308

      

19,387

      

35,414

    

Fidelity® VIP Growth Portfolio - Service Class

    

—

      

17,745

      

31,859

      

49,876

    

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

    

—

      

390

      

15,716

      

27,452

    

Fidelity® VIP Mid Cap Portfolio - Service Class

    

—

      

5,322

      

10,404

      

16,031

    

Fidelity® VIP Overseas Portfolio - Service Class

    

—

      

1,234

      

6,508

      

8,295

    

Franklin Mutual Shares VIP Fund - Class 1

    

—

      

1,635

      

6,941

      

9,215

    

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares

    

—

      

49,369

      

80,138

      

128,288

    

Janus Henderson Balanced Portfolio - Service Shares

    

—

      

17,874

      

91,448

      

117,127

    

LVIP Baron Growth Opportunities Fund - Service Class

    

—

      

15,484

      

9,247

      

24,517

    

LVIP Baron Growth Opportunities Fund - Standard Class

    

—

      

3,890

      

26,953

      

30,619

    

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

    

—

      

4,495

      

84

      

4,756

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

—

      

2,507

      

4,587

      

7,174

    

LVIP Delaware Bond Fund - Standard Class

    

—

      

14,541

      

73,611

      

144,034

    

LVIP Delaware Social Awareness Fund - Standard Class

    

—

      

1,873

      

7,106

      

9,680

    

LVIP Delaware Special Opportunities Fund - Standard Class

    

—

      

(278

)

    

4,562

      

4,313

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

—

      

(7,775

)

    

17,679

      

11,066

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

—

      

7,311

      

35,620

      

45,401

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

—

      

507

      

613

      

1,430

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

—

      

882

      

1,490

      

2,793

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

—

      

85

      

75

      

207

    

LVIP Government Money Market Fund - Standard Class

    

(1

)

    

27

      

—

      

133,315

    

LVIP JPMorgan High Yield Fund - Standard Class

    

—

      

(2,645

)

    

6,679

      

42,364

    


C-5


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of operations (continued)

Year Ended December 31, 2019


Subaccount		   Dividends
from
Investment
Income		   Mortality and
Expense
Guarantee Charges		   Net
Investment
Income (Loss)		   Net Realized
Gain (Loss)
on Investments		   Dividends
from
Net Realized
Gain
on Investments		  

LVIP MFS Value Fund - Standard Class

  

$

11,449

    

$

—

    

$

11,449

    

$

10,735

    

$

8,604

    

LVIP Mondrian International Value Fund - Standard Class

    

2,597

      

(60

)

    

2,537

      

(3,592

)

    

367

    

LVIP SSGA Bond Index Fund - Standard Class

    

8,668

      

(455

)

    

8,213

      

917

      

—

    

LVIP SSGA International Index Fund - Standard Class

    

28,216

      

(895

)

    

27,321

      

(1,272

)

    

—

    

LVIP SSGA Mid-Cap Index Fund - Standard Class

    

25,631

      

(1,510

)

    

24,121

      

(4,325

)

    

216,465

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

52,280

      

(1,797

)

    

50,483

      

34,413

      

119,434

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

4,405

      

(366

)

    

4,039

      

(260

)

    

22,432

    

LVIP T. Rowe Price Growth Stock Fund - Standard Class

    

1,561

      

(1,544

)

    

17

      

19,782

      

122,554

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

740

      

(301

)

    

439

      

5,305

      

31,786

    

MFS® VIT Growth Series - Initial Class

    

—

      

—

      

—

      

185

      

3,150

    

MFS® VIT Total Return Series - Initial Class

    

33,278

      

(553

)

    

32,725

      

(4,543

)

    

37,878

    

MFS® VIT Utilities Series - Initial Class

    

2,138

      

(100

)

    

2,038

      

221

      

157

    

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

    

—

      

(329

)

    

(329

)

    

1,782

      

9,699

    

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

    

219

      

(107

)

    

112

      

53

      

3,554

    

PIMCO VIT Real Return Portfolio - Administrative Class

    

566

      

(69

)

    

497

      

38

      

—

    

T. Rowe Price Equity Income Portfolio

    

1,505

      

—

      

1,505

      

(1,447

)

    

4,159

    

Templeton Global Bond VIP Fund - Class 1

    

17,175

      

(480

)

    

16,695

      

4,559

      

—

    

Templeton Growth VIP Fund - Class 1

    

122

      

(10

)

    

112

      

(1,644

)

    

756

    

See accompanying notes.
C-6



Subaccount		   Miscellaneous
Loss on
Investments		   Total
Net Realized
Gain (Loss)
on Investments		   Net Change
in Unrealized
Appreciation or
Depreciation
on Investments		   Net Increase
in Net Assets
Resulting
from Operations		  

LVIP MFS Value Fund - Standard Class

  

$

—

    

$

19,339

    

$

137,339

    

$

168,127

    

LVIP Mondrian International Value Fund - Standard Class

    

—

      

(3,225

)

    

8,637

      

7,949

    

LVIP SSGA Bond Index Fund - Standard Class

    

—

      

917

      

6,622

      

15,752

    

LVIP SSGA International Index Fund - Standard Class

    

—

      

(1,272

)

    

112,878

      

138,927

    

LVIP SSGA Mid-Cap Index Fund - Standard Class

    

—

      

212,140

      

50,210

      

286,471

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

—

      

153,847

      

430,684

      

635,014

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

—

      

22,172

      

38,688

      

64,899

    

LVIP T. Rowe Price Growth Stock Fund - Standard Class

    

—

      

142,336

      

206,469

      

348,822

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

—

      

37,091

      

82,618

      

120,148

    

MFS® VIT Growth Series - Initial Class

    

—

      

3,335

      

7,794

      

11,129

    

MFS® VIT Total Return Series - Initial Class

    

—

      

33,335

      

178,083

      

244,143

    

MFS® VIT Utilities Series - Initial Class

    

—

      

378

      

7,723

      

10,139

    

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

    

—

      

11,481

      

26,338

      

37,490

    

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

    

—

      

3,607

      

737

      

4,456

    

PIMCO VIT Real Return Portfolio - Administrative Class

    

—

      

38

      

1,492

      

2,027

    

T. Rowe Price Equity Income Portfolio

    

—

      

2,712

      

10,883

      

15,100

    

Templeton Global Bond VIP Fund - Class 1

    

—

      

4,559

      

(15,996

)

    

5,258

    

Templeton Growth VIP Fund - Class 1

    

—

      

(888

)

    

2,259

      

1,483

    


C-7


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of changes in net assets

Years Ended December 31, 2018 and 2019

    AB VPS Global
Thematic Growth
Portfolio -
Class A
Subaccount		   AB VPS Growth
and Income
Portfolio -
Class A
Subaccount		   AB VPS
International
Value
Portfolio -
Class A
Subaccount		   AB VPS
Small/Mid
Cap Value
Portfolio -
Class A
Subaccount		   American
Century VP
Income &
Growth Fund -
Class I
Subaccount		   American
Century VP
Inflation
Protection
Fund - Class II
Subaccount		   American
Century VP
International
Fund - Class I
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

168,911

    

$

142,704

    

$

39,427

    

$

191,061

    

$

41,024

    

$

447

    

$

88,643

    

Changes From Operations:

  

• Net investment income (loss)

    

(221

)

    

2,169

      

475

      

983

      

653

      

3

      

860

    

• Net realized gain (loss) on investments

    

9,528

      

29,449

      

1,473

      

19,488

      

3,897

      

2

      

8,542

    

• Net change in unrealized appreciation or depreciation on investments

    

(17,482

)

    

(47,559

)

    

(11,713

)

    

(51,691

)

    

(6,926

)

    

(11

)

    

(12,826

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

(8,175

)

    

(15,941

)

    

(9,765

)

    

(31,220

)

    

(2,376

)

    

(6

)

    

(3,424

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(65,647

)

    

116,521

      

(151

)

    

14,126

      

(4,262

)

    

(355

)

    

(56,424

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(65,647

)

    

116,521

      

(151

)

    

14,126

      

(4,262

)

    

(355

)

    

(56,424

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(73,822

)

    

100,580

      

(9,916

)

    

(17,094

)

    

(6,638

)

    

(361

)

    

(59,848

)

  

NET ASSETS AT DECEMBER 31, 2018

    

95,089

      

243,284

      

29,511

      

173,967

      

34,386

      

86

      

28,795

    

Changes From Operations:

  

• Net investment income (loss)

    

201

      

2,712

      

222

      

811

      

627

      

168

      

67

    

• Net realized gain (loss) on investments

    

6,341

      

19,422

      

(1,264

)

    

11,779

      

3,268

      

—

      

(675

)

  

• Net change in unrealized appreciation or depreciation on investments

    

17,373

      

33,317

      

6,077

      

17,464

      

3,449

      

(80

)

    

10,242

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

23,915

      

55,451

      

5,035

      

30,054

      

7,344

      

88

      

9,634

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(21,222

)

    

50,771

      

(3,591

)

    

(57,120

)

    

(5,506

)

    

45,799

      

32,259

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(21,222

)

    

50,771

      

(3,591

)

    

(57,120

)

    

(5,506

)

    

45,799

      

32,259

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

2,693

      

106,222

      

1,444

      

(27,066

)

    

1,838

      

45,887

      

41,893

    

NET ASSETS AT DECEMBER 31, 2019

  

$

97,782

    

$

349,506

    

$

30,955

    

$

146,901

    

$

36,224

    

$

45,973

    

$

70,688

    

See accompanying notes.
C-8


    American
Funds Global
Growth Fund -
Class 2
Subaccount		   American
Funds
Global Small
Capitalization
Fund - Class 2
Subaccount		   American
Funds
Growth Fund -
Class 2
Subaccount		   American
Funds Growth-
Income Fund -
Class 2
Subaccount		   American
Funds
High-Income
Bond Fund -
Class 2
Subaccount		   American
Funds
International
Fund - Class 2
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

403,932

    

$

262,814

    

$

281,956

    

$

57,981

    

$

116,511

    

$

573,073

    

Changes From Operations:

  

• Net investment income (loss)

    

2,527

      

196

      

1,250

      

2,236

      

5,198

      

10,109

    

• Net realized gain (loss) on investments

    

35,351

      

19,784

      

49,359

      

13,385

      

907

      

36,208

    

• Net change in unrealized appreciation or depreciation on investments

    

(73,155

)

    

(48,282

)

    

(55,432

)

    

(18,275

)

    

(7,933

)

    

(132,983

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

(35,277

)

    

(28,302

)

    

(4,823

)

    

(2,654

)

    

(1,828

)

    

(86,666

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(16,507

)

    

19,843

      

121,117

      

103,256

      

(31,792

)

    

69,189

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(16,507

)

    

19,843

      

121,117

      

103,256

      

(31,792

)

    

69,189

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(51,784

)

    

(8,459

)

    

116,294

      

100,602

      

(33,620

)

    

(17,477

)

  

NET ASSETS AT DECEMBER 31, 2018

    

352,148

      

254,355

      

398,250

      

158,583

      

82,891

      

555,596

    

Changes From Operations:

  

• Net investment income (loss)

    

3,977

      

476

      

1,442

      

60

      

2,491

      

19,505

    

• Net realized gain (loss) on investments

    

18,118

      

21,638

      

44,259

      

(1,106

)

    

1,043

      

27,750

    

• Net change in unrealized appreciation or depreciation on investments

    

86,758

      

66,161

      

44,447

      

16,236

      

5,361

      

166,445

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

108,853

      

88,275

      

90,148

      

15,190

      

8,895

      

213,700

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(50,904

)

    

63,224

      

(307,526

)

    

(173,773

)

    

(61,684

)

    

798,408

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(50,904

)

    

63,224

      

(307,526

)

    

(173,773

)

    

(61,684

)

    

798,408

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

57,949

      

151,499

      

(217,378

)

    

(158,583

)

    

(52,789

)

    

1,012,108

    

NET ASSETS AT DECEMBER 31, 2019

  

$

410,097

    

$

405,854

    

$

180,872

    

$

—

    

$

30,102

    

$

1,567,704

    


C-9


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    American
Funds U.S.
Government/
AAA-Rated
Securities
Fund - Class 2
Subaccount		   BlackRock
Equity
Dividend V.I.
Fund - Class I
Subaccount		   BlackRock
Global
Allocation V.I.
Fund - Class I
Subaccount		   BlackRock
High Yield V.I.
Fund - Class I
Subaccount		   ClearBridge
Variable
Small Cap
Growth
Portfolio -
Class I
Subaccount		   Delaware
VIP®
Diversified
Income Series -
Standard Class
Subaccount		   Delaware
VIP®
Emerging
Markets Series -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

80,942

    

$

64,418

    

$

39,932

    

$

—

    

$

—

    

$

329,319

    

$

107,274

    

Changes From Operations:

  

• Net investment income (loss)

    

(11

)

    

1,053

      

339

      

—

      

—

      

18,447

      

2,897

    

• Net realized gain (loss) on investments

    

(4,529

)

    

4,696

      

1,629

      

—

      

—

      

(14,272

)

    

4,636

    

• Net change in unrealized appreciation or depreciation on investments

    

2,738

      

(10,489

)

    

(5,182

)

    

—

      

—

      

(17,097

)

    

(23,207

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(1,802

)

    

(4,740

)

    

(3,214

)

    

—

      

—

      

(12,922

)

    

(15,674

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(76,217

)

    

(1,039

)

    

3,035

      

—

      

—

      

169,112

      

(7,186

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(76,217

)

    

(1,039

)

    

3,035

      

—

      

—

      

169,112

      

(7,186

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(78,019

)

    

(5,779

)

    

(179

)

    

—

      

—

      

156,190

      

(22,860

)

  

NET ASSETS AT DECEMBER 31, 2018

    

2,923

      

58,639

      

39,753

      

—

      

—

      

485,509

      

84,414

    

Changes From Operations:

  

• Net investment income (loss)

    

54

      

1,151

      

355

      

5,133

      

(57

)

    

13,851

      

1,585

    

• Net realized gain (loss) on investments

    

—

      

4,651

      

659

      

120

      

3,801

      

2,517

      

6,611

    

• Net change in unrealized appreciation or depreciation on investments

    

91

      

10,067

      

5,286

      

3,189

      

(1,502

)

    

18,499

      

50,761

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

145

      

15,869

      

6,300

      

8,442

      

2,242

      

34,867

      

58,957

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(11

)

    

(1,129

)

    

(12,499

)

    

168,670

      

47,132

      

(407,169

)

    

285,582

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(11

)

    

(1,129

)

    

(12,499

)

    

168,670

      

47,132

      

(407,169

)

    

285,582

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

134

      

14,740

      

(6,199

)

    

177,112

      

49,374

      

(372,302

)

    

344,539

    

NET ASSETS AT DECEMBER 31, 2019

  

$

3,057

    

$

73,379

    

$

33,554

    

$

177,112

    

$

49,374

    

$

113,207

    

$

428,953

    

See accompanying notes.
C-10


    Delaware
VIP®
High Yield
Series -
Standard Class
Subaccount		   Delaware
VIP®
Limited-Term
Diversified
Income Series -
Standard Class
Subaccount		   Delaware
VIP®
REIT Series -
Standard Class
Subaccount		   Delaware
VIP®
Small Cap
Value Series -
Standard Class
Subaccount		   Delaware
VIP®
Smid Cap
Core Series -
Standard Class
Subaccount		   Delaware
VIP® U.S.
Growth Series -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

141,096

    

$

43,723

    

$

64,787

    

$

92,054

    

$

11,474

    

$

358,182

    

Changes From Operations:

  

• Net investment income (loss)

    

7,748

      

891

      

1,179

      

574

      

20

      

(662

)

  

• Net realized gain (loss) on investments

    

(313

)

    

(127

)

    

808

      

7,314

      

3,439

      

43,782

    

• Net change in unrealized appreciation or depreciation on investments

    

(14,047

)

    

(796

)

    

(6,385

)

    

(23,835

)

    

(5,286

)

    

(52,344

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(6,612

)

    

(32

)

    

(4,398

)

    

(15,947

)

    

(1,827

)

    

(9,224

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

9,999

      

(8,538

)

    

(8,064

)

    

2,130

      

3,612

      

(48,931

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

9,999

      

(8,538

)

    

(8,064

)

    

2,130

      

3,612

      

(48,931

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

3,387

      

(8,570

)

    

(12,462

)

    

(13,817

)

    

1,785

      

(58,155

)

  

NET ASSETS AT DECEMBER 31, 2018

    

144,483

      

35,153

      

52,325

      

78,237

      

13,259

      

300,027

    

Changes From Operations:

  

• Net investment income (loss)

    

10,484

      

2,848

      

267

      

755

      

84

      

(502

)

  

• Net realized gain (loss) on investments

    

(11,883

)

    

(48

)

    

(6,302

)

    

5,257

      

(1,881

)

    

18,887

    

• Net change in unrealized appreciation or depreciation on investments

    

20,669

      

219

      

12,646

      

23,464

      

4,388

      

44,370

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

19,270

      

3,019

      

6,611

      

29,476

      

2,591

      

62,755

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(80,163

)

    

325,322

      

56,122

      

83,389

      

(15,850

)

    

(265,843

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(80,163

)

    

325,322

      

56,122

      

83,389

      

(15,850

)

    

(265,843

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(60,893

)

    

328,341

      

62,733

      

112,865

      

(13,259

)

    

(203,088

)

  

NET ASSETS AT DECEMBER 31, 2019

  

$

83,590

    

$

363,494

    

$

115,058

    

$

191,102

    

$

—

    

$

96,939

    


C-11


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    Delaware
VIP®
Value Series -
Standard Class
Subaccount		   DWS
Equity 500
Index VIP
Portfolio -
Class A
Subaccount		   DWS
Small Cap
Index VIP
Portfolio -
Class A
Subaccount		   Fidelity® VIP
Asset Manager
Portfolio -
Service Class
Subaccount		   Fidelity® VIP
Contrafund®
Portfolio -
Service Class
Subaccount		   Fidelity® VIP
Freedom 2020
Portfolio(SM) -
Service Class
Subaccount		   Fidelity® VIP
Freedom 2030
Portfolio(SM) -
Service Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

78,905

    

$

652,496

    

$

58,365

    

$

107,400

    

$

142,332

    

$

24,786

    

$

87,787

    

Changes From Operations:

  

• Net investment income (loss)

    

1,200

      

9,801

      

366

      

2,266

      

1,341

      

2,439

      

1,060

    

• Net realized gain (loss) on investments

    

5,868

      

63,827

      

4,123

      

3,561

      

12,607

      

1,248

      

3,703

    

• Net change in unrealized appreciation or depreciation on investments

    

(10,639

)

    

(113,871

)

    

(11,078

)

    

(15,069

)

    

(39,432

)

    

(16,867

)

    

(11,608

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(3,571

)

    

(40,243

)

    

(6,589

)

    

(9,242

)

    

(25,484

)

    

(13,180

)

    

(6,845

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(5,258

)

    

123,263

      

(937

)

    

49,226

      

146,875

      

146,542

      

(4,376

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(5,258

)

    

123,263

      

(937

)

    

49,226

      

146,875

      

146,542

      

(4,376

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(8,829

)

    

83,020

      

(7,526

)

    

39,984

      

121,391

      

133,362

      

(11,221

)

  

NET ASSETS AT DECEMBER 31, 2018

    

70,076

      

735,516

      

50,839

      

147,384

      

263,723

      

158,148

      

76,566

    

Changes From Operations:

  

• Net investment income (loss)

    

3,641

      

15,954

      

365

      

2,638

      

1,510

      

6,212

      

2,107

    

• Net realized gain (loss) on investments

    

17,099

      

66,223

      

4,899

      

(4,015

)

    

57,214

      

9,763

      

3,323

    

• Net change in unrealized appreciation or depreciation on investments

    

24,557

      

102,944

      

12,272

      

22,167

      

71,750

      

23,314

      

15,491

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

45,297

      

185,121

      

17,536

      

20,790

      

130,474

      

39,289

      

20,921

    

Changes From Unit Transactions:

  

• Net unit transactions

    

454,574

      

(385,703

)

    

54,159

      

7,160

      

130,405

      

136,052

      

29,739

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

454,574

      

(385,703

)

    

54,159

      

7,160

      

130,405

      

136,052

      

29,739

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

499,871

      

(200,582

)

    

71,695

      

27,950

      

260,879

      

175,341

      

50,660

    

NET ASSETS AT DECEMBER 31, 2019

  

$

569,947

    

$

534,934

    

$

122,534

    

$

175,334

    

$

524,602

    

$

333,489

    

$

127,226

    

See accompanying notes.
C-12


    Fidelity® VIP
Freedom 2040
Portfolio(SM) -
Service Class
Subaccount		   Fidelity® VIP
Freedom 2050
Portfolio(SM) -
Service Class
Subaccount		   Fidelity® VIP
Freedom
Income
Portfolio(SM) -
Service Class
Subaccount		   Fidelity® VIP
Growth
Portfolio -
Service Class
Subaccount		   Fidelity® VIP
Investment
Grade Bond
Portfolio -
Service Class
Subaccount		   Fidelity® VIP
Mid Cap
Portfolio -
Service Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

14,510

    

$

21,631

    

$

375,120

    

$

173,758

    

$

68,387

    

$

150,627

    

Changes From Operations:

  

• Net investment income (loss)

    

171

      

371

      

5,347

      

283

      

1,382

      

459

    

• Net realized gain (loss) on investments

    

479

      

785

      

9,011

      

31,548

      

357

      

17,742

    

• Net change in unrealized appreciation or depreciation on investments

    

(2,220

)

    

(4,823

)

    

(21,718

)

    

(29,921

)

    

(2,417

)

    

(31,339

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(1,570

)

    

(3,667

)

    

(7,360

)

    

1,910

      

(678

)

    

(13,138

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

1,861

      

14,275

      

(54,975

)

    

(9,989

)

    

(1,077

)

    

(50,976

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

1,861

      

14,275

      

(54,975

)

    

(9,989

)

    

(1,077

)

    

(50,976

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

291

      

10,608

      

(62,335

)

    

(8,079

)

    

(1,755

)

    

(64,114

)

  

NET ASSETS AT DECEMBER 31, 2018

    

14,801

      

32,239

      

312,785

      

165,679

      

66,632

      

86,513

    

Changes From Operations:

  

• Net investment income (loss)

    

230

      

214

      

8,719

      

272

      

11,346

      

305

    

• Net realized gain (loss) on investments

    

614

      

3,950

      

7,308

      

17,745

      

390

      

5,322

    

• Net change in unrealized appreciation or depreciation on investments

    

2,377

      

4,232

      

19,387

      

31,859

      

15,716

      

10,404

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

3,221

      

8,396

      

35,414

      

49,876

      

27,452

      

16,031

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(3,433

)

    

(24,434

)

    

100,831

      

(53,334

)

    

448,820

      

(60,589

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(3,433

)

    

(24,434

)

    

100,831

      

(53,334

)

    

448,820

      

(60,589

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(212

)

    

(16,038

)

    

136,245

      

(3,458

)

    

476,272

      

(44,558

)

  

NET ASSETS AT DECEMBER 31, 2019

  

$

14,589

    

$

16,201

    

$

449,030

    

$

162,221

    

$

542,904

    

$

41,955

    


C-13


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    Fidelity® VIP
Overseas
Portfolio -
Service Class
Subaccount		   Franklin
Mutual Shares
VIP Fund -
Class 1
Subaccount		   Franklin
Small-Mid
Cap Growth
VIP Fund -
Class 1
Subaccount		   Goldman
Sachs VIT
Global Trends
Allocation Fund -
Service Shares
Subaccount		   Janus
Henderson
Balanced
Portfolio -
Service Shares
Subaccount		   Janus
Henderson
Flexible Bond
Portfolio -
Service Shares
Subaccount		   LVIP Baron
Growth
Opportunities
Fund -
Service Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

41,043

    

$

47,402

    

$

5,999

    

$

1,715,910

    

$

546,963

    

$

1,417

    

$

36,389

    

Changes From Operations:

  

• Net investment income (loss)

    

511

      

1,258

      

(4

)

    

22,797

      

8,053

      

(1

)

    

(91

)

  

• Net realized gain (loss) on investments

    

1,152

      

1,744

      

(694

)

    

75,535

      

16,571

      

(77

)

    

3,394

    

• Net change in unrealized appreciation or depreciation on investments

    

(8,288

)

    

(7,524

)

    

836

      

(203,507

)

    

(23,939

)

    

43

      

(6,048

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(6,625

)

    

(4,522

)

    

138

      

(105,175

)

    

685

      

(35

)

    

(2,745

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(2,709

)

    

2,689

      

(6,137

)

    

2,165,002

      

(7,723

)

    

(1,382

)

    

15,392

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(2,709

)

    

2,689

      

(6,137

)

    

2,165,002

      

(7,723

)

    

(1,382

)

    

15,392

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(9,334

)

    

(1,833

)

    

(5,999

)

    

2,059,827

      

(7,038

)

    

(1,417

)

    

12,647

    

NET ASSETS AT DECEMBER 31, 2018

    

31,709

      

45,569

      

—

      

3,775,737

      

539,925

      

—

      

49,036

    

Changes From Operations:

  

• Net investment income (loss)

    

553

      

639

      

—

      

(1,219

)

    

7,805

      

—

      

(214

)

  

• Net realized gain (loss) on investments

    

1,234

      

1,635

      

—

      

49,369

      

17,874

      

—

      

15,484

    

• Net change in unrealized appreciation or depreciation on investments

    

6,508

      

6,941

      

—

      

80,138

      

91,448

      

—

      

9,247

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

8,295

      

9,215

      

—

      

128,288

      

117,127

      

—

      

24,517

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(2,085

)

    

(16,548

)

    

—

      

(3,904,025

)

    

(8,125

)

    

—

      

(21,222

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(2,085

)

    

(16,548

)

    

—

      

(3,904,025

)

    

(8,125

)

    

—

      

(21,222

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

6,210

      

(7,333

)

    

—

      

(3,775,737

)

    

109,002

      

—

      

3,295

    

NET ASSETS AT DECEMBER 31, 2019

  

$

37,919

    

$

38,236

    

$

—

    

$

—

    

$

648,927

    

$

—

    

$

52,331

    

See accompanying notes.
C-14


    LVIP Baron
Growth
Opportunities
Fund -
Standard Class
Subaccount		   LVIP
BlackRock
Dividend
Value
Managed
Volatility Fund -
Standard Class
Subaccount		   LVIP
Blended
Large Cap
Growth
Managed
Volatility Fund -
Standard Class
Subaccount		   LVIP
Delaware
Bond Fund -
Standard Class
Subaccount		   LVIP
Delaware
Social
Awareness
Fund -
Standard Class
Subaccount		   LVIP
Delaware
Special
Opportunities
Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

52,851

    

$

65,975

    

$

101,912

    

$

1,738,999

    

$

19,992

    

$

20,092

    

Changes From Operations:

  

• Net investment income (loss)

    

(134

)

    

1,125

      

265

      

50,692

      

313

      

364

    

• Net realized gain (loss) on investments

    

3,518

      

3,481

      

13,059

      

(10,018

)

    

1,985

      

1,841

    

• Net change in unrealized appreciation or depreciation on investments

    

(8,165

)

    

(8,230

)

    

(13,008

)

    

(56,081

)

    

(3,489

)

    

(5,793

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(4,781

)

    

(3,624

)

    

316

      

(15,407

)

    

(1,191

)

    

(3,588

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

19,908

      

(12,133

)

    

(56,343

)

    

(98,265

)

    

3,660

      

6,347

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

19,908

      

(12,133

)

    

(56,343

)

    

(98,265

)

    

3,660

      

6,347

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

15,127

      

(15,757

)

    

(56,027

)

    

(113,672

)

    

2,469

      

2,759

    

NET ASSETS AT DECEMBER 31, 2018

    

67,978

      

50,218

      

45,885

      

1,625,327

      

22,461

      

22,851

    

Changes From Operations:

  

• Net investment income (loss)

    

(224

)

    

177

      

80

      

55,882

      

701

      

29

    

• Net realized gain (loss) on investments

    

3,890

      

4,495

      

2,507

      

14,541

      

1,873

      

(278

)

  

• Net change in unrealized appreciation or depreciation on investments

    

26,953

      

84

      

4,587

      

73,611

      

7,106

      

4,562

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

30,619

      

4,756

      

7,174

      

144,034

      

9,680

      

4,313

    

Changes From Unit Transactions:

  

• Net unit transactions

    

28,073

      

(41,622

)

    

(28,977

)

    

132,788

      

7,409

      

(24,162

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

28,073

      

(41,622

)

    

(28,977

)

    

132,788

      

7,409

      

(24,162

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

58,692

      

(36,866

)

    

(21,803

)

    

276,822

      

17,089

      

(19,849

)

  

NET ASSETS AT DECEMBER 31, 2019

  

$

126,670

    

$

13,352

    

$

24,082

    

$

1,902,149

    

$

39,550

    

$

3,002

    


C-15


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    LVIP
Delaware
Wealth Builder
Fund -
Standard Class
Subaccount		   LVIP
Dimensional
U.S. Core
Equity 1
Fund -
Standard Class
Subaccount		   LVIP Global
Conservative
Allocation
Managed
Risk Fund -
Standard Class
Subaccount		   LVIP Global
Growth
Allocation
Managed
Risk Fund -
Standard Class
Subaccount		   LVIP Global
Moderate
Allocation
Managed
Risk Fund -
Standard Class
Subaccount		   LVIP
Government
Money Market
Fund -
Standard Class
Subaccount		   LVIP
JPMorgan
High Yield
Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

41,631

    

$

217,264

    

$

9,658

    

$

1,471

    

$

159,039

    

$

11,511,087

    

$

512,263

    

Changes From Operations:

  

• Net investment income (loss)

    

2,763

      

2,756

      

172

      

437

      

21

      

95,858

      

12,258

    

• Net realized gain (loss) on investments

    

17,479

      

5,536

      

298

      

(13

)

    

18,039

      

—

      

2,159

    

• Net change in unrealized appreciation or depreciation on investments

    

(24,798

)

    

(23,047

)

    

(760

)

    

(1,958

)

    

(13,614

)

    

—

      

(16,583

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(4,556

)

    

(14,755

)

    

(290

)

    

(1,534

)

    

4,446

      

95,858

      

(2,166

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

54,162

      

(12,360

)

    

(2,495

)

    

17,955

      

(161,500

)

    

(4,960,743

)

    

(303,684

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

54,162

      

(12,360

)

    

(2,495

)

    

17,955

      

(161,500

)

    

(4,960,743

)

    

(303,684

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

49,606

      

(27,115

)

    

(2,785

)

    

16,421

      

(157,054

)

    

(4,864,885

)

    

(305,850

)

  

NET ASSETS AT DECEMBER 31, 2018

    

91,237

      

190,149

      

6,873

      

17,892

      

1,985

      

6,646,202

      

206,413

    

Changes From Operations:

  

• Net investment income (loss)

    

1,162

      

2,470

      

310

      

421

      

47

      

133,288

      

38,330

    

• Net realized gain (loss) on investments

    

(7,775

)

    

7,311

      

507

      

882

      

85

      

27

      

(2,645

)

  

• Net change in unrealized appreciation or depreciation on investments

    

17,679

      

35,620

      

613

      

1,490

      

75

      

—

      

6,679

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

11,066

      

45,401

      

1,430

      

2,793

      

207

      

133,315

      

42,364

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(55,504

)

    

(72,476

)

    

4,877

      

(18

)

    

4

      

1,364,813

      

463,458

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(55,504

)

    

(72,476

)

    

4,877

      

(18

)

    

4

      

1,364,813

      

463,458

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(44,438

)

    

(27,075

)

    

6,307

      

2,775

      

211

      

1,498,128

      

505,822

    

NET ASSETS AT DECEMBER 31, 2019

  

$

46,799

    

$

163,074

    

$

13,180

    

$

20,667

    

$

2,196

    

$

8,144,330

    

$

712,235

    

See accompanying notes.
C-16


    LVIP MFS
Value Fund -
Standard Class
Subaccount		   LVIP
Mondrian
International
Value Fund -
Standard Class
Subaccount		   LVIP SSGA
Bond
Index Fund -
Standard Class
Subaccount		   LVIP SSGA
International
Index Fund -
Standard Class
Subaccount		   LVIP SSGA
Mid-Cap
Index Fund -
Standard Class
Subaccount		   LVIP SSGA
S&P 500
Index Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

748,867

    

$

40,200

    

$

—

    

$

405,135

    

$

895,352

    

$

1,526,601

    

Changes From Operations:

  

• Net investment income (loss)

    

11,127

      

1,170

      

—

      

11,833

      

12,480

      

28,954

    

• Net realized gain (loss) on investments

    

45,467

      

412

      

—

      

2,795

      

83,142

      

114,814

    

• Net change in unrealized appreciation or depreciation on investments

    

(120,295

)

    

(6,263

)

    

—

      

(77,501

)

    

(192,651

)

    

(187,879

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(63,701

)

    

(4,681

)

    

—

      

(62,873

)

    

(97,029

)

    

(44,111

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(112,013

)

    

(99

)

    

—

      

58,789

      

(12,841

)

    

(34,924

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(112,013

)

    

(99

)

    

—

      

58,789

      

(12,841

)

    

(34,924

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(175,714

)

    

(4,780

)

    

—

      

(4,084

)

    

(109,870

)

    

(79,035

)

  

NET ASSETS AT DECEMBER 31, 2018

    

573,153

      

35,420

      

—

      

401,051

      

785,482

      

1,447,566

    

Changes From Operations:

  

• Net investment income (loss)

    

11,449

      

2,537

      

8,213

      

27,321

      

24,121

      

50,483

    

• Net realized gain (loss) on investments

    

19,339

      

(3,225

)

    

917

      

(1,272

)

    

212,140

      

153,847

    

• Net change in unrealized appreciation or depreciation on investments

    

137,339

      

8,637

      

6,622

      

112,878

      

50,210

      

430,684

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

168,127

      

7,949

      

15,752

      

138,927

      

286,471

      

635,014

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(12,128

)

    

29,937

      

314,852

      

599,026

      

1,072,873

      

1,256,049

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(12,128

)

    

29,937

      

314,852

      

599,026

      

1,072,873

      

1,256,049

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

155,999

      

37,886

      

330,604

      

737,953

      

1,359,344

      

1,891,063

    

NET ASSETS AT DECEMBER 31, 2019

  

$

729,152

    

$

73,306

    

$

330,604

    

$

1,139,004

    

$

2,144,826

    

$

3,338,629

    


C-17


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    LVIP SSGA
Small-Cap
Index Fund -
Standard Class
Subaccount		   LVIP
T. Rowe Price
Growth
Stock Fund -
Standard Class
Subaccount		   LVIP
T. Rowe Price
Structured
Mid-Cap
Growth
Fund -
Standard Class
Subaccount		   MFS® VIT
Growth
Series -
Initial Class
Subaccount		   MFS® VIT
Total Return
Series -
Initial Class
Subaccount		   MFS® VIT
Utilities
Series -
Initial Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

151,685

    

$

703,978

    

$

338,398

    

$

65,090

    

$

541,438

    

$

53,239

    

Changes From Operations:

  

• Net investment income (loss)

    

1,766

      

1,287

      

1,208

      

27

      

19,123

      

324

    

• Net realized gain on investments

    

10,460

      

93,357

      

38,007

      

12,997

      

40,171

      

2,919

    

• Net change in unrealized appreciation or depreciation on investments

    

(34,193

)

    

(108,227

)

    

(46,946

)

    

(8,620

)

    

(116,186

)

    

(3,702

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(21,967

)

    

(13,583

)

    

(7,731

)

    

4,404

      

(56,892

)

    

(459

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

25,188

      

99,320

      

(14,446

)

    

(40,691

)

    

490,831

      

(17,109

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

25,188

      

99,320

      

(14,446

)

    

(40,691

)

    

490,831

      

(17,109

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

3,221

      

85,737

      

(22,177

)

    

(36,287

)

    

433,939

      

(17,568

)

  

NET ASSETS AT DECEMBER 31, 2018

    

154,906

      

789,715

      

316,221

      

28,803

      

975,377

      

35,671

    

Changes From Operations:

  

• Net investment income (loss)

    

4,039

      

17

      

439

      

—

      

32,725

      

2,038

    

• Net realized gain (loss) on investments

    

22,172

      

142,336

      

37,091

      

3,335

      

33,335

      

378

    

• Net change in unrealized appreciation or depreciation on investments

    

38,688

      

206,469

      

82,618

      

7,794

      

178,083

      

7,723

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

64,899

      

348,822

      

120,148

      

11,129

      

244,143

      

10,139

    

Changes From Unit Transactions:

  

• Net unit transactions

    

260,234

      

1,132,927

      

38,131

      

(68

)

    

301,431

      

11,263

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

260,234

      

1,132,927

      

38,131

      

(68

)

    

301,431

      

11,263

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

325,133

      

1,481,749

      

158,279

      

11,061

      

545,574

      

21,402

    

NET ASSETS AT DECEMBER 31, 2019

  

$

480,039

    

$

2,271,464

    

$

474,500

    

$

39,864

    

$

1,520,951

    

$

57,073

    

See accompanying notes.
C-18


    Neuberger
Berman AMT
Mid Cap
Growth
Portfolio -
I Class
Subaccount		   Neuberger
Berman AMT
Mid Cap
Intrinsic
Value
Portfolio -
I Class
Subaccount		   PIMCO VIT
Real Return
Portfolio -
Administrative
Class
Subaccount		   T. Rowe Price
Equity Income
Portfolio
Subaccount		   Templeton
Global Bond
VIP Fund -
Class 1
Subaccount		   Templeton
Growth
VIP Fund -
Class 1
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

158,538

    

$

33,059

    

$

—

    

$

45,120

    

$

35,598

    

$

17,483

    

Changes From Operations:

  

• Net investment income (loss)

    

(344

)

    

93

      

—

      

1,408

      

(346

)

    

349

    

• Net realized gain on investments

    

14,747

      

394

      

—

      

6,327

      

204

      

1,390

    

• Net change in unrealized appreciation or depreciation on investments

    

(22,279

)

    

(6,809

)

    

—

      

(14,789

)

    

4,526

      

(4,346

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(7,876

)

    

(6,322

)

    

—

      

(7,054

)

    

4,384

      

(2,607

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(29,602

)

    

635

      

—

      

25,483

      

217,255

      

107

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(29,602

)

    

635

      

—

      

25,483

      

217,255

      

107

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(37,478

)

    

(5,687

)

    

—

      

18,429

      

221,639

      

(2,500

)

  

NET ASSETS AT DECEMBER 31, 2018

    

121,060

      

27,372

      

—

      

63,549

      

257,237

      

14,983

    

Changes From Operations:

  

• Net investment income (loss)

    

(329

)

    

112

      

497

      

1,505

      

16,695

      

112

    

• Net realized gain (loss) on investments

    

11,481

      

3,607

      

38

      

2,712

      

4,559

      

(888

)

  

• Net change in unrealized appreciation or depreciation on investments

    

26,338

      

737

      

1,492

      

10,883

      

(15,996

)

    

2,259

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

37,490

      

4,456

      

2,027

      

15,100

      

5,258

      

1,483

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(11,305

)

    

(517

)

    

54,956

      

(8,132

)

    

23,802

      

(12,089

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(11,305

)

    

(517

)

    

54,956

      

(8,132

)

    

23,802

      

(12,089

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

26,185

      

3,939

      

56,983

      

6,968

      

29,060

      

(10,606

)

  

NET ASSETS AT DECEMBER 31, 2019

  

$

147,245

    

$

31,311

    

$

56,983

    

$

70,517

    

$

286,297

    

$

4,377

    


C-19


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements

December 31, 2019

1. Accounting Policies and Variable Account Information

The Variable Account: LLANY Separate Account S For Flexible Premium Variable Life Insurance (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 October 22, 2001, are part of the operations of the Company. The Variable Account consists of four products as follows:

•  Lincoln CVUL Series III

•  Lincoln Corporate Commitment VUL

•  Lincoln Corporate Variable 4

•  Lincoln Corporate Variable 5

The assets of the Variable Account are owned by the Company. The Variable Account's assets support the variable life policies 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 one hundred sixty-five available mutual funds (the Funds) of twenty-seven open-ended management investment companies, each Fund with its own investment objective. The Funds are:

AIM Variable Insurance Funds (Invesco Variable Insurance Funds):

Invesco Oppenheimer V.I. Main Street Small Cap Fund® - Series I Shares**

Invesco V.I. Comstock Fund - Series I Shares**

Invesco V.I. Growth and Income Fund - Series I Shares**

Invesco V.I. International Growth Fund - Series I Shares**

AllianceBernstein Variable Products Series Fund:

AB VPS Global Thematic Growth Portfolio - Class A

AB VPS Growth and Income Portfolio - Class A

AB VPS International Value Portfolio - Class A

AB VPS Large Cap Growth Portfolio - Class A**

AB VPS Small/Mid Cap Value Portfolio - Class A

American Century Variable Portfolios, Inc.:

American Century VP Income & Growth Fund - Class I

American Century VP Inflation Protection Fund - Class II

American Century VP International Fund - Class I

American Century VP Mid Cap Value - Class I**

American Funds Insurance Series®:

American Funds Bond Fund - Class 2**

American Funds Capital Income Builder® - Class 2**

American Funds Global Growth Fund - Class 2

American Funds Global Small Capitalization Fund - Class 2

American Funds Growth Fund - Class 2

American Funds Growth-Income Fund - Class 2**

American Funds High-Income Bond Fund - Class 2

American Funds International Fund - Class 2

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

BlackRock Variable Series Funds, Inc.:

BlackRock Equity Dividend V.I. Fund - Class I

BlackRock Global Allocation V.I. Fund - Class I

BlackRock Variable Series Funds II, Inc.:

BlackRock High Yield V.I. Fund - Class I

Delaware VIP® Trust:

Delaware VIP® Diversified Income Series - Standard Class

Delaware VIP® Emerging Markets Series - Standard Class

Delaware VIP® High Yield Series - Standard Class

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

Delaware VIP® REIT Series - Standard Class

Delaware VIP® Small Cap Value Series - Standard Class

Delaware VIP® Smid Cap Core Series - Standard Class**

Delaware VIP® U.S. Growth Series - Standard Class

Delaware VIP® Value Series - Standard Class

Deutsche DWS Investments VIT Funds:

DWS Equity 500 Index VIP Portfolio - Class A

DWS Small Cap Index VIP Portfolio - Class A

Deutsche DWS Variable Series II:

DWS Alternative Asset Allocation VIP Portfolio - Class A**

Eaton Vance Variable Trust:

Eaton Vance VT Floating-Rate Income Fund - Initial Class**

Fidelity® Variable Insurance Products:

Fidelity® VIP Asset Manager Portfolio - Service Class

Fidelity® VIP Contrafund® Portfolio - Service Class


C-20


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

Fidelity® VIP Equity-Income Portfolio - Service Class**

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class**

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class**

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class**

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class**

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class**

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

Fidelity® VIP Growth Portfolio - Service Class

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

Fidelity® VIP Mid Cap Portfolio - Service Class

Fidelity® VIP Overseas Portfolio - Service Class

Fidelity® VIP Real Estate Portfolio - Service Class**

Franklin Templeton Variable Insurance Products Trust:

Franklin Income VIP Fund - Class 1**

Franklin Mutual Shares VIP Fund - Class 1

Franklin Rising Dividends VIP Fund - Class 1**

Franklin Small Cap Value VIP Fund - Class 2**

Franklin Small-Mid Cap Growth VIP Fund - Class 1**

Franklin U.S. Government Securities VIP Fund - Class 1**

Templeton Global Bond VIP Fund - Class 1

Templeton Growth VIP Fund - Class 1

Goldman Sachs Variable Insurance Trust:

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares**

Goldman Sachs VIT Mid Cap Value Fund - Service Shares**

Ivy Variable Insurance Portfolios:

Ivy VIP Asset Strategy Portfolio - Class II**

Janus Aspen Series:

Janus Henderson Balanced Portfolio - Service Shares

Janus Henderson Enterprise Portfolio - Service Shares**

Janus Henderson Flexible Bond Portfolio - Service Shares**

Janus Henderson Global Research Portfolio - Service Shares**

JPMorgan Insurance Trust:

JPMorgan Insurance Trust Core Bond Portfolio - Class 1**

JPMorgan Insurance Trust Global Allocation Portfolio - Class 1**

JPMorgan Insurance Trust Income Builder Portfolio - Class 1**

JPMorgan Insurance Trust Small Cap Core Portfolio - Class 1**

Legg Mason Partners Variable Equity Trust:

ClearBridge Variable Aggressive Growth Portfolio - Class I**

ClearBridge Variable Mid Cap Portfolio - Class I**

ClearBridge Variable Small Cap Growth Portfolio - Class I

Lincoln Variable Insurance Products Trust*:

LVIP Baron Growth Opportunities Fund - Service Class

LVIP Baron Growth Opportunities Fund - Standard Class

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

LVIP BlackRock Global Real Estate Fund - Standard Class**

LVIP BlackRock Inflation Protected Bond Fund - Standard Class**

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class**

LVIP ClearBridge QS Select Large Cap Managed Volatility Fund - Standard Class**

LVIP Delaware Bond Fund - Standard Class

LVIP Delaware Diversified Floating Rate Fund - Standard Class**

LVIP Delaware Social Awareness Fund - Standard Class

LVIP Delaware Special Opportunities Fund - Standard Class

LVIP Delaware Wealth Builder Fund - Standard Class

LVIP Dimensional International Equity Managed Volatility Fund - Standard Class**

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

LVIP Dimensional U.S. Core Equity 2 Fund - Standard Class**

LVIP Dimensional U.S. Equity Managed Volatility Fund - Standard Class**

LVIP Dimensional/Vanguard Total Bond Fund - Standard Class**

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class**

LVIP Franklin Templeton Multi-Asset Opportunities Fund - Standard Class**


C-21


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

LVIP Global Income Fund - Standard Class**

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

LVIP Government Money Market Fund - Standard Class

LVIP JPMorgan High Yield Fund - Standard Class

LVIP JPMorgan Retirement Income Fund - Standard Class**

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class**

LVIP Loomis Sayles Global Growth Fund - Standard Class**

LVIP MFS International Growth Fund - Standard Class**

LVIP MFS Value Fund - Standard Class

LVIP Mondrian International Value Fund - Standard Class

LVIP Multi-Manager Global Equity Managed Volatility Fund - Standard Class**

LVIP PIMCO Low Duration Bond Fund - Standard Class**

LVIP SSGA Bond Index Fund - Standard Class

LVIP SSGA Conservative Index Allocation Fund - Standard Class**

LVIP SSGA Conservative Structured Allocation Fund - Standard Class**

LVIP SSGA Developed International 150 Fund - Standard Class**

LVIP SSGA Emerging Markets 100 Fund - Standard Class**

LVIP SSGA Emerging Markets Equity Index Fund - Standard Class**

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class**

LVIP SSGA International Index Fund - Standard Class

LVIP SSGA International Managed Volatility Fund - Standard Class**

LVIP SSGA Large Cap 100 Fund - Standard Class**

LVIP SSGA Mid-Cap Index Fund - Standard Class

LVIP SSGA Moderate Index Allocation Fund - Standard Class**

LVIP SSGA Moderate Structured Allocation Fund - Standard Class**

LVIP SSGA Moderately Aggressive Index Allocation Fund - Standard Class**

LVIP SSGA Moderately Aggressive Structured Allocation Fund - Standard Class**

LVIP SSGA S&P 500 Index Fund - Standard Class

LVIP SSGA Short-Term Bond Index Fund - Standard Class**

LVIP SSGA Small-Cap Index Fund - Standard Class

LVIP SSGA Small-Mid Cap 200 Fund - Standard Class**

LVIP T. Rowe Price 2010 Fund - Standard Class**

LVIP T. Rowe Price 2020 Fund - Standard Class**

LVIP T. Rowe Price 2030 Fund - Standard Class**

LVIP T. Rowe Price 2040 Fund - Standard Class**

LVIP T. Rowe Price 2050 Fund - Standard Class**

LVIP T. Rowe Price Growth Stock Fund - Standard Class

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

LVIP U.S. Growth Allocation Managed Risk Fund - Standard Class**

LVIP Vanguard Domestic Equity ETF Fund - Standard Class**

LVIP Vanguard International Equity ETF Fund - Standard Class**

LVIP Wellington Capital Growth Fund - Standard Class**

LVIP Wellington Mid-Cap Value Fund - Standard Class**

M Fund, Inc.:

M Capital Appreciation Fund**

M International Equity Fund**

M Large Cap Growth Fund**

M Large Cap Value Fund**

MFS® Variable Insurance Trust:

MFS® VIT Growth Series - Initial Class

MFS® VIT Mid Cap Growth Series - Initial Class**

MFS® VIT New Discovery Series - Initial Class**

MFS® VIT Total Return Bond Series - Initial Class**

MFS® VIT Total Return Series - Initial Class

MFS® VIT Utilities Series - Initial Class

MFS® Variable Insurance Trust II:

MFS® VIT II Core Equity Portfolio - Initial Class**

MFS® VIT II Technology Portfolio - Initial Class**

MFS® Variable Insurance Trust III:

MFS® VIT III Mid Cap Value Portfolio - Initial Class**

Neuberger Berman Advisers Management Trust:

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

PIMCO Variable Insurance Trust:

PIMCO VIT CommodityRealReturn® Strategy Portfolio - Administrative Class**

PIMCO VIT Global Bond Opportunities Portfolio (Unhedged) - Administrative Class**

PIMCO VIT Real Return Portfolio - Administrative Class

PIMCO VIT Total Return Portfolio - Administrative Class**


C-22


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

Putnam Variable Trust:

Putnam VT Multi-Asset Absolute Return Fund - Class IA**

T. Rowe Price Equity Series, Inc.:

T. Rowe Price Equity Income Portfolio

Wells Fargo Funds Trust:

Wells Fargo VT Discovery Fund - Class 2**

*  Denotes an affiliate of the Company

**  Available fund with no money invested at December 31, 2019

Each subaccount invests in shares of a single underlying Fund. The investment performance of each subaccount will reflect the investment performance of the underlying Fund less separate account expenses. There is no assurance that the investment objective of any underlying Fund will be met. A Fund calculates a daily net asset value per share ("NAV") which is based on the market value of its investment portfolio. The amount of risk varies significantly between subaccounts. Due to the level of risk associated with certain investment portfolios, it is at least reasonably possible that changes in the values of investment portfolios will occur in the near term and that such changes could materially affect contract holders' investments in the Funds and the amounts reported in the financial statements. The contract holder assumes all of the investment performance risk for the subaccounts selected.

Investments in the Funds are stated at fair value as determined by the closing net asset value per share on December 31, 2019. Net asset value is quoted by the

Funds as derived by the fair value of the Funds' underlying investments. The difference between cost and net asset value is reflected as unrealized appreciation or depreciation of investments. There are no redemption restrictions on investments in the Funds.

Investments for which the fair value is measured at NAV using the practical expedient (investments in investees measured at NAV) are excluded from the fair value hierarchy. Accordingly, the Variable Account's investments in the Funds have not been classified in the fair value hierarchy.

Investment transactions are accounted for on a trade-date basis. The cost of investments sold is determined by the average cost method.

ASC 946-10-15, "Financial Services - Investment Companies (Topic 946) - Scope and Scope Exceptions" provides accounting guidance for assessing whether an entity is an investment company. This guidance evaluates the entity's purpose and design to determine whether the entity is an investment company. The standard also adds additional disclosure requirements regarding contractually required commitments to investees. Management has evaluated the criteria in the standard and concluded that the Variable Account qualifies as an investment company and therefore applies the accounting requirements of ASC 946.

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.

Investment Fund Changes: During 2018, the following funds became available as investment options for account contract owners. Accordingly, for the subaccounts that commenced operations during 2018, the 2018 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, 2018:

BlackRock High Yield V.I. Fund - Class I

  

LVIP Loomis Sayles Global Growth Fund - Standard Class

  

Eaton Vance VT Floating-Rate Income Fund - Initial Class

  

LVIP SSGA Emerging Markets Equity Index Fund - Standard Class

  

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class

  

LVIP SSGA Short-Term Bond Index Fund - Standard Class

  

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class

  

MFS® VIT Mid Cap Growth Series - Initial Class

  

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class

  

MFS® VIT II Technology Portfolio - Initial Class

  

LVIP JPMorgan Retirement Income Fund - Standard Class

  

PIMCO VIT Global Bond Opportunities Portfolio (Unhedged) - Administrative Class

  


C-23


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

Also during 2018, the following funds changed their names:

Previous Fund Name

  

New Fund Name

  

LVIP Managed Risk Profile 2010 Fund - Standard Class

  

LVIP T. Rowe Price 2010 Fund - Standard Class

  

LVIP Managed Risk Profile 2020 Fund - Standard Class

  

LVIP T. Rowe Price 2020 Fund - Standard Class

  

LVIP Managed Risk Profile 2030 Fund - Standard Class

  

LVIP T. Rowe Price 2030 Fund - Standard Class

  

LVIP Managed Risk Profile 2040 Fund - Standard Class

  

LVIP T. Rowe Price 2040 Fund - Standard Class

  

LVIP Managed Risk Profile 2050 Fund - Standard Class

  

LVIP T. Rowe Price 2050 Fund - Standard Class

  

Putnam VT Absolute Return 500 Fund - Class IA

  

Putnam VT Multi-Asset Absolute Return Fund - Class IA

  

Also during 2018, the following fund families changed their names:

Previous Fund Family Name

  

New Fund Family Name

  

Deutsche Investments VIT Funds

  

Deutsche DWS Investments VIT Funds

  

Deutsche Variable Series II

  

Deutsche DWS Variable Series II

  

Also during 2018, the LVIP BlackRock Multi-Asset Income Fund - Standard Class ceased to be available as an investment option to Variable Account contract owners.

During 2019, the following funds became available as investment options for account contract owners. Accordingly, for the subaccounts that commenced operations during 2019, the 2019 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, 2019:

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class

  

JPMorgan Insurance Trust Small Cap Core Portfolio - Class 1

  
Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class
  		   LVIP ClearBridge QS Select Large Cap Managed Volatility Fund -
Standard Class		  

Fidelity® VIP Real Estate Portfolio - Service Class

  

MFS® VIT Total Return Bond Series - Initial Class

  

Also during 2019, the following fund changed its names:

Previous Fund Name

  

New Fund Name

  

LVIP Clarion Global Real Estate Fund - Standard Class

  

LVIP BlackRock Global Real Estate Fund - Standard Class

  

Also during 2019, the AIM Variable Insurance Funds trust assumed the assets and liabilities of the Oppenheimer Variable Account Funds trust. The following funds were affected:

Predecessor Fund

  

Fund

  

Oppenheimer Main Street Small Cap Fund®/VA Non-Service Shares

  

Invesco Oppenheimer V.I. Main Street Small Cap Fund® - Series I Shares

  

Also during 2019, the following fund ceased to be available as an investment option to Variable Account contract owners:

LVIP Goldman Sachs Income Builder Fund - Standard Class

  

During 2019, the following fund merger occurred:

Fund Acquired

  

Acquiring Fund

  

LVIP ClearBridge Large Cap Managed Volatility Fund - Standard Class

  

LVIP ClearBridge QS Select Large Cap Managed Volatility Fund - Standard Class

  

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 the current value of the Variable Account each day. The mortality and expense risk charges for each of the variable subaccounts are reported on the statement of operations. For the

Lincoln Corporate Commitment VUL product and the Lincoln Corporate Variable 5 product, the mortality and expense guarantees are deducted as a monthly contract charge rather than a daily reduction of current value of the Variable Account. The rates are as follows:

•  Lincoln CVUL Series III at a daily rate of .0002740% to .0019178% (.10% to .70% on an annual basis)


C-24


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

2. Mortality and Expense Guarantees and Other Transactions with Affiliates (continued)

•  Lincoln Corporate Commitment VUL at a daily rate of .0002740% to .0008219% (.10% to .30% on an annual basis)

•  Lincoln Corporate Variable 4 at a daily rate of .0002740% to .0019178% (.10% to .70% on an annual basis)

•  Lincoln Corporate Variable 5 at a daily rate of .0002740% to .0010959% (.10% to .40% on an annual basis)

For the Lincoln Corporate Commitment VUL and Lincoln Corporate Variable 5 products, the mortality and expense guarantees deducted as a monthly charge amounted to $46,723 and $40,647 for the years ended December 31, 2019 and 2018, respectively.

The Company deducts a premium load, based on product, to cover state taxes and federal income tax liabilities and a portion of the sales expenses incurred by the Company. Refer to the product prospectuses for the applicable rate. The premium loads for the years ended December 31, 2019 and 2018, amounted to $78,066 and $24,559, respectively.

The Company assumes responsibility for providing the insurance benefits included in the policy. The Company charges a monthly deduction of the cost of insurance and any charges for supplemental riders. The cost of insurance charge depends on the attained age, risk classification, gender classification (in accordance with state law) and the current net amount at risk. The monthly deduction also includes a monthly administrative fee of $6 currently, guaranteed not to exceed $10 per month during all policy years. This charge is for items such as premium billing and collection, policy value calculation, confirmations and periodic reports. On a monthly basis, the administrative fee and the cost of insurance charge are deducted proportionately from the value of each variable subaccount and/or fixed account funding option. The fixed account is part of the general account of the Company and is not included in these financial statements. The administrative charges for the years ended December 31, 2019 and 2018, amounted to $9,764 and $12,108, respectively. The cost of insurance charges for the years ended December 31, 2019 and 2018, amounted to $522,275 and $608,828, respectively.

Under certain circumstances, the Company reserves the right to charge a transfer fee of up to $25 for transfers between variable subaccounts. For the years ended December 31, 2019 and 2018, no transfer fees were deducted from the variable subaccounts.

Premium load, cost of insurance, administrative and transfer fees are included within Contract withdrawals on the Statements of Changes in Net Assets.

3. Financial Highlights

A summary of the fee rates, unit values, units outstanding, net assets and total return and investment income ratios for variable life contracts as of and for each year or period in the five years ended December 31, 2019, follows:

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

AB VPS Global Thematic Growth Portfolio - Class A

  
     

2019

          

0.20

%

    

0.20

%

  

$

16.20

    

$

16.20

      

6,038

    

$

97,782

      

29.90

%

    

29.90

%

    

0.42

%

  
     

2018

          

0.20

%

    

0.20

%

    

12.47

      

12.47

      

7,627

      

95,089

      

-9.98

%

    

-9.98

%

    

0.00

%

  
     

2017

          

0.20

%

    

0.20

%

    

13.85

      

13.85

      

12,196

      

168,911

      

36.39

%

    

36.39

%

    

0.46

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.15

      

10.15

      

8,257

      

83,842

      

-0.82

%

    

-0.82

%

    

0.00

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

10.24

      

10.24

      

12,019

      

123,053

      

-2.36

%

    

-2.36

%

    

0.00

%

  

AB VPS Growth and Income Portfolio - Class A

  
     

2019

          

0.20

%

    

0.20

%

    

16.53

      

16.53

      

21,149

      

349,506

      

23.67

%

    

23.67

%

    

1.26

%

  
     

2018

          

0.20

%

    

0.20

%

    

13.36

      

13.36

      

18,205

      

243,284

      

-5.80

%

    

-5.80

%

    

1.18

%

  
     

2017

          

0.20

%

    

0.20

%

    

14.19

      

14.19

      

10,060

      

142,704

      

18.69

%

    

18.69

%

    

1.45

%

  
     

2016

          

0.20

%

    

0.20

%

    

11.95

      

11.95

      

10,618

      

126,903

      

11.08

%

    

11.08

%

    

1.14

%

  
     

2015

    

1/20/15

    

0.20

%

    

0.20

%

    

10.76

      

10.76

      

2,610

      

28,085

      

3.11

%

    

3.11

%

    

1.43

%

  

AB VPS International Value Portfolio - Class A

  
     

2019

          

0.20

%

    

0.20

%

    

10.28

      

10.28

      

3,011

      

30,955

      

16.90

%

    

16.90

%

    

1.05

%

  
     

2018

          

0.20

%

    

0.20

%

    

8.79

      

8.79

      

3,356

      

29,511

      

-22.94

%

    

-22.94

%

    

1.38

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.41

      

11.41

      

3,455

      

39,427

      

25.17

%

    

25.17

%

    

2.24

%

  
     

2016

          

0.20

%

    

0.20

%

    

9.12

      

9.12

      

4,209

      

38,378

      

-0.70

%

    

-0.70

%

    

1.22

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.18

      

9.18

      

4,225

      

38,792

      

-1.60

%

    

-1.60

%

    

3.70

%

  


C-25


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

AB VPS Small/Mid Cap Value Portfolio - Class A

  
     

2019

          

0.00

%

    

0.20

%

  

$

13.90

    

$

31.05

      

5,019

    

$

146,901

      

19.84

%

    

20.10

%

    

0.52

%

  
     

2018

          

0.00

%

    

0.20

%

    

11.60

      

25.86

      

6,932

      

173,967

      

-15.20

%

    

-15.03

%

    

0.47

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.67

      

30.43

      

6,453

      

191,061

      

12.92

%

    

13.16

%

    

0.42

%

  
     

2016

          

0.00

%

    

0.20

%

    

12.11

      

26.89

      

10,769

      

192,611

      

24.84

%

    

25.09

%

    

0.80

%

  
     

2015

          

0.00

%

    

0.20

%

    

21.50

      

21.50

      

17,659

      

351,844

      

-5.49

%

    

-5.49

%

    

0.86

%

  

American Century VP Income & Growth Fund - Class I

  
     

2019

          

0.20

%

    

0.20

%

    

15.61

      

15.61

      

2,320

      

36,224

      

23.70

%

    

23.70

%

    

2.05

%

  
     

2018

          

0.20

%

    

0.20

%

    

12.62

      

12.62

      

2,725

      

34,386

      

-7.05

%

    

-7.05

%

    

1.90

%

  
     

2017

          

0.20

%

    

0.20

%

    

13.58

      

13.58

      

3,021

      

41,024

      

20.25

%

    

20.25

%

    

2.42

%

  
     

2016

          

0.20

%

    

0.20

%

    

11.29

      

11.29

      

2,736

      

30,892

      

13.26

%

    

13.26

%

    

2.07

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.97

      

9.97

      

2,741

      

27,332

      

-1.46

%

    

-1.46

%

    

2.21

%

  

American Century VP Inflation Protection Fund - Class II

  
     

2019

          

0.20

%

    

0.20

%

    

10.94

      

10.94

      

4,202

      

45,973

      

8.69

%

    

8.69

%

    

1.57

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.07

      

10.07

      

9

      

86

      

-3.01

%

    

-3.01

%

    

2.42

%

  
     

2017

          

0.20

%

    

0.20

%

    

10.38

      

10.38

      

43

      

447

      

3.47

%

    

3.47

%

    

1.55

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.03

      

10.03

      

4,573

      

45,876

      

4.18

%

    

4.18

%

    

1.63

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.63

      

9.63

      

4,587

      

44,173

      

-0.71

%

    

-0.71

%

    

1.89

%

  

American Century VP International Fund - Class I

  
     

2019

          

0.20

%

    

0.20

%

    

12.55

      

12.55

      

5,634

      

70,688

      

28.16

%

    

28.16

%

    

0.41

%

  
     

2018

          

0.20

%

    

0.20

%

    

9.79

      

9.79

      

2,941

      

28,795

      

-15.39

%

    

-15.39

%

    

2.08

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.57

      

11.57

      

7,660

      

88,643

      

30.95

%

    

30.95

%

    

0.60

%

  
     

2016

          

0.20

%

    

0.20

%

    

8.84

      

8.84

      

2,956

      

26,121

      

-5.69

%

    

-5.69

%

    

1.04

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.37

      

9.37

      

1,768

      

16,563

      

-1.68

%

    

-1.68

%

    

0.44

%

  

American Funds Global Growth Fund - Class 2

  
     

2019

          

0.00

%

    

0.20

%

    

17.46

      

36.93

      

14,200

      

410,097

      

35.01

%

    

35.28

%

    

1.14

%

  
     

2018

          

0.00

%

    

0.20

%

    

12.93

      

27.30

      

16,027

      

352,148

      

-9.22

%

    

-9.04

%

    

0.68

%

  
     

2017

          

0.00

%

    

0.20

%

    

14.25

      

30.01

      

15,685

      

403,932

      

31.21

%

    

31.47

%

    

0.86

%

  
     

2016

          

0.00

%

    

0.20

%

    

10.86

      

22.83

      

7,625

      

109,252

      

0.42

%

    

0.62

%

    

0.84

%

  
     

2015

          

0.00

%

    

0.20

%

    

22.69

      

22.69

      

5,900

      

82,262

      

6.94

%

    

6.94

%

    

1.13

%

  

American Funds Global Small Capitalization Fund - Class 2

  
     

2019

          

0.00

%

    

0.20

%

    

14.63

      

28.33

      

16,181

      

405,854

      

31.25

%

    

31.52

%

    

0.17

%

  
     

2018

          

0.00

%

    

0.20

%

    

11.15

      

21.54

      

12,750

      

254,355

      

-10.73

%

    

-10.55

%

    

0.09

%

  
     

2017

          

0.00

%

    

0.20

%

    

12.49

      

24.08

      

11,856

      

262,814

      

25.64

%

    

25.89

%

    

0.42

%

  
     

2016

          

0.00

%

    

0.20

%

    

9.94

      

19.13

      

10,080

      

176,488

      

1.89

%

    

2.10

%

    

0.25

%

  
     

2015

          

0.00

%

    

0.20

%

    

18.73

      

18.73

      

9,100

      

154,015

      

0.27

%

    

0.27

%

    

0.00

%

  

American Funds Growth Fund - Class 2

  
     

2019

          

0.00

%

    

0.20

%

    

20.26

      

38.02

      

7,886

      

180,872

      

30.51

%

    

30.77

%

    

0.57

%

  
     

2018

          

0.00

%

    

0.20

%

    

15.53

      

29.07

      

22,004

      

398,250

      

-0.45

%

    

-0.25

%

    

0.49

%

  
     

2017

          

0.00

%

    

0.20

%

    

15.60

      

29.15

      

14,726

      

281,956

      

28.03

%

    

28.29

%

    

0.56

%

  
     

2016

          

0.00

%

    

0.20

%

    

12.18

      

22.72

      

11,199

      

182,294

      

9.27

%

    

9.49

%

    

0.66

%

  
     

2015

          

0.00

%

    

0.20

%

    

18.26

      

20.75

      

18,429

      

242,340

      

6.64

%

    

6.86

%

    

0.62

%

  

American Funds Growth-Income Fund - Class 2

  
     

2019

          

0.00

%

    

0.00

%

    

—

      

—

      

—

      

—

      

0.00

%

    

0.00

%

    

0.14

%

  
     

2018

          

0.00

%

    

0.20

%

    

14.10

      

26.14

      

10,344

      

158,583

      

-1.98

%

    

-1.79

%

    

1.69

%

  
     

2017

          

0.00

%

    

0.20

%

    

14.39

      

26.61

      

2,917

      

57,981

      

22.14

%

    

22.38

%

    

0.32

%

  
     

2016

          

0.00

%

    

0.20

%

    

11.78

      

21.74

      

42,200

      

508,613

      

11.30

%

    

11.52

%

    

1.38

%

  
     

2015

          

0.00

%

    

0.20

%

    

19.50

      

19.50

      

42,036

      

454,214

      

1.45

%

    

1.45

%

    

1.31

%

  

American Funds High-Income Bond Fund - Class 2

  
     

2019

          

0.20

%

    

0.20

%

    

12.28

      

12.28

      

2,451

      

30,102

      

12.33

%

    

12.33

%

    

3.70

%

  
     

2018

          

0.00

%

    

0.20

%

    

10.93

      

19.45

      

7,218

      

82,891

      

-2.54

%

    

-2.34

%

    

5.80

%

  
     

2017

          

0.00

%

    

0.20

%

    

11.22

      

19.91

      

9,798

      

116,511

      

6.67

%

    

6.89

%

    

6.66

%

  
     

2016

          

0.00

%

    

0.20

%

    

10.51

      

18.63

      

11,250

      

124,166

      

17.46

%

    

17.69

%

    

6.02

%

  
     

2015

          

0.00

%

    

0.20

%

    

15.83

      

15.83

      

8,163

      

80,223

      

-7.30

%

    

-7.30

%

    

5.90

%

  

American Funds International Fund - Class 2

  
     

2019

          

0.00

%

    

0.35

%

    

12.97

      

23.14

      

76,382

      

1,567,704

      

22.45

%

    

22.88

%

    

1.76

%

  
     

2018

          

0.00

%

    

0.35

%

    

10.58

      

18.83

      

31,046

      

555,596

      

-13.44

%

    

-13.13

%

    

1.85

%

  
     

2017

          

0.00

%

    

0.35

%

    

12.20

      

21.68

      

28,998

      

573,073

      

31.68

%

    

32.14

%

    

1.08

%

  
     

2016

          

0.00

%

    

0.35

%

    

9.25

      

16.40

      

46,542

      

577,297

      

3.17

%

    

3.53

%

    

1.09

%

  
     

2015

          

0.00

%

    

0.35

%

    

13.52

      

15.84

      

61,010

      

781,621

      

-4.86

%

    

-4.53

%

    

1.49

%

  


C-26


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

  
     

2019

          

0.20

%

    

0.20

%

  

$

11.13

    

$

11.13

      

275

    

$

3,057

      

5.05

%

    

5.05

%

    

2.03

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.60

      

10.60

      

276

      

2,923

      

0.48

%

    

0.48

%

    

0.17

%

  
     

2017

          

0.20

%

    

0.20

%

    

10.55

      

10.55

      

7,674

      

80,942

      

1.39

%

    

1.39

%

    

0.56

%

  
     

2016

          

0.20

%

    

0.35

%

    

10.40

      

10.54

      

38,413

      

400,550

      

0.83

%

    

0.98

%

    

1.42

%

  
     

2015

          

0.20

%

    

0.35

%

    

10.46

      

10.46

      

26,748

      

276,590

      

1.23

%

    

1.23

%

    

1.45

%

  

BlackRock Equity Dividend V.I. Fund - Class I

  
     

2019

          

0.35

%

    

0.35

%

    

19.22

      

19.22

      

3,819

      

73,379

      

27.26

%

    

27.26

%

    

2.08

%

  
     

2018

          

0.35

%

    

0.35

%

    

15.10

      

15.10

      

3,884

      

58,639

      

-7.49

%

    

-7.49

%

    

1.98

%

  
     

2017

    

9/19/17

    

0.35

%

    

0.35

%

    

16.32

      

16.32

      

3,947

      

64,418

      

6.59

%

    

6.59

%

    

0.84

%

  

BlackRock Global Allocation V.I. Fund - Class I

  
     

2019

          

0.00

%

    

0.20

%

    

16.61

      

20.68

      

1,948

      

33,554

      

17.75

%

    

17.99

%

    

1.13

%

  
     

2018

          

0.00

%

    

0.20

%

    

14.11

      

17.53

      

2,758

      

39,753

      

-7.52

%

    

-7.34

%

    

1.01

%

  
     

2017

          

0.00

%

    

0.20

%

    

15.26

      

18.92

      

2,604

      

39,932

      

13.63

%

    

13.86

%

    

1.30

%

  
     

2016

          

0.00

%

    

0.20

%

    

13.43

      

16.61

      

2,849

      

38,371

      

3.91

%

    

4.12

%

    

1.21

%

  
     

2015

          

0.00

%

    

0.20

%

    

12.92

      

15.96

      

2,699

      

35,067

      

-0.91

%

    

-0.71

%

    

1.10

%

  

BlackRock High Yield V.I. Fund - Class I

  
     

2019

    

6/20/19

    

0.00

%

    

0.00

%

    

11.16

      

11.16

      

15,873

      

177,112

      

4.89

%

    

4.89

%

    

2.89

%

  

ClearBridge Variable Small Cap Growth Portfolio - Class I

  
     

2019

    

2/27/19

    

0.20

%

    

0.20

%

    

17.97

      

17.97

      

2,747

      

49,374

      

8.25

%

    

8.25

%

    

0.00

%

  

Delaware VIP® Diversified Income Series - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

11.61

      

20.81

      

6,949

      

113,207

      

10.21

%

    

10.43

%

    

4.67

%

  
     

2018

          

0.00

%

    

0.20

%

    

10.54

      

18.84

      

27,277

      

485,509

      

-2.32

%

    

-2.12

%

    

3.56

%

  
     

2017

          

0.00

%

    

0.20

%

    

10.79

      

19.25

      

17,859

      

329,319

      

5.01

%

    

5.22

%

    

2.89

%

  
     

2016

          

0.00

%

    

0.20

%

    

10.27

      

18.30

      

23,822

      

423,287

      

3.31

%

    

3.52

%

    

4.02

%

  
     

2015

    

3/12/15

    

0.00

%

    

0.20

%

    

9.94

      

17.67

      

33,915

      

591,005

      

-2.17

%

    

-0.69

%

    

4.36

%

  

Delaware VIP® Emerging Markets Series - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

12.29

      

24.98

      

27,913

      

428,953

      

22.38

%

    

22.63

%

    

0.72

%

  
     

2018

          

0.00

%

    

0.20

%

    

10.04

      

20.37

      

7,366

      

84,414

      

-15.98

%

    

-15.78

%

    

3.18

%

  
     

2017

          

0.00

%

    

0.20

%

    

11.95

      

24.18

      

8,083

      

107,274

      

40.27

%

    

40.55

%

    

0.60

%

  
     

2016

          

0.00

%

    

0.20

%

    

8.52

      

17.21

      

28,015

      

246,840

      

13.71

%

    

13.93

%

    

0.98

%

  
     

2015

          

0.00

%

    

0.20

%

    

9.99

      

15.10

      

28,136

      

217,588

      

-14.68

%

    

-14.53

%

    

0.86

%

  

Delaware VIP® High Yield Series - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

11.87

      

11.87

      

7,042

      

83,590

      

16.20

%

    

16.20

%

    

11.08

%

  
     

2018

          

0.00

%

    

0.20

%

    

10.22

      

21.50

      

7,292

      

144,483

      

-4.65

%

    

-4.47

%

    

5.50

%

  
     

2017

          

0.00

%

    

0.20

%

    

10.71

      

22.51

      

7,128

      

141,096

      

7.27

%

    

7.49

%

    

5.62

%

  
     

2016

          

0.00

%

    

0.20

%

    

9.99

      

20.94

      

9,692

      

147,798

      

12.94

%

    

13.16

%

    

6.05

%

  
     

2015

          

0.00

%

    

0.20

%

    

18.51

      

18.51

      

8,977

      

117,547

      

-6.60

%

    

-6.60

%

    

6.14

%

  

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

11.03

      

11.03

      

32,970

      

363,494

      

4.99

%

    

4.99

%

    

2.52

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.50

      

10.50

      

3,348

      

35,153

      

0.06

%

    

0.06

%

    

2.70

%

  
     

2017

          

0.20

%

    

0.20

%

    

10.49

      

10.49

      

4,166

      

43,723

      

1.97

%

    

1.97

%

    

2.09

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.29

      

10.29

      

4,174

      

42,966

      

1.89

%

    

1.89

%

    

1.52

%

  
     

2015

    

3/16/15

    

0.20

%

    

0.20

%

    

10.10

      

10.10

      

182

      

1,840

      

-0.21

%

    

-0.21

%

    

1.34

%

  

Delaware VIP® REIT Series - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

14.62

      

14.62

      

7,650

      

115,058

      

26.57

%

    

26.57

%

    

0.86

%

  
     

2018

          

0.00

%

    

0.20

%

    

11.55

      

20.66

      

4,259

      

52,325

      

-7.41

%

    

-7.22

%

    

2.09

%

  
     

2017

          

0.00

%

    

0.20

%

    

12.47

      

22.27

      

4,633

      

64,787

      

1.33

%

    

1.54

%

    

1.52

%

  
     

2016

          

0.00

%

    

0.20

%

    

12.31

      

21.93

      

9,458

      

123,993

      

5.66

%

    

5.87

%

    

1.23

%

  
     

2015

          

0.00

%

    

0.20

%

    

20.72

      

20.72

      

5,710

      

73,093

      

3.75

%

    

3.75

%

    

1.58

%

  

Delaware VIP® Small Cap Value Series - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

14.73

      

31.64

      

11,573

      

191,102

      

27.88

%

    

28.14

%

    

0.86

%

  
     

2018

          

0.00

%

    

0.20

%

    

11.52

      

24.69

      

5,015

      

78,237

      

-16.89

%

    

-16.73

%

    

0.82

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.86

      

29.65

      

4,958

      

92,054

      

11.83

%

    

12.05

%

    

1.65

%

  
     

2016

          

0.00

%

    

0.20

%

    

12.40

      

26.46

      

41,533

      

537,952

      

31.14

%

    

31.40

%

    

0.88

%

  
     

2015

          

0.00

%

    

0.20

%

    

15.88

      

20.14

      

39,521

      

390,713

      

-6.41

%

    

-6.22

%

    

0.71

%

  


C-27


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

Delaware VIP® Smid Cap Core Series - Standard Class

  
     

2019

          

0.00

%

    

0.00

%

  

$

—

    

$

—

      

—

    

$

—

      

0.00

%

    

0.00

%

    

0.56

%

  
     

2018

          

0.00

%

    

0.00

%

    

30.11

      

30.11

      

440

      

13,259

      

-12.12

%

    

-12.12

%

    

0.16

%

  
     

2017

          

0.00

%

    

0.00

%

    

34.26

      

34.26

      

335

      

11,474

      

18.65

%

    

18.65

%

    

0.29

%

  
     

2016

          

0.00

%

    

0.00

%

    

28.87

      

28.87

      

392

      

11,331

      

8.29

%

    

8.29

%

    

0.21

%

  
     

2015

          

0.00

%

    

0.00

%

    

26.66

      

26.66

      

629

      

16,782

      

7.54

%

    

7.54

%

    

0.39

%

  

Delaware VIP® U.S. Growth Series - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

17.09

      

17.09

      

5,671

      

96,939

      

27.00

%

    

27.00

%

    

0.00

%

  
     

2018

          

0.20

%

    

0.20

%

    

13.46

      

13.46

      

22,292

      

300,027

      

-3.19

%

    

-3.19

%

    

0.00

%

  
     

2017

          

0.20

%

    

0.20

%

    

13.90

      

13.90

      

25,762

      

358,182

      

28.02

%

    

28.02

%

    

0.00

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.86

      

10.86

      

18,543

      

201,381

      

-5.35

%

    

-5.35

%

    

0.62

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

11.47

      

11.47

      

18,164

      

208,419

      

-0.31

%

    

-0.31

%

    

0.61

%

  

Delaware VIP® Value Series - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

15.90

      

15.90

      

23,612

      

569,947

      

19.73

%

    

19.73

%

    

1.29

%

  
     

2018

          

0.00

%

    

0.20

%

    

13.28

      

26.76

      

4,556

      

70,076

      

-2.92

%

    

-2.73

%

    

1.73

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.68

      

27.51

      

5,293

      

78,905

      

13.57

%

    

13.80

%

    

2.25

%

  
     

2016

          

0.00

%

    

0.20

%

    

12.04

      

24.17

      

9,196

      

117,204

      

14.42

%

    

14.65

%

    

1.95

%

  
     

2015

          

0.00

%

    

0.20

%

    

21.09

      

21.09

      

6,061

      

72,873

      

-0.41

%

    

-0.41

%

    

1.86

%

  

DWS Equity 500 Index VIP Portfolio - Class A

  
     

2019

          

0.20

%

    

0.35

%

    

18.21

      

30.88

      

26,674

      

534,934

      

30.73

%

    

30.93

%

    

2.32

%

  
     

2018

          

0.20

%

    

0.35

%

    

13.91

      

23.59

      

49,517

      

735,516

      

-4.98

%

    

-4.84

%

    

1.51

%

  
     

2017

          

0.20

%

    

0.35

%

    

14.62

      

24.79

      

41,203

      

652,496

      

21.11

%

    

21.29

%

    

1.84

%

  
     

2016

          

0.20

%

    

0.35

%

    

12.05

      

20.44

      

45,309

      

622,865

      

11.22

%

    

11.39

%

    

2.44

%

  
     

2015

          

0.00

%

    

0.35

%

    

18.23

      

20.11

      

62,277

      

1,033,229

      

0.78

%

    

1.13

%

    

1.64

%

  

DWS Small Cap Index VIP Portfolio - Class A

  
     

2019

          

0.20

%

    

0.35

%

    

15.08

      

25.46

      

6,639

      

122,534

      

24.79

%

    

24.95

%

    

0.81

%

  
     

2018

          

0.20

%

    

0.35

%

    

12.07

      

20.41

      

2,696

      

50,839

      

-11.54

%

    

-11.40

%

    

0.94

%

  
     

2017

          

0.20

%

    

0.35

%

    

13.62

      

23.07

      

2,738

      

58,365

      

13.93

%

    

14.10

%

    

0.94

%

  
     

2016

          

0.20

%

    

0.35

%

    

11.94

      

20.25

      

2,878

      

49,288

      

20.60

%

    

20.80

%

    

1.04

%

  
     

2015

          

0.00

%

    

0.35

%

    

16.79

      

18.94

      

7,154

      

93,198

      

-4.93

%

    

-4.60

%

    

0.69

%

  

Fidelity® VIP Asset Manager Portfolio - Service Class

  
     

2019

          

0.20

%

    

0.20

%

    

13.00

      

13.00

      

13,491

      

175,334

      

17.92

%

    

17.92

%

    

2.63

%

  
     

2018

          

0.20

%

    

0.20

%

    

11.02

      

11.02

      

13,373

      

147,384

      

-5.63

%

    

-5.63

%

    

1.82

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.68

      

11.68

      

9,196

      

107,400

      

13.71

%

    

13.71

%

    

0.95

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.27

      

10.27

      

39,789

      

408,651

      

2.80

%

    

2.80

%

    

1.32

%

  
     

2015

    

5/22/15

    

0.20

%

    

0.20

%

    

9.99

      

9.99

      

41,477

      

414,377

      

-5.09

%

    

-5.09

%

    

1.49

%

  

Fidelity® VIP Contrafund® Portfolio - Service Class

  
     

2019

          

0.00

%

    

0.20

%

    

17.09

      

33.94

      

19,510

      

524,602

      

31.19

%

    

31.45

%

    

0.35

%

  
     

2018

          

0.00

%

    

0.20

%

    

13.03

      

25.82

      

14,251

      

263,723

      

-6.67

%

    

-6.49

%

    

0.66

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.96

      

27.61

      

8,289

      

142,332

      

21.52

%

    

21.76

%

    

0.63

%

  
     

2016

          

0.00

%

    

0.20

%

    

11.49

      

22.68

      

54,673

      

648,290

      

7.70

%

    

7.91

%

    

0.68

%

  
     

2015

          

0.00

%

    

0.20

%

    

21.02

      

21.02

      

55,502

      

612,438

      

0.56

%

    

0.56

%

    

0.95

%

  

Fidelity® VIP Equity-Income Portfolio - Service Class

  
     

2017

          

0.00

%

    

0.00

%

    

—

      

—

      

—

      

—

      

0.00

%

    

0.00

%

    

0.12

%

  
     

2016

          

0.35

%

    

0.35

%

    

19.30

      

19.30

      

2,471

      

47,684

      

17.49

%

    

17.49

%

    

1.82

%

  
     

2015

          

0.35

%

    

0.35

%

    

16.42

      

16.42

      

2,511

      

41,251

      

-4.42

%

    

-4.42

%

    

2.73

%

  

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

  
     

2019

          

0.00

%

    

0.00

%

    

15.72

      

15.72

      

21,208

      

333,489

      

20.01

%

    

20.01

%

    

2.85

%

  
     

2018

          

0.00

%

    

0.00

%

    

13.10

      

13.10

      

12,070

      

158,148

      

-5.98

%

    

-5.98

%

    

3.26

%

  
     

2017

          

0.00

%

    

0.00

%

    

13.94

      

13.94

      

1,779

      

24,786

      

16.47

%

    

16.47

%

    

1.47

%

  
     

2016

          

0.00

%

    

0.00

%

    

11.97

      

11.97

      

1,770

      

21,184

      

6.04

%

    

6.04

%

    

3.12

%

  
     

2015

    

12/8/15

    

0.00

%

    

0.00

%

    

11.28

      

11.28

      

68

      

762

      

-0.60

%

    

-0.60

%

    

1.84

%

  

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

  
     

2019

          

0.00

%

    

0.00

%

    

17.18

      

17.18

      

7,406

      

127,226

      

24.37

%

    

24.37

%

    

2.12

%

  
     

2018

          

0.00

%

    

0.00

%

    

13.81

      

13.81

      

5,543

      

76,566

      

-7.88

%

    

-7.88

%

    

1.33

%

  
     

2017

          

0.00

%

    

0.00

%

    

15.00

      

15.00

      

5,854

      

87,787

      

20.82

%

    

20.82

%

    

1.79

%

  
     

2016

          

0.00

%

    

0.00

%

    

12.41

      

12.41

      

2,843

      

35,283

      

6.52

%

    

6.52

%

    

1.69

%

  
     

2015

          

0.00

%

    

0.00

%

    

11.65

      

11.65

      

1,636

      

19,063

      

-0.34

%

    

-0.34

%

    

1.96

%

  


C-28


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

  
     

2019

          

0.00

%

    

0.00

%

  

$

18.06

    

$

18.06

      

808

    

$

14,589

      

28.39

%

    

28.39

%

    

1.80

%

  
     

2018

          

0.00

%

    

0.00

%

    

14.06

      

14.06

      

1,052

      

14,801

      

-9.94

%

    

-9.94

%

    

1.09

%

  
     

2017

          

0.00

%

    

0.00

%

    

15.62

      

15.62

      

929

      

14,510

      

23.42

%

    

23.42

%

    

1.25

%

  
     

2016

          

0.00

%

    

0.00

%

    

12.65

      

12.65

      

751

      

9,500

      

6.75

%

    

6.75

%

    

1.32

%

  
     

2015

          

0.00

%

    

0.00

%

    

11.85

      

11.85

      

643

      

7,626

      

-0.35

%

    

-0.35

%

    

1.56

%

  

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

  
     

2019

          

0.00

%

    

0.00

%

    

18.12

      

18.12

      

894

      

16,201

      

28.39

%

    

28.39

%

    

0.54

%

  
     

2018

          

0.00

%

    

0.00

%

    

14.11

      

14.11

      

2,285

      

32,239

      

-10.03

%

    

-10.03

%

    

1.21

%

  
     

2017

          

0.00

%

    

0.00

%

    

15.68

      

15.68

      

1,379

      

21,631

      

23.46

%

    

23.46

%

    

1.73

%

  
     

2016

          

0.00

%

    

0.00

%

    

12.70

      

12.70

      

669

      

8,503

      

6.75

%

    

6.75

%

    

2.31

%

  
     

2015

          

0.00

%

    

0.00

%

    

11.90

      

11.90

      

352

      

4,193

      

-0.38

%

    

-0.38

%

    

1.58

%

  

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

  
     

2019

          

0.00

%

    

0.00

%

    

13.11

      

13.11

      

34,260

      

449,030

      

11.87

%

    

11.87

%

    

2.68

%

  
     

2018

          

0.00

%

    

0.00

%

    

11.72

      

11.72

      

26,698

      

312,785

      

-2.12

%

    

-2.12

%

    

1.62

%

  
     

2017

          

0.00

%

    

0.00

%

    

11.97

      

11.97

      

31,341

      

375,120

      

8.49

%

    

8.49

%

    

1.48

%

  
     

2016

          

0.00

%

    

0.00

%

    

11.03

      

11.03

      

35,987

      

397,013

      

4.32

%

    

4.32

%

    

1.28

%

  
     

2015

    

9/10/15

    

0.00

%

    

0.00

%

    

10.58

      

10.58

      

40,176

      

424,893

      

0.34

%

    

0.34

%

    

1.67

%

  

Fidelity® VIP Growth Portfolio - Service Class

  
     

2019

          

0.00

%

    

0.00

%

    

39.69

      

39.69

      

4,088

      

162,221

      

34.18

%

    

34.18

%

    

0.16

%

  
     

2018

          

0.00

%

    

0.00

%

    

29.58

      

29.58

      

5,602

      

165,679

      

-0.27

%

    

-0.27

%

    

0.14

%

  
     

2017

          

0.00

%

    

0.00

%

    

29.66

      

29.66

      

5,859

      

173,758

      

35.00

%

    

35.00

%

    

0.12

%

  
     

2016

          

0.00

%

    

0.00

%

    

21.97

      

21.97

      

4,922

      

108,135

      

0.71

%

    

0.71

%

    

0.00

%

  
     

2015

          

0.00

%

    

0.00

%

    

21.81

      

21.81

      

4,247

      

92,646

      

7.05

%

    

7.05

%

    

0.17

%

  

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

  
     

2019

          

0.20

%

    

0.35

%

    

11.85

      

11.85

      

45,411

      

542,904

      

9.20

%

    

9.20

%

    

3.41

%

  
     

2018

          

0.35

%

    

0.35

%

    

10.85

      

10.85

      

6,139

      

66,632

      

-0.98

%

    

-0.98

%

    

2.42

%

  
     

2017

    

9/19/17

    

0.35

%

    

0.35

%

    

10.96

      

10.96

      

6,239

      

68,387

      

0.15

%

    

0.15

%

    

1.96

%

  

Fidelity® VIP Mid Cap Portfolio - Service Class

  
     

2019

          

0.00

%

    

0.20

%

    

14.26

      

30.85

      

1,822

      

41,955

      

23.10

%

    

23.35

%

    

0.58

%

  
     

2018

          

0.00

%

    

0.20

%

    

11.58

      

25.01

      

4,328

      

86,513

      

-14.81

%

    

-14.64

%

    

0.51

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.59

      

29.30

      

7,590

      

150,627

      

20.46

%

    

20.70

%

    

0.60

%

  
     

2016

          

0.00

%

    

0.20

%

    

11.28

      

24.27

      

13,867

      

200,004

      

11.89

%

    

12.11

%

    

0.40

%

  
     

2015

          

0.00

%

    

0.20

%

    

16.44

      

21.65

      

14,343

      

179,570

      

-1.70

%

    

-1.50

%

    

0.41

%

  

Fidelity® VIP Overseas Portfolio - Service Class

  
     

2019

          

0.00

%

    

0.20

%

    

12.79

      

20.26

      

2,321

      

37,919

      

27.41

%

    

27.67

%

    

1.69

%

  
     

2018

          

0.00

%

    

0.20

%

    

10.04

      

15.87

      

2,445

      

31,709

      

-15.05

%

    

-14.88

%

    

1.36

%

  
     

2017

          

0.00

%

    

0.20

%

    

11.82

      

18.65

      

2,649

      

41,043

      

29.84

%

    

30.10

%

    

0.44

%

  
     

2016

          

0.00

%

    

0.20

%

    

9.10

      

14.33

      

17,391

      

242,603

      

-5.31

%

    

-5.12

%

    

1.28

%

  
     

2015

          

0.00

%

    

0.20

%

    

15.11

      

15.11

      

18,688

      

275,276

      

3.49

%

    

3.49

%

    

1.38

%

  

Franklin Mutual Shares VIP Fund - Class 1

  
     

2019

          

0.00

%

    

0.20

%

    

22.22

      

22.24

      

1,721

      

38,236

      

22.68

%

    

22.92

%

    

1.66

%

  
     

2018

          

0.00

%

    

0.20

%

    

18.10

      

18.11

      

2,516

      

45,569

      

-9.04

%

    

-8.85

%

    

2.75

%

  
     

2017

          

0.00

%

    

0.20

%

    

19.85

      

19.91

      

2,381

      

47,402

      

8.42

%

    

8.64

%

    

2.41

%

  
     

2016

          

0.00

%

    

0.20

%

    

18.27

      

18.36

      

2,627

      

48,244

      

16.12

%

    

16.35

%

    

2.15

%

  
     

2015

          

0.00

%

    

0.20

%

    

15.71

      

15.81

      

2,530

      

40,011

      

-4.88

%

    

-4.71

%

    

3.20

%

  

Franklin Small-Mid Cap Growth VIP Fund - Class 1

  
     

2017

          

0.20

%

    

0.20

%

    

12.83

      

12.83

      

468

      

5,999

      

21.50

%

    

21.50

%

    

0.00

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.56

      

10.56

      

504

      

5,320

      

4.19

%

    

4.19

%

    

0.00

%

  
     

2015

    

1/20/15

    

0.20

%

    

0.20

%

    

10.13

      

10.13

      

537

      

5,446

      

0.12

%

    

0.12

%

    

0.00

%

  

Franklin U.S. Government Securities VIP Fund - Class 1

  
     

2016

          

0.20

%

    

0.20

%

    

10.25

      

10.25

      

19,114

      

195,963

      

0.70

%

    

0.70

%

    

2.48

%

  
     

2015

    

5/22/15

    

0.20

%

    

0.20

%

    

10.18

      

10.18

      

19,361

      

197,125

      

0.05

%

    

0.05

%

    

2.68

%

  

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares

  
     

2018

          

0.20

%

    

0.20

%

    

10.95

      

10.95

      

344,813

      

3,775,737

      

-4.53

%

    

-4.53

%

    

1.49

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.47

      

11.47

      

149,608

      

1,715,910

      

12.88

%

    

12.88

%

    

0.29

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.16

      

10.16

      

168,045

      

1,707,376

      

4.13

%

    

4.13

%

    

0.32

%

  
     

2015

          

0.20

%

    

0.20

%

    

9.76

      

9.76

      

130,127

      

1,269,697

      

-6.00

%

    

-6.00

%

    

0.09

%

  


C-29


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

Janus Henderson Balanced Portfolio - Service Shares

  
     

2019

          

0.35

%

    

0.35

%

  

$

22.46

    

$

22.46

      

28,895

    

$

648,927

      

21.85

%

    

21.85

%

    

1.65

%

  
     

2018

          

0.35

%

    

0.35

%

    

18.43

      

18.43

      

29,294

      

539,925

      

0.08

%

    

0.08

%

    

1.79

%

  
     

2017

          

0.35

%

    

0.35

%

    

18.42

      

18.42

      

29,700

      

546,963

      

17.72

%

    

17.72

%

    

1.39

%

  
     

2016

          

0.35

%

    

0.35

%

    

15.64

      

15.64

      

30,113

      

471,091

      

3.96

%

    

3.96

%

    

1.79

%

  
     

2015

          

0.35

%

    

0.35

%

    

15.05

      

15.05

      

30,531

      

459,443

      

0.06

%

    

0.06

%

    

1.38

%

  

Janus Henderson Flexible Bond Portfolio - Service Shares

  
     

2017

          

0.20

%

    

0.20

%

    

10.58

      

10.58

      

134

      

1,417

      

3.10

%

    

3.10

%

    

2.47

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.27

      

10.27

      

144

      

1,481

      

1.98

%

    

1.98

%

    

2.20

%

  
     

2015

    

1/20/15

    

0.20

%

    

0.20

%

    

10.07

      

10.07

      

154

      

1,548

      

-1.49

%

    

-1.49

%

    

1.99

%

  

LVIP Baron Growth Opportunities Fund - Service Class

  
     

2019

          

0.20

%

    

0.20

%

    

17.56

      

17.56

      

2,980

      

52,331

      

36.11

%

    

36.11

%

    

0.00

%

  
     

2018

          

0.00

%

    

0.20

%

    

12.90

      

28.88

      

3,555

      

49,036

      

-4.12

%

    

-3.93

%

    

0.00

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.46

      

30.06

      

2,519

      

36,389

      

26.98

%

    

27.24

%

    

0.00

%

  
     

2016

          

0.00

%

    

0.20

%

    

10.60

      

23.63

      

3,178

      

37,671

      

5.36

%

    

5.57

%

    

0.11

%

  
     

2015

          

0.00

%

    

0.20

%

    

22.38

      

22.38

      

12,512

      

241,612

      

-4.77

%

    

-4.77

%

    

0.00

%

  

LVIP Baron Growth Opportunities Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

17.81

      

17.81

      

7,114

      

126,670

      

36.45

%

    

36.45

%

    

0.00

%

  
     

2018

          

0.20

%

    

0.20

%

    

13.05

      

13.05

      

5,209

      

67,978

      

-3.89

%

    

-3.89

%

    

0.00

%

  
     

2017

          

0.20

%

    

0.20

%

    

13.58

      

13.58

      

3,893

      

52,851

      

27.30

%

    

27.30

%

    

0.00

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.67

      

10.67

      

3,942

      

42,040

      

5.62

%

    

5.62

%

    

0.70

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

10.10

      

10.10

      

4,020

      

40,594

      

-1.90

%

    

-1.90

%

    

0.00

%

  

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

13.60

      

13.60

      

982

      

13,352

      

18.35

%

    

18.35

%

    

0.77

%

  
     

2018

          

0.20

%

    

0.20

%

    

11.49

      

11.49

      

4,369

      

50,218

      

-8.09

%

    

-8.09

%

    

2.26

%

  
     

2017

          

0.20

%

    

0.20

%

    

12.51

      

12.51

      

5,276

      

65,975

      

16.19

%

    

16.19

%

    

0.67

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.76

      

10.76

      

28,812

      

310,082

      

11.74

%

    

11.74

%

    

1.81

%

  
     

2015

    

5/22/15

    

0.20

%

    

0.20

%

    

9.63

      

9.63

      

28,368

      

273,226

      

-4.32

%

    

-4.32

%

    

1.75

%

  

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

14.99

      

25.92

      

1,259

      

24,082

      

19.69

%

    

19.93

%

    

0.31

%

  
     

2018

          

0.00

%

    

0.20

%

    

12.53

      

21.61

      

3,362

      

45,885

      

-4.51

%

    

-4.31

%

    

0.65

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.12

      

22.59

      

7,592

      

101,912

      

25.88

%

    

26.13

%

    

1.13

%

  
     

2016

          

0.00

%

    

0.20

%

    

10.42

      

10.42

      

3,127

      

33,121

      

-1.52

%

    

-1.52

%

    

0.54

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

10.58

      

10.58

      

142

      

1,498

      

-1.18

%

    

-1.18

%

    

0.00

%

  

LVIP Delaware Bond Fund - Standard Class

  
     

2019

          

0.00

%

    

0.40

%

    

11.76

      

22.85

      

114,915

      

1,902,149

      

8.77

%

    

9.21

%

    

3.33

%

  
     

2018

          

0.00

%

    

0.40

%

    

10.79

      

21.01

      

104,186

      

1,625,327

      

-1.23

%

    

-0.83

%

    

3.31

%

  
     

2017

          

0.00

%

    

0.40

%

    

10.90

      

21.27

      

112,811

      

1,738,999

      

3.96

%

    

4.37

%

    

3.14

%

  
     

2016

          

0.00

%

    

0.40

%

    

10.47

      

20.46

      

86,300

      

1,178,347

      

2.31

%

    

2.72

%

    

2.71

%

  
     

2015

          

0.00

%

    

0.40

%

    

11.01

      

20.00

      

75,786

      

1,044,318

      

-0.02

%

    

0.39

%

    

2.67

%

  

LVIP Delaware Social Awareness Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

17.20

      

17.20

      

2,299

      

39,550

      

31.72

%

    

31.72

%

    

2.32

%

  
     

2018

          

0.00

%

    

0.20

%

    

13.06

      

25.04

      

1,214

      

22,461

      

-4.73

%

    

-4.56

%

    

1.57

%

  
     

2017

          

0.00

%

    

0.20

%

    

13.71

      

26.23

      

1,080

      

19,992

      

19.96

%

    

20.19

%

    

1.30

%

  
     

2016

          

0.00

%

    

0.20

%

    

11.43

      

21.83

      

1,173

      

18,491

      

6.43

%

    

6.64

%

    

1.46

%

  
     

2015

          

0.00

%

    

0.20

%

    

20.47

      

20.47

      

1,131

      

16,288

      

-0.66

%

    

-0.66

%

    

1.24

%

  

LVIP Delaware Special Opportunities Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

26.63

      

26.63

      

113

      

3,002

      

30.14

%

    

30.14

%

    

0.24

%

  
     

2018

          

0.00

%

    

0.00

%

    

18.98

      

18.98

      

1,204

      

22,851

      

-14.75

%

    

-14.75

%

    

1.76

%

  
     

2017

          

0.00

%

    

0.00

%

    

22.27

      

22.27

      

902

      

20,092

      

17.75

%

    

17.75

%

    

1.45

%

  
     

2016

          

0.00

%

    

0.00

%

    

18.91

      

18.91

      

657

      

12,421

      

20.40

%

    

20.40

%

    

1.60

%

  
     

2015

          

0.00

%

    

0.00

%

    

15.71

      

15.71

      

961

      

15,097

      

0.26

%

    

0.26

%

    

1.18

%

  

LVIP Delaware Wealth Builder Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

12.70

      

12.70

      

3,686

      

46,799

      

15.67

%

    

15.67

%

    

1.85

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.98

      

10.98

      

8,313

      

91,237

      

-5.41

%

    

-5.41

%

    

3.47

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.60

      

11.60

      

3,588

      

41,631

      

12.07

%

    

12.07

%

    

2.24

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.35

      

10.35

      

5,510

      

57,051

      

5.41

%

    

5.41

%

    

1.47

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.82

      

9.82

      

9,430

      

92,621

      

-1.10

%

    

-1.10

%

    

1.77

%

  


C-30


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

  

$

17.36

    

$

17.36

      

9,392

    

$

163,074

      

29.85

%

    

29.85

%

    

1.64

%

  
     

2018

          

0.20

%

    

0.20

%

    

13.37

      

13.37

      

14,221

      

190,149

      

-7.48

%

    

-7.48

%

    

1.50

%

  
     

2017

          

0.20

%

    

0.20

%

    

14.45

      

14.45

      

15,034

      

217,264

      

20.63

%

    

20.63

%

    

1.39

%

  
     

2016

          

0.20

%

    

0.20

%

    

11.98

      

11.98

      

14,344

      

171,837

      

14.18

%

    

14.18

%

    

1.63

%

  
     

2015

          

0.20

%

    

0.20

%

    

10.49

      

10.49

      

9,080

      

95,264

      

-2.20

%

    

-2.20

%

    

1.66

%

  

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

  
     

2016

    

7/12/16

    

0.00

%

    

0.00

%

    

—

      

—

      

—

      

—

      

0.00

%

    

0.00

%

    

0.03

%

  
     

2015

    

7/13/15

    

0.00

%

    

0.00

%

    

—

      

—

      

—

      

—

      

0.00

%

    

0.00

%

    

0.12

%

  

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

12.54

      

12.54

      

1,051

      

13,180

      

14.78

%

    

14.78

%

    

2.88

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.92

      

10.92

      

629

      

6,873

      

-4.65

%

    

-4.65

%

    

2.55

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.46

      

11.46

      

843

      

9,658

      

10.28

%

    

10.28

%

    

1.99

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.39

      

10.39

      

2,147

      

22,304

      

4.81

%

    

4.81

%

    

1.15

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.91

      

9.91

      

5,651

      

56,014

      

-1.11

%

    

-1.11

%

    

2.76

%

  

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

12.45

      

12.45

      

1,660

      

20,667

      

15.62

%

    

15.62

%

    

2.38

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.77

      

10.77

      

1,661

      

17,892

      

-6.52

%

    

-6.52

%

    

3.00

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.52

      

11.52

      

128

      

1,471

      

15.29

%

    

15.29

%

    

1.35

%

  
     

2016

          

0.20

%

    

0.20

%

    

9.99

      

9.99

      

1,984

      

19,825

      

4.54

%

    

4.54

%

    

1.75

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.56

      

9.56

      

3,406

      

32,558

      

-1.21

%

    

-1.21

%

    

1.95

%

  

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

12.39

      

12.39

      

177

      

2,196

      

14.77

%

    

14.77

%

    

2.56

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.79

      

10.79

      

184

      

1,985

      

-5.63

%

    

-5.63

%

    

0.34

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.44

      

11.44

      

13,904

      

159,039

      

14.09

%

    

14.09

%

    

2.32

%

  
     

2016

          

0.20

%

    

0.20

%

    

10.03

      

10.03

      

13,729

      

137,648

      

4.13

%

    

4.13

%

    

1.73

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.63

      

9.63

      

13,773

      

132,604

      

-1.18

%

    

-1.18

%

    

2.00

%

  

LVIP Government Money Market Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

10.26

      

11.83

      

707,587

      

8,144,330

      

1.59

%

    

1.79

%

    

1.76

%

  
     

2018

          

0.00

%

    

0.20

%

    

10.10

      

11.62

      

590,704

      

6,646,202

      

1.19

%

    

1.39

%

    

1.31

%

  
     

2017

          

0.00

%

    

0.20

%

    

9.98

      

11.46

      

1,086,113

      

11,511,087

      

0.21

%

    

0.41

%

    

0.43

%

  
     

2016

          

0.00

%

    

0.20

%

    

9.96

      

11.41

      

588,153

      

6,453,445

      

-0.17

%

    

0.03

%

    

0.03

%

  
     

2015

          

0.00

%

    

0.20

%

    

11.41

      

11.41

      

439,484

      

4,708,047

      

0.02

%

    

0.02

%

    

0.02

%

  

LVIP JPMorgan High Yield Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

18.04

      

18.04

      

42,812

      

712,235

      

12.98

%

    

12.98

%

    

7.86

%

  
     

2018

          

0.00

%

    

0.00

%

    

15.97

      

15.97

      

12,926

      

206,413

      

-2.85

%

    

-2.85

%

    

3.28

%

  
     

2017

          

0.00

%

    

0.00

%

    

16.44

      

16.44

      

31,164

      

512,263

      

6.77

%

    

6.77

%

    

6.41

%

  
     

2016

          

0.00

%

    

0.00

%

    

15.40

      

15.40

      

31,626

      

486,900

      

13.26

%

    

13.26

%

    

8.01

%

  
     

2015

          

0.00

%

    

0.00

%

    

13.59

      

13.59

      

16,504

      

224,330

      

-3.94

%

    

-3.94

%

    

5.96

%

  

LVIP MFS Value Fund - Standard Class

  
     

2019

          

0.00

%

    

0.00

%

    

24.44

      

24.44

      

29,837

      

729,152

      

29.84

%

    

29.84

%

    

1.73

%

  
     

2018

          

0.00

%

    

0.00

%

    

18.82

      

18.82

      

30,452

      

573,153

      

-9.99

%

    

-9.99

%

    

1.64

%

  
     

2017

          

0.00

%

    

0.00

%

    

20.91

      

20.91

      

35,812

      

748,867

      

17.63

%

    

17.63

%

    

1.91

%

  
     

2016

          

0.00

%

    

0.00

%

    

17.78

      

17.78

      

32,904

      

584,949

      

14.06

%

    

14.06

%

    

2.00

%

  
     

2015

          

0.00

%

    

0.00

%

    

15.59

      

15.59

      

28,493

      

444,087

      

-0.54

%

    

-0.54

%

    

1.85

%

  

LVIP Mondrian International Value Fund - Standard Class

  
     

2019

          

0.20

%

    

0.20

%

    

11.28

      

11.28

      

6,500

      

73,306

      

18.01

%

    

18.01

%

    

8.64

%

  
     

2018

          

0.20

%

    

0.20

%

    

9.56

      

9.56

      

3,707

      

35,420

      

-11.65

%

    

-11.65

%

    

3.19

%

  
     

2017

          

0.20

%

    

0.20

%

    

10.82

      

10.82

      

3,716

      

40,200

      

21.10

%

    

21.10

%

    

0.73

%

  
     

2016

          

0.20

%

    

0.20

%

    

8.93

      

8.93

      

30,409

      

271,623

      

3.80

%

    

3.80

%

    

2.79

%

  
     

2015

    

5/22/15

    

0.20

%

    

0.20

%

    

8.61

      

8.61

      

30,473

      

262,220

      

-13.45

%

    

-13.45

%

    

2.94

%

  

LVIP SSGA Bond Index Fund - Standard Class

  
     

2019

    

2/27/19

    

0.20

%

    

0.20

%

    

12.11

      

12.11

      

27,306

      

330,604

      

6.96

%

    

6.96

%

    

3.20

%

  

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

  
     

2016

          

0.20

%

    

0.20

%

    

9.81

      

9.81

      

214

      

2,095

      

5.42

%

    

5.42

%

    

1.82

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.31

      

9.31

      

219

      

2,041

      

-1.45

%

    

-1.45

%

    

3.01

%

  


C-31


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

LVIP SSGA International Index Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

  

$

12.54

    

$

12.54

      

76,295

    

$

1,139,004

      

21.58

%

    

21.58

%

    

3.07

%

  
     

2018

          

0.00

%

    

0.00

%

    

10.32

      

10.32

      

38,870

      

401,051

      

-13.70

%

    

-13.70

%

    

2.77

%

  
     

2017

          

0.00

%

    

0.00

%

    

11.96

      

11.96

      

33,886

      

405,135

      

24.69

%

    

24.69

%

    

2.80

%

  
     

2016

    

8/30/16

    

0.00

%

    

0.00

%

    

9.59

      

9.59

      

28,769

      

275,847

      

-0.12

%

    

-0.12

%

    

2.50

%

  

LVIP SSGA Mid-Cap Index Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

15.36

      

15.36

      

140,480

      

2,144,826

      

25.81

%

    

25.81

%

    

1.51

%

  
     

2018

          

0.00

%

    

0.00

%

    

12.21

      

12.21

      

64,343

      

785,482

      

-11.37

%

    

-11.37

%

    

1.35

%

  
     

2017

          

0.00

%

    

0.00

%

    

13.77

      

13.77

      

65,007

      

895,352

      

15.86

%

    

15.86

%

    

1.45

%

  
     

2016

    

8/30/16

    

0.00

%

    

0.00

%

    

11.89

      

11.89

      

57,485

      

683,395

      

6.25

%

    

6.25

%

    

1.13

%

  

LVIP SSGA S&P 500 Index Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

32.25

      

32.25

      

105,318

      

3,338,629

      

31.20

%

    

31.20

%

    

1.95

%

  
     

2018

          

0.00

%

    

0.00

%

    

24.58

      

24.58

      

58,893

      

1,447,566

      

-4.64

%

    

-4.64

%

    

1.75

%

  
     

2017

          

0.00

%

    

0.00

%

    

25.78

      

25.78

      

59,224

      

1,526,601

      

21.57

%

    

21.57

%

    

1.97

%

  
     

2016

          

0.00

%

    

0.00

%

    

21.20

      

21.20

      

54,488

      

1,155,287

      

11.76

%

    

11.76

%

    

3.31

%

  
     

2015

          

0.00

%

    

0.00

%

    

18.97

      

18.97

      

15,849

      

300,697

      

1.17

%

    

1.17

%

    

1.70

%

  

LVIP SSGA Small-Cap Index Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

22.57

      

22.57

      

19,966

      

480,039

      

25.03

%

    

25.03

%

    

1.18

%

  
     

2018

          

0.00

%

    

0.00

%

    

18.05

      

18.05

      

8,580

      

154,906

      

-11.37

%

    

-11.37

%

    

1.13

%

  
     

2017

          

0.00

%

    

0.00

%

    

20.37

      

20.37

      

7,447

      

151,685

      

14.21

%

    

14.21

%

    

1.25

%

  
     

2016

          

0.00

%

    

0.00

%

    

17.84

      

17.84

      

3,891

      

69,402

      

20.68

%

    

20.68

%

    

2.26

%

  
     

2015

          

0.00

%

    

0.00

%

    

14.78

      

14.78

      

679

      

10,032

      

-4.71

%

    

-4.71

%

    

0.78

%

  

LVIP T. Rowe Price Growth Stock Fund - Standard Class

  
     

2019

          

0.00

%

    

0.35

%

    

33.35

      

34.90

      

66,080

      

2,271,464

      

30.60

%

    

31.06

%

    

0.10

%

  
     

2018

          

0.00

%

    

0.35

%

    

25.45

      

26.72

      

30,918

      

789,715

      

-1.47

%

    

-1.12

%

    

0.19

%

  
     

2017

          

0.00

%

    

0.35

%

    

25.74

      

25.74

      

27,228

      

703,978

      

33.69

%

    

33.69

%

    

0.27

%

  
     

2016

          

0.00

%

    

0.00

%

    

19.25

      

19.25

      

21,226

      

408,601

      

1.39

%

    

1.39

%

    

0.10

%

  
     

2015

          

0.00

%

    

0.00

%

    

18.99

      

18.99

      

18,999

      

360,693

      

10.73

%

    

10.73

%

    

0.00

%

  

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

  
     

2019

          

0.00

%

    

0.20

%

    

19.57

      

43.14

      

15,220

      

474,500

      

37.12

%

    

37.40

%

    

0.17

%

  
     

2018

          

0.00

%

    

0.20

%

    

14.27

      

31.39

      

12,296

      

316,221

      

-3.27

%

    

-3.08

%

    

0.38

%

  
     

2017

          

0.00

%

    

0.20

%

    

14.75

      

32.39

      

11,620

      

338,398

      

24.49

%

    

24.74

%

    

0.20

%

  
     

2016

          

0.00

%

    

0.20

%

    

11.85

      

25.97

      

14,144

      

308,794

      

7.34

%

    

7.56

%

    

0.28

%

  
     

2015

          

0.00

%

    

0.20

%

    

24.14

      

24.14

      

16,495

      

310,346

      

2.10

%

    

2.10

%

    

0.15

%

  

MFS® VIT Growth Series - Initial Class

  
     

2019

          

0.00

%

    

0.00

%

    

35.97

      

35.97

      

1,108

      

39,864

      

38.15

%

    

38.15

%

    

0.00

%

  
     

2018

          

0.00

%

    

0.00

%

    

26.04

      

26.04

      

1,106

      

28,803

      

2.67

%

    

2.67

%

    

0.07

%

  
     

2017

          

0.00

%

    

0.00

%

    

25.36

      

25.36

      

2,566

      

65,090

      

31.40

%

    

31.40

%

    

0.05

%

  
     

2016

          

0.00

%

    

0.00

%

    

19.30

      

19.30

      

9,038

      

174,449

      

2.44

%

    

2.44

%

    

0.05

%

  
     

2015

          

0.00

%

    

0.00

%

    

18.84

      

18.84

      

1,076

      

20,280

      

7.56

%

    

7.56

%

    

0.20

%

  

MFS® VIT Total Return Series - Initial Class

  
     

2019

          

0.00

%

    

0.20

%

    

14.21

      

23.96

      

72,428

      

1,520,951

      

20.14

%

    

20.38

%

    

2.44

%

  
     

2018

          

0.00

%

    

0.20

%

    

11.83

      

19.90

      

58,434

      

975,377

      

-5.80

%

    

-5.61

%

    

2.47

%

  
     

2017

          

0.00

%

    

0.20

%

    

12.55

      

21.08

      

30,126

      

541,438

      

12.07

%

    

12.30

%

    

1.61

%

  
     

2016

          

0.00

%

    

0.20

%

    

11.20

      

18.77

      

80,434

      

1,017,397

      

8.88

%

    

9.09

%

    

2.72

%

  
     

2015

          

0.00

%

    

0.20

%

    

17.21

      

17.21

      

71,307

      

828,825

      

-0.37

%

    

-0.37

%

    

2.68

%

  

MFS® VIT Utilities Series - Initial Class

  
     

2019

          

0.20

%

    

0.20

%

    

13.50

      

13.50

      

4,228

      

57,073

      

24.82

%

    

24.82

%

    

4.27

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.82

      

10.82

      

3,298

      

35,671

      

0.86

%

    

0.86

%

    

1.05

%

  
     

2017

          

0.20

%

    

0.20

%

    

10.72

      

10.72

      

4,964

      

53,239

      

14.60

%

    

14.60

%

    

4.31

%

  
     

2016

          

0.20

%

    

0.20

%

    

9.36

      

9.36

      

5,377

      

50,317

      

11.25

%

    

11.25

%

    

4.18

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

8.41

      

8.41

      

5,391

      

45,350

      

3.76

%

    

3.76

%

    

5.06

%

  

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

  
     

2019

          

0.20

%

    

0.35

%

    

17.45

      

26.25

      

7,696

      

147,245

      

32.28

%

    

32.48

%

    

0.00

%

  
     

2018

          

0.20

%

    

0.35

%

    

13.17

      

19.84

      

8,433

      

121,060

      

-6.73

%

    

-6.59

%

    

0.00

%

  
     

2017

          

0.20

%

    

0.35

%

    

14.10

      

21.27

      

10,469

      

158,538

      

24.85

%

    

25.04

%

    

0.00

%

  
     

2016

          

0.20

%

    

0.35

%

    

11.28

      

17.04

      

9,817

      

123,133

      

4.03

%

    

4.19

%

    

0.00

%

  
     

2015

          

0.20

%

    

0.35

%

    

16.38

      

16.38

      

16,935

      

195,470

      

0.92

%

    

0.92

%

    

0.00

%

  


C-32


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

  
     

2019

          

0.35

%

    

0.35

%

  

$

22.59

    

$

22.59

      

1,386

    

$

31,311

      

16.34

%

    

16.34

%

    

0.72

%

  
     

2018

          

0.35

%

    

0.35

%

    

19.41

      

19.41

      

1,410

      

27,372

      

-15.57

%

    

-15.57

%

    

0.58

%

  
     

2017

          

0.20

%

    

0.35

%

    

13.02

      

22.99

      

1,441

      

33,059

      

16.33

%

    

16.50

%

    

0.58

%

  
     

2016

          

0.20

%

    

0.35

%

    

11.18

      

19.77

      

8,303

      

108,106

      

15.76

%

    

15.94

%

    

0.68

%

  
     

2015

          

0.20

%

    

0.35

%

    

17.08

      

17.08

      

4,326

      

55,159

      

-8.66

%

    

-8.66

%

    

0.64

%

  

PIMCO VIT Real Return Portfolio - Administrative Class

  
     

2019

    

2/27/19

    

0.20

%

    

0.20

%

    

10.75

      

10.75

      

5,303

      

56,983

      

6.27

%

    

6.27

%

    

1.37

%

  

PIMCO VIT Total Return Portfolio - Administrative Class

  
     

2017

    

5/26/17

    

0.00

%

    

0.00

%

    

—

      

—

      

—

      

—

      

0.00

%

    

0.00

%

    

0.99

%

  

T. Rowe Price Equity Income Portfolio

  
     

2019

          

0.00

%

    

0.00

%

    

25.52

      

25.52

      

2,763

      

70,517

      

26.40

%

    

26.40

%

    

2.32

%

  
     

2018

          

0.00

%

    

0.00

%

    

20.19

      

20.19

      

3,147

      

63,549

      

-9.50

%

    

-9.50

%

    

2.05

%

  
     

2017

          

0.00

%

    

0.00

%

    

22.31

      

22.31

      

2,022

      

45,120

      

16.02

%

    

16.02

%

    

1.96

%

  
     

2016

          

0.00

%

    

0.00

%

    

19.23

      

19.23

      

1,065

      

20,478

      

19.17

%

    

19.17

%

    

2.10

%

  
     

2015

          

0.00

%

    

0.00

%

    

16.14

      

16.14

      

1,107

      

17,869

      

-6.85

%

    

-6.85

%

    

2.19

%

  

Templeton Global Bond VIP Fund - Class 1

  
     

2019

          

0.20

%

    

0.20

%

    

10.36

      

10.36

      

27,644

      

286,297

      

2.05

%

    

2.05

%

    

7.15

%

  
     

2018

          

0.20

%

    

0.20

%

    

10.15

      

10.15

      

25,348

      

257,237

      

2.01

%

    

2.01

%

    

0.00

%

  
     

2017

          

0.20

%

    

0.20

%

    

9.95

      

9.95

      

3,578

      

35,598

      

1.95

%

    

1.95

%

    

0.00

%

  
     

2016

          

0.20

%

    

0.20

%

    

9.76

      

9.76

      

9,245

      

90,211

      

3.00

%

    

3.00

%

    

0.00

%

  
     

2015

    

12/7/15

    

0.20

%

    

0.20

%

    

9.47

      

9.47

      

7,016

      

66,470

      

-1.28

%

    

-1.28

%

    

7.78

%

  

Templeton Growth VIP Fund - Class 1

  
     

2019

          

0.20

%

    

0.20

%

    

11.04

      

11.04

      

396

      

4,377

      

15.22

%

    

15.22

%

    

2.40

%

  
     

2018

          

0.20

%

    

0.20

%

    

9.58

      

9.58

      

1,564

      

14,983

      

-14.78

%

    

-14.78

%

    

2.22

%

  
     

2017

          

0.20

%

    

0.20

%

    

11.24

      

11.24

      

1,555

      

17,483

      

18.53

%

    

18.53

%

    

0.90

%

  
     

2016

          

0.20

%

    

0.35

%

    

9.49

      

16.43

      

30,179

      

301,625

      

9.52

%

    

9.68

%

    

2.11

%

  
     

2015

          

0.20

%

    

0.35

%

    

15.00

      

15.00

      

30,544

      

278,446

      

-6.56

%

    

-6.56

%

    

2.76

%

  

(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 thereby a succeeding commencement date is disclosed.

(2)  These amounts represent the annualized minimum and maximum contract expenses of the separate account, consisting primarily of mortality and expense charges, for only those subaccounts which contain investments as of the respective year end. 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.


C-33


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

4. Purchases and Sales of Investments

The aggregate cost of investments purchased and the aggregate proceeds from investments sold were as follows for 2019:

Subaccount

   Aggregate
Cost of
Purchases		   Aggregate
Proceeds
from Sales		  

AB VPS Global Thematic Growth Portfolio - Class A

  

$

8,759

    

$

24,897

    

AB VPS Growth and Income Portfolio - Class A

    

205,582

      

124,745

    

AB VPS International Value Portfolio - Class A

    

10,771

      

14,140

    

AB VPS Small/Mid Cap Value Portfolio - Class A

    

18,593

      

59,532

    

American Century VP Income & Growth Fund - Class I

    

4,845

      

6,951

    

American Century VP Inflation Protection Fund - Class II

    

46,802

      

835

    

American Century VP International Fund - Class I

    

51,759

      

18,658

    

American Funds Global Growth Fund - Class 2

    

27,970

      

54,776

    

American Funds Global Small Capitalization Fund - Class 2

    

110,765

      

26,530

    

American Funds Growth Fund - Class 2

    

146,567

      

403,221

    

American Funds Growth-Income Fund - Class 2

    

3,493

      

174,106

    

American Funds High-Income Bond Fund - Class 2

    

7,161

      

66,355

    

American Funds International Fund - Class 2

    

905,575

      

60,396

    

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

    

161

      

118

    

BlackRock Equity Dividend V.I. Fund - Class I

    

6,081

      

1,362

    

BlackRock Global Allocation V.I. Fund - Class I

    

6,282

      

17,227

    

BlackRock High Yield V.I. Fund - Class I

    

204,608

      

30,805

    

ClearBridge Variable Small Cap Growth Portfolio - Class I

    

55,304

      

4,456

    

Delaware VIP® Diversified Income Series - Standard Class

    

270,979

      

664,298

    

Delaware VIP® Emerging Markets Series - Standard Class

    

380,560

      

86,627

    

Delaware VIP® High Yield Series - Standard Class

    

88,712

      

158,391

    

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

    

340,151

      

11,982

    

Delaware VIP® REIT Series - Standard Class

    

115,419

      

59,031

    

Delaware VIP® Small Cap Value Series - Standard Class

    

120,084

      

28,687

    

Delaware VIP® Smid Cap Core Series - Standard Class

    

906

      

15,850

    

Delaware VIP® U.S. Growth Series - Standard Class

    

89,509

      

303,813

    

Delaware VIP® Value Series - Standard Class

    

517,501

      

42,323

    

DWS Equity 500 Index VIP Portfolio - Class A

    

353,882

      

680,609

    

DWS Small Cap Index VIP Portfolio - Class A

    

64,999

      

5,653

    

Fidelity® VIP Asset Manager Portfolio - Service Class

    

108,885

      

95,857

    

Fidelity® VIP Contrafund® Portfolio - Service Class

    

274,975

      

85,816

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

    

163,844

      

11,706

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

    

39,866

      

4,899

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

    

5,387

      

8,242

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

    

38,047

      

61,251

    

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

    

187,281

      

71,717

    

Fidelity® VIP Growth Portfolio - Service Class

    

11,606

      

53,334

    

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

    

473,169

      

13,005

    

Fidelity® VIP Mid Cap Portfolio - Service Class

    

16,232

      

66,111

    

Fidelity® VIP Overseas Portfolio - Service Class

    

1,893

      

2,216

    

Franklin Mutual Shares VIP Fund - Class 1

    

8,703

      

21,289

    

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares

    

1,667

      

3,906,973

    

Janus Henderson Balanced Portfolio - Service Shares

    

25,326

      

10,205

    

LVIP Baron Growth Opportunities Fund - Service Class

    

82,645

      

100,245

    

LVIP Baron Growth Opportunities Fund - Standard Class

    

35,152

      

4,113

    

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

    

3,566

      

43,383

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

25,859

      

52,397

    

LVIP Delaware Bond Fund - Standard Class

    

361,086

      

155,302

    

LVIP Delaware Social Awareness Fund - Standard Class

    

27,024

      

17,140

    

LVIP Delaware Special Opportunities Fund - Standard Class

    

3,285

      

27,096

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

6,686

      

57,841

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

19,700

      

81,102

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

6,013

      

330

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

1,853

      

554

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

2,240

      

2,099

    

LVIP Government Money Market Fund - Standard Class

    

3,164,675

      

1,666,571

    

LVIP JPMorgan High Yield Fund - Standard Class

    

554,555

      

52,767

    

LVIP MFS Value Fund - Standard Class

    

124,436

      

116,511

    


C-34


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

4. Purchases and Sales of Investments (continued)

Subaccount

   Aggregate
Cost of
Purchases		   Aggregate
Proceeds
from Sales		  

LVIP Mondrian International Value Fund - Standard Class

  

$

59,240

    

$

26,400

    

LVIP SSGA Bond Index Fund - Standard Class

    

357,767

      

34,702

    

LVIP SSGA International Index Fund - Standard Class

    

847,420

      

221,073

    

LVIP SSGA Mid-Cap Index Fund - Standard Class

    

1,572,130

      

258,671

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

1,827,022

      

401,056

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

392,140

      

105,435

    

LVIP T. Rowe Price Growth Stock Fund - Standard Class

    

1,379,258

      

123,762

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

144,282

      

73,927

    

MFS® VIT Growth Series - Initial Class

    

3,846

      

764

    

MFS® VIT Total Return Series - Initial Class

    

538,126

      

166,097

    

MFS® VIT Utilities Series - Initial Class

    

14,791

      

1,334

    

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

    

14,281

      

16,218

    

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

    

3,773

      

625

    

PIMCO VIT Real Return Portfolio - Administrative Class

    

57,177

      

1,724

    

T. Rowe Price Equity Income Portfolio

    

5,664

      

8,132

    

Templeton Global Bond VIP Fund - Class 1

    

166,787

      

126,294

    

Templeton Growth VIP Fund - Class 1

    

1,478

      

12,699

    

5. Investments

The following is a summary of investments owned at December 31, 2019:

Subaccount

   Shares
Owned		   Net
Asset
Value		   Fair Value
of Shares		   Cost of
Shares		  

AB VPS Global Thematic Growth Portfolio - Class A

    

2,917

    

$

33.52

    

$

97,782

    

$

82,400

    

AB VPS Growth and Income Portfolio - Class A

    

11,535

      

30.30

      

349,506

      

352,153

    

AB VPS International Value Portfolio - Class A

    

2,154

      

14.37

      

30,955

      

31,291

    

AB VPS Small/Mid Cap Value Portfolio - Class A

    

8,202

      

17.91

      

146,901

      

159,125

    

American Century VP Income & Growth Fund - Class I

    

3,615

      

10.02

      

36,224

      

32,823

    

American Century VP Inflation Protection Fund - Class II

    

4,481

      

10.26

      

45,973

      

46,053

    

American Century VP International Fund - Class I

    

6,147

      

11.50

      

70,688

      

65,143

    

American Funds Global Growth Fund - Class 2

    

12,720

      

32.24

      

410,097

      

356,094

    

American Funds Global Small Capitalization Fund - Class 2

    

15,598

      

26.02

      

405,854

      

360,772

    

American Funds Growth Fund - Class 2

    

2,245

      

80.57

      

180,872

      

167,490

    

American Funds High-Income Bond Fund - Class 2

    

3,103

      

9.70

      

30,102

      

30,060

    

American Funds International Fund - Class 2

    

75,443

      

20.78

      

1,567,704

      

1,481,050

    

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

    

250

      

12.21

      

3,057

      

3,060

    

BlackRock Equity Dividend V.I. Fund - Class I

    

6,166

      

11.90

      

73,379

      

73,408

    

BlackRock Global Allocation V.I. Fund - Class I

    

1,960

      

17.12

      

33,554

      

33,563

    

BlackRock High Yield V.I. Fund - Class I

    

23,837

      

7.43

      

177,112

      

173,923

    

ClearBridge Variable Small Cap Growth Portfolio - Class I

    

1,793

      

27.54

      

49,374

      

50,876

    

Delaware VIP® Diversified Income Series - Standard Class

    

10,570

      

10.71

      

113,207

      

110,225

    

Delaware VIP® Emerging Markets Series - Standard Class

    

17,674

      

24.27

      

428,953

      

383,512

    

Delaware VIP® High Yield Series - Standard Class

    

16,455

      

5.08

      

83,590

      

81,606

    

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

    

37,016

      

9.82

      

363,494

      

364,277

    

Delaware VIP® REIT Series - Standard Class

    

7,832

      

14.69

      

115,058

      

115,808

    

Delaware VIP® Small Cap Value Series - Standard Class

    

4,990

      

38.30

      

191,102

      

179,803

    

Delaware VIP® U.S. Growth Series - Standard Class

    

9,551

      

10.15

      

96,939

      

102,751

    

Delaware VIP® Value Series - Standard Class

    

18,332

      

31.09

      

569,947

      

547,852

    

DWS Equity 500 Index VIP Portfolio - Class A

    

23,117

      

23.14

      

534,934

      

466,164

    

DWS Small Cap Index VIP Portfolio - Class A

    

7,221

      

16.97

      

122,534

      

114,685

    

Fidelity® VIP Asset Manager Portfolio - Service Class

    

11,627

      

15.08

      

175,334

      

172,778

    

Fidelity® VIP Contrafund® Portfolio - Service Class

    

14,194

      

36.96

      

524,602

      

480,102

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

    

23,889

      

13.96

      

333,489

      

324,990

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

    

8,343

      

15.25

      

127,226

      

115,890

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

    

633

      

23.04

      

14,589

      

12,729

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

    

785

      

20.63

      

16,201

      

14,803

    

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

    

37,797

      

11.88

      

449,030

      

432,097

    

Fidelity® VIP Growth Portfolio - Service Class

    

2,061

      

78.70

      

162,221

      

127,839

    

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

    

41,698

      

13.02

      

542,904

      

530,769

    


C-35


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

5. Investments (continued)

Subaccount

   Shares
Owned		   Net
Asset
Value		   Fair Value
of Shares		   Cost of
Shares		  

Fidelity® VIP Mid Cap Portfolio - Service Class

    

1,287

    

$

32.59

    

$

41,955

    

$

43,458

    

Fidelity® VIP Overseas Portfolio - Service Class

    

1,646

      

23.03

      

37,919

      

33,717

    

Franklin Mutual Shares VIP Fund - Class 1

    

1,992

      

19.19

      

38,236

      

42,002

    

Janus Henderson Balanced Portfolio - Service Shares

    

15,562

      

41.70

      

648,927

      

465,388

    

LVIP Baron Growth Opportunities Fund - Service Class

    

870

      

60.14

      

52,331

      

43,795

    

LVIP Baron Growth Opportunities Fund - Standard Class

    

2,038

      

62.16

      

126,670

      

100,080

    

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

    

638

      

20.92

      

13,352

      

11,794

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

645

      

37.33

      

24,082

      

22,630

    

LVIP Delaware Bond Fund - Standard Class

    

138,823

      

13.70

      

1,902,149

      

1,923,198

    

LVIP Delaware Social Awareness Fund - Standard Class

    

961

      

41.15

      

39,550

      

36,602

    

LVIP Delaware Special Opportunities Fund - Standard Class

    

82

      

36.47

      

3,002

      

3,081

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

3,962

      

11.81

      

46,799

      

55,130

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

4,700

      

34.70

      

163,074

      

151,940

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

934

      

14.11

      

13,180

      

12,842

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

1,419

      

14.56

      

20,667

      

20,976

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

148

      

14.88

      

2,196

      

2,198

    

LVIP Government Money Market Fund - Standard Class

    

814,433

      

10.00

      

8,144,330

      

8,144,330

    

LVIP JPMorgan High Yield Fund - Standard Class

    

67,459

      

10.56

      

712,235

      

724,948

    

LVIP MFS Value Fund - Standard Class

    

15,694

      

46.46

      

729,152

      

601,181

    

LVIP Mondrian International Value Fund - Standard Class

    

4,322

      

16.96

      

73,306

      

71,365

    

LVIP SSGA Bond Index Fund - Standard Class

    

28,848

      

11.46

      

330,604

      

323,982

    

LVIP SSGA International Index Fund - Standard Class

    

115,717

      

9.84

      

1,139,004

      

1,052,081

    

LVIP SSGA Mid-Cap Index Fund - Standard Class

    

178,736

      

12.00

      

2,144,826

      

2,167,853

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

159,066

      

20.99

      

3,338,629

      

2,864,250

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

15,147

      

31.69

      

480,039

      

458,939

    

LVIP T. Rowe Price Growth Stock Fund - Standard Class

    

46,215

      

49.15

      

2,271,464

      

1,967,697

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

15,967

      

29.72

      

474,500

      

388,868

    

MFS® VIT Growth Series - Initial Class

    

671

      

59.40

      

39,864

      

29,089

    

MFS® VIT Total Return Series - Initial Class

    

61,082

      

24.90

      

1,520,951

      

1,430,323

    

MFS® VIT Utilities Series - Initial Class

    

1,622

      

35.18

      

57,073

      

45,992

    

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

    

4,948

      

29.76

      

147,245

      

128,705

    

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

    

1,956

      

16.01

      

31,311

      

30,547

    

PIMCO VIT Real Return Portfolio - Administrative Class

    

4,508

      

12.64

      

56,983

      

55,491

    

T. Rowe Price Equity Income Portfolio

    

2,599

      

27.13

      

70,517

      

74,388

    

Templeton Global Bond VIP Fund - Class 1

    

17,154

      

16.69

      

286,297

      

297,435

    

Templeton Growth VIP Fund - Class 1

    

393

      

11.15

      

4,377

      

5,411

    

6. Changes in Units Outstanding

The change in units outstanding for the year ended December 31, 2019, is as follows:

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

AB VPS Global Thematic Growth Portfolio - Class A

    

234

      

(1,823

)

    

(1,589

)

  

AB VPS Growth and Income Portfolio - Class A

    

11,534

      

(8,590

)

    

2,944

    

AB VPS International Value Portfolio - Class A

    

1,135

      

(1,480

)

    

(345

)

  

AB VPS Small/Mid Cap Value Portfolio - Class A

    

181

      

(2,094

)

    

(1,913

)

  

American Century VP Income & Growth Fund - Class I

    

96

      

(501

)

    

(405

)

  

American Century VP Inflation Protection Fund - Class II

    

4,268

      

(75

)

    

4,193

    

American Century VP International Fund - Class I

    

4,452

      

(1,759

)

    

2,693

    

American Funds Global Growth Fund - Class 2

    

234

      

(2,061

)

    

(1,827

)

  

American Funds Global Small Capitalization Fund - Class 2

    

4,517

      

(1,086

)

    

3,431

    

American Funds Growth Fund - Class 2

    

5,514

      

(19,632

)

    

(14,118

)

  

American Funds Growth-Income Fund - Class 2

    

20

      

(10,364

)

    

(10,344

)

  

American Funds High-Income Bond Fund - Class 2

    

388

      

(5,155

)

    

(4,767

)

  

American Funds International Fund - Class 2

    

48,518

      

(3,182

)

    

45,336

    

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

    

9

      

(10

)

    

(1

)

  

BlackRock Equity Dividend V.I. Fund - Class I

    

—

      

(65

)

    

(65

)

  

BlackRock Global Allocation V.I. Fund - Class I

    

264

      

(1,074

)

    

(810

)

  

BlackRock High Yield V.I. Fund - Class I

    

18,788

      

(2,915

)

    

15,873

    


C-36


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

6. Changes in Units Outstanding (continued)

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

ClearBridge Variable Small Cap Growth Portfolio - Class I

    

3,000

      

(253

)

    

2,747

    

Delaware VIP® Diversified Income Series - Standard Class

    

12,786

      

(33,114

)

    

(20,328

)

  

Delaware VIP® Emerging Markets Series - Standard Class

    

26,338

      

(5,791

)

    

20,547

    

Delaware VIP® High Yield Series - Standard Class

    

6,414

      

(6,664

)

    

(250

)

  

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

    

30,696

      

(1,074

)

    

29,622

    

Delaware VIP® REIT Series - Standard Class

    

7,596

      

(4,205

)

    

3,391

    

Delaware VIP® Small Cap Value Series - Standard Class

    

7,911

      

(1,353

)

    

6,558

    

Delaware VIP® Smid Cap Core Series - Standard Class

    

—

      

(440

)

    

(440

)

  

Delaware VIP® U.S. Growth Series - Standard Class

    

2,482

      

(19,103

)

    

(16,621

)

  

Delaware VIP® Value Series - Standard Class

    

20,862

      

(1,806

)

    

19,056

    

DWS Equity 500 Index VIP Portfolio - Class A

    

18,085

      

(40,928

)

    

(22,843

)

  

DWS Small Cap Index VIP Portfolio - Class A

    

4,311

      

(368

)

    

3,943

    

Fidelity® VIP Asset Manager Portfolio - Service Class

    

8,333

      

(8,215

)

    

118

    

Fidelity® VIP Contrafund® Portfolio - Service Class

    

9,029

      

(3,770

)

    

5,259

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

    

9,928

      

(790

)

    

9,138

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

    

2,174

      

(311

)

    

1,863

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

    

298

      

(542

)

    

(244

)

  

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

    

2,276

      

(3,667

)

    

(1,391

)

  

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

    

13,483

      

(5,921

)

    

7,562

    

Fidelity® VIP Growth Portfolio - Service Class

    

—

      

(1,514

)

    

(1,514

)

  

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

    

40,313

      

(1,041

)

    

39,272

    

Fidelity® VIP Mid Cap Portfolio - Service Class

    

243

      

(2,749

)

    

(2,506

)

  

Fidelity® VIP Overseas Portfolio - Service Class

    

25

      

(149

)

    

(124

)

  

Franklin Mutual Shares VIP Fund - Class 1

    

233

      

(1,028

)

    

(795

)

  

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares

    

153

      

(344,966

)

    

(344,813

)

  

Janus Henderson Balanced Portfolio - Service Shares

    

—

      

(399

)

    

(399

)

  

LVIP Baron Growth Opportunities Fund - Service Class

    

5,291

      

(5,866

)

    

(575

)

  

LVIP Baron Growth Opportunities Fund - Standard Class

    

2,140

      

(235

)

    

1,905

    

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

    

139

      

(3,526

)

    

(3,387

)

  

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

1,697

      

(3,800

)

    

(2,103

)

  

LVIP Delaware Bond Fund - Standard Class

    

19,294

      

(8,565

)

    

10,729

    

LVIP Delaware Social Awareness Fund - Standard Class

    

1,683

      

(598

)

    

1,085

    

LVIP Delaware Special Opportunities Fund - Standard Class

    

121

      

(1,212

)

    

(1,091

)

  

LVIP Delaware Wealth Builder Fund - Standard Class

    

186

      

(4,813

)

    

(4,627

)

  

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

529

      

(5,358

)

    

(4,829

)

  

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

447

      

(25

)

    

422

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

43

      

(44

)

    

(1

)

  

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

181

      

(188

)

    

(7

)

  

LVIP Government Money Market Fund - Standard Class

    

274,530

      

(157,647

)

    

116,883

    

LVIP JPMorgan High Yield Fund - Standard Class

    

33,201

      

(3,315

)

    

29,886

    

LVIP MFS Value Fund - Standard Class

    

4,828

      

(5,443

)

    

(615

)

  

LVIP Mondrian International Value Fund - Standard Class

    

5,435

      

(2,642

)

    

2,793

    

LVIP SSGA Bond Index Fund - Standard Class

    

30,335

      

(3,029

)

    

27,306

    

LVIP SSGA International Index Fund - Standard Class

    

51,459

      

(14,034

)

    

37,425

    

LVIP SSGA Mid-Cap Index Fund - Standard Class

    

94,551

      

(18,414

)

    

76,137

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

60,773

      

(14,348

)

    

46,425

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

15,991

      

(4,605

)

    

11,386

    

LVIP T. Rowe Price Growth Stock Fund - Standard Class

    

39,216

      

(4,054

)

    

35,162

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

5,971

      

(3,047

)

    

2,924

    

MFS® VIT Growth Series - Initial Class

    

26

      

(24

)

    

2

    

MFS® VIT Total Return Series - Initial Class

    

25,757

      

(11,763

)

    

13,994

    

MFS® VIT Utilities Series - Initial Class

    

1,028

      

(98

)

    

930

    

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

    

285

      

(1,022

)

    

(737

)

  

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

    

—

      

(24

)

    

(24

)

  

PIMCO VIT Real Return Portfolio - Administrative Class

    

5,460

      

(157

)

    

5,303

    

T. Rowe Price Equity Income Portfolio

    

—

      

(384

)

    

(384

)

  

Templeton Global Bond VIP Fund - Class 1

    

14,433

      

(12,137

)

    

2,296

    

Templeton Growth VIP Fund - Class 1

    

58

      

(1,226

)

    

(1,168

)

  


C-37


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

6. Changes in Units Outstanding (continued)

The change in units outstanding for the year ended December 31, 2018, is as follows:

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

AB VPS Global Thematic Growth Portfolio - Class A

    

901

      

(5,470

)

    

(4,569

)

  

AB VPS Growth and Income Portfolio - Class A

    

8,721

      

(576

)

    

8,145

    

AB VPS International Value Portfolio - Class A

    

1,889

      

(1,988

)

    

(99

)

  

AB VPS Small/Mid Cap Value Portfolio - Class A

    

1,775

      

(1,296

)

    

479

    

American Century VP Income & Growth Fund - Class I

    

105

      

(401

)

    

(296

)

  

American Century VP Inflation Protection Fund - Class II

    

—

      

(34

)

    

(34

)

  

American Century VP International Fund - Class I

    

130

      

(4,849

)

    

(4,719

)

  

American Funds Global Growth Fund - Class 2

    

3,483

      

(3,141

)

    

342

    

American Funds Global Small Capitalization Fund - Class 2

    

3,268

      

(2,374

)

    

894

    

American Funds Growth Fund - Class 2

    

11,102

      

(3,824

)

    

7,278

    

American Funds Growth-Income Fund - Class 2

    

9,522

      

(2,095

)

    

7,427

    

American Funds High-Income Bond Fund - Class 2

    

292

      

(2,872

)

    

(2,580

)

  

American Funds International Fund - Class 2

    

7,142

      

(5,094

)

    

2,048

    

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

    

116

      

(7,514

)

    

(7,398

)

  

BlackRock Equity Dividend V.I. Fund - Class I

    

—

      

(63

)

    

(63

)

  

BlackRock Global Allocation V.I. Fund - Class I

    

290

      

(136

)

    

154

    

Delaware VIP® Diversified Income Series - Standard Class

    

29,239

      

(19,821

)

    

9,418

    

Delaware VIP® Emerging Markets Series - Standard Class

    

2,143

      

(2,860

)

    

(717

)

  

Delaware VIP® High Yield Series - Standard Class

    

1,046

      

(882

)

    

164

    

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

    

86

      

(904

)

    

(818

)

  

Delaware VIP® REIT Series - Standard Class

    

146

      

(520

)

    

(374

)

  

Delaware VIP® Small Cap Value Series - Standard Class

    

547

      

(490

)

    

57

    

Delaware VIP® Smid Cap Core Series - Standard Class

    

120

      

(15

)

    

105

    

Delaware VIP® U.S. Growth Series - Standard Class

    

4,166

      

(7,636

)

    

(3,470

)

  

Delaware VIP® Value Series - Standard Class

    

2,289

      

(3,026

)

    

(737

)

  

DWS Equity 500 Index VIP Portfolio - Class A

    

11,345

      

(3,031

)

    

8,314

    

DWS Small Cap Index VIP Portfolio - Class A

    

8

      

(50

)

    

(42

)

  

Fidelity® VIP Asset Manager Portfolio - Service Class

    

4,511

      

(334

)

    

4,177

    

Fidelity® VIP Contrafund® Portfolio - Service Class

    

6,668

      

(706

)

    

5,962

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

    

10,502

      

(211

)

    

10,291

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

    

1,713

      

(2,024

)

    

(311

)

  

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

    

245

      

(122

)

    

123

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

    

1,053

      

(147

)

    

906

    

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

    

7,138

      

(11,781

)

    

(4,643

)

  

Fidelity® VIP Growth Portfolio - Service Class

    

887

      

(1,144

)

    

(257

)

  

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

    

—

      

(100

)

    

(100

)

  

Fidelity® VIP Mid Cap Portfolio - Service Class

    

225

      

(3,487

)

    

(3,262

)

  

Fidelity® VIP Overseas Portfolio - Service Class

    

1,929

      

(2,133

)

    

(204

)

  

Franklin Mutual Shares VIP Fund - Class 1

    

260

      

(125

)

    

135

    

Franklin Small-Mid Cap Growth VIP Fund - Class 1

    

—

      

(468

)

    

(468

)

  

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares

    

212,979

      

(17,774

)

    

195,205

    

Janus Henderson Balanced Portfolio - Service Shares

    

—

      

(406

)

    

(406

)

  

Janus Henderson Flexible Bond Portfolio - Service Shares

    

—

      

(134

)

    

(134

)

  

LVIP Baron Growth Opportunities Fund - Service Class

    

1,505

      

(469

)

    

1,036

    

LVIP Baron Growth Opportunities Fund - Standard Class

    

1,489

      

(173

)

    

1,316

    

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

    

606

      

(1,513

)

    

(907

)

  

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

319

      

(4,549

)

    

(4,230

)

  

LVIP Delaware Bond Fund - Standard Class

    

10,316

      

(18,941

)

    

(8,625

)

  

LVIP Delaware Social Awareness Fund - Standard Class

    

170

      

(36

)

    

134

    

LVIP Delaware Special Opportunities Fund - Standard Class

    

341

      

(39

)

    

302

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

4,919

      

(194

)

    

4,725

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

450

      

(1,263

)

    

(813

)

  

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

44

      

(258

)

    

(214

)

  

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

1,573

      

(40

)

    

1,533

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

84

      

(13,804

)

    

(13,720

)

  

LVIP Government Money Market Fund - Standard Class

    

113,909

      

(609,318

)

    

(495,409

)

  

LVIP JPMorgan High Yield Fund - Standard Class

    

763

      

(19,001

)

    

(18,238

)

  

LVIP MFS Value Fund - Standard Class

    

3,351

      

(8,711

)

    

(5,360

)

  


C-38


LLANY Separate Account S For Flexible Premium Variable Life Insurance

Notes to financial statements (continued)

6. Changes in Units Outstanding (continued)

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

LVIP Mondrian International Value Fund - Standard Class

    

89

      

(98

)

    

(9

)

  

LVIP SSGA International Index Fund - Standard Class

    

7,313

      

(2,329

)

    

4,984

    

LVIP SSGA Mid-Cap Index Fund - Standard Class

    

12,167

      

(12,831

)

    

(664

)

  

LVIP SSGA S&P 500 Index Fund - Standard Class

    

16,126

      

(16,457

)

    

(331

)

  

LVIP SSGA Small-Cap Index Fund - Standard Class

    

3,005

      

(1,872

)

    

1,133

    

LVIP T. Rowe Price Growth Stock Fund - Standard Class

    

6,628

      

(2,938

)

    

3,690

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

2,545

      

(1,869

)

    

676

    

MFS® VIT Growth Series - Initial Class

    

145

      

(1,605

)

    

(1,460

)

  

MFS® VIT Total Return Series - Initial Class

    

30,265

      

(1,957

)

    

28,308

    

MFS® VIT Utilities Series - Initial Class

    

980

      

(2,646

)

    

(1,666

)

  

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

    

267

      

(2,303

)

    

(2,036

)

  

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

    

2,313

      

(2,344

)

    

(31

)

  

T. Rowe Price Equity Income Portfolio

    

1,325

      

(200

)

    

1,125

    

Templeton Global Bond VIP Fund - Class 1

    

23,032

      

(1,262

)

    

21,770

    

Templeton Growth VIP Fund - Class 1

    

55

      

(46

)

    

9

    

7. Subsequent Events

Management evaluated subsequent events through the date these financial statements were issued.

The worldwide coronavirus, or COVID-19, outbreak in the first quarter of 2020 has led to an extreme downturn and volatility of the financial markets and wide-ranging changes in consumer behavior. As the economic and regulatory environment continues to evolve, we cannot reasonably estimate the length or severity of this event or the impact to Separate Account performance and financial results. However, in general, a deterioration in general economic and business conditions can have a negative impact on individual unit values and could cause a net decrease in net assets resulting from operations of the separate account.

Management identified no other items or events required for disclosure.


C-39


Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Lincoln Life & Annuity Company of New York and

Contract Owners of LLANY Separate Account S for Flexible Premium Variable Life Insurance

Opinion on the Financial Statements

We have audited the accompanying statements of assets and liabilities of each of the subaccounts listed in the Appendix that comprise LLANY Separate Account S for Flexible Premium Variable Life Insurance ("Variable Account"), as of December 31, 2019, the related statements of operations and the statements of changes in net assets for each of the periods indicated in the Appendix, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of each subaccount as of December 31, 2019, the results of its operations and changes in its net assets for each of the periods indicated in the Appendix, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Variable Account's management. Our responsibility is to express an opinion on each of the subaccounts' financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Variable Account in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the fund companies or their transfer agents, as applicable. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Ernst & Young

We have served as the Variable Account's Auditor since 2001.
Philadelphia, Pennsylvania

April 8, 2020


C-40


Subaccount

   Statements of
Assets and Liabilities		  

Statements of Operations

  

Statements of Changes in Net Assets

  

AB VPS Global Thematic Growth Portfolio - Class A

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

AB VPS Growth and Income Portfolio - Class A

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

AB VPS International Value Portfolio - Class A

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

AB VPS Small/Mid Cap Value Portfolio - Class A

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Century VP Income & Growth Fund - Class I

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Century VP Inflation Protection Fund - Class II

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Century VP International Fund - Class I

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds Global Growth Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds Global Small Capitalization Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds Growth Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds Growth-Income Fund - Class 2

  

Available fund with no money invested at December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds High-Income Bond Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds International Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds U.S. Government/AAA-Rated Securities Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

BlackRock Equity Dividend V.I. Fund - Class I

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

BlackRock Global Allocation V.I. Fund - Class I

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

BlackRock High Yield V.I. Fund - Class I

  

As of December 31, 2019

  

For the period from June 20, 2019 through December 31, 2019

  

For the period from June 20, 2019 through December 31, 2019

  

ClearBridge Variable Small Cap Growth Portfolio - Class I

  

As of December 31, 2019

  

For the period from February 27, 2019 through December 31, 2019

  

For the period from February 27, 2019 through December 31, 2019

  

Delaware VIP® Diversified Income Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® Emerging Markets Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® High Yield Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® Limited-Term Diversified Income Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® REIT Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  


C-41


Subaccount

   Statements of
Assets and Liabilities		  

Statements of Operations

  

Statements of Changes in Net Assets

  

Delaware VIP® Small Cap Value Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® Smid Cap Core Series - Standard Class

  

Available fund with no money invested at December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® U.S. Growth Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® Value Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

DWS Equity 500 Index VIP Portfolio - Class A

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

DWS Small Cap Index VIP Portfolio - Class A

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Asset Manager Portfolio - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Contrafund® Portfolio - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom Income Portfolio(SM) - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Growth Portfolio - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Investment Grade Bond Portfolio - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Mid Cap Portfolio - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Overseas Portfolio - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Franklin Mutual Shares VIP Fund - Class 1

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Franklin Small-Mid Cap Growth VIP Fund - Class 1

  

Available fund with no money invested at December 31, 2019

  

Available fund with no activity in the Statements of Operations at December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Goldman Sachs VIT Global Trends Allocation Fund - Service Shares

  

Available fund with no money invested at December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Janus Henderson Balanced Portfolio - Service Shares

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Janus Henderson Flexible Bond Portfolio - Service Shares

  

Available fund with no money invested at December 31, 2019

  

Available fund with no activity in the Statements of Operations at December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Baron Growth Opportunities Fund - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  


C-42


Subaccount

   Statements of
Assets and Liabilities		  

Statements of Operations

  

Statements of Changes in Net Assets

  

LVIP Baron Growth Opportunities Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP BlackRock Dividend Value Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Delaware Bond Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Delaware Social Awareness Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Delaware Special Opportunities Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Delaware Wealth Builder Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Government Money Market Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP JPMorgan High Yield Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP MFS Value Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Mondrian International Value Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA Bond Index Fund - Standard Class

  

As of December 31, 2019

  

For the period from February 27, 2019 through December 31, 2019

  

For the period from February 27, 2019 through December 31, 2019

  

LVIP SSGA International Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA Mid-Cap Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA S&P 500 Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA Small-Cap Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price Growth Stock Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  


C-43


Subaccount

   Statements of
Assets and Liabilities		  

Statements of Operations

  

Statements of Changes in Net Assets

  

MFS® VIT Growth Series - Initial Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

MFS® VIT Total Return Series - Initial Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

MFS® VIT Utilities Series - Initial Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Neuberger Berman AMT Mid Cap Growth Portfolio - I Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Neuberger Berman AMT Mid Cap Intrinsic Value Portfolio - I Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

PIMCO VIT Real Return Portfolio - Administrative Class

  

As of December 31, 2019

  

For the period from February 27, 2019 through December 31, 2019

  

For the period from February 27, 2019 through December 31, 2019

  

T. Rowe Price Equity Income Portfolio

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Templeton Global Bond VIP Fund - Class 1

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Templeton Growth VIP Fund - Class 1

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  


C-44


PART C - OTHER INFORMATION
Item 26. EXHIBITS
(2) Term Insurance Rider—Policy Form LR526 NY incorporated by reference to Initial Registration Statement on Form N-6 (File No. 333-107461) filed on July 30, 2003.
(3) Load Amortization Rider—Policy Form LR853 NY incorporated by reference to Initial Registration Statement on Form N-6 (File No. 333-125794) filed on June 14, 2005.
(4) Change of Insured Employee Benefit Rider—Policy Form LR493 NY incorporated by reference to Initial Registration Statement on Form N-6 (File No. 333-107461) filed on July 30, 2003.
(5) Adjustable Benefit Enhancement Rider incorporated by reference to Post-Effective Amendment No. 4 on Form N-6 (File No. 333-104719) filed on August 23, 2004.
(6) Enhanced Surrender Value Rider—Policy Form LR529 NY incorporated by reference to Initial Registration Statement on Form N-6 (File No. 333-107461) filed on July 30, 2003.
(g) Reinsurance Contracts incorporated by reference to Initial Registration Statement on Form N-6 (File No. 333-148917) filed on January 29, 2008.
(h) Fund Participation Agreements, and amendments thereto, between Lincoln Life & Annuity Company of New York and:

 

(6) Delaware VIP Trust incorporated by reference to Post-Effective Amendment No. 19 on Form N-6 (File No. 333-155333) filed on April 1, 2015.
(7) Deutsche DWS Investment VIT Funds incorporated by reference to Post-Effective Amendment No. 17 on Form N-6 (File No. 333-155333) filed on April 2, 2013.
(8) Deutsche DWS Variable Series II incorporated by reference to Post-Effective Amendment No. 23 on Form N-6 (File No. 333-146507) filed on April 1, 2015.
(9) Eaton Vance Variable Trust incorporated by reference to Pre-Effective Amendment No. 1 on Form N-4 (File No. 333-193276) filed on May 16, 2014.
(10) Fidelity Variable Insurance Products incorporated by reference to Post-Effective Amendment No. 21 on Form N-6 (File No. 333-141769) filed on April 9, 2018.
(11) Franklin Templeton Variable Insurance Products Trust incorporated by reference to Post-Effective Amendment No. 19 on Form N-6 (File No. 333-155333) filed on April 1, 2015.
(12) Goldman Sachs Variable Insurance Trust incorporated by reference to Post-Effective Amendment No. 23 on Form N-6 (File No. 333-146507) filed on April 1, 2015.
(13) Ivy Variable Insurance Portfolios and Waddell & Reed, Inc. incorporated herein by reference to Pre-Effective Amendment No. 1 on Form N-4 (File No. 333-193272) filed on May 16, 2014.
(14) Janus Aspen Series incorporated by reference to Post-Effective Amendment No. 7 on Form N-6 (File No. 333-155333) filed on April 1, 2010.
(15) JPMorgan Insurance Trust incorporated by reference to Post-Effective Amendment No. 26 on Form N-6 (File No. 333-146507) filed on April 3, 2017.
(16) Legg Mason Partners Variable Equity Trust incorporated by reference to Post-Effective Amendment No. 21 on Form N-6 (File No. 333-141769) filed on April 9, 2018.
(17) Lincoln Variable Insurance Products Trust incorporated by reference to Post-Effective Amendment No. 20 on Form N-6 (File No. 333-155333) filed on April 1, 2016.
(18) M Fund, Inc. incorporated by reference to Post-Effective Amendment No. 17 on Form N-6 (File No. 333-155333) filed on April 2, 2013.
(19) MFS Variable Insurance Trust I, II, III incorporated by reference to Post-Effective Amendment No. 19 on Form N-6 (File No. 333-155333) filed on April 1, 2015.
B-2

 

(a) T. Rowe Price International Series, Inc. and T. Rowe Price Investment Services, Inc. incorporated herein by reference to Post-Effective Amendment No. 11 (File No. 333-10805) filed on April 16, 2003. (Amendment)
(b) T. Rowe Price International Series, Inc. and T. Rowe Price Investment Services, Inc. incorporated herein by reference to Post-Effective Amendment No. 2 (File No. 333-141755) filed on April 15, 2008. (Amendment dated April 2, 2007)
(c) T. Rowe Price International Series, Inc. and T. Rowe Price Investment Services, Inc. incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-141755) filed on April 6, 2012. (Amendment dated February 9, 2011)
(d) T. Rowe Price International Series, Inc. and T. Rowe Price Investment Services, Inc. incorporated herein by reference to Post-Effective Amendment No. 6 (File No. 333-141755) filed on April 6, 2012. (Amendment dated October 10, 2011)
(e) Amendment dated March 24, 2014 incorporated by reference to Post-Effective Amendment No. 15 on Form N-6 (File No. 333-141769) filed on April 2, 2015.
B-3

 

Item 27. Directors and Officers of the Depositor
Name   Positions and Offices with Depositor
Dennis R. Glass**   President and Director
Ellen G. Cooper**   Executive Vice President, Chief Investment Officer and Director
Randal J. Freitag**   Executive Vice President, Chief Financial Officer and Director
Christine A. Janofsky**   Senior Vice President, Chief Account Officer and Controller
Lisa M. Buckingham**   Director
George W. Henderson, III
11 Sayle Road
Charleston, NC 29407 		  Director
Mark E Konen
3402 Foothill Terrace
Austin, TX 78731 		  Director
M. Leanne Lachman
870 United Nations Plaza, #19-E
New York, NY 10017 		  Director
Louis G. Marcoccia
7126 Kittiwake Run
Manlius, NY 13104 		  Director
Patrick S. Pittard
Marble Hills Farms
739 Harley Trail
Ball Ground, GA 30107 		  Director
Robert O. Sheppard*   Assistant Vice President, Secretary and General Counsel
* Principal business address is 120 Madison Street, Suite 1310, Syracuse, NY 13202
** Principal business address is 150 Radnor Chester Road, Radnor, PA 19087
Item 28. Persons Controlled by or Under Common Control with the Depositor or the Registrant
Item 29. 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 Life 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(b) hereto) for the full text of the indemnification provisions. Indemnification is permitted by, and is subject to the requirements of, New York law.
(b) Undertaking pursuant to Rule 484 of Regulation C under the Securities Act of 1933:
  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 28(a) above or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel
B-4

 

  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 30. Principal Underwriter
(a) Lincoln Financial Distributors, Inc. is the principal underwriter for Lincoln Life & Annuity Variable Annuity Account H; Lincoln Life & Annuity Variable Annuity Account L; Lincoln Life & Annuity Flexible Premium Variable Life Account M; Lincoln New York Account N for Variable Annuities; LLANY Separate Account R for Flexible Premium Variable Life; Lincoln New York Account T Variable Annuity; and Lincoln Life & Annuity Flexible Premium Variable Life Account Y.
(b) Officers and Directors of Lincoln Financial Distributors, Inc.:
    
Name   Positions and Offices with Underwriter
Wilford H. Fuller*   President, Chief Executive Officer and Director
Christopher A. Giovanni*   Senior Vice President and Treasurer
Andrew J. Bucklee*   Senior Vice President and Director
Thomas O’Neill*   Senior Vice President, Chief Operating Officer and Director
Claire H. Hanna*   Secretary
John C. Kennedy*   Senior Vice President and Director
Christopher P. Potochar*   Senior Vice President and Director
* Principal business address is 150 N. Radnor Chester Road, Radnor, PA 19087
** Principal business address is 350 Church Street, Hartford, CT 06103
(c) N/A
Item 31. Location of Accounts and Records
Books of Account and corporate records are maintained by Lincoln Life & Annuity Company of New York, 120 Madison Street, Suite 1310, Syracuse, New York 13202. All other accounts, books, and documents, except accounting records, required to be maintained by the 1940 Act and the Rules promulgated thereunder are maintained by The Lincoln National Life Insurance Company, 1300 S. Clinton Street, Fort Wayne, Indiana 46802 and One Granite Place, Concord, New Hampshire 03301. The accounting records are maintained by State Street Bank and Trust Company, 801 Pennsylvania Ave, Kansas City, MO 64105.Andesa Services, Inc., 3435 Winchester Road, Suite 401, Allentown, Pennsylvania, will act as a Transfer Agent on behalf of Lincoln Life as it relates to the policies described in this Prospectus. In the role of a Transfer Agent, Andesa will perform administrative functions, such as decreases, increases, surrenders and partial surrenders, fund allocation changes and transfers on behalf of the Company.
Item 32. Management Services
Not Applicable.
Item 33. Fee Representation
Lincoln Life represents that the fees and charges deducted under the policies, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by Lincoln Life.
B-5

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused these Post-Effective Amendments to the Registration Statements listed below on Form N-6 to be signed on its behalf by the undersigned duly authorized, in the City of Hartford and State of Connecticut on the 7th day of April, 2020 at 10:50 am.

 

Lincoln Life Flexible Premium Variable Life Account S (File No.: 811-09241; CIK: 0001080299)

 

333-125790 (Amendment No: 38)

333-230052 (Amendment No: 2)

 

 

LLANY Separate Account S for Flexible Premium Variable Life Insurance

(File No.: 811-09257; CIK: 0001081039)

333-141769 (Amendment No: 25)

 

 

Lincoln Life Flexible Premium Variable Life Account S

LLANY Separate Account S for Flexible Premium Variable Life Insurance

 

 

(Registrant)

 

 

 

 

 

By

/s/Douglas K. Noble

 

 

 

Douglas K. Noble

 

 

 

Vice President

 

 

 

The Lincoln National Life Insurance Company

 

 

 

 

 

 

 

 

The Lincoln National Life Insurance Company

 

 

(Depositor)

 

 

 

 

 

By

 /s/Douglas K. Noble

 

 

 

Douglas K. Noble

 

 

 

Vice President

 

 

 

Pursuant to the requirements of the Securities Act of 1933, these Post-Effective Amendments to the Registration Statements listed above on Form N-6 have been signed below on April 7, 2020 at 12:35 pm, by the following persons, as officers and directors of the Depositor, in the capacities indicated:

 

Signature

 

Title

 

 

 

/s/ Dennis R. Glass *

 

President and Director

Dennis R. Glass

 

 

 

 

 

 

 

 

/s/ Ellen G. Cooper *

 

Executive Vice President, Chief Investment Officer

Ellen G. Cooper

 

 

 

 

 

 

 

 

/s/ Randal J. Freitag *

 

Executive Vice President; Chief Financial Officer and Director

Randal J. Freitag

 

 

 

 

 

 

 

 

/s/ Leon E. Roday*

 

Executive Vice President, Chief Counsel and Director

Leon E. Roday

 

 

 

 

 

 

 

 

/s/ Wilford H. Fuller*

 

Executive Vice President and Director

Wilford H. Fuller

 

 

 

 

 

 

 

 

/s/ Keith J. Ryan *

 

Vice President and Director

Keith J. Ryan

 

 

 

 

 

 

 

 

* By

/s/ Scott C. Durocher

 

 

 

Scott C. Durocher

 

 

 

Attorney-in-Fact, pursuant to a Power-of-Attorney filed with this Registration Statement

 

 

 

 

 

POWER OF ATTORNEY

 

We, the undersigned directors and/or officers of Lincoln Life & Annuity Company of New York, hereby constitute and appoint Delson R. Campbell, Scott C. Durocher, Kimberly A. Genovese, Daniel P. Herr, Donald E. Keller, Michelle Grindle, Jeffrey L. Smith, Jassmin McIver-Jones, Carolyn Augur and John D. Weber, individually, our true and lawful attorneys-in-fact, with full power to each of them to sign for us, in our names and in the capacities indicated below, any Registration Statements and any and all amendments to Registration Statements; including exhibits, or other documents filed on Forms N-6 or N-4 or any successors or amendments to these Forms, filed with the Securities and Exchange Commission, under the Securities Act of 1933 and/or Securities Act of 1940, on behalf of the Company in its own name or in the name of one of its Separate Accounts, hereby ratifying and confirming our signatures as they may be signed by any of our attorneys-in-fact to any amendment to said Registration Statements as follows:

 

Variable Life Insurance Separate Accounts:

 

Lincoln Life & Annuity Flexible Premium Variable Life Account M (811-08559)

 

VUL-I / VULcv
VULcv-II / VUL Flex ES
VULcv-III ES
VULdb / VULdb ES
VULdb-II ES
VULone ES / VULone 2005 ES
Momentum VULone / Momentum VULone 2005
VULcv-IV ES
VULdb-IV ES
AssetEdge VUL
AssetEdge VUL/AssetEdge Exec VUL 2015
VULone 2007
VULone 2010

LLANY Separate Account R for Flexible Premium Variable Life (811-08651)

 

SVUL / SVUL ES
SVUL-II ES
SVUL-III ES
SVUL-IV ES/PreservationEdge SVUL
SVULone ES
Momentum SVULone
SVULone 2007

LLANY Separate Account S for Flexible Premium Variable Life (811-09257)

 

CVUL Series III ES
LCV4 ES
LCV5 ES / LCC VUL

Lincoln Life & Annuity Flexible Premium Variable Life Account Y (811-21029)

 

American Legacy VULcv-III
American Legacy VULdb-II
American Legacy SVUL-III
American Legacy VULcv-IV
American Legacy VULdb-IV
American Legacy SVUL-IV/PreservationEdge SVUL
American Legacy AssetEdge

 

 

Variable Annuity Insurance Separate Accounts:

 

Lincoln Life & Annuity Variable Annuity Account H (811-08441)

 

American Legacy III
American Legacy III B Class
American Legacy III C Share
American Legacy III Plus
American Legacy III View
American Legacy Design
American Legacy Signature
American Legacy Fusion
American Legacy Series
American Legacy Advisory
American Legacy Target Date Income B Share
American Legacy Target Date Income Advisory
Shareholder’s Advantage
Shareholder’s Advantage A Class

Lincoln Life & Annuity Variable Annuity Account L (811-07785)

 

Group Variable Annuity

Lincoln New York Account N for Variable Annuities (811-09763)

 

ChoicePlus Assurance (A Share)
ChoicePlus Assurance (A Class)
ChoicePlus Assurance (B Share)
ChoicePlus Assurance (B Class)
ChoicePlus Assurance (C Share)
ChoicePlus Assurance (L Share)
ChoicePlus Assurance (Bonus)
ChoicePlus
ChoicePlus II
ChoicePlus Access
ChoicePlus II Access
ChoicePlus II Advance
ChoicePlus II Bonus
ChoicePlus Design
ChoicePlus Signature
ChoicePlus Fusion
ChoicePlus Series
ChoicePlus Prime
ChoicePlus Advisory
ChoicePlus Select B-Share
Lincoln InvestmentSolutions
Lincoln Investor Advantage
Lincoln Investor Advantage 2018
Lincoln Investor Advantage Fee-Based
Lincoln Investor Advantage Advisory
Core Income

 

Except as otherwise specifically provided herein, the power-of-attorney granted herein shall not in any manner revoke in whole or in part any power-of-attorney that each person whose signature appears below has previously executed.  This power-of-attorney shall not be revoked by any subsequent power-of-attorney each person whose signature appears below may execute, unless such subsequent power specifically refers to this power-of-attorney or specifically states that the instrument is intended to revoke all prior general powers-of-attorney or all prior powers-of-attorney.

 

This Power-of-Attorney may be executed in separate counterparts each of which when executed and delivered shall be an original; but all such counterparts shall together constitute one and the same

 

 

instrument.  Each counterpart may consist of a number of copies, each signed by less than all, but together signed by all, of the undersigned.

 

 

Signature

 

Title

 

 

 

 

 

 

/s/Dennis R. Glass

 

President and Director

Dennis R. Glass

 

 

 

 

 

 

 

 

/s/Ellen G. Cooper

 

Executive Vice President, Chief Investment Officer

Ellen G. Cooper

 

and Director

 

 

 

 

 

 

/s/Randal J. Freitag

 

Executive Vice President; Chief Financial Officer

Randal J. Freitag

 

and Director

 

 

 

 

 

 

/s/Christine A. Janofsky

 

Senior Vice President; Chief Accounting Officer

Christine A. Janofsky

 

and Controller

 

 

 

 

 

 

/s/Lisa M. Buckingham

 

Director

Lisa M. Buckingham

 

 

 

 

 

 

 

 

/s/George W. Henderson

 

Director

George W. Henderson, III

 

 

 

 

 

 

 

 

/s/ Mark E. Konen

 

Director

Mark E. Konen

 

 

 

 

 

 

 

 

/s/M. Leanne Lachman

 

Director

M. Leanne Lachman

 

 

 

 

 

 

 

 

/s/Louis G. Maroccia

 

Director

Louis G. Marcoccia

 

 

 

 

 

 

 

 

/s/Patrick S. Pittard

 

Director

Patrick S. Pittard

 

 

 

 

We, Delson R. Campbell, Scott C. Durocher, Kimberly A. Genovese, Daniel P. Herr, Donald E. Keller, Michelle Grindle, Jeffrey L. Smith, Jassmin McIver-Jones, Carolyn Augur and John D. Weber, have read the foregoing Power of Attorney.  We are the person(s) identified therein as agent(s) for the principal named therein.  We acknowledge our legal responsibilities.

 

 

/s/Delson R. Campbell

 

/s/Scott C. Durocher

Delson R. Campbell

 

Scott C. Durocher

 

 

 

 

 

 

/s/Kimberly A. Genovese

 

/s/Daniel P. Herr

Kimberly A. Genovese

 

Daniel P. Herr

 

 

 

 

 

 

/s/Donald E. Keller

 

/s/Michelle Grindle

Donald E. Keller

 

Michelle Grindle

 

 

 

 

 

 

/s/Jeffrey L. Smith

 

/s/John d. Weber

Jeffrey L. Smith

 

John D. Weber

 

 

 

 

 

 

/s/Jassmin McIver-Jones

 

/s/Carolyn Augur

Jassmin McIver-Jones

 

Carolyn Augur

 

Version:  February 2020