<PAGE> 1
As filed with the Securities and Exchange Commission on April 24, 1998
Registration No. 333-07617
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 1
FORM S-6
------------------------------
FOR THE REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
------------------------------
A. Exact name of trust:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
CORPORATE SPONSORED VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
B. Name of depositor:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
C. Complete address of depositor's principal executive office:
51 Madison Avenue
New York, New York 10010
D. Name and complete address of agent for service:
Carol Yee, Esquire
New York Life Insurance and
Annuity Corporation
51 Madison Avenue
New York, New York 10010
Copy to:
Jeffrey S. Puretz Michael J. McLaughlin, Esq.
Dechert Price & Rhoads Senior Vice President
1500 K Street, N. W. and General Counsel
Washington, D. C. 20005 New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on ___________ pursuant to paragraph (a)(1) of Rule 485.
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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E. Title of securities being registered:
Corporate Sponsored Variable Universal Life Insurance Policy.
F. Approximate date of proposed public offering:
Not Applicable
G. Proposed maximum aggregate offering price to the public of the securities
being registered:
H. Amount of filing fee: None.
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
<PAGE> 3
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN A PROSPECTUS
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
1 Cover Page; Basic Questions and Answers
About Us and Our Policy
2 Cover Page
3 Not Applicable
4 Sales and Other Agreements
5 The Separate Accounts
6 The Separate Accounts
9 Legal Proceedings
10 General Provisions of the Policy; Death
Benefit Under the Policy; Free Look
Provision; Exchange Privilege; Cash
Value and Cash Surrender Value; Policy
Loan Privilege; The Separate Accounts;
The Fixed Account; Charges Under the
Policy; Sales and Other Agreements; When
We Pay Proceeds; Payment Options; Our
Rights; Your Voting Rights; Basic
Questions and Answers About Us and Our
Policy
11 The Separate Accounts; MainStay VP
Series Fund, Inc.; The Alger American
Fund; Calvert Variable Series, Inc.;
Fidelity Variable Insurance Products
Fund and Fidelity Variable Insurance
Products Fund II; Janus Aspen Series;
Morgan Stanley Universal Funds, Inc.
12 The Separate Accounts; Sales and Other
Agreements
13 The Separate Accounts; Charges Under the
Policy; MainStay VP Series Fund, Inc.;
The Alger American Fund; Calvert
Variable Series, Inc.; Fidelity Variable
Insurance Products Fund and Fidelity
Variable Insurance Products Fund II;
Janus Aspen Series; Morgan Stanley
Universal Funds, Inc.
14 Basic Questions and Answers About Us and
Our Policy; The Separate Accounts; Sales
and Other Agreements
15 Basic Questions and Answers About Us and
Our Policy; General Provisions of the
Policy
16 The Separate Accounts; Investment
Return; Basic Questions and Answers
About Us and Our Policy; MainStay VP
Series Fund, Inc.; The Alger American
Fund; Calvert Variable Series, Inc.;
Fidelity Variable Insurance Products
Fund and Fidelity Variable Insurance
Products Fund II; Janus Aspen Series;
Morgan Stanley Universal Funds, Inc.
<PAGE> 4
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
17 Cash Surrender Value; Policy Surrenders
and Partial Withdrawals; General
Provisions of the Policy
18 The Separate Accounts; MainStay VP
Series Fund, Inc.; The Alger American
Fund; Calvert Variable Series, Inc.;
Fidelity Variable Insurance Products
Fund and Fidelity Variable Insurance
Products Fund II; Janus Aspen Series;
Morgan Stanley Universal Funds, Inc.;
Investment Return
19 Records and Reports
20 Not Applicable
21 Policy Loan Privilege
22 Not Applicable
23 Not Applicable
24 Additional Provisions of the Policy
25 What are NYLIAC and New York Life?
26 Not Applicable
27 What are NYLIAC and New York Life?
28 Directors and Principal Officers of
NYLIAC
29 What are NYLIAC and New York Life?
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Not Applicable
37 Not Applicable
38 Sales and Other Agreements
39 Sales and Other Agreements
40 Not Applicable
41 Sales and Other Agreements
42 Not Applicable
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Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
43 Not Applicable
44 The Separate Accounts; Investment
Return; General Provisions of the Policy
45 Not Applicable
46 The Separate Accounts; Investment Return
47 The Separate Accounts; MainStay VP
Series Fund, Inc.; The Alger American
Fund; Calvert Variable Series, Inc.;
Fidelity Variable Insurance Products
Fund and Fidelity Variable Insurance
Products Fund II; Janus Aspen Series;
Morgan Stanley Universal Funds, Inc.
48 Not Applicable
49 Not Applicable
50 The Separate Accounts
51 Cover Page; Basic Questions and Answers
About Us and Our Policy
52 The Separate Accounts; Our Rights
53 Federal Income Tax Considerations
54 Not Applicable
55 Not Applicable
59 Financial Statements
<PAGE> 6
NYLIAC CORPORATE SPONSORED VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
PROSPECTUS DATED MAY 1, 1998
FOR
CORPORATE SPONSORED VARIABLE
UNIVERSAL LIFE INSURANCE POLICIES
OFFERED BY
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
This prospectus describes a flexible premium corporate sponsored variable
universal life insurance policy offered by New York Life Insurance and Annuity
Corporation ("NYLIAC"). The policy provides insurance protection for group or
sponsored arrangements. Group arrangements include those in which a trustee or
an employer, for example, purchases policies covering a group of individuals on
a group basis. Sponsored arrangements include those in which an employer allows
us to sell policies to its employees or retirees on an individual basis. The
policy offers flexible premium payments, a choice of two death benefit options,
loan privileges, increases and decreases to the policy's face amount of
insurance and a choice of funding options, including a guaranteed interest
option and eighteen variable investment options. The variable investment options
invest in a corresponding portfolio of a mutual fund, as specified below:
<TABLE>
<S> <C>
MAINSTAY VP SERIES FUND, INC.
- -- MainStay VP Capital Appreciation
- -- MainStay VP Cash Management
- -- MainStay VP Convertible
- -- MainStay VP Government
- -- MainStay VP High Yield Corporate Bond
- -- MainStay VP International Equity
- -- MainStay VP Total Return
- -- MainStay VP Value
- -- MainStay VP Bond
- -- MainStay VP Growth Equity
- -- MainStay VP Indexed Equity
THE ALGER AMERICAN FUND
- -- Alger American Small Capitalization
CALVERT VARIABLE SERIES
- -- Calvert Social Balanced
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- -- Fidelity VIP Equity-Income
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- -- Fidelity VIP II Contrafund
JANUS ASPEN SERIES
- -- Janus Aspen Series Balanced
- -- Janus Aspen Series Worldwide Growth
MORGAN STANLEY UNIVERSAL FUNDS, INC.
- -- Morgan Stanley Emerging Markets Equity
</TABLE>
We do not guarantee the investment performance of these investment options,
which involve varying degrees of risk.
The death benefit may, and the cash surrender value of a policy will, vary
up or down depending on the performance of the investment options. There is no
guaranteed minimum cash surrender value for a policy. However, a policy's death
benefit will never be less than its face amount, less outstanding policy debt.
Although premiums are flexible, additional premiums may be required to keep the
policy in effect. The policy may terminate if its cash surrender value (net of
any policy debt) is too small to pay the policy's monthly charges, or if there
is an excess loan and a late period expires without sufficient payment.
You can borrow against or withdraw money from the policy, within limits.
Loans and withdrawals will reduce the policy's death benefit and cash surrender
value. You can also surrender the policy. A surrender charge will apply if you
surrender the policy during the first nine policy years. This charge may also
apply if you request a reduction of the face amount or if the policy terminates.
You may examine the policy for a limited period of time following its
delivery, and cancel it for a full refund of the greater of the cash value or
premiums paid. Replacing existing insurance with this policy may not be to your
advantage.
This prospectus should be read and retained for further reference; it
contains information that should be known before investing in a NYLIAC corporate
sponsored variable universal life insurance policy. This prospectus is valid
only when accompanied by the prospectuses of the MainStay VP Series Fund, Inc.,
the Alger American Fund, the Calvert Variable Series, Inc., the Fidelity
Variable Insurance Products Fund II, the Fidelity Variable Insurance Products
Fund, the Janus Aspen Series and the Morgan Stanley Universal Funds, Inc.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION I: DEFINITION OF TERMS......... 4
SECTION II: BASIC QUESTIONS AND ANSWERS
ABOUT US AND OUR POLICY.............. 7
1. What are NYLIAC and New York
Life?............................ 7
2. What variable life insurance
policy are we offering?.......... 7
3. How is the Policy available?..... 7
4. What is the Cash Value of the
Policy?.......................... 7
5. What are the Investment Divisions
of the Separate Account?......... 7
6. How is the value of an
Accumulation Unit determined?.... 8
7. What is the Fixed Account?....... 8
8. Does the Policy have a Cash
Surrender Value?................. 8
9. How long will the Policy remain
in force?........................ 8
10. Is the amount of the Death
Benefit guaranteed?.............. 8
11. Is the Death Benefit subject to
income taxes?.................... 9
12. What is a modified endowment
contract?........................ 9
13. Can the Policy become a modified
endowment contract?.............. 9
14. What are planned Premiums?....... 9
15. What are unplanned Premiums?..... 9
16. What happens when the first
Premium is paid?................. 9
17. When are subsequent Premiums put
into the Fixed Account and the
Separate Account?................ 10
18. How are Net Premiums allocated
among the Allocation
Alternatives?.................... 10
19. What are the current charges
against the Policy?.............. 10
20. Are loans available under the
Policy?.......................... 10
21. Do I have a right to cancel?..... 10
22. Can the Policy be exchanged?..... 11
23. How is a person's age
calculated?...................... 11
SECTION III: CHARGES UNDER THE
POLICY............................... 12
Deductions from Premiums............. 12
Sales Expense Charge.............. 12
Premium Tax Charge................ 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Federal Tax Charge................ 12
Deductions from Accumulation Value
and Fixed Account Value........... 12
Monthly Contract Charge........... 12
Cost of Insurance Charge.......... 12
Deductions from the Separate
Account........................... 13
Mortality and Expense Risk
Charge.......................... 13
Other Charges for Federal Income
Taxes........................... 13
Fund Charges......................... 13
Surrender Charge..................... 14
Surrender Charge Limits........... 14
How the Policy Works.............. 15
SECTION IV: THE SEPARATE ACCOUNT, THE
FUNDS AND THE FIXED ACCOUNT.......... 16
The Separate Account................. 16
Your Voting Rights................ 16
Our Rights........................ 16
MainStay VP Series Fund, Inc. ....... 17
The Alger American Fund.............. 17
Calvert Variable Series, Inc. ....... 17
Fidelity Variable Insurance Products
Fund and Fidelity Variable
Insurance Products Fund II........ 18
Janus Aspen Series................... 18
Morgan Stanley Universal Funds,
Inc. ............................. 18
The Portfolios....................... 19
The Fixed Account.................... 22
Interest Crediting................ 22
Transfers to Investment
Divisions....................... 22
Investment Return.................... 22
SECTION V: GENERAL PROVISIONS OF THE
POLICY............................... 23
Premiums............................. 23
Termination.......................... 23
Death Benefit Under the Policy....... 23
Selection of Life Insurance
Benefit Table................... 24
Corridor Table.................. 24
CVAT Table...................... 25
The Effect of Investment
Performance on the Death
Benefit......................... 25
Face Amount Changes............... 26
Life Insurance Benefit Option
Changes......................... 26
</TABLE>
2
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cash Value and Cash Surrender Value.. 26
Cash Value........................ 26
Cash Surrender Value.............. 27
Transfers............................ 27
Partial Withdrawals.................. 27
Loans................................ 27
Loan Account...................... 27
Loan Interest..................... 28
Repayment......................... 28
Free Look Provision.................. 28
Exchange Privilege................... 29
SECTION VI: ADDITIONAL INFORMATION..... 30
Directors and Principal Officers of
NYLIAC............................ 30
Year 2000 Readiness.................. 31
Federal Income Tax Considerations.... 31
Tax Status of NYLIAC and the Separate
Account........................... 31
Charges for Taxes................. 32
Diversification Standards and
Control Issues.................. 32
Life Insurance Status of Policy... 32
Modified Endowment Contract
Status.......................... 33
Surrenders and Partial
Withdrawals..................... 33
Loans and Interest Deductions..... 34
Corporate Alternative Minimum
Tax............................. 34
Exchanges or Assignments of
Policies........................ 34
Other Tax Issues.................. 35
Withholding....................... 35
Reinstatement Option................. 35
Additional Benefits Available by
Rider............................. 35
Adjustable Term Insurance Rider... 36
Payment Options...................... 36
Payees............................ 36
Proceeds at Interest Options
(Options 1A and 1B)............. 36
Life Income Option (Option 2)..... 36
Beneficiary.......................... 37
Change of Ownership.................. 37
Assignment........................... 37
Limits on Our Rights to Challenge the
Policy............................ 37
Misstatement of Age or Sex........... 37
Suicide.............................. 38
When We Pay Proceeds................. 38
Records and Reports.................. 38
Sales and Other Agreements........... 38
Legal Proceedings.................... 38
Independent Accountants.............. 39
Experts.............................. 39
APPENDIX A: ILLUSTRATIONS.............. A-1
APPENDIX B: SURRENDER CHARGE PREMIUM
RATES PER THOUSAND................... B-1
FINANCIAL STATEMENTS................... F-1
</TABLE>
THE POLICY IS NOT AVAILABLE IN ALL JURISDICTIONS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NYLIAC DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS
REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN
THIS PROSPECTUS OR ANY ATTACHED SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES
MATERIAL AUTHORIZED BY NYLIAC.
IN CERTAIN STATES, DIFFERENT PROVISIONS MAY APPLY TO THE POLICY. PLEASE
REFER TO THE POLICY OR ASK YOUR REGISTERED REPRESENTATIVE FOR DETAILS REGARDING
YOUR PARTICULAR POLICY.
3
<PAGE> 9
SECTION I:
DEFINITION OF TERMS
ACCUMULATION UNITS--Accumulation Units are the accounting units used to
calculate the value in the Investment Divisions. Net Premiums and transfers that
are allocated to the Investment Divisions purchase Accumulation Units in those
Investment Divisions.
ACCUMULATION VALUE--The sum of the dollar value of the Accumulation Units in all
of the Investment Divisions.
ALLOCATION ALTERNATIVES--The 18 Investment Divisions of the Separate Account and
the Fixed Account.
BASE FACE AMOUNT--The initial face amount shown on page 2 of the Policy, plus or
minus any changes made to the initial face amount.
BENEFICIARY--The person(s) and/or entity(ies) named by the Policyowner to
receive the Death Benefit after the Insured dies.
BUSINESS DAY--Generally, any day on which NYLIAC is open and the New York Stock
Exchange is open for trading. We are closed on national holidays, the day before
Christmas, Martin Luther King, Jr. Day and the Friday after Thanksgiving. Our
Business Day ends at 4:00 p.m. Eastern Time or the closing of the New York Stock
Exchange, if earlier. Policy transactions such as Loans, Premium payments, Face
Amount changes, Partial Withdrawals, Surrenders and transfers of Cash Value
among Allocation Alternatives are processed on Business Days.
CASH SURRENDER VALUE--An amount equal to the Cash Value less any surrender
charges.
CASH VALUE--The sum of (a) the Accumulation Value, (b) the Fixed Account Value
and (c) the Loan Account Value of the Policy.
CODE--The Internal Revenue Code of 1986, as amended.
DEATH BENEFIT--The amount payable to the named Beneficiary when the Insured
dies. The Death Benefit is equal to the amount calculated under the applicable
Life Insurance Benefit Option, plus any Death Benefit payable under a Policy
rider, less any Policy Debt.
FACE AMOUNT--Base Face Amount, plus the face amount of any riders in effect,
plus or minus any changes made to the face amount of any riders.
FIXED ACCOUNT--The Allocation Alternative that pays interest at fixed rates
subject to a minimum guarantee. Funds in the Fixed Account are part of our
General Account.
FIXED ACCOUNT VALUE--The dollar value of the sum of the Net Premiums and
transfers allocated to the Fixed Account, plus interest credited, less amounts
withdrawn, deductions and charges taken and/or amounts transferred from the
Fixed Account.
FREE LOOK PERIOD--The period commencing on the Policy Delivery Date and ending
20 days later.
FUNDS (EACH, INDIVIDUALLY, A "FUND")--The MainStay VP Series Fund, Inc.
("MainStay VP Series Fund" and, formerly, "New York Life MFA Series Fund,
Inc."), The Alger American Fund ("Alger American Fund"), the Calvert Variable
Series, Inc. ("Calvert Variable Series"), the Fidelity Variable Insurance
Products Fund and the Fidelity Variable Insurance Products Fund II
(collectively, the "Fidelity Variable Insurance Products Funds" or the "Fidelity
Funds"), the Janus Aspen Series ("Janus Aspen Series") and the Morgan Stanley
Universal Funds, Inc. ("Morgan Stanley Fund").
GENERAL ACCOUNT--An account representing all of NYLIAC's assets, liabilities,
capital and surplus, income, gains or losses that are not included in the
Separate Account or any other NYLIAC separate account.
INSURED--The person whose life the Policy insures.
INVESTMENT DIVISIONS--The 18 divisions of the Separate Account that are
available as Allocation Alternatives under the Policy.
ISSUE DATE--The date we issue the Policy, as shown on page 2 of the Policy.
LOAN ACCOUNT--The account that holds a portion of Cash Value for the purpose of
securing Policy Debt. It is part of our General Account.
4
<PAGE> 10
LOAN ACCOUNT VALUE--The dollar value of the amounts transferred to the Loan
Account plus interest credited, less amounts transferred out of the Loan
Account.
LIFE INSURANCE BENEFIT OPTION--Two Life Insurance Benefit Options are available
under the Policy:
OPTION 1--Provides a life insurance benefit equal to the greater of (a) the Face
Amount or (b) the Cash Value times the percentage in the appropriate Code
Section 7702 table.
OPTION 2--Provides a life insurance benefit equal to the greater of (a) the Face
Amount plus the Cash Value or (b) the Cash Value times the percentage in the
appropriate Code Section 7702 table.
MINIMUM BASE FACE AMOUNT--$25,000.
MONTHLY DEDUCTION DAY--The date as of which the monthly contract charge, the
cost of insurance charge and a rider charge for the cost of any additional
riders are deducted from the Cash Value. The first Monthly Deduction Day will be
the monthly anniversary of the Policy Date on or following the Issue Date.
NET PREMIUM--Premium paid less the sales expense, premium tax and federal tax
charges.
NON-QUALIFIED POLICIES--Policies that do not qualify for special federal income
tax treatment.
PARTIAL WITHDRAWAL--A withdrawal of a portion of the Cash Value by the
Policyowner.
POLICY--The flexible premium corporate sponsored variable universal life
insurance policy offered by NYLIAC that is described in this prospectus.
POLICY ANNIVERSARY--Each anniversary of the Policy Date.
POLICYOWNER--The person(s) and/or entity(ies) who own(s) the Policy and have
(has) all rights of ownership in the Policy while the Insured is living.
POLICY DATE--The date shown on page 2 of the Policy, which is the starting point
for determining Policy Anniversaries, Policy Years and Monthly Deduction Days.
POLICY DEBT--The amount of any outstanding loans under the Policy, including
accrued interest.
POLICY DELIVERY DATE--The date the Policy is signed for and received by the
Policyowner, as indicated on the Policy delivery receipt.
POLICY YEAR--The twelve-month period starting with the Policy Date, and each
twelve-month period thereafter.
PORTFOLIOS--The available mutual fund Portfolios of the Funds. The MainStay VP
Series Fund currently has eleven Portfolios available for investment by the
Investment Divisions of the Separate Account--the MainStay VP Capital
Appreciation, MainStay VP Cash Management, MainStay VP Convertible, MainStay VP
Government, MainStay VP High Yield Corporate Bond, MainStay VP International
Equity, MainStay VP Total Return, MainStay VP Value, MainStay VP Bond, MainStay
VP Growth Equity and MainStay VP Indexed Equity Portfolios. The Alger American
Fund has one Portfolio available to the Separate Account: the Alger American
Small Capitalization Portfolio. The Calvert Variable Series has one Portfolio
available to the Separate Account: the Calvert Social Balanced Portfolio
("Calvert Social Balanced Portfolio"). The Fidelity Funds have two Portfolios
available to the Separate Account: the Contrafund Portfolio of the Fidelity
Variable Insurance Products Fund II ("Fidelity VIP II Contrafund Portfolio") and
the Equity-Income Portfolio of the Fidelity Variable Insurance Products Fund
("Fidelity VIP Equity-Income Portfolio"). The Janus Aspen Series has two
Portfolios available to the Separate Account: the Balanced Portfolio ("Janus
Aspen Series Balanced Portfolio") and the Worldwide Growth Portfolio ("Janus
Aspen Series Worldwide Growth Portfolio"). The Morgan Stanley Fund has one
Portfolio available to the Separate Account: the Emerging Markets Equity
Portfolio ("Morgan Stanley Emerging Markets Equity Portfolio").
PREMIUM--A dollar amount contributed to the Policy.
PREMIUM REMITTANCE CENTER-- New York Life Insurance and Annuity Corporation
Department 0652
P.O. Box 419263
Kansas City, MO 64193-0652
SEC--The Securities and Exchange Commission.
5
<PAGE> 11
SEPARATE ACCOUNT--NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I, a segregated asset account established by NYLIAC to receive and
invest Premiums paid under the Policies.
SERVICE OFFICE-- New York Life Insurance and Annuity Corporation
NYLIFE Distributors Inc.
Attention: Executive Benefits
920 Main Street, Suite 2100
Kansas City, MO 64105
Telephone: (816) 889-4000
SURRENDER--A surrender by the Policyowner of all rights under the Policy in
exchange for the Policy's Cash Surrender Value, less any Policy Debt.
VALUATION DATE--Any day on which the New York Stock Exchange is open for
trading.
VALUATION PERIOD--The period, consisting of one or more days, from one Valuation
Time to the next succeeding Valuation Time.
VALUATION TIME--The time of the close of the New York Stock Exchange (currently
4:00 p.m. Eastern Time) on any Valuation Date.
WE OR US--NYLIAC.
YOU--The Policyowner.
6
<PAGE> 12
SECTION II:
BASIC QUESTIONS AND ANSWERS ABOUT US AND OUR POLICY
1. WHAT ARE NYLIAC AND NEW YORK LIFE?
New York Life Insurance and Annuity Corporation ("NYLIAC") is a stock life
insurance company incorporated in Delaware in 1980. NYLIAC is licensed to sell
life, accident and health insurance and annuities in all states and the District
of Columbia. NYLIAC is the issuer of the Policies and the depositor of the
Separate Account. In addition to the Policies described in this prospectus,
NYLIAC issues other life insurance policies and annuities and is the depositor
for their respective separate accounts, if applicable. NYLIAC's Financial
Statements are included on page F-1.
NYLIAC is a wholly-owned subsidiary of New York Life Insurance Company
("New York Life"), a mutual insurance company founded in New York in 1845.
NYLIAC held assets of $21.1 billion at the end of 1997. New York Life has
invested in NYLIAC, and will, in order to maintain capital and surplus in
accordance with state requirements, occasionally make additional contributions
to NYLIAC.
2. WHAT VARIABLE LIFE INSURANCE POLICY ARE WE OFFERING?
In this prospectus we are offering a flexible premium corporate sponsored
variable universal life insurance policy. We issue the Policy to provide for a
Death Benefit, Cash Surrender Value, loan privileges and flexible Premiums. It
is called "flexible" because the Policyowner may select the timing and amount of
Premiums and adjust the Death Benefit by increasing or decreasing the Face
Amount (subject to certain restrictions). It is called "variable" because,
unlike the fixed benefits of a traditional whole life policy, the Death Benefits
and Policy duration may, and Cash Surrender Values will, vary up or down
depending on the performance of the Investment Division(s) to which Cash Value
has been allocated.
The Policy is a legal contract between the Policyowner and NYLIAC. The
entire contract consists of the Policy, the application for the Policy and any
riders to the Policy.
3. HOW IS THE POLICY AVAILABLE?
The Policy is available as a Non-Qualified Policy for all corporate
sponsored and corporate owned plans. The Minimum Base Face Amount of a Policy is
$25,000. Increases are subject to our underwriting rules in effect at the time
of the request. The Insured may not be older than age 85 as of the Policy Date
or the date of any increase in Face Amount. Before issuing any Policy we will
require satisfactory evidence of insurability. The Policy may be issued based on
underwriting rules and procedures which are based on eligibility standards set
by us. This may include guaranteed issue underwriting.
In Montana, the Policy is issued only on a unisex basis, and we may issue
on this basis in other states as well. For Policies issued on a unisex basis,
any reference in this prospectus that makes a distinction based on the gender of
the Insured shall be disregarded.
4. WHAT IS THE CASH VALUE OF THE POLICY?
The Cash Value is determined by the amount, frequency and timing of
Premiums, the investment experience of the Investment Divisions chosen by the
Policyowner, the interest credited to amounts in the Fixed Account and the Loan
Account, and any Partial Withdrawals or charges imposed in connection with the
Policy. The Policyowner bears the investment risk of any depreciation in value
of the underlying assets of the Investment Divisions, but he or she also reaps
the benefit of any appreciation in their value.
5. WHAT ARE THE INVESTMENT DIVISIONS OF THE SEPARATE ACCOUNT?
You may allocate Net Premiums to, or transfer amounts among, a total of
nineteen Allocation Alternatives, the Fixed Account and eighteen Investment
Divisions of the Separate Account--the MainStay VP Capital Appreciation
Division, the MainStay VP Cash Management Division, the MainStay VP Convertible
Division, the MainStay VP Government Division, the MainStay VP High Yield
Corporate Bond Division, the MainStay VP International Equity Division, the
MainStay VP Total Return Division, the MainStay VP Value Division, the MainStay
VP Bond Division, the MainStay VP Growth Equity Division, the MainStay VP
Indexed Equity Division, the Alger American Small Capitalization Division, the
Calvert Social Balanced Division, the Fidelity VIP II
7
<PAGE> 13
Contrafund Division, the Fidelity VIP Equity-Income Division, the Janus Aspen
Series Balanced Division, the Janus Aspen Series Worldwide Growth Division and
the Morgan Stanley Emerging Markets Equity Division. Each Investment Division
invests only in the shares of a corresponding Portfolio of the relevant Fund.
Because amounts allocated to the Investment Divisions are invested in mutual
funds, investment return and principal will fluctuate and your Accumulation
Units may be worth more or less than their original cost when redeemed.
6. HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED?
The value of an Accumulation Unit on any Valuation Date is determined by
multiplying the value of that unit on the immediately preceding Valuation Date
by the net investment factor for the Valuation Period. The net investment factor
used to calculate the value of an Accumulation Unit in any Investment Division
for the Valuation Period is determined by dividing (a) by (b) and subtracting
(c) from the result, where:
(a) is the sum of:
(1) the net asset value of a Portfolio share held in the Separate
Account for that Investment Division determined at the end of the
current Valuation Period, plus
(2) the per share amount of any dividends or capital gain
distributions made by the Portfolio for shares held in the Separate
Account for that Investment Division if the ex-dividend date occurs
during the Valuation Period.
(b) is the net asset value of a Portfolio share held in the Separate
Account for that Investment Division determined as of the end of the
immediately preceding Valuation Period.
(c) is a factor representing the mortality and expense risk charge.
This factor accrues daily and is currently equal, on an annual basis, to
.70% of the value of each Investment Division's assets (for Policy Years
one through ten) or .30% of the value of each Investment Division's assets
(for Policy Years eleven and later).
7. WHAT IS THE FIXED ACCOUNT?
In addition to the Investment Divisions, you may allocate or transfer
amounts to the Fixed Account. Net Premiums applied to and any amounts
transferred to the Fixed Account are credited with interest using a fixed
interest rate that we will set in advance at least annually. This rate will
never be less than 4% per year. Interest accrues daily and is credited on each
Monthly Deduction Day. All Net Premiums applied to, or amounts transferred to,
the Fixed Account receive the interest rate in effect at that time.
8. DOES THE POLICY HAVE A CASH SURRENDER VALUE?
The Policyowner may surrender the Policy at any time and receive its Cash
Surrender Value less any Policy Debt. Partial Withdrawals are also allowed
subject to certain restrictions. See "Section V: General Provisions of the
Policy--Cash Value and Cash Surrender Value." The Cash Surrender Value of a
Policy fluctuates with the investment performance of the Investment Divisions in
which the Policy has Cash Value and the amounts held in the Fixed Account and
the Loan Account. It may increase or decrease daily.
For federal income tax purposes, the Policyowner usually is not taxed on
increases in the Cash Surrender Value until he or she actually surrenders the
Policy. However, in connection with certain Partial Withdrawals and loans on the
Policy, the Policyowner may be taxed on all or a part of the amount distributed.
See "Section V: General Provisions of the Policy--Cash Value and Cash Surrender
Value" and "Section VI: Additional Information--Federal Income Tax
Considerations."
9. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy does not automatically terminate for failure to pay planned
Premiums. Payment of these Premiums, however, does not guarantee the Policy will
remain in force. The Policy terminates only when the Cash Surrender Value less
any Policy Debt is insufficient to pay the charges deducted on each Monthly
Deduction Day and the late period expires without sufficient payment.
10. IS THE AMOUNT OF THE DEATH BENEFIT GUARANTEED?
As long as the Policy remains in force, the Death Benefit will be paid.
8
<PAGE> 14
11. IS THE DEATH BENEFIT SUBJECT TO INCOME TAXES?
A Death Benefit paid under our Policies may be fully excludable from the
gross income of the Beneficiary for federal income tax purposes. See "Section
VI: Additional Information--Federal Income Tax Considerations."
12. WHAT IS A MODIFIED ENDOWMENT CONTRACT?
A modified endowment contract, as defined in the Code, is a life insurance
policy under which the cumulative premiums paid during the first seven policy
years exceed the cumulative premiums payable under a hypothetical policy
providing for guaranteed benefits upon the payment of seven level annual
premiums. Certain changes to a policy can subject it to retesting for a new
seven-year period. If your Policy is determined to be a modified endowment
contract, any distributions, including collateral assignments, loans and Partial
Withdrawals, are taxable to the extent that such distributions represent income.
In addition you may incur a penalty tax if you are not yet age 59 1/2 and no
other exception, as set forth in the Code, is applicable.
13. CAN THE POLICY BECOME A MODIFIED ENDOWMENT CONTRACT?
Since the Policy permits flexible Premium payments, it may become a
modified endowment contract. NYLIAC currently tests a Policy at issue to
determine whether it will be classified as a modified endowment contract. This
at-issue test examines the Policy for the first seven Policy Years, based on the
Policy application and the first Premium requested, and based on the assumption
that there are no increases in Premiums or decreases in benefits during the
period. NYLIAC has also instituted procedures to monitor whether a Policy may
become a modified endowment contract after issue. See "Section VI: Additional
Information--Federal Income Tax Considerations--Modified Endowment Contract
Status."
14. WHAT ARE PLANNED PREMIUMS?
The amount and interval of any planned Premiums are shown on page 2 of the
Policy. A planned Premium does not have to be paid to keep the Policy in force
if the Cash Surrender Value, less any Policy Debt, is sufficient to cover the
charges made on the Monthly Deduction Day. The amount of any planned Premium may
be increased or decreased subject to the limits we set. However, in no event may
the Premium be an amount which would jeopardize the Policy continuing to qualify
as "life insurance" under Section 7702 of the Internal Revenue Code. The
frequency of Premiums may also be changed subject to our minimum Premium rules.
Planned Premiums end on the Policy Anniversary on which the Insured is age 95.
15. WHAT ARE UNPLANNED PREMIUMS?
While the Insured is living, you may make unplanned Premium payments at any
time prior to the Policy Anniversary on which the Insured is age 95. However, in
no event may the Premium be an amount which would jeopardize the Policy
continuing to qualify as "life insurance" under Section 7702 of the Internal
Revenue Code. If an unplanned Premium would result in an increase in the Death
Benefit greater than the increase in the Cash Value, we reserve the right to
require proof of insurability before accepting that payment and applying it to
the Policy. We also reserve the right to limit the number and amount of any
unplanned Premiums. See "Section V: General Provisions of the Policy--Premiums."
16. WHAT HAPPENS WHEN THE FIRST PREMIUM IS PAID?
The first Premium (and any other Premiums received on or before the last
day of the Free Look Period) will be allocated to the General Account. Sales
expense, premium tax and federal tax charges are deducted from Premiums on the
Issue Date; however, deductions made on the Issue Date will be calculated as of
the later of the Policy Date or the date the Premium is received. Also, the
monthly contract charges, cost of insurance charges and cost for any riders are
deducted as of the first Monthly Deduction Day and as of each subsequent Monthly
Deduction Day. In addition, the first monthly deduction will include the monthly
contract charges, cost of insurance charges and cost for any riders incurred
since the Policy Date. The Net Premium less the monthly charges will remain in
the General Account through the last day of the Free Look Period. Amounts in the
General Account will be credited with interest commencing on the later of the
Policy Date or the date we receive such amounts and ending on the last day of
the Free Look Period. The rate of interest is set by us and can change monthly.
Net Premiums less the monthly charges plus interest will be allocated to the
Investment Divisions or to the Fixed Account in accordance with the
Policyowner's instructions when the Free Look Period expires.
9
<PAGE> 15
17. WHEN ARE SUBSEQUENT PREMIUMS PUT INTO THE FIXED ACCOUNT AND THE SEPARATE
ACCOUNT?
On the Business Day that we receive a subsequent Premium, Net Premiums will
be applied to the Separate Account, and to the Fixed Account in accordance with
your allocation election in effect at that time, and before any other charges
that may be due are deducted. Net Premiums are applied at the Accumulation Unit
value determined at the end of the Valuation Period.
18. HOW ARE NET PREMIUMS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
You may allocate Net Premiums to the Fixed Account and any of the 18
Investment Divisions. Moreover, you may raise or lower the percentages of the
Net Premium (which must be in whole number percentages) allocated to each
Allocation Alternative at any time.
19. WHAT ARE THE CURRENT CHARGES AGAINST THE POLICY?
Three charges are deducted from each Premium, whether planned or unplanned.
A sales expense charge of 2.25% is used to partially cover sales expenses.
Deductions of 2% and 1.25% are also made for premium tax and federal tax
charges, respectively.
In addition, on each Monthly Deduction Day, the following deductions are
made:
(a) a monthly contract charge equal to $7.50 ($90.00 annually);
(b) a monthly cost of insurance charge; and
(c) the monthly cost for any riders attached to the Policy.
For certain underwritten Policies, a deduction may also be made for any
temporary flat extras as set forth on page 2 of the Policy. A temporary flat
extra is a charge per $1,000 of Face Amount made against the Cash Value for the
amount of time specified on the Policy data page. It is designed to cover the
risk of substandard mortality experience which is not permanent in nature.
The Monthly Deduction Day for the Policy is shown on page 2 of the Policy.
The first Monthly Deduction Day is the monthly anniversary of the Policy Date on
or following the Issue Date. All monthly deductions are made from each of the
Investment Divisions and the Fixed Account in proportion to the amount of the
Policy's Cash Value in each.
Also, a mortality and expense risk charge is made on a daily basis against
the assets of each Investment Division. For Policy Years one through ten, this
charge is calculated at an effective annual rate of .70% of the value of each
Investment Division's assets. For Policy Years eleven and later, the mortality
and expense risk charge is calculated at an effective annual rate of .30% of the
value of each Investment Division's assets. The mortality and expense risk
charge may be changed at NYLIAC's option subject to a maximum annual effective
rate of .90%.
Currently, we are not making any charges for income taxes against the
Separate Account. We reserve the right to make charges in the future for federal
income taxes attributable to it.
Additionally, upon a surrender or a requested decrease in Face Amount
during the first nine Policy years, a surrender charge is assessed. Partial
Withdrawals of Cash Value are subject to a charge equal to the lesser of $25 or
2% of the amount withdrawn.
See "Section III: Charges Under the Policies" and "Section VI: Additional
Information--Federal Income Tax Considerations."
20. ARE LOANS AVAILABLE UNDER THE POLICY?
Using the Policy as sole security, you can borrow any amount up to the loan
value of the Policy. The loan value on any given date is equal to 90% of the
Cash Surrender Value, less any Policy Debt.
21. DO I HAVE A RIGHT TO CANCEL?
The Policy contains a provision that permits you to cancel the Policy at
any time during the Free Look Period and receive a refund. The Policy may be
returned to our Service Office or to the registered representative who sold you
the Policy. See "Section V: General Provisions of the Policy--Free Look
Provision."
10
<PAGE> 16
22. CAN THE POLICY BE EXCHANGED?
You have the right during the first 24 months following the Issue Date to
exchange the Policy for a permanent plan of life insurance offered by us for
this purpose. See "Section V: General Provisions of the Policy--Exchange
Privilege."
23. HOW IS A PERSON'S AGE CALCULATED?
When we refer to a person's age on any date, we mean his or her age on the
nearest birthday. However, the Cost of Insurance will be based on the age at the
nearest birthday as of the most recent policy anniversary.
11
<PAGE> 17
SECTION III:
CHARGES UNDER THE POLICY
Certain charges are deducted to compensate for providing the insurance
benefits under the Policy, for any riders, for administering the Policy, for
assuming certain risks and for incurring certain expenses in distributing the
Policy.
DEDUCTIONS FROM PREMIUMS
When we receive a Premium, whether planned or unplanned, we will deduct a
sales expense charge, a premium tax charge and a federal tax charge.
SALES EXPENSE CHARGE.
The sales expense charge is 2.25% of any Premium. We reserve the right to
increase this charge in the future, but it will never exceed 4.5% of Premiums.
The amount of the sales expense charge in a Policy Year is not necessarily
related to our actual sales expenses for that particular year. To the extent
that sales expenses are not covered by the sales expense charge and the
surrender charge, they will be recovered from NYLIAC surplus, including any
amounts derived from the mortality and expense risk charge and the cost of
insurance charge.
PREMIUM TAX CHARGE.
Various states and jurisdictions impose a tax on premiums received by
insurance companies. Premium tax rates vary from state to state and currently
range from 0.75% to 3.00%. We deduct 2% of each Premium to cover state premium
taxes. Two percent represents the approximate average of the premium taxes
assessed by the states, and will be assessed uniformly to all Policies. NYLIAC
reserves the right to increase this charge consistent with changes in applicable
law.
FEDERAL TAX CHARGE.
NYLIAC's federal tax obligations will increase based upon Premiums received
under the Policies. We deduct 1.25% of each Premium to cover this federal tax
charge. NYLIAC reserves the right to increase this charge consistent with
changes in applicable law, and subject to any required approval from the SEC.
DEDUCTIONS FROM ACCUMULATION VALUE AND FIXED ACCOUNT VALUE
On each Monthly Deduction Day, a monthly contract charge, a cost of
insurance charge, and a rider charge for the cost of any additional riders are
deducted from the Policy's Cash Value in the Investment Divisions and the Fixed
Account in proportion to the Policy's Cash Value in each.
MONTHLY CONTRACT CHARGE.
There is a monthly charge currently equal to $7.50 ($90.00 annually) that
compensates NYLIAC for costs incurred in providing certain administrative
services including Premium collection, recordkeeping, processing claims and
communicating with Policyowners. This charge is not designed to produce a
profit. If the cost of providing these administrative services increases, we
reserve the right to increase this charge, subject to a maximum of $9.00 monthly
($108.00 annually).
COST OF INSURANCE CHARGE.
A charge for the cost of insurance is deducted on each Monthly Deduction
Day. Maximum cost of insurance rates are set forth on page 2.2 of your Policy
and are based on the gender, smoker class, duration, underwriting class and
issue age of the Insured. The cost of insurance charge for any month will equal
(1) multiplied by the result of (2) minus (3) where: (1) is the applicable cost
of insurance rate (2) is the number of thousands of Death Benefit as of the
Monthly Deduction Day divided by 1.0032737, and (3) is the number of thousands
of Cash Value as of the Monthly Deduction Day (before this cost of insurance
charge, but after the monthly contract charge and any charges for riders are
deducted). In rated cases, an additional charge may be assessed as part of the
cost of insurance charge. Charges for any flat extras and optional benefits
added by rider will also be deducted on each Monthly Deduction Day.
12
<PAGE> 18
DEDUCTIONS FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE.
We charge the Investment Divisions for the mortality and expense risks we
assume. For Policy Years one through ten, we deduct a daily charge at an
effective annual rate of .70% of the value of each Investment Division's assets.
For Policy Years eleven and later, we deduct a daily charge at an effective
annual rate of .30% of the value of each Investment Division's assets. The
mortality and expense risk charge may be changed at NYLIAC's option, subject to
a maximum of .90%.
The mortality risk we assume is that the group of lives insured under our
Policies may, on average, live for shorter periods of time than we estimated.
The expense risk we assume is that our costs of issuing and administering
Policies may be more than we estimated.
If these charges are insufficient to cover actual costs and assumed risks,
the loss will be deducted from the NYLIAC surplus. Conversely, if the charge
proves more than sufficient, any excess will be added to the NYLIAC surplus.
OTHER CHARGES FOR FEDERAL INCOME TAXES.
We reserve the right to make a charge for Separate Account federal income
tax liabilities, should the law change to require the taxation of separate
accounts. See "Section VI: Additional Information--Federal Income Tax
Considerations."
FUND CHARGES
The Investment Divisions purchase shares of the relevant Funds at net asset
value. The price reflects management fees, administration fees and other
expenses that have already been deducted from the assets of the Funds. The Funds
do not impose a sales charge. The management fees and other expenses are not
fixed or specified under the terms of the Policy, and they may vary from year to
year. These fees and expenses are described in the Funds' Prospectuses. The
following chart reflects fees and charges that are provided by the Fund or its
agents, which are based on 1997 expenses, and may reflect estimated changes:
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL TOTAL
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY RETURN
------------ ----------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT (as a % of
average net assets)
Management Fees.............. 0.36% 0.25% 0.36% 0.30% 0.30% 0.60% 0.32%
Administration Fees.......... 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses............... 0.09% 0.09% 0.17%(a) 0.13% 0.09% 0.17%(a) 0.08%
Total Fund Annual Expenses... 0.65% 0.54% 0.73%(a) 0.63% 0.59% 0.97%(a) 0.60%
<CAPTION>
MAINSTAY VP MAINSTAY VP
VALUE BOND
----------- -----------
<S> <C> <C>
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT (as a % of
average net assets)
Management Fees.............. 0.36% 0.25%
Administration Fees.......... 0.20% 0.20%
Other Expenses............... 0.09% 0.05%
Total Fund Annual Expenses... 0.65% 0.50%
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP ALGER AMERICAN CALVERT FIDELITY VIP JANUS ASPEN
GROWTH INDEXED SMALL SOCIAL FIDELITY VIP II EQUITY- SERIES
EQUITY EQUITY CAPITALIZATION BALANCED CONTRAFUND INCOME BALANCED
----------- ----------- -------------- -------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
FUND ANNUAL EXPENSES
AFTER REIMBURSEMENT
(as a % of
average net assets)
Management Fees........ 0.25% 0.10% 0.85% 0.69%(b) 0.60% 0.50% 0.76%
Administration Fees.... 0.20% 0.20% -- -- -- -- --
Other Expenses......... 0.05% 0.09% 0.04% 0.12%(b) 0.11% 0.08% 0.07%
Total Fund Annual
Expenses.............. 0.50% 0.39% 0.89% 0.81%(b) 0.71%(c) 0.58%(c) 0.83%(d)
<CAPTION>
JANUS ASPEN MORGAN
SERIES STANLEY
WORLDWIDE EMERGING
GROWTH MARKETS EQUITY
----------- --------------
<S> <C> <C>
FUND ANNUAL EXPENSES
AFTER REIMBURSEMENT
(as a % of
average net assets)
Management Fees........ 0.66% --
Administration Fees.... -- 0.25%
Other Expenses......... 0.08% 1.50%
Total Fund Annual
Expenses.............. 0.74%(d) 1.75%(e)
</TABLE>
- ---------------
(a) These numbers reflect an expense reimbursement agreement effective through
December 31, 1998 limiting "Other Expenses" to 0.17% annually. In the
absence of the expense reimbursement arrangement, the "Total Fund Annual
Expenses" for the year ending December 31, 1997 would have been 0.78% and
1.25% for the MainStay VP Convertible and the MainStay VP International
Equity Portfolios, respectively.
(b) These fees are based on expenses for the fiscal year 1997, and have been
restated to reflect an increase in transfer agency expenses of 0.01%
expected to be incurred in 1998. The "Advisory Fee" includes a performance
adjustment which could cause the fee to be as high as 0.85% or as low as
0.55%, depending on performance. "Other Expenses" reflect an indirect fee of
0.03%. "Total Fund Annual Expenses" after reductions for fees paid
indirectly would have been 0.78%.
(c) A portion of the brokerage commissions that these Portfolios pay was used
to reduce the Portfolios' annual expenses. In addition, these Portfolios
have entered into arrangements with their custodian and transfer agent
whereby interest earned on uninvested cash balances was used to reduce
custodian and transfer agent expenses. Including these reductions, the
"Total Fund Annual Expenses" would have been 0.68% for the Fidelity VIP II
Contrafund Portfolio and 0.57% for the Fidelity VIP Equity-Income
Portfolio.
13
<PAGE> 19
(d) A reduced "Advisory Fee" schedule was put into effect on July 1, 1997. The
"Advisory Fee" reflects the new rate applied to net assets as of December
31, 1997. "Other Expenses" are based on gross expenses of the fund shares
before expenses offset arrangements for the fiscal year ended December 31,
1997. Janus Capital Corporation ("JCC") has agreed to reduce the "Advisory
Fee" for each Portfolio to the extent that such fee exceeds the effective
rate of the Janus retail fund corresponding to such Portfolio. JCC may
terminate this fee reduction at any time upon 90 days' notice to the Board
of Trustees of the Janus Aspen Series. Other waivers, if applicable, are
first applied against the "Advisory Fee" and then against "Other Expenses."
Absent such waivers or reductions, "Advisory Fees" and "Total Fund Annual
Expenses" for the fiscal year ended December 31, 1997 would have been 0.77%,
0.06% and 0.83%, respectively, for the Janus Aspen Series Balanced Portfolio
and 0.72%, 0.09% and 0.81%, respectively, for the Janus Aspen Series
Worldwide Growth Portfolio.
(e) Morgan Stanley Asset Management Inc. has agreed to a reduction in its
"Advisory Fees" and to reimburse the Portfolio for "Other Expenses" if such
fees would cause the "Total Fund Annual Expenses" to exceed 1.75% of average
daily net assets. This fee reduction agreement may be terminated by Morgan
Stanley Asset Management Inc. at any time without notice. Absent such
reductions, it is estimated that "Advisory Fees," "Other Expenses" and
"Total Fund Annual Expenses" would be 1.25%, 2.62% and 4.12%, respectively.
SURRENDER CHARGE
During the first nine Policy Years, a surrender charge will be assessed on
a complete surrender or a requested decrease in Face Amount. The surrender
charge is based on the Policy Year in which the surrender or decrease in Face
Amount is made and will be deducted from the Policy's Cash Value in the
Investment Divisions and the Fixed Account in proportion to the Policy's Cash
Value in each.
For a surrender, the maximum surrender charge is calculated by multiplying
the applicable percentage shown in the table below by the surrender charge
premium, which appears on page 2.1 of your Policy. A table of surrender charge
premium rates per thousand appears in Appendix B to this prospectus.
<TABLE>
<CAPTION>
PERCENTAGE OF
SURRENDER
POLICY YEAR CHARGE PREMIUM
- ----------- --------------
<S> <C>
1-5........................................................ 32.5%
6.......................................................... 26.0%
7.......................................................... 19.5%
8.......................................................... 13.0%
9.......................................................... 6.5%
10+......................................................... 0%
</TABLE>
A requested decrease in Base Face Amount will result in the imposition of a
surrender charge equal to the difference between the surrender charge that would
have been payable on a complete surrender prior to the decrease and the
surrender charge that would be payable on a complete surrender after the
decrease. Requested decreases and increases in Base Face Amount will cause a
corresponding change in the amount of your surrender charge premium.
SURRENDER CHARGE LIMITS
In no event will the surrender charge exceed 50% of Premiums paid to date,
less (i) any sales expense charges deducted from such Premium payments, less
(ii) any surrender charge previously deducted.
14
<PAGE> 20
HOW THE POLICY WORKS.
This example is based on the illustration for the first Policy Year from
page A-1, assuming current charges and a 6% hypothetical gross annual investment
return, which results in a net annual investment return of 4.57% for Policy
Years 1-10 and 4.97% for Policy Years 11 and later:
<TABLE>
<S> <C> <C>
Planned Annual Premium............................................... $7,500.00
less: Sales expense charge (2.25%)................................ 168.75
Premium tax charge (2%)..................................... 150.00
Federal tax charge (1.25%).................................. 93.75
---------
equals: Net Premium................................................. $7,087.50
less: Monthly contract charge
($7.50 per month)........................................... 90.00
less: Charges for cost of insurance
(varies monthly)............................................ 566.25
plus: Net investment performance
(varies monthly)............................................ 308.07
---------
equals: Cash Value.................................................. $6,739.33
---------
less: Surrender charge (a percentage of surrender charge
premium).................................................... 1,025.50
---------
equals: Cash Surrender Value........................................ $5,713.83
---------
</TABLE>
15
<PAGE> 21
SECTION IV:
THE SEPARATE ACCOUNT, THE FUNDS AND THE FIXED ACCOUNT
THE SEPARATE ACCOUNT
The Separate Account was established under the laws of Delaware as of May
24, 1996, pursuant to resolutions of the NYLIAC Board of Directors. The Separate
Account is registered as a unit investment trust with the SEC under the
Investment Company Act of 1940 (the "1940 Act"), but such registration does not
signify that the SEC supervises the management, or the investment practices or
policies, of the Separate Account. The Separate Account meets the definition of
"separate account" under the federal securities laws. The value of the Separate
Account assets are not guaranteed by NYLIAC.
Although the assets of the Separate Account belong to NYLIAC, they are held
separately from the other assets of NYLIAC, and are not chargeable with
liabilities incurred in any other business operations of NYLIAC (except to the
extent that assets in the Separate Account exceed the reserves and other
liabilities of that Account). The income, capital gains and capital losses
incurred on the assets of the Separate Account are credited to, or are charged
against, the assets of the Separate Account, without regard to the income,
capital gains or capital losses arising out of any other business NYLIAC may
conduct. NYLIAC may accumulate in the Separate Account the charge for mortality
and expense risks, monthly charges assessed against the Policy and investment
results applicable to those assets that are in excess of net assets supporting
the Policies.
The Separate Account currently has 18 Investment Divisions, each of which
invests solely in a corresponding Portfolio of the relevant Fund. The Investment
Divisions are: MainStay VP Capital Appreciation, MainStay VP Cash Management,
MainStay VP Convertible, MainStay VP Government, MainStay VP High Yield
Corporate Bond, MainStay VP International Equity, MainStay VP Total Return,
MainStay VP Value, MainStay VP Bond, MainStay VP Growth Equity, MainStay VP
Indexed Equity, Alger American Small Capitalization, Calvert Social Balanced,
Fidelity VIP II Contrafund, Fidelity VIP Equity-Income, Janus Aspen Series
Balanced, Janus Aspen Series Worldwide Growth and Morgan Stanley Emerging
Markets Equity. Investment Divisions may, subject to any required regulatory
approvals, be added or deleted at the discretion of NYLIAC.
YOUR VOTING RIGHTS.
As explained previously, contributions allocated to the Investment
Divisions are invested in shares of the corresponding Portfolios of the relevant
Fund. Since we own the assets of the Separate Account, we are the legal owner of
the shares and, as such, have the right to vote on certain matters. Among other
things, we may vote:
- to elect the Board of Directors of the Funds;
- to ratify the selection of independent auditors for the Funds; and
- on any other matters described in the Funds' current prospectuses or
requiring a vote by shareholders under the 1940 Act.
The Funds are not required to hold, and do not hold, annual shareholder
meetings. Whenever a shareholder vote is taken, we will give Policyowners the
opportunity to instruct us how to vote the number of shares attributable to
their Policies. If we do not receive instructions in time from all Policyowners,
we will vote the shares of a Portfolio for which no instructions have been
received in the same proportion as we vote shares of that Portfolio for which we
have received instructions.
The Policyowner holds a voting interest in each Investment Division to
which Cash Value is allocated. The number of votes which are available to a
Policyowner will be calculated separately for each Investment Division and will
be determined by dividing the Accumulation Value attributable to an Investment
Division by the net asset value per share of the applicable Portfolios.
OUR RIGHTS.
We reserve the right to take certain actions in connection with the
operation of the Separate Account. These actions will be taken in accordance
with applicable laws (including obtaining any required approval of the SEC). If
necessary, we will seek approval by Policyowners.
Specifically, we reserve the right to:
- substitute, add or remove any Investment Division;
16
<PAGE> 22
- create new separate accounts;
- combine the Separate Account with one or more other separate accounts;
- operate the Separate Account as a management investment company under the
1940 Act or in any other form permitted by law;
- deregister the Separate Account under the 1940 Act;
- manage the Separate Account under the direction of a committee or
discharge such committee at any time;
- transfer the assets of the Separate Account to one or more other separate
accounts; and
- restrict or eliminate any of the voting rights of Policyowners or other
persons who have voting rights as to the Separate Account.
MAINSTAY VP SERIES FUND, INC.
The Separate Account currently invests in eleven Portfolios of the MainStay
VP Series Fund, a "series" type of mutual fund established under the laws of
Maryland.
MacKay-Shields Financial Corporation ("MacKay-Shields") is the investment
adviser to the MainStay VP Capital Appreciation, MainStay VP Cash Management,
MainStay VP Convertible, MainStay VP Government, MainStay VP High Yield
Corporate Bond, MainStay VP International Equity, MainStay VP Total Return and
MainStay VP Value Portfolios. Monitor Capital Advisors, Inc. ("Monitor") is the
investment adviser to the MainStay VP Indexed Equity Portfolio, and New York
Life is the investment adviser to the MainStay VP Bond and MainStay VP Growth
Equity Portfolios. MacKay-Shields, Monitor and New York Life provide investment
advisory services to these Portfolios in accordance with the policies, programs
and guidelines established by the Board of Directors of MainStay VP Series Fund.
As compensation for such services, MainStay VP Series Fund pays MacKay-Shields a
fee in the form of a daily charge at an annual rate of .36%, .25%, .36%, .30%,
.30%, .60%, .32% and .36% of the aggregate average daily net assets of the
MainStay VP Capital Appreciation Portfolio, the MainStay VP Cash Management
Portfolio, the MainStay VP Convertible Portfolio, the MainStay VP Government
Portfolio, the MainStay VP High Yield Corporate Bond Portfolio, the MainStay VP
International Equity Portfolio, the MainStay VP Total Return Portfolio, and the
MainStay VP Value Portfolio, respectively. MainStay VP Series Fund pays Monitor
a fee in the form of a daily charge at an annual rate of .10% of the average
daily net assets of the MainStay VP Indexed Equity Portfolio. MainStay VP Series
Fund pays New York Life a fee in the form of a daily charge at an annual rate of
.25% of the aggregate average daily net assets of each of the MainStay VP Bond
and MainStay VP Growth Equity Portfolios. See the prospectus for the MainStay VP
Series Fund which is attached to this Prospectus.
THE ALGER AMERICAN FUND
The Separate Account currently invests in the Alger American Small
Capitalization Portfolio of the Alger American Fund, a "series" type of mutual
fund established under the laws of Massachusetts. Currently, the Alger American
Small Capitalization Portfolio is the only Portfolio available through the Alger
American Fund for investment by the Separate Account.
Fred Alger Management, Inc. ("FAM") provides investment advisory services
to the Alger American Small Capitalization Portfolio in accordance with the
policies, programs and guidelines established by the Board of Trustees of the
Alger American Fund. As compensation for such services, the Alger American Fund
pays FAM a fee in the form of a daily charge at an annual rate of .85% of the
average daily net assets of the Portfolio. See the prospectus for the Alger
American Fund which is attached to this Prospectus.
CALVERT VARIABLE SERIES
The Separate Account currently invests in the Calvert Social Balanced
Portfolio of the Calvert Variable Series, a "series" type of mutual fund
established under the laws of Maryland. Currently, the Calvert Social Balanced
Portfolio is the only Portfolio available through the Calvert Variable Series
for investment by the Separate Account.
Calvert Asset Management Company, Inc. ("CAM") provides investment advisory
services to the Calvert Social Balanced Portfolio in accordance with the
policies, programs and guidelines established by the Board of Directors of the
Calvert Variable Series. As compensation for such services, the Calvert Variable
Series pays CAM a fee in the form of a daily charge at an annual rate of 0.70%
of the first $500 million of the average daily net
17
<PAGE> 23
assets of the Calvert Social Balanced Portfolio, 0.65% of the next $500 million
of average daily net assets of the Portfolio, and 0.60% of the average daily net
assets of the Portfolio in excess of $1 billion. This fee may be reduced or
increased by up to 0.15%, depending on the performance of the Calvert Social
Balanced Portfolio relative to the Lipper Balanced Funds Index. See the
prospectus for the Calvert Variable Series which is attached to this Prospectus.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Separate Account currently invests in the Fidelity VIP II Contrafund
and Fidelity VIP Equity-Income Portfolios of the Fidelity Variable Insurance
Products Funds, both of which are "series" types of mutual funds established
under the laws of Massachusetts. Currently, the Fidelity VIP II Contrafund and
Fidelity VIP Equity-Income Portfolios are the only Portfolios available through
the Fidelity Funds for investment by the Separate Account.
Fidelity Management and Research Company ("FMR") provides investment
advisory services to the Fidelity VIP II Contrafund and Fidelity VIP
Equity-Income Portfolios in accordance with the policies, programs and
guidelines established by the Boards of Trustees of the Fidelity Variable
Insurance Products Funds. As compensation for such services, the Fidelity Funds
pay FMR a monthly fee in the form of a charge, calculated on a monthly basis by
adding a group fee rate to an individual Portfolio fee rate, and multiplying the
result by the Portfolios' average net assets. The group fee rate is based on the
average net assets of all the mutual fund assets advised by FMR, and cannot rise
above .52%. FMR pays, at its own expense, FMR U.K. and FMR Far East an annual
fee equal to 50% of its management fee rate with respect to the Fidelity VIP II:
Contrafund Portfolio's investments that each sub-advisor manages on a
discretionary basis. See the prospectus for the Fidelity Variable Insurance
Products Funds which is attached to this Prospectus.
JANUS ASPEN SERIES
The Separate Account currently invests in the Janus Aspen Series Balanced
and Janus Aspen Series Worldwide Growth Portfolios of the Janus Aspen Series, a
"series" type of mutual fund established under the laws of Delaware. Currently,
the Janus Aspen Series Balanced and Janus Aspen Series Worldwide Growth
Portfolios are the only Portfolios available through the Janus Aspen Series for
investment by the Separate Account.
Janus Capital Corporation ("JCC") provides investment advisory services to
the Janus Aspen Series Balanced and Janus Aspen Series Worldwide Growth
Portfolios in accordance with the policies, programs and guidelines established
by the Board of Trustees of the Janus Aspen Series. As compensation for such
services, the Janus Aspen Series pays JCC a management fee in the form of a
daily charge at an annual rate of .75% for the first $300 million of the average
daily net assets of each Portfolio, .70% of the next $200 million of the average
daily net assets of each Portfolio, and .65% of an amount over $500 million of
the average daily net assets of each Portfolio. JCC has agreed to reduce the
advisory fee for each Portfolio to the extent that such fee exceeds the
effective rate of the Janus retail fund corresponding to such Portfolio. JCC may
terminate this fee reduction at any time upon 90 days' notice to the Board of
Trustees of the Janus Aspen Series. See the prospectus for the Janus Aspen
Series which is attached to this Prospectus.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
The Separate Account currently invests in the Morgan Stanley Emerging
Markets Equity Portfolio of the Morgan Stanley Fund, a "series" type of mutual
fund established under the laws of Maryland. Currently, the Morgan Stanley
Emerging Markets Equity Portfolio is the only Portfolio available through the
Morgan Stanley Fund for investment by the Separate Account.
Morgan Stanley Asset Management Inc. ("MSAM") provides investment advisory
services to the Morgan Stanley Emerging Markets Equity Portfolio in accordance
with the policies, programs and guidelines established by the Board of Directors
of the Morgan Stanley Fund. As compensation for such services, the Morgan
Stanley Fund pays MSAM a quarterly management fee in the form of a daily charge
at an annual rate of 1.25% for the first $500 million of the average daily net
assets of the Portfolio, 1.20% of the next $500 million of the average daily net
assets of the Portfolio, and 1.15% of the average daily net assets of the
Portfolio in excess of $1 billion. MSAM has agreed to a reduction in their
management fees and to reimburse the Portfolio if such fees would cause the
total annual operating expenses of the Portfolio to exceed 1.75% of average
daily net assets. See the prospectus for the Morgan Stanley Fund which is
attached to this Prospectus.
18
<PAGE> 24
THE PORTFOLIOS
The assets of each Portfolio are separate from the others and each such
Portfolio has different investment objectives and policies. As a result, each
Portfolio operates as a separate investment fund and the investment performance
of one Portfolio has no effect on the investment performance of any other
Portfolio.
THE MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO
The MainStay VP Capital Appreciation Portfolio seeks long-term growth of
capital. It seeks to achieve its primary investment objective by maintaining a
flexible approach towards investing in various types of companies as well as
types of securities depending upon the economic environment and the relative
attractiveness of the various securities markets. Generally, the Portfolio will
seek to invest in securities issued by companies with investment characteristics
such as participation in expanding markets, increasing unit sales volume, growth
in revenues and earnings per share superior to that of the average common stocks
comprising indices such as the Standard & Poor's 500 Composite Price Index ("S&P
500") and increasing return on investment. Dividend income, if any, is a
consideration incidental to the Portfolio's objective of growth of capital.
THE MAINSTAY VP CASH MANAGEMENT PORTFOLIO
The MainStay VP Cash Management Portfolio seeks as high a level of current
income as is consistent with preservation of capital and maintenance of
liquidity. It invests primarily in short-term U.S. Government Securities,
obligations of banks, commercial paper, short-term corporate obligations and
obligations of U.S. and non-U.S. issuers denominated in U.S. dollars. An
investment in the MainStay VP Cash Management Portfolio is neither insured nor
guaranteed by the U.S. Government, and there can be no assurance that the
Portfolio will be able to maintain a stable net asset value of $1.00 per share.
THE MAINSTAY VP CONVERTIBLE PORTFOLIO
The MainStay VP Convertible Portfolio seeks capital appreciation together
with current income. The Portfolio will invest primarily in convertible
securities consisting of bonds, debentures, corporate notes, preferred stocks or
other securities which are convertible into common stocks. Certain of the
Portfolio's investments have speculative characteristics, as further discussed
in the MainStay VP Series Fund prospectus.
THE MAINSTAY VP GOVERNMENT PORTFOLIO
The MainStay VP Government Portfolio seeks a high level of current income,
consistent with safety of principal. It will invest primarily in U.S. Government
Securities which include U.S. Treasury obligations and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. The U.S.
Government securities purchased for this Portfolio, but not the shares of the
Portfolio themselves, are issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
THE MAINSTAY VP HIGH YIELD CORPORATE BOND PORTFOLIO
The MainStay VP High Yield Corporate Bond Portfolio seeks maximum current
income through investment in a diversified portfolio of high yield, high risk
debt securities. This Portfolio seeks to achieve its primary objective by
investment in a diversified portfolio of high yield debt securities which are
ordinarily in the lower rating categories of recognized rating agencies that is,
rated Baa to B by Moody's Investors Services, Inc. ("Moody's") or BBB to B by
Standard & Poor's ("S&P"). Securities rated lower than Baa by Moody's or BBB by
S&P, or, if not rated, of equivalent quality, are sometimes referred to as "high
yield" securities or "junk bonds." The potential for high yield is accompanied
by higher risk. Certain of the Portfolio's investments have speculative
characteristics, as further discussed in the MainStay VP Series Fund Prospectus.
Capital appreciation is a secondary objective which will be sought only when
consistent with this Portfolio's primary objective.
THE MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO
The MainStay VP International Equity Portfolio seeks long-term growth of
capital by investing in a portfolio consisting primarily of non-U.S. equity
securities. Current income is a secondary objective. In pursuing its investment
objective, the Portfolio will seek to invest in securities that provide the
potential for strong return but that do not, in MacKay-Shields' judgment,
present undue or imprudent risk. The Portfolio pursues its objectives by
investing its assets in a diversified portfolio of common stocks, preferred
stocks, warrants and comparable
19
<PAGE> 25
equity securities. Foreign investing involves certain risks which are discussed
in greater detail in the MainStay VP Series Fund prospectus.
THE MAINSTAY VP TOTAL RETURN PORTFOLIO
The MainStay VP Total Return Portfolio seeks to realize current income
consistent with reasonable opportunity for future growth of capital and income.
The Portfolio maintains a flexible approach by investing in a broad range of
securities, which may be diversified by company, by industry and by type. The
Portfolio may invest in common stocks, convertible securities, warrants and
fixed-income securities, such as bonds, preferred stocks and other debt
obligations, including money market instruments.
THE MAINSTAY VP VALUE PORTFOLIO
The MainStay VP Value Portfolio seeks maximum long-term total return from a
combination of capital growth and income. It seeks to achieve this objective by
following flexible investment policies emphasizing investment in common stocks
which are, in the opinion of MacKay-Shields, undervalued at the time of
purchase. This Portfolio will normally invest in dividend-paying common stocks
that are listed on a national securities exchange or traded in the
over-the-counter market, but may also invest in non-dividend paying stocks in
accordance with MacKay-Shields' judgment.
THE MAINSTAY VP BOND PORTFOLIO
The MainStay VP Bond Portfolio seeks the highest income over the long-term
consistent with preservation of principal. It will invest primarily in
fixed-income debt securities of an investment grade, but may also invest in
lower-rated securities, convertible debt, and preferred and convertible
preferred stock.
THE MAINSTAY VP GROWTH EQUITY PORTFOLIO
The MainStay VP Growth Equity Portfolio seeks long-term growth of capital,
with income as a secondary consideration. It will invest principally in common
stock (and securities convertible into, or with rights to purchase, common
stock) of well-established, well-managed companies which appear to have better
than average growth potential.
THE MAINSTAY VP INDEXED EQUITY PORTFOLIO
The MainStay VP Indexed Equity Portfolio seeks to provide investment
results that correspond to the total return performance (reflecting reinvestment
of dividends) of common stocks in the aggregate, as represented by the S&P 500.
Using a full replication method, the Portfolio invests in all 500 stocks in the
S&P 500 in the same proportion as their representation in the S&P 500. The S&P
500 is an unmanaged index considered representative of the U.S. stock market.
The MainStay VP Indexed Equity Portfolio is neither sponsored by nor affiliated
with the S&P 500.
THE ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The Alger American Small Capitalization Portfolio seeks long-term capital
appreciation. Except during temporary defensive periods, the Portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase of the securities, have total market capitalization within the
range of companies included in the Russell 2000 Growth Index or the S&P Small
Capitalization 600 Index, updated quarterly. Both indexes are broad indexes of
small capitalization stocks. The Portfolio may invest up to 35% of its total
assets in equity securities of companies that, at the time of purchase, have
total market capitalization outside this combined range and in excess of that
amount (up to 100% of its assets) during temporary defensive periods.
THE CALVERT SOCIAL BALANCED PORTFOLIO
The Calvert Social Balanced Portfolio seeks to achieve a total return above
the rate of inflation through an actively managed nondiversified portfolio of
common and preferred stocks, bonds and money market instruments which offer
income and capital growth opportunity and that satisfy the social concern
criteria established for this Portfolio.
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<PAGE> 26
THE FIDELITY VIP II CONTRAFUND PORTFOLIO
The Fidelity VIP II Contrafund Portfolio seeks long-term capital
appreciation by investing in securities of companies whose value FMR believes is
not fully recognized by the public. The Portfolio normally invests in common
stock and securities convertible into common stock, but has the flexibility to
invest in other types of securities.
THE FIDELITY VIP EQUITY-INCOME PORTFOLIO
The Fidelity VIP Equity-Income Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the Portfolio will also consider the potential for capital
appreciation. Secondarily, the Portfolio's goal is to achieve a yield that
exceeds the composite yield on the securities comprising the S&P 500 Index.
THE JANUS ASPEN SERIES BALANCED PORTFOLIO
The Janus Aspen Series Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. It is a
diversified Portfolio that, under normal circumstances, pursues its objective by
investing 40 to 60% of its assets in securities selected primarily for their
growth potential and 40 to 60% of its assets in securities selected primarily
for their income potential. The Portfolio normally invests at least 25% of its
assets in fixed-income senior securities, which include debt securities and
preferred stock.
THE JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO
The Janus Aspen Series Worldwide Growth Portfolio seeks long-term growth of
capital in a manner consistent with the preservation of capital. It invests in a
diversified portfolio of common stocks of foreign and domestic issuers. The
Portfolio has the flexibility to invest on a worldwide basis in companies and
organizations of any size, regardless of country of organization or place of
principal business activity. The Portfolio normally invests in issuers from at
least five different countries, including the United States. The Portfolio may
at times invest in fewer than five countries or even in a single country.
THE MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
The Morgan Stanley Emerging Markets Equity Portfolio seeks long-term
capital appreciation by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks, sponsored
and unsponsored ADR's and other equity securities of emerging market country
issuers. Under normal circumstances, at least 65% of the Portfolio's total
assets will be invested in emerging market countries in which the Portfolio's
investment adviser believes the economies are developing strongly and in which
the markets are becoming more sophisticated.
------------------------
Additional information concerning the Funds, investment objectives and
policies of the Portfolios, the risks associated with such objectives and
policies, investment advisory services and charges can be found in the current
prospectuses for the Funds, each of which is attached to this prospectus. The
prospectuses of the Funds should be read carefully before any decision is made
concerning the allocation of Premiums to an Investment Division.
The Funds' shares may also be available to certain separate accounts
funding variable life insurance policies offered by NYLIAC. This is called
"mixed funding." Shares of the Alger American Fund, the Calvert Variable Series,
the Fidelity Funds, the Janus Aspen Series and the Morgan Stanley Fund may also
be available to separate accounts of insurance companies unaffiliated with
NYLIAC and, in certain instances, to qualified plans. This is called "shared
funding." Although we do not anticipate any inherent difficulties arising from
mixed and shared funding, it is theoretically possible that, due to differences
in tax treatment or other considerations, the interests of owners of various
contracts participating in the Funds might at some time be in conflict. The
Board of Directors/Trustees of each Fund, each Fund's investment advisers and
NYLIAC are required to monitor events to identify any material conflicts that
arise from the use of the Funds for mixed and shared funding. For more
information about the risks of mixed and shared funding, please refer to the
relevant Fund prospectus.
We render certain services to owners of the Policies in connection with
investment of premiums in the Investment Divisions, which, in turn, invest in
the Portfolios. These services include, among others, providing information
about the Portfolios. We receive a service fee from the investment advisers or
other service providers
21
<PAGE> 27
of some of the Funds in return for providing services of this type. Currently,
we receive service fees at annual rates ranging from .10% to .21% of the
aggregate net asset value of the shares of some of the Portfolios held by the
Investment Divisions.
NYLIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Portfolio shares held by any
Investment Division. NYLIAC reserves the right to eliminate the shares of any of
the Portfolios and to substitute shares of another portfolio of the Funds, or of
another registered open-end management investment company, if the shares of the
Portfolios are no longer available for investment or, if in NYLIAC's judgment,
investment in any Portfolio would become inappropriate in view of the purposes
of the Separate Account. To the extent required by the 1940 Act, substitutions
of shares attributable to a Policyowner's interest in an Investment Division
will not be made until the Policyowner has been notified of the change.
THE FIXED ACCOUNT
The Fixed Account is credited interest at fixed rates subject to a minimum
guarantee. Funds in the Fixed Account are part of NYLIAC's General Account.
NYLIAC has sole discretion to invest the assets of the Fixed Account subject to
applicable law. An interest in the Fixed Account is not registered under the
Securities Act of 1933, and the Fixed Account is not registered as an investment
company under the 1940 Act. Accordingly, neither the Fixed Account nor any
interests therein are generally subject to the provisions of these statutes, and
NYLIAC has been advised that the staff of the SEC has not reviewed the
disclosures in this prospectus relating to the Fixed Account. These disclosures
regarding the Fixed Account may, however, be subject to certain applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
INTEREST CREDITING.
Any amounts in the Fixed Account are credited with interest using a fixed
interest rate, which we declare periodically. We will set this rate in advance
at least annually. This rate will never be less than 4% per year. Interest
accrues daily and is credited on each Monthly Deduction Day. All Net Premiums
applied to, and amounts transferred to, the Fixed Account receive the rate in
effect at that time.
TRANSFERS TO INVESTMENT DIVISIONS.
In each Policy Year, you may make one transfer from the Fixed Account to
the Investment Divisions, subject to the following three conditions:
1. Maximum Transfer. An amount not greater than 10% of the Fixed
Account Value at the beginning of the Policy Year may be transferred during
that Policy Year. During the retirement year only, however, (the Policy
Year following the Insured's 65th birthday, the date you indicate in the
application or another date if we approve), the 10% maximum transfer
limitation does not apply.
2. Minimum Transfer. The minimum amount that may be transferred is
$500, unless we agree otherwise.
3. Minimum Remaining Value. The Fixed Account Value remaining after
the transfer must be at least $500. If the remaining Fixed Account Value
would be less than $500, that amount must be included in the transfer.
Transfer requests must be in writing on a form approved by NYLIAC.
INVESTMENT RETURN
The investment return of a Policy is based on:
- the Accumulation Units held in each Investment Division for that Policy;
- the investment experience of each Investment Division as measured by its
actual net rate of return;
- the interest rate credited on amounts held in the Fixed Account; and
- the interest rate credited on amounts held in the Loan Account, if any.
The investment experience of an Investment Division reflects increases or
decreases in the net asset value of the shares of the underlying Portfolio, any
dividend or capital gains distributions declared by the Funds, and any charges
against the assets of the Investment Division. This investment experience is
determined at the end of each Valuation Period.
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<PAGE> 28
SECTION V:
GENERAL PROVISIONS OF THE POLICY
This section of the prospectus describes the general provisions of the
Policy, and is subject to the terms of the Policy. You may review a copy of the
Policy upon request.
PREMIUMS
While the Policy is in force, Premiums may be paid at any time while the
Insured is living and before the Policy Anniversary on which the Insured is age
95. Subject to certain restrictions, Premiums can be paid at any interval and by
any method we make available. Premiums should be sent to our Premium Remittance
Center or to the address indicated for payment on the notice. The Policyowner
selects a Premium schedule in the Application and this amount, along with the
amount of the first Premium, is set forth on page 2 of the Policy. You may elect
not to make a planned Premium payment at any time.
You may also make other Premium payments that are not planned. If an
unplanned Premium payment would result in an increase in the Death Benefit
greater than the increase in the Cash Value, we reserve the right to require
proof of insurability before accepting that payment and applying it to the
Policy. We also reserve the right to limit the number and amount of any
unplanned Premiums.
There is no penalty if a planned Premium is not paid, since Premiums, other
than the first Premium, are not specifically required. Paying planned Premiums,
however, does not guarantee coverage for any period of time. Instead, the
duration of the Policy depends upon the Policy's Cash Surrender Value, less any
Policy Debt. However, in no event may the Premium be an amount which would
jeopardize the Policy continuing to qualify as "life insurance" under Section
7702 of the Internal Revenue Code.
TERMINATION
If, on a Monthly Deduction Day, the Cash Surrender Value less any Policy
Debt is less than the amount of the charges to be deducted for the next Policy
month, the Policy will go into default status and will continue for a late
period of 62 days commencing with the current Monthly Deduction Day. If we do
not receive a Premium sufficient to take your Policy out of default status
before the end of the late period, the Policy will lapse and there will be no
Cash Value or Death Benefit.
NYLIAC will mail a notice to you at your last known address, and a copy to
the last known assignee on our records, at least 31 days before the end of the
late period. During the late period, the Policy remains in force. If the Insured
dies during the late period, we will pay the Death Benefit. However, these
proceeds will be reduced by the amount of any unpaid loan and the amount of the
charges to be deducted on each Monthly Deduction Day from the beginning of the
late period through the Policy month in which the Insured dies.
DEATH BENEFIT UNDER THE POLICY
The Death Benefit is the amount payable to the named Beneficiary when the
Insured dies. Upon receiving due proof of death at our Service Office, we will
pay the Beneficiary the Death Benefit determined as of the date the Insured
dies. All or part of the Death Benefit can be paid in cash or applied under one
or more of our payment options described under "Section VI: Additional
Information--Payment Options."
The amount of the Death Benefit is determined by whether you have chosen
Life Insurance Benefit Option 1 or Life Insurance Benefit Option 2. See "Life
Insurance Benefit Options" under Definition of Terms. Added to the amount
determined by the selected Life Insurance Benefit Option is the value of any
additional benefits provided by rider. We pay interest on the Death Benefit from
the date of death to the date the Death Benefit is paid or a payment option
becomes effective. The interest rate equals the rate determined under the
Interest Payment Option as described in "Section VI: Additional
Information--Payment Options." We subtract any outstanding Policy Debt and any
charges incurred but not yet deducted, and then credit the interest.
Beginning on the Policy Anniversary on which the Insured is age 95, the
Face Amount, as shown on page 2 of the Policy, will no longer apply. Instead,
the life insurance benefit under the Policy will equal the Cash Value, less
outstanding Policy Debt. Also, no further monthly deductions will be made for
cost of insurance.
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<PAGE> 29
SELECTION OF LIFE INSURANCE BENEFIT TABLE.
Under either Life Insurance Benefit Option, the Death Benefit cannot be
less than the Policy's Cash Value times a percentage determined from the
appropriate Code Section 7702 table. The Policyowner may choose either the
"Corridor" table or the "CVAT" table, which are described below, before the
Policy is issued. The Death Benefit will vary depending on which table is
selected. If the Policyowner does not choose a table, the Corridor table will be
used. Once the Policy is issued, the Policyowner may not change to a different
table.
Under Code Section 7702, a Policy will be treated as life insurance for
federal tax purposes if at all times it meets either (1) a "cash value
accumulation" test or (2) both a "guideline premium" test and a "cash value
corridor" test. The CVAT table is designed to meet the cash value accumulation
test, while the Corridor table is designed to meet the cash value corridor test.
A Policy using the Corridor table must also satisfy the "guideline premium" test
of Code Section 7702. This test limits the amount of Premiums that may be paid
into the Policy.
CORRIDOR TABLE
<TABLE>
<CAPTION>
INSURED'S AGE INSURED'S AGE
ON POLICY % OF ON POLICY % OF
ANNIVERSARY CASH VALUE ANNIVERSARY CASH VALUE
- ------------- ---------- ------------- ----------
<S> <C> <C> <C>
0-40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75-90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 101
59 134 95 & Over 100
60 130
</TABLE>
24
<PAGE> 30
CVAT TABLE
<TABLE>
<CAPTION>
INSURED'S INSURED'S
AGE AGE
ON POLICY % OF ON POLICY % OF
ANNIVERSARY CASH VALUE ANNIVERSARY CASH VALUE
- ----------- ---------------------- ----------- ----------------------
MALE FEMALE UNISEX MALE FEMALE UNISEX
---- ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
18 691 830 715 57 207 240 213
19 671 803 694 58 202 233 207
20 652 778 674 59 196 226 202
21 634 753 654 60 191 220 197
22 615 729 635 61 187 214 192
23 597 705 616 62 182 208 187
24 579 683 597 63 178 202 182
25 564 661 579 64 173 197 178
26 544 639 561 65 169 191 174
27 527 618 543 66 166 186 170
28 511 598 526 67 162 182 166
29 494 579 509 68 159 177 162
30 478 560 493 69 155 172 159
31 463 541 477 70 152 168 155
32 448 524 461 71 149 164 152
33 433 507 446 72 146 160 149
34 419 490 432 73 143 156 146
35 405 474 417 74 141 152 143
36 392 458 404 75 138 149 141
37 380 443 391 76 136 146 138
38 367 429 378 77 134 143 136
39 356 415 366 78 132 140 134
40 344 402 354 79 130 137 132
41 333 389 343 80 128 134 130
42 323 377 332 81 126 132 128
43 313 365 322 82 125 130 126
44 303 354 312 83 123 127 124
45 294 343 303 84 122 125 123
46 285 333 293 85 120 123 121
47 276 323 285 86 119 121 120
48 268 313 276 87 118 119 118
49 260 303 268 88 116 118 117
50 253 294 260 89 115 116 115
51 245 286 252 90 113 114 114
52 238 277 245 91 112 112 112
53 231 269 238 92 110 110 110
54 225 261 231 93 107 108 108
55 219 254 225 94 104 104 104
56 213 247 219 95 & Over 100 100 100
</TABLE>
THE EFFECT OF INVESTMENT PERFORMANCE ON THE DEATH BENEFIT.
Positive investment experience in the Investment Divisions may result in a
Death Benefit that will be greater than the Face Amount, but negative investment
experience will never result in a Death Benefit that will be less than the Face
Amount, so long as the Policy remains in force.
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Example 1: The following example shows how the Death Benefit varies as a
result of investment performance on a Policy, assuming that Life Insurance
Benefit Option 1 and the Corridor Table have been selected, and assuming age at
death is 45:
<TABLE>
<CAPTION>
POLICY A POLICY B
-------- --------
<S> <C> <C>
Face Amount................................................. $100,000 $100,000
Cash Value on Date of Death................................. $ 50,000 $ 40,000
Code Section 7702 Life Insurance Percentage on Date of
Death..................................................... 215% 215%
</TABLE>
The Death Benefit will equal the greater of the $100,000 Face Amount or the Cash
Value times the Code Section 7702 Life Insurance Percentage. For Policy A, the
Death Benefit will equal $107,500. For Policy B, the Death Benefit will equal
the $100,000 Face Amount.
Example 2: The following example shows how the Death Benefit varies as a
result of investment performance on a Policy, assuming that Life Insurance
Benefit Option 1 and the CVAT Table have been selected and that the Policyowner
is a male, and assuming age at death is 45:
<TABLE>
<CAPTION>
POLICY A POLICY B
-------- --------
<S> <C> <C>
Face Amount................................................. $100,000 $100,000
Cash Value on Date of Death................................. $ 50,000 $ 30,000
Code Section 7702 Life Insurance Percentage on Date of
Death..................................................... 294% 294%
</TABLE>
The Death Benefit will equal the greater of the $100,000 Face Amount or the Cash
Value times the Code Section 7702 Life Insurance Percentage. For Policy A, the
Death Benefit will equal $147,000. For Policy B, the Death Benefit will equal
the $100,000 Face Amount.
FACE AMOUNT CHANGES.
You can apply in writing to have the Face Amount of your Policy increased.
In addition, on or after the first Policy Anniversary, you can apply in writing
to have the Face Amount of your Policy decreased. Face Amount changes may be
made while the Insured is living, but only if your Policy will continue to
qualify as life insurance under Code Section 7702 after the change is made.
Requested decreases and increases in Base Face Amount will cause a corresponding
change in the amount of your surrender charge premium.
The amount of an increase in Face Amount is subject to NYLIAC's maximum
retention limits. Evidence of insurability which is satisfactory to us is
required for an increase. If this evidence results in a change of underwriting
class, a new Policy will be issued for the amount of the increase. We reserve
the right to limit increases. Any increase will take effect on the Monthly
Deduction Day on or after the Business Day we approve your request for the
increase. An increase in Face Amount may increase the cost of insurance charge.
Decreases in coverage may be requested. For a decrease which reduces the
Base Face Amount, the appropriate surrender charge will be deducted from the
Cash Value. See "Section III: Charges Under the Policy--Surrender Charge." A
decrease in Face Amount is effective on the Monthly Deduction Day on or after
the Business Day we receive your request for the decrease. Decreases are subject
to the Minimum Base Face Amount of $25,000.
LIFE INSURANCE BENEFIT OPTION CHANGES.
On or after the first Policy Anniversary, you can change the Life Insurance
Benefit Option of the Policy. Any change of Option will take effect on the
Monthly Deduction Day on or after the Business Day we approve your signed
request. If you change from Option 1 to Option 2, the Base Face Amount of the
Policy will be decreased by the Cash Value. No surrender charge will apply to
this automatic decrease in Base Face Amount. If you change from Option 2 to
Option 1, the Base Face Amount of the Policy will be increased by the Cash
Value. The surrender charge premium will not be affected by changes in the Life
Insurance Benefit Option. See "Section III: Charges Under the Policy--Surrender
Charge."
CASH VALUE AND CASH SURRENDER VALUE
CASH VALUE.
After the Free Look Period, the Cash Value of the Policy is the sum of the
Accumulation Value in the Separate Account, the Fixed Account Value and the Loan
Account Value. Subsequent Net Premiums are allocated among
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<PAGE> 32
the Fixed Account and/or the Investment Divisions according to the allocation
percentages requested in the Application, or as subsequently changed by the
Policyowner. A portion of your Cash Value is allocated to the Loan Account if
you take a loan under your Policy. See "Section V: General Provisions of the
Policy--Loans." The Cash Value also reflects various charges. See "Section III:
Charges Under the Policy."
CASH SURRENDER VALUE.
The Policy may be surrendered for its Cash Surrender Value, less any Policy
Debt, at any time before the Insured dies. Unless a later effective date is
selected, the surrender is effective on the Business Day we receive a signed
surrender request in proper form at our Service Office. The Cash Surrender Value
is the Cash Value, less any surrender charges.
TRANSFERS
All or part of the Cash Value may be transferred among Investment Divisions
or from an Investment Division to the Fixed Account. Transfers may also be made
from the Fixed Account to the Investment Divisions in certain situations. See
"Section IV: The Separate Account, the Funds and the Fixed Account--The Fixed
Account."
The minimum amount that may be transferred from one Investment Division to
another Investment Division or to the Fixed Account, is the lesser of (i) $500
or (ii) the value of the Accumulation Units in the Investment Division from
which the transfer is being made. If, after the transfer, the value of the
remaining Accumulation Units in an Investment Division or the Fixed Account
Value would be less than $500, that amount will be included in the transfer.
There is no charge for the first twelve transfers in any one Policy Year. NYLIAC
reserves the right to charge $30 for each transfer in excess of twelve per year.
This charge will be applied on a pro-rata basis to the Allocation Alternatives
to which the transfer is being made.
Transfer requests must be made in writing on a form approved by NYLIAC.
Transfers to or from Investment Divisions will be made based on the Accumulation
Unit values on the Business Day on which NYLIAC receives the transfer request.
PARTIAL WITHDRAWALS
The owner of a Policy may make a Partial Withdrawal of the Policy's Cash
Surrender Value, at any time while the Insured is living. The minimum Partial
Withdrawal is $500, and at least $500 of Cash Surrender Value, plus any Policy
Debt, must remain following the withdrawal. The Partial Withdrawal will be made
from the Fixed Account and the Investment Divisions in proportion to the amount
in each, or only from the Investment Divisions in an amount or ratio that you
tell us. There will be a processing charge equal to the lesser of $25 or 2% of
the amount withdrawn applied to any Partial Withdrawal. This fee will be
deducted from the remaining balance of the Fixed Account and/or Investment
Divisions based on the withdrawal allocation or, if the fee amount exceeds the
remaining balance, it will be deducted from the Fixed Account and/or Investment
Divisions in proportion to the amount in each.
A Partial Withdrawal will be prohibited if it would cause the Base Face
Amount to drop below $25,000. If Life Insurance Benefit Option 1 is in effect,
the Base Face Amount will be reduced by the amount of the Partial Withdrawal. If
Life Insurance Benefit Option 2 is in effect, the Base Face Amount will not be
changed by the amount of the Partial Withdrawal. A Partial Withdrawal will not
be permitted during the first Policy Year if Life Insurance Benefit Option 1 is
in effect.
LOANS
Using the Policy as sole security, you can borrow up to the loan value of
the Policy. The loan value on any given date is equal to 90% of the Cash
Surrender Value, less any Policy Debt.
LOAN ACCOUNT.
The Loan Account secures Policy Debt and is part of our General Account.
When a loan is requested, an amount is transferred to the Loan Account from the
Investment Divisions and the Fixed Account (on a pro-rata basis unless you
request otherwise) equal to: (1) the requested loan amount; plus (2) any Policy
Debt; plus (3) the interest to the next Policy Anniversary on the requested loan
amount and on any Policy Debt; minus (4) the amount in the Loan Account. On each
Policy Anniversary, the Loan Account will be increased by an amount equal to the
loan interest to the next Policy Anniversary on any Policy Debt. The effective
date of the loan is the Business Day we make payment.
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<PAGE> 33
The Loan Account Value will never be less than (a) plus (b) minus (c),
where (a) is the amount in the Loan Account on the prior Policy Anniversary, (b)
is the amount of any loan taken since the prior Policy Anniversary and (c) is
any loan amount repaid since the prior Policy Anniversary. On each Policy
Anniversary, if the amount in the Loan Account exceeds the amount of any
outstanding loans plus interest to the next Policy Anniversary, the excess will
be transferred from the Loan Account to the Investment Divisions and to the
Fixed Account. We reserve the right to do this on a monthly basis. Amounts
transferred will first be transferred to the Fixed Account up to an amount equal
to the total amounts transferred from the Fixed Account to the Loan Account. Any
subsequent amounts transferred will be allocated according to your Premium
allocation in effect at the time of transfer unless you tell us otherwise.
The Loan Account Value earns interest at a rate of not less than the
greater of 4% per year and the effective annual loan interest rate less 2%.
Interest accrues daily and is credited on each Monthly Deduction Day.
LOAN INTEREST.
Unless we set a lower rate for any period, the effective annual loan
interest rate is 6%, payable in arrears. Loan interest accrues each day and is
compounded annually. Loan interest not paid as of the Policy Anniversary becomes
part of the loan. An amount may need to be transferred to the Loan Account to
cover this increased loan amount.
On the date of death, the date the Policy ends, the date of a loan
repayment or on any other date we specify, we will make any adjustment in the
loan that is required to reflect any interest paid for any period beyond that
date.
If we have set a rate lower than 6% per year, any subsequent increase in
the interest rate shall be subject to the following conditions:
(1) The effective date of any increase in the interest rate for loans shall
not be earlier than one year after the effective date of the
establishment of the previous rate.
(2) The amount by which the interest rate may be increased shall not exceed
one percent per year, but the interest shall in no event ever exceed
6%.
(3) We will give notice of the interest rate in effect when a loan is made
and when sending notice of loan interest due.
(4) If a loan is outstanding 40 days or more before the effective date of
an increase in the interest rate, we will notify you of that increase
at least 30 days prior to the effective date of the increase.
(5) We will give notice of any increase in the interest rate when a loan is
made during the 40 days before the effective date of the increase.
REPAYMENT.
All or part of an unpaid loan can be repaid before the Insured's death or
before the Policy is surrendered. When a loan repayment is made, the excess
amount in the Loan Account resulting from the loan repayment will be immediately
transferred in accordance with the procedures set forth under "Loan Account"
above. In addition, excess amounts in the Loan Account resulting from interest
accrued will also be transferred in accordance with the procedures set forth
under "Loan Account" above.
If a loan is outstanding when the life insurance or surrender proceeds
become payable, we will deduct the amount of any Policy Debt from these
proceeds. In addition, if an unpaid loan exceeds the Cash Surrender Value of the
Policy, we will mail a notice to you at your last known address, and a copy to
the last known assignee on our records. All insurance will end 31 days after the
date on which we mail that notice to you if the excess of the unpaid loan over
the Cash Surrender Value is not paid within that 31 days.
FREE LOOK PROVISION
The Policy contains a provision that permits cancellation by returning it
to our Service Office, or to the registered representative through whom it was
purchased, at any time during the Free Look Period. Unless otherwise required by
state law, the Policyowner will then receive from us the greater of the Policy's
Cash Value as of the date the Policy is returned or the Premiums paid, less
loans and Partial Withdrawals.
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<PAGE> 34
EXCHANGE PRIVILEGE
At any time within 24 months of the Issue Date, the Policyowner may
exchange the Policy for a policy on a permanent plan of life insurance on the
Insured which we are offering for this purpose. NYLIAC will not require evidence
of insurability. Upon an exchange of a Policy, all riders and benefits will end
unless we agree otherwise or unless required under state law. The replacement
policy will have the same Policy Date, issue age, risk classification and
initial Face Amount as the original Policy, but will not offer variable
investment options such as the Investment Divisions.
In order to exchange the Policy, we will require: (a) that the Policy be in
effect on the date of exchange; (b) repayment of any Policy Debt; and (c) an
adjustment, if any, for differences in premiums and cash values under the Policy
and the new policy. On the Business Day we receive a written request for an
exchange, the Accumulation Value of the Policy will be transferred into the
Fixed Account, where it will remain until these requirements are met. The date
of exchange will be the later of: (a) the Business Day you send us the Policy
along with a signed request; or (b) the Business Day we receive at our Service
Office, or such other location that we indicate to you in writing, the necessary
payment for the exchange, if any.
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<PAGE> 35
SECTION VI:
ADDITIONAL INFORMATION
DIRECTORS AND PRINCIPAL OFFICERS OF NYLIAC*
DIRECTORS: POSITIONS DURING LAST FIVE YEARS:
Seymour Sternberg........ Chairman of the Board, Chief Executive Officer and
President of New York Life from April 1997 to date;
President and Chief Operating Officer of New York Life
from October 1995 to April 1997; Vice Chairman and
President Elect from February 1995 to October 1995;
Executive Vice President prior thereto. President of
NYLIAC from November 1995 to May 1997.
Jay S. Calhoun, III...... Senior Vice President and Treasurer of New York Life
from March 1997 to date; Vice President and Treasurer
from November 1992 to March 1997; Vice President and
Associate Treasurer from March 1992 to March 1997;
Corporate Vice President prior thereto. Senior Vice
President and Treasurer of NYLIAC from May 1997 to
date; Vice President and Treasurer of NYLIAC from
January 1993 to May 1997.
Richard M. Kernan, Jr.... Executive Vice President and Chief Investment Officer
of New York Life from March 1991 to date.
Robert D. Rock........... Senior Vice President in charge of the Individual
Annuity Department of New York Life from March 1992 to
date; Vice President prior thereto. Senior Vice
President of NYLIAC from April 1992 to date.
Frederick J. Sievert......Vice Chairman of New York Life from January 1997 to
date; Executive Vice President from February 1995 to
January 1997; Senior Vice President and Chief
Financial Officer--Individual Operations prior
thereto. President of NYLIAC from May 1997 to date;
Executive Vice President from November 1995 to May
1997; Senior Vice President prior thereto.
Stephen N. Steinig....... Senior Vice President and Chief Actuary of New York
Life from February 1994 to date; Chief Actuary and
Controller prior thereto. Senior Vice President and
Chief Actuary of NYLIAC from May 1991 to date.
OFFICERS:
Howard I. Atkins......... Executive Vice President and Chief Financial Officer
of New York Life and NYLIAC from April 1996 to date;
Chief Financial Officer of Midatlantic Corporation
prior thereto.
Patrick G. Colloton...... Senior Vice President of New York Life from January
1998 to date; Vice President from April 1996 to
January 1998. Vice President of NYLIAC from November
1996 to date. Senior Vice President, Individual
Strategic Business Unit, Business Men's Assurance
Company, prior thereto.
Michael G. Gallo......... Senior Vice President in charge of the Individual Life
Department of New York Life from July 1995 to date;
Senior Vice President--Northeastern Agencies from
February 1994 to July 1995; Vice President prior
thereto. Senior Vice President of NYLIAC from August
1995 to date.
Solomon Goldfinger....... Senior Vice President and Chief Financial Officer in
charge of the Financial Management Department of New
York Life from July 1995 to date; Senior Vice
President in charge of the Individual Life Department
from March 1992 to July 1995; Vice President and
Actuary in charge of the Individual Life Department
prior thereto. Senior Vice President of NYLIAC from
April 1992 to date; Vice President from February 1992
to April 1992.
Jane L. Hamrick.......... Vice President and Actuary of New York Life from March
1994 to date; Corporate Vice President and Actuary
prior thereto. Vice President and Actuary of NYLIAC
from April 1994 to date.
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<PAGE> 36
Jean E. Hoysradt......... Senior Vice President in charge of the Investment
Department of New York Life from March 1992 to date;
Senior Vice President of NYLIAC from April 1992 to
date.
Maryann L. Ingenito...... Vice President of New York Life from April 1990 to
date. Vice President and Controller (Principal
Accounting Officer) of NYLIAC from December 1994 to
date; Vice President and Assistant Controller prior
thereto.
Frank J. Ollari.......... Senior Vice President in charge of the Mortgage
Finance Department of New York Life from October 1989
to date. Senior Vice President of NYLIAC from April
1992 to date.
Lawrence R. Stoehr....... Vice President of New York Life from March 1993 to
date; Corporate Vice President prior thereto. Vice
President of NYLIAC from July 1994 to date; Corporate
Vice President prior thereto.
* Principal business address is 51 Madison Avenue, New York, New York 10010.
YEAR 2000 READINESS
The computer systems we use to process all Policy transactions and
valuations need to be modified to accommodate the changeover to Year 2000. These
modifications are necessary for us to be able to continue to administer the
Policies in Year 2000 and later. As is the case with most systems projects,
risks and uncertainties exist, and a project could be delayed. We are, however,
working to make these systems modifications, and we expect that the necessary
changes will be completed on time and in a way that will result in no disruption
to our Policy servicing operations.
FEDERAL INCOME TAX CONSIDERATIONS
THE DISCUSSION CONTAINED HEREIN IS GENERAL IN NATURE, IS NOT AN EXHAUSTIVE
DISCUSSION OF ALL TAX QUESTIONS THAT MIGHT ARISE UNDER THE POLICIES, AND IS NOT
INTENDED AS TAX ADVICE. NO ATTEMPT IS MADE TO CONSIDER ANY APPLICABLE STATE OR
OTHER TAX LAWS AND NO REPRESENTATION IS MADE AS TO THE LIKELIHOOD OF
CONTINUATION OF CURRENT FEDERAL INCOME TAX LAWS AND TREASURY REGULATIONS OR OF
CURRENT INTERPRETATIONS OF THE INTERNAL REVENUE SERVICE. FUTURE LEGISLATION,
REGULATIONS OR INTERPRETATIONS COULD ADVERSELY AFFECT THE TAX TREATMENT OF LIFE
INSURANCE POLICIES. LASTLY, THERE ARE MANY AREAS OF THE TAX LAW WHERE MINIMAL
GUIDANCE EXISTS IN THE FORM OF TREASURY REGULATIONS OR REVENUE RULINGS.
WHILE NYLIAC RESERVES THE RIGHT TO MAKE CHANGES IN THE POLICY TO ASSURE
THAT IT CONTINUES TO QUALIFY AS LIFE INSURANCE FOR TAX PURPOSES, NYLIAC CANNOT
MAKE ANY GUARANTEE REGARDING THE FUTURE TAX TREATMENT OF ANY POLICY. FOR
COMPLETE INFORMATION ON THE TAX TREATMENT OF THE POLICIES, THE TAX TREATMENT
UNDER THE LAWS OF YOUR STATE, OR THE IMPACT OF PROPOSED OR FUTURE CHANGES IN TAX
LEGISLATION, REGULATIONS OR INTERPRETATIONS, YOU SHOULD CONSULT WITH A TAX
ADVISOR.
The ultimate effect of federal income taxes on values under the Policy and
on the economic benefit to the Policyowner or Beneficiary depends upon NYLIAC's
tax status, upon the terms of the Policy and upon the tax status of the
individual concerned.
TAX STATUS OF NYLIAC AND THE SEPARATE ACCOUNT.
NYLIAC is taxed as a life insurance company under Subchapter L of the Code.
The Separate Account is not a separate taxable entity from NYLIAC and its
operations are taken into account by NYLIAC in determining its income tax
liability. All investment income and realized net capital gains on the assets of
the Separate Account are reinvested and taken into account in determining Policy
Cash Values and are automatically applied to increase the book reserves
associated with the Policies. Under existing federal income tax law, neither the
investment income nor any net capital gains of the Separate Account are taxed to
NYLIAC to the extent those items are applied to increase reserves associated
with the Policies.
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<PAGE> 37
CHARGES FOR TAXES.
NYLIAC imposes a Federal Tax Charge equal to 1.25% of Premiums received
under the Policy to compensate NYLIAC for the federal income tax liability it
incurs under Code Section 848 by reason of its receipt of Premiums under the
Policy. NYLIAC believes that this charge is reasonable in relation to the
increased tax burden it incurs as a result of Section 848. No other charge is
currently made to the Separate Account for federal income taxes of NYLIAC that
may be attributable to the Separate Account. Periodically, NYLIAC reviews the
appropriateness of charges to the Separate Account for NYLIAC's federal income
taxes, and in the future, a charge may be made for federal income taxes incurred
by NYLIAC that are attributable to the Separate Account. In addition, depending
on the method of calculating interest on Policy Values allocated to the Fixed
Account (see preceding section), a charge may also be imposed for the Policy's
share of NYLIAC's federal income taxes attributable to the Fixed Account.
DIVERSIFICATION STANDARDS AND CONTROL ISSUES.
In addition to other requirements imposed by the Code, a Policy will
qualify as life insurance under the Code only if the diversification
requirements of Code Section 817(h) are satisfied by the Separate Account. To
assure that each Policy continues to qualify as life insurance for federal
income tax purposes, NYLIAC intends to comply with Code Section 817(h) and the
Regulations thereunder for each Portfolio. To satisfy these diversification
standards, the Regulations generally require that on the last day of each
quarter of a calendar year: no more than 55% of the value of a Separate
Account's assets can be represented by any one investment; no more than 70% can
be represented by any two investments; no more than 80% can be represented by
any three investments; and no more than 90% can be represented by any four
investments. For purposes of these rules, all securities of the same issuer
generally are treated as a single investment, but each government agency or
instrumentality is treated as a separate issuer. In addition a "look-through"
rule applies to treat a pro-rata portion of each asset of each Portfolio as an
asset of the Separate Account.
The general diversification requirements of Code Section 817(h) are
modified with regard to assets of the Separate Account that are direct
obligations of the United States Treasury. Even if a separate account invests
only in United States Treasury Securities it will be treated as adequately
diversified under Code Section 817(h). In addition, for purposes of determining
whether its holdings of assets other than United States Treasury Securities are
adequately diversified, the generally applicable percentage limitations are
increased based on the value of a separate account's investment in United States
Treasury Securities. Notwithstanding this modification of the general
diversification requirements, however, the investments of the Portfolios will be
structured to comply with the general diversification standards because they
serve as investment vehicles for certain variable annuity contracts that must
comply with the general standards.
In connection with its issuance of temporary regulations under Code Section
817(h) in 1986, the Treasury Department announced that such temporary
regulations did not provide guidance concerning the extent to which Policyowners
could be permitted to direct their investments to particular divisions of a
separate account and that guidance on this issue would be forthcoming.
Regulations addressing this issue have not yet been issued or proposed, and it
is not clear, at this time, whether such regulations will ever be issued or what
such regulations might provide. If such regulations were to be issued in the
future, it is possible that the Policy might need to be modified to comply with
such regulations. For these reasons, NYLIAC reserves the right to modify the
Policy, as necessary, to prevent the Policyowner from being considered the owner
of the assets of the Separate Account.
LIFE INSURANCE STATUS OF POLICY.
NYLIAC believes that the Policy meets the statutory definition of life
insurance under Code Section 7702 and that the Policyowner and Beneficiary of
any Policy will receive the same federal income tax treatment as that accorded
to owners and beneficiaries of fixed benefit life insurance policies.
Specifically, the Death Benefit under the Policy will be excludable from the
gross income of the Beneficiary subject to the terms and conditions of Code
Section 101(a)(1). (Death benefits under a "modified endowment contract" as
discussed below are treated in the same manner as death benefits under life
insurance contracts that are not so classified.)
In addition, unless the Policy is a "modified endowment contract," in which
case the receipt of any loan under the Policy may result in recognition of
income to the Policyowner, the Policyowner will not be deemed to be in
constructive receipt of the Cash Values, including increments thereon, under the
Policy until proceeds of the Policy are received upon a surrender of the Policy
or a Partial Withdrawal.
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<PAGE> 38
MODIFIED ENDOWMENT CONTRACT STATUS.
A Policy will be a modified endowment contract if it satisfies the
definition of life insurance contained in the Internal Revenue Code, but it
either fails the additional "7-pay test" set forth in Code Section 7702A or was
received in exchange for a modified endowment contract. A Policy will fail the
7-pay test if the accumulated amount paid under the contract at any time during
the first seven contract years exceeds the total premiums that would have been
payable under a policy providing for guaranteed benefits upon the payment of
seven level annual premiums. A Policy received in exchange for a modified
endowment contract will be taxed as a modified endowment contract even if it
would otherwise satisfy the 7-pay test.
While the 7-pay test is generally applied as of the time the policy is
issued, certain changes in the contractual terms of a Policy will require a
Policy to be retested to determine whether the change has caused the Policy to
become a modified endowment contract. For example, a reduction in death benefits
during the first seven contract years will cause the Policy to be retested as if
it had originally been issued with the reduced death benefit.
In addition, if a "material change" occurs at any time while the Policy is
in force, a new 7-pay test period will start and the Policy will need to be
retested to determine whether it continues to meet the 7-pay test. The term
"material change" generally includes increases in death benefits, but does not
include an increase in death benefits attributable to the payment of premiums
necessary to fund the lowest level of death benefits payable during the first
seven contract years, or which is attributable to the crediting of interest with
respect to such premiums.
Because the Policy provides for flexible Premiums, NYLIAC has instituted
procedures to monitor whether, under our current interpretations of the law,
increases in the Death Benefit or additional Premiums either cause the start of
a new seven-year test period or cause the Policy to be a modified endowment
contract. All additional Premiums will be considered in these determinations.
If you pay a Premium that exceeds the 7-pay limit, we will notify you and
give you the opportunity to prevent your Policy from becoming a modified
endowment contract by requesting that the excess Premium be returned to you. If
your Policy becomes a modified endowment contract, all distributions (including
loans) occurring in the year of failure and thereafter will be subject to the
rules for modified endowment contracts. A recapture provision also applies to
loans and distributions that are received in anticipation of failing the 7-pay
test. Under the Code, any distribution or loan made within two years prior to
the date that a Policy fails the 7-pay test is considered to have been made in
anticipation of the failure.
SURRENDERS AND PARTIAL WITHDRAWALS.
Upon a surrender of a Policy for its Cash Surrender Value, less any Policy
Debt, the Policyowner will recognize ordinary income for federal tax purposes to
the extent that the Cash Surrender Value exceeds the investment in the contract
(the total of all Premiums paid but not previously recovered plus any other
consideration paid for the Policy). The tax consequences of a Partial Withdrawal
from a Policy will depend upon whether the Partial Withdrawal results in a
reduction of future benefits under the Policy and whether the Policy is a
modified endowment contract.
If the Policy is not a modified endowment contract, the general rule is
that a Partial Withdrawal from a Policy is taxable only to the extent that it
exceeds the total investment in the contract. An exception to this general rule
applies, however, if a reduction of future benefits occurs during the first 15
years after a Policy is issued and there is a cash distribution associated with
that reduction. In such a case, Code Section 7702(f)(7) overrides the general
rule and prescribes a formula under which the Policyowner may be taxed on all or
a part of the amount distributed. After 15 years, the rule of Code Section
7702(f)(7) no longer applies so that cash distributions from a Policy that is
not a modified endowment contract will not be subject to federal income tax,
except to the extent they exceed the total investment in the contract. NYLIAC
suggests that a Policyowner consult with a tax advisor in advance of a proposed
decrease in Face Amount or a Partial Withdrawal. In addition, any amounts
distributed under a "modified endowment contract" (including proceeds of any
loan) are taxable to the extent of any accumulated income in the Policy. In
general, the amount that may be subject to tax is the excess of the Cash Value
(both loaned and unloaned) over the previously unrecovered Premiums.
Under certain circumstances, a distribution under a modified endowment
contract (including a loan) may be taxable even though it exceeds the amount of
accumulated income in the Policy. This can occur because for purposes of
determining the amount of income received upon a distribution (or loan) from a
modified
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<PAGE> 39
endowment contract, the Code requires the aggregation of all modified endowment
contracts issued to the same Policyowner by an insurer and its affiliates within
the same calendar year. Therefore, loans and distributions from any one such
Policy are taxable to the extent of the income accumulated in all the modified
endowment contracts required to be so aggregated.
If any amount is taxable as a distribution of income under a modified
endowment contract (as a result of a policy surrender, a Partial Withdrawal or a
loan), it may also be subject to a 10% penalty tax under Code Section 72(v).
Limited exceptions from the additional penalty tax are available for certain
distributions to individual Policyowners. The penalty tax will not apply to
distributions: (i) that are made on or after the date the taxpayer attains age
59 1/2; or (ii) that are attributable to the taxpayer's becoming disabled; or
(iii) that are part of a series of substantially equal periodic payments (made
not less frequently than annually) made for the life or life expectancy of the
taxpayer.
LOANS AND INTEREST DEDUCTIONS.
NYLIAC also believes that under current law any loan received under the
Policy will be treated as Policy Debt of a Policyowner and that, unless the
Policy is a modified endowment contract, no part of any loan under a Policy will
constitute income to the Policyowner. If the Policy is a modified endowment
contract (see discussion above) loans will be fully taxable to the extent of the
income in the Policy (and in any other contracts with which it must be
aggregated) and could be subject to the additional 10 percent penalty tax.
Code Section 264 provides that interest paid or accrued on a loan in
connection with a Policy is generally nondeductible. Certain exceptions apply,
however, with respect to Policies covering key employees. In addition, in the
case of Policies not held by individuals, special rules may limit deductibility
of interest on loans that are not made in connection with a Policy. NYLIAC
suggests consultation with a tax advisor for further guidance.
Certain changes to the Code were recently proposed that would negatively
impact corporate owned and corporate sponsored life insurance (the "Proposals"),
including the Policies offered by this Prospectus. The Proposals, if enacted,
would reduce the amount of interest that is deductible on loans that are not
made in connection with a Policy.
Present law provides that interest on Policy loans or other indebtedness
that can be traced to life insurance policies generally is not deductible unless
the policy insures the life of one of a limited number of key persons of a
business. A key person includes an officer or 20% owner. In addition, the
interest deductions for most companies for interest on other indebtedness are
reduced under a proration rule if the business is a direct or indirect
beneficiary of certain life insurance, endowment or annuity contracts. The
proration rule does not apply if the contract covers an employee, director,
officer or 20% owner. The Proposals would repeal the exception under the
proration rule for contracts covering employees, directors, or officers, other
than 20% owners, for taxable years beginning after the date of enactment. The
effect of this proposed partial repeal of the exception to the proration rule
would be to increase the after-tax cost of such Policies in most cases.
NYLIAC cannot, at this time, predict or otherwise represent whether, when
or in what form any of the Proposals may, in fact, be enacted.
CORPORATE ALTERNATIVE MINIMUM TAX.
Ownership of a Policy by a corporation may affect the Policyowner's
exposure to the corporate alternative minimum tax. In determining whether it is
subject to alternative minimum tax a corporate Policyowner must make two
computations. First, the corporation must take into account a portion of the
current year's increase in the "inside build up" or income on the contract gain
in its corporate-owned policies. Second, the corporation must take into account
a portion of the amount by which the Death Benefits received under any Policy
exceed the sum of (i) the premiums paid on that Policy in the year of death, and
(ii) the corporation's basis in the Policy (as measured for alternative minimum
tax purposes) as of the end of the corporation's tax year immediately preceding
the year of death.
EXCHANGES OR ASSIGNMENTS OF POLICIES.
A change of the Policyowner or the Insured or an exchange or assignment of
a Policy may have significant tax consequences depending on the circumstances.
For example, an assignment or exchange of a Policy may result in taxable income
to the transferring Policyowner. Further, Code Section 101(a) provides, subject
to
34
<PAGE> 40
certain exceptions, that where a Policy has been transferred for value, only the
portion of the Death Benefit that is equal to the total consideration paid for
the Policy may be excluded from gross income. For complete information with
respect to Policy assignments and exchanges, a qualified tax advisor should be
consulted.
OTHER TAX ISSUES.
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary.
WITHHOLDING.
Under Code Section 3405, withholding is generally required with respect to
certain taxable distributions under insurance contracts. In the case of periodic
payments (payments made as an annuity or on a similar basis), the withholding is
at graduated rates (as though the payments were employee wages). With respect to
non-periodic distributions, the withholding is at a flat rate of 10%. A
policyholder can elect to have either non-periodic or periodic payments made
without withholding except where the Policyowner's tax identification number has
not been furnished to NYLIAC or the Internal Revenue Service has notified NYLIAC
that the tax identification number furnished by the Policyowner is incorrect.
Different withholding rules apply to payments made to U.S. citizens living
outside the United States and to non-U.S. citizens living outside of the United
States. U.S. citizens who live outside of the United States generally are not
permitted to elect not to have federal income taxes withheld from payments.
Payments to non-U.S. citizens who are not residents of the United States
generally are subject to 30% withholding, unless an income tax treaty between
their country of residence and the United States provides for a lower rate of
withholding or an exemption from withholding.
REINSTATEMENT OPTION
For a period of five years after termination, you can request that we
reinstate the Policy (and any riders) during the Insured's lifetime. We will not
reinstate the Policy if it has been returned for its Cash Surrender Value. Note
that a termination and subsequent reinstatement may cause the Policy to become a
modified endowment contract.
Before we will reinstate the Policy, we must receive the following:
- A payment in an amount that is sufficient to keep the Policy (and any
riders) in force for at least 2 months based on the Cash Surrender Value
which is reinstated. This payment will be in lieu of the payment of all
Premiums in arrears.
- Any unpaid loan must also be repaid, together with loan interest at 6%
compounded once each year from the end of the late period to the date of
reinstatement. If a loan interest rate of less than 6% is in effect when
the Policy is reinstated, the interest rate for any unpaid loan at the
time of reinstatement will be the same as the loan rate.
- Evidence of insurability satisfactory to us if the reinstatement is
requested more than 31 days after termination.
The Cash Value which will be reinstated is equal to the Cash Value at the
time of lapse less the difference between the surrender charge at the time of
lapse and the surrender charge which is reinstated. If the surrender charge
reinstated exceeds the Cash Value reinstated, we will require payment of an
amount equal to the difference.
If we do reinstate the Policy, the Face Amount for the reinstated Policy
will be the same as it would have been if the Policy had not terminated. The
effective date of reinstatement will be the Monthly Deduction Day on or
following the date we approve the request for reinstatement.
ADDITIONAL BENEFITS AVAILABLE BY RIDER
The Policy can include additional benefits that we approve based on our
standards and limits for issuing insurance and classifying risks. None of these
benefits depends on the investment performance of the Separate Account or the
Fixed Account. An additional benefit is provided by a rider and is subject to
the terms of both the Policy and the rider. The following rider is currently
available.
35
<PAGE> 41
ADJUSTABLE TERM INSURANCE RIDER.
This rider provides term insurance coverage on the Insured. The initial
term amount is shown on page 2 of your Policy. You can also elect to change the
term amount at any time. Evidence of insurability, satisfactory to us, must be
furnished in connection with any request to increase the term amount.
PAYMENT OPTIONS
Death Benefits will be paid in one sum or, if elected, all or part of the
Death Benefit can be placed under one or more of the options described in this
section. If we agree, the Death Benefit may be placed under some other method of
payment instead. Any Death Benefits paid in one sum will bear interest
compounded each year from the Insured's death to the date of payment. We set the
interest rate each year. This rate will be at least 3% per year, and will not be
less than required by law.
While the Insured is living, you can elect or change an option. You can
also elect or change one or more beneficiaries who will be the payee or payees
under that option. After the Insured dies, any person who is to receive proceeds
in one sum (other than an assignee) can instead elect a payment option and name
payees. The person who elects an option can also name one or more successor
payees to receive any amount remaining at the death of the payee. Naming these
payees cancels any prior choice of successor payees. A payee who did not elect
the option does not have the right to advance or assign payments, take the
payments in one sum, or make any other change. However, the payee may be given
the right to do one or more of these things if the person who elects the option
tells us in writing and we agree.
If we agree, a payee who has elected a payment option may later elect to
have any unpaid amount, or the present value of any elected payments, placed
under another option described in this section. When any payment under an option
would be less than $100, we may pay any unpaid amount or present value in one
sum.
PAYEES.
Only individuals who are to receive payments in their own behalf may be
named as payees or successor payees, unless we agree to some other payee. We may
require proof of the age or the survival of a payee.
It may happen that when the last surviving payee dies, we still have an
unpaid amount, or there are some payments that remain to be made. If so, we will
pay the unpaid amount with interest to the date of payment, or pay the present
value of the remaining payments, to that payee's estate in one sum. The present
value of the remaining payments is based on the interest rate used to compute
them, and is always less than their sum.
PROCEEDS AT INTEREST OPTIONS (OPTIONS 1A AND 1B).
The Policy proceeds may be left with us at interest. We will set the
interest rate each year. This rate will be at least 3% per year.
For the Interest Accumulation Option (Option 1A), we credit interest each
year on the amount we still have. This amount can be withdrawn at any time in
sums of $100 or more. We pay interest to the date of withdrawal on sums
withdrawn.
For the Interest Payment Option (Option 1B), we pay interest once each
month, every 3 months, every 6 months, or once each year, as chosen, based on
the amount we still have.
LIFE INCOME OPTION (OPTION 2).
We make equal payments each month during the lifetime of the payee or
payees. We determine the amount of the monthly payment by applying the Death
Benefit to purchase a corresponding single premium life annuity contract that is
being issued when the first payment is due. Payments are based on the
appropriately adjusted annuity premium rate in effect at that time, but will not
be less than the corresponding minimum amount shown in the Option 2 Table, which
appears in Section 9 of your Policy. These minimum amounts are based on the 1983
Table "a" with Projection Scale G and with interest compounded each year at 3%.
36
<PAGE> 42
Upon request, we will state in writing what the minimum amount of each
monthly payment would be under this option. It is based on the sex and adjusted
age of the payee or payees. To find the adjusted age in the year the first
payment is due, we increase or decrease the payee's age at that time, as
follows:
<TABLE>
<CAPTION>
1996 AND 2036 AND
EARLIER 1997-2005 2006-2015 2016-2025 2026-2035 LATER
- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
+2 +1 0 -1 -2 -3
</TABLE>
We make a payment each month while the payee is living. Payments do not
change, and are guaranteed for 10 years, even if both payees die sooner.
BENEFICIARY
A Beneficiary is any person or entity named by the Policyowner to receive
the Death Benefit after the Insured dies. You name the Beneficiary when you
apply for the Policy. There may be different classes of Beneficiaries, such as
primary and secondary. These classes set the order of payment. There may be more
than one Beneficiary in a class.
The Beneficiary may be changed during the Insured's lifetime by writing to
our Service Office or such other location that we indicate to you in writing.
Generally, the change will take effect as of the date the request is signed. If
no Beneficiary is living when the Insured dies, unless provided otherwise, the
Death Benefit is paid to the Policyowner or, if deceased, the Policyowner's
estate.
CHANGE OF OWNERSHIP
A successor Policyowner can be named in the application, or in a signed
notice that gives us the facts we need. The successor Policyowner will become
the new Policyowner when you die, if you die before the Insured. If no successor
Policyowner survives you and you die before the Insured, your estate becomes the
new Policyowner.
You can also change the Policyowner in a signed notice that gives us the
facts we need. When this change takes effect, all rights of ownership in this
Policy will pass to the new Policy owner.
When we record a change of Policyowner or successor Policyowner, these
changes will take effect as of the date of the Policyowner's signed notice,
subject to any payments we made or action we took before recording these
changes. We may require that these changes be endorsed in the Policy. Changing
the Policyowner or naming a new successor Policyowner cancels any prior choice
of Policyowner or successor Policyowner, respectively, but does not change the
Beneficiary.
ASSIGNMENT
While the Insured is living, the Policy may be assigned as collateral for a
loan or other obligation. For an assignment to be binding on us, we must receive
a signed copy of it at our Service Office or such other location that we
indicate to you in writing. We are not responsible for the validity of any
assignment.
LIMITS ON OUR RIGHTS TO CHALLENGE THE POLICY
Except for any increases in Face Amount, other than one due solely to a
change in the Life Insurance Benefit Option, we must bring any legal action to
contest the validity of a Policy within two years from its Issue Date. After
that we cannot contest its validity, except for failure to pay Premiums or
unless the Insured died within that two year period. For any increase in the
Face Amount, other than one due solely to a change in the Life Insurance Benefit
Option, we must bring legal action to contest that increase within two years
from the effective date of the increase.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex is misstated in the Policy application, the
Death Benefit payable under the Policy will be adjusted based on what the Policy
would provide according to the most recent mortality charge for the correct date
of birth or correct sex.
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<PAGE> 43
SUICIDE
If the Insured commits suicide within two years from the Issue Date or less
where required by law (or, with respect to an increase in Face Amount, the
effective date of the increase), and while the Policy is in force, the Policy
will end, and the only amount payable to the Beneficiary will be the Premiums
paid, less any Policy Debt and any Partial Withdrawals.
WHEN WE PAY PROCEEDS
If the Policy has not terminated, payment of the Cash Surrender Value,
Partial Withdrawal, loan proceeds or the Death Benefit are made within 7 days
after we receive all requirements at our Service Office or such other location
that we indicate to you in writing. However, we can delay payment of the Cash
Surrender Value or any Partial Withdrawal from the Separate Account, loan
proceeds attributable to the Separate Account, or the Death Benefit during any
period that: (1) it is not reasonably practicable to determine the amount
because the New York Stock Exchange is closed (other than customary weekend and
holiday closings), trading is restricted by the SEC, or the SEC declares that an
emergency exists; or (2) the SEC, by order, permits us to delay payment in order
to protect our Policyowners.
Amounts payable from the Fixed Account may be deferred for up to 6 months
from the date the request is received at our Service Office.
We can delay payment of the entire Death Benefit if payment is contested.
We investigate all death claims arising within the two-year limit on our right
to challenge the Policy. Upon receiving the information from a completed
investigation, we generally make a determination within 5 days as to whether the
claim should be authorized for payment. Payments are made promptly after
authorization. If payment of a Cash Surrender Value or Partial Withdrawal is
delayed for 30 days or more, we add interest at an annual rate of 3%. We add
interest to a Death Benefit from the date of death to the date of payment at the
same rate as is paid under the Interest Payment Option. See "Section VI:
Additional Information--Payment Options."
RECORDS AND REPORTS
All records and accounts relating to the Separate Account and the Fixed
Account are maintained by New York Life or NYLIAC. Each year we will mail you a
report showing the Cash Value and Policy Debt as of the latest Policy
Anniversary. This report contains any additional information required by
applicable law or regulation.
SALES AND OTHER AGREEMENTS
NYLIFE Distributors Inc., ("NYLIFE Distributors"), member, National
Association of Securities Dealers, 51 Madison Avenue, New York, New York 10010
is the principal underwriter and the distributor of the Policies and is an
indirect wholly-owned subsidiary of New York Life. NYLIFE Distributors is
engaged in the business of underwriting and distributing units of the Separate
Account and shares of open-end investment companies, including The MainStay
Funds and MainStay Institutional Funds Inc.
The commissions paid to registered representatives of broker-dealers who
have entered into dealer agreements with NYLIFE Distributors during a Policy's
first year will not exceed 35% of the Premiums paid up to a Policy's surrender
charge premium (5% in Policy Years two through ten) plus 3% of Premiums paid in
excess of such amount. Commissions paid in Policy Years eleven and beyond are 2%
of Premiums paid. A table of surrender charge premium rates per thousand appears
in Appendix B to this prospectus.
LEGAL PROCEEDINGS
In 1995, NYLIAC and New York Life settled a nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyholders in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyholders in that
state who excluded themselves from the settlement of the nationwide class action
was recently reversed by an intermediate appellate court; plaintiffs filed a
motion for rehearing in the intermediate appellate
38
<PAGE> 44
court and the motion was denied. Plaintiffs may file a petition with the highest
court within the statutory time allowed to do so. Most of these actions seek
substantial or unspecified compensatory and punitive damages.
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
INDEPENDENT ACCOUNTANTS
The financial statements of NYLIAC have been included herein in reliance
upon the report of Price Waterhouse LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The financial statements of NYLIAC included herein should be considered
only as bearing upon the ability of NYLIAC to meet its obligations under the
Policy.
EXPERTS
Actuarial matters in this prospectus have been examined by Irwin Don,
Associate Actuary. An opinion on actuarial matters is filed as an exhibit to the
registration statement we have filed with the SEC.
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<PAGE> 45
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<PAGE> 46
APPENDIX A
ILLUSTRATIONS
The following tables demonstrate the way in which your Policy works. The
tables are based on the age, initial Death Benefit and Premium as follows:
The tables are for a Policy issued to a male, non-smoker, age 45, on a
medically underwritten basis, with a scheduled annual Premium of $7,500 and an
initial Death Benefit of $350,000. It assumes that Life Insurance Benefit Option
1 and Code Section 7702 Guideline Premium Corridor Table have been selected.
The tables show how the Cash Value, Cash Surrender Value and Death Benefit
would vary over an extended period of time assuming hypothetical gross rates of
return equivalent to a constant annual rate of 0%, 6% or 12%. The table will
assist in the comparison of the Death Benefit, Cash Value and Cash Surrender
Value of the Policy with other corporate sponsored variable universal life
insurance plans.
The Death Benefit, Cash Value and Cash Surrender Value for a Policy would
be different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below those averages for the period. They
would also be different depending on the allocation of the Cash Value among the
Investment Divisions of the Separate Account, the Fixed Account and the Loan
Account, if the actual gross rate of return for all Investment Divisions
averaged 0%, 6% or 12%, but varied above or below that average for individual
Investment Divisions. They would also differ if any Policy loans or Partial
Withdrawals were made during the period of time illustrated.
The first table reflects all charges under the Policy and assumes that the
cost of insurance charges are based on our current cost of insurance rates and
reflects the deduction of all charges from planned Premiums, the Accumulation
Value and Fixed Account Value at the current levels. It also reflects a daily
mortality and expense risk charge assessed against the Separate Account
equivalent to an annual charge of 0.70% (for Policy Years one through ten) and
0.30% (for Policy Years eleven and later).
The second table reflects all charges under the Policy and assumes that the
cost of insurance charges are based on our guaranteed maximum cost of insurance
rates and reflects the deduction of all charges from planned Premiums, the
Accumulation Value and Fixed Account Value at their guaranteed maximum levels.
It also reflects a daily mortality and expense risk charge assessed against the
assets of the Separate Account equivalent to an annual charge of 0.90% (for all
Policy Years).
The tables also reflect total assumed fees and expenses incurred by the
Funds of 0.73% of the average daily net assets of the Funds. The total is based
upon (a) 0.42% of average daily net assets, which is an average of the
management fees of each Portfolio; (b) 0.14% of average daily net assets, which
is an average of the administrative fees for each Portfolio; and (c) 0.17% of
average daily net assets, which is an average of the other expenses after
expense reimbursement for each Portfolio. Actual fees and expenses of the Funds
may be more or less than the amounts illustrated and will depend on the
allocations made by the Policyowner.
"Other Expenses" and "Total Fund Annual Expenses" for the MainStay VP
Convertible and MainStay VP International Equity Portfolios reflect an expense
reimbursement agreement effective through December 31, 1998 limiting "Other
Expenses" to 0.17% annually. In the absence of the expense reimbursement
arrangement the "Total Fund Annual Expenses" for the year ended December 31,
1997, 0.78% and 1.25% for the MainStay VP Convertible and MainStay VP
International Equity Portfolios, respectively.
For the Calvert Social Balanced Portfolio, the Fund fees are based on
expenses for the fiscal year 1997, and have been restated to reflect an increase
in transfer agency expenses of 0.01% expected to be incurred in 1998. The
"Advisory Fee" includes a performance adjustment which could cause the fee to be
as high as 0.85% or as low as 0.55%, depending on performance. "Other Expenses"
reflect an indirect fee of 0.03%. "Total Fund Annual Expenses" after reductions
for fees paid indirectly would have been 0.78%.
A portion of the brokerage commissions that Fidelity VIP II Contrafund and
Fidelity VIP Equity-Income Portfolios pay was used to reduce the Portfolios'
annual expenses. In addition, these Portfolios have entered into arrangements
with their custodian and transfer agent whereby interest earned on uninvested
cash
A-1
<PAGE> 47
balances was used to reduce custodian and transfer agent expenses. Including
these reductions, the "Total Fund Annual Expenses" would have been 0.68% for the
Fidelity VIP II Contrafund Portfolio and 0.57% for the Fidelity VIP
Equity-Income Portfolio.
A reduced "Advisory Fee" schedule was put into effect on July 1, 1997 for
the Janus Aspen Series Balanced Portolio and Janus Aspen Series Worldwide Growth
Portfolio. The "Advisory Fee" reflects the new rate applied to net assets as of
December 31, 1997. "Other Expenses" are based on gross expenses of the fund
shares before expense offset arrangements for the fiscal year ended December 31,
1997. Janus Capital Corporation ("JCC") has agreed to reduce the "Advisory Fee"
for both Janus Portfolios to the extent that such fee exceeds the effective rate
of the Janus retail fund corresponding to such Portfolio. JCC may terminate this
fee reduction at any time upon 90 days' notice to the Board of Trustees of the
Janus Aspen Series. Other waivers, if applicable, are first applied against the
"Advisory Fee" and then against "Other Expense." Absent such waivers or
reductions, "Advisory Fees" and "Total Fund Annual Expenses" for the fiscal year
ended December 31, 1997 would have been: 0.77%, 0.06% and 0.83%, respectively,
for the Janus Aspen Series Balanced Portfolio and 0.72%, 0.09% and 0.81%,
respectively, for the Janus Aspen Series Worldwide Growth Portfolio.
Morgan Stanley Asset Management Inc. has agreed to a reduction in its
management fees and to reimburse the Morgan Stanley Emerging Markets Equity
Portfolio if such fees would cause the "Total Fund Annual Expenses" to exceed
1.75% of average daily net assets. This fee reduction agreement may be
terminated by Morgan Stanley Asset Management Inc. at any time without notice.
Absent such reductions, it is estimated that the management fees, "Other
Expenses" and "Total Fund Annual Expenses" for the current fiscal year would be
1.25%, 2.62% and 4.12%, respectively.
Taking into account the assumed charges for mortality and expense risks in
the Separate Account and the average fees and expenses of the Funds, the gross
rates of return of 0%, 6% and 12% would correspond to actual net investment
returns of -1.43%, 4.57% and 10.57%, respectively, based on the current charge
for mortality and expense risks, applicable to Policy Years one through ten;
- -1.03%, 4.97% and 10.97%, respectively, based on the current charge for
mortality and expense risks, applicable to Policy Years eleven and later; and
- -1.63%, 4.37% and 10.37%, respectively, based on the guaranteed maximum charge
for mortality and expense risks, applicable to all Policy Years.
The second column of the tables show the amount which would accumulate if
an amount equal to the first Premium were invested and earned interest, after
taxes, at 5% per year, compounded annually.
NYLIAC will furnish upon request a comparable illustration using the age,
sex and underwriting classification of an Insured for any initial Death Benefit
and Premium requested. In addition to an illustration assuming Policy charges at
their maximum, we will furnish an illustration assuming current Policy charges
and current cost of insurance rates.
A-2
<PAGE> 48
CORPORATE SPONSORED VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE ISSUE AGE: 45, NON-SMOKER, MEDICALLY UNDERWRITTEN CLASS
SCHEDULED ANNUAL PREMIUM: $7,500
INITIAL FACE AMOUNT: $350,000
SECTION 7702 GUIDELINE PREMIUM CORRIDOR TEST
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
END OF YEAR
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2) CASH SURRENDER VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
PLUS INTEREST AT 5% ----------------------------- ----------------------------- -----------------------------
POLICY YEAR AS OF END OF YEAR(1) 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- -------------------- ------- ------- --------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,875 350,000 350,000 350,000 6,335 6,739 7,144 5,309 5,714 6,119
2 16,144 350,000 350,000 350,000 12,494 13,700 14,955 11,468 12,674 13,929
3 24,826 350,000 350,000 350,000 18,514 20,928 23,542 17,489 19,902 22,517
4 33,942 350,000 350,000 350,000 24,384 28,424 32,977 23,358 27,399 31,952
5 43,514 350,000 350,000 350,000 30,108 36,205 43,357 29,082 35,179 42,331
6 53,565 350,000 350,000 350,000 35,679 44,276 54,778 34,860 43,457 53,959
7 64,118 350,000 350,000 350,000 41,085 52,639 67,342 40,469 52,023 66,726
8 75,199 350,000 350,000 350,000 46,208 61,193 81,065 45,798 60,783 80,656
9 86,834 350,000 350,000 350,000 51,267 70,163 96,291 51,061 69,956 96,084
10 99,051 350,000 350,000 350,000 56,260 79,567 113,181 56,260 79,567 113,181
15 169,931 350,000 350,000 350,000 79,802 134,553 232,519 79,802 134,553 232,519
20 260,394 350,000 350,000 526,186 98,098 202,785 434,470 98,098 202,785 434,470
30 523,206 350,000 436,309 1,424,237 115,587 407,766 1,331,062 115,587 407,766 1,331,062
</TABLE>
- ------------
(1) All Premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no Policy loan or Partial Withdrawal has been made.
THE ILLUSTRATION IS HYPOTHETICAL AND MAY NOT BE USED TO PROJECT OR PREDICT
INVESTMENT RESULTS. THE INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY
AND ARE BASED ON A HYPOTHETICAL LEVEL ANNUAL RATE OF RETURN. EVEN IF YOUR
AVERAGE RATE OF RETURN IS THE SAME AS THE HYPOTHETICAL RATE, YOUR ACTUAL RESULTS
WILL DIFFER DUE TO ANNUAL FLUCTUATIONS ABOVE OR BELOW THE HYPOTHETICAL AVERAGE
RATE OF RETURN.
A-3
<PAGE> 49
CORPORATE SPONSORED VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE ISSUE AGE: 45, NON-SMOKER, MEDICALLY UNDERWRITTEN CLASS
SCHEDULED ANNUAL PREMIUM: $7,500
INITIAL FACE AMOUNT: $350,000
SECTION 7702 GUIDELINE PREMIUM CORRIDOR TEST
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
END OF YEAR
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2) CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
PLUS INTEREST AT 5% ------------------------------ ----------------------------- -----------------------------
POLICY YEAR AS OF END OF YEAR(1) 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- -------------------- -------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,875 350,000 350,000 350,000 5,147 5,508 5,871 4,121 4,483 4,846
2 16,144 350,000 350,000 350,000 10,109 11,156 12,250 9,083 10,131 11,224
3 24,826 350,000 350,000 350,000 14,893 16,955 19,196 13,867 15,930 18,170
4 33,942 350,000 350,000 350,000 19,465 22,876 26,735 18,439 21,850 25,709
5 43,514 350,000 350,000 350,000 23,831 28,930 34,940 22,805 27,905 33,915
6 53,565 350,000 350,000 350,000 27,998 35,132 43,893 27,179 34,313 43,074
7 64,118 350,000 350,000 350,000 31,935 41,455 53,648 31,319 40,839 53,032
8 75,199 350,000 350,000 350,000 35,611 47,877 64,269 35,202 47,468 63,860
9 86,834 350,000 350,000 350,000 39,034 54,413 75,871 38,828 54,207 75,665
10 99,051 350,000 350,000 350,000 42,174 61,043 88,548 42,174 61,043 88,548
15 169,931 350,000 350,000 350,000 53,096 95,464 173,225 53,096 95,464 173,225
20 260,394 350,000 350,000 384,562 53,725 131,536 315,215 53,725 131,536 315,215
30 523,206 0 350,000 980,236 0 201,961 916,108 0 201,961 916,108
</TABLE>
- ------------
(1) All Premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no Policy loan or Partial Withdrawal has been made.
THE ILLUSTRATION IS HYPOTHETICAL AND MAY NOT BE USED TO PROJECT OR PREDICT
INVESTMENT RESULTS. THE INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY
AND ARE BASED ON A HYPOTHETICAL LEVEL ANNUAL RATE OF RETURN. EVEN IF YOUR
AVERAGE RATE OF RETURN IS THE SAME AS THE HYPOTHETICAL RATE, YOUR ACTUAL RESULTS
WILL DIFFER DUE TO ANNUAL FLUCTUATIONS ABOVE OR BELOW THE HYPOTHETICAL AVERAGE
RATE OF RETURN.
A-4
<PAGE> 50
APPENDIX B
SURRENDER CHARGE PREMIUM RATES PER THOUSANDS
The surrender charge premium for the Policy at the time of issue is equal
to (a X b)/1000 where (a) is the surrender charge premium rates per thousand
applicable to the age of the Insured on the Policy Date, as set forth in the
table below, and (b) is the initial Face Amount.
<TABLE>
<CAPTION>
SURRENDER CHARGE
PREMIUM RATE
AGE PER THOUSAND
--- ----------------
<S> <C>
18 2.60
19 2.80
20 3.00
21 3.20
22 3.40
23 3.60
24 3.80
25 4.00
26 4.20
27 4.40
28 4.60
29 4.80
30 5.00
31 5.20
32 5.40
33 5.60
34 5.80
35 6.00
36 6.30
37 6.60
38 6.90
39 7.20
40 7.50
41 7.80
42 8.10
43 8.40
44 8.70
45 9.00
46 9.60
47 10.20
48 10.80
49 11.40
50 12.00
51 12.60
</TABLE>
<TABLE>
<CAPTION>
SURRENDER CHARGE
PREMIUM RATE
AGE PER THOUSAND
--- ----------------
<S> <C>
52 13.20
53 13.80
54 14.40
55 15.00
56 16.40
57 17.80
58 19.20
59 20.60
60 22.00
61 23.60
62 25.20
63 26.80
64 28.40
65 30.00
66 31.80
67 33.60
68 35.40
69 37.20
70 39.00
71 41.40
72 43.80
73 46.20
74 48.60
75 51.00
76 54.00
77 57.00
78 60.00
79 63.00
80 66.00
81 69.60
82 73.20
83 76.80
84 80.40
85 84.00
</TABLE>
B-1
<PAGE> 51
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 52
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
New York Life Insurance and Annuity Corporation
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of New York Life Insurance and
Annuity Corporation at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
F-1
<PAGE> 53
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value...................... $12,170 $11,854
Held to maturity, at amortized cost.................... 801 647
Equity securities........................................... 83 70
Mortgage loans.............................................. 1,305 1,113
Real estate................................................. 151 151
Policy loans................................................ 481 464
Other long-term investments................................. 20 17
------- -------
Total investments................................. 15,011 14,316
Cash and cash equivalents................................... 773 236
Deferred policy acquisition costs........................... 688 691
Other assets................................................ 345 252
Separate account assets..................................... 4,315 2,445
------- -------
Total assets...................................... $21,132 $17,940
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances............................. $13,716 $13,163
Future policy benefits...................................... 276 251
Policy claims............................................... 55 57
Deferred taxes.............................................. 93 47
Other liabilities........................................... 727 333
Separate account liabilities................................ 4,303 2,403
------- -------
Total liabilities................................. 19,170 16,254
STOCKHOLDER'S EQUITY
Capital stock -- par value $10,000
(20,000 shares authorized,
2,500 issued and outstanding)............................. 25 25
Additional paid in capital.................................. 480 480
Net unrealized gains on investments......................... 157 68
Retained earnings........................................... 1,300 1,113
------- -------
Total stockholder's equity........................ 1,962 1,686
------- -------
Total liabilities and stockholder's equity........ $21,132 $17,940
======= =======
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 54
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees........................ $ 267 $ 234 $ 224
Net investment income.................................. 1,066 1,048 1,012
Investment gains, net.................................. 126 65 38
Other income........................................... 82 58 71
------ ------ ------
Total revenues.................................... 1,541 1,405 1,345
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances... 748 723 742
Policyholder benefits.................................. 141 117 168
Operating expenses..................................... 352 299 239
------ ------ ------
Total expenses.................................... 1,241 1,139 1,149
------ ------ ------
Income before Federal income taxes.......................... 300 266 196
Federal income taxes:
Current................................................ 114 121 84
Deferred............................................... (1) (24) (8)
------ ------ ------
Total Federal income taxes........................ 113 97 76
------ ------ ------
Net income.................................................. $ 187 $ 169 $ 120
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 55
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Stockholder's equity, beginning of year..................... $1,686 $1,676 $1,141
Net income.................................................. 187 169 120
Change in unrealized gains and losses on investments........ 89 (159) 415
------ ------ ------
Stockholder's equity, end of year........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 56
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 187 $ 169 $ 120
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... (43) (18) (26)
Net capitalization of deferred policy acquisition
costs................................................ (85) (44) (40)
Universal life and annuity fees........................ (202) (188) (183)
Interest credited to policyholders' account balances... 748 723 742
Net realized investment gains.......................... (126) (65) (38)
Deferred income taxes.................................. (1) (24) (8)
Decrease in net separate account assets................ 30 6 17
Decrease (increase) in other assets and other
liabilities.......................................... 126 (127) 308
(Decrease) increase in policy claims................... (2) (24) 8
Increase (decrease) in future policy benefits.......... 25 18 (80)
-------- ------- -------
Net cash provided by operating activities......... 657 426 820
-------- ------- -------
Cash Flows from Investing Activities:
Proceeds from sale of available for sale fixed
maturities............................................. 13,378 5,787 2,370
Proceeds from maturity of available for sale fixed
maturities............................................. 1,137 1,505 930
Proceeds from sale of held to maturity fixed securities... 3 -- --
Proceeds from maturity of held to maturity fixed
maturities............................................. 112 141 103
Proceeds from sale of equity securities................... 140 47 40
Proceeds from repayment of mortgage loans................. 220 143 244
Proceeds from sale of real estate......................... 24 55 13
Proceeds from other invested assets....................... 16 4 31
Cost of available for sale fixed maturities acquired...... (14,391) (7,447) (4,320)
Cost of held to maturity fixed maturities acquired........ (281) (95) (162)
Cost of equity securities acquired........................ (163) (43) (12)
Cost of mortgage loans acquired........................... (413) (280) (320)
Cost of real estate acquired.............................. (4) (35) (14)
Cost of other invested assets acquired.................... (25) (8) (5)
Policy loans.............................................. (17) (29) (25)
Securities sold under agreements to repurchase (net)...... 134 (37) (168)
-------- ------- -------
Net cash used in investing activities............. (130) (292) (1,295)
-------- ------- -------
Cash Flows from Financing Activities:
Policyholders' account balances:
Deposits............................................... 1,228 1,069 1,252
Withdrawals............................................ (176) (562) (751)
Net transfers to the separate accounts.................... (1,040) (733) (238)
Other, net................................................ -- -- (52)
-------- ------- -------
Net cash provided (used) by financing
activities...................................... 12 (226) 211
-------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2) 2 (1)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 537 (90) (265)
-------- ------- -------
Cash and cash equivalents, beginning of year................ 236 326 591
-------- ------- -------
Cash and cash equivalents, end of year...................... $ 773 $ 236 $ 326
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 57
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 -- NATURE OF OPERATIONS
New York Life Insurance and Annuity Corporation ("NYLIAC"), is a direct,
wholly owned subsidiary of New York Life Insurance Company ("New York Life")
domiciled in the State of Delaware. NYLIAC offers a wide variety of interest
sensitive insurance and annuity products to a large cross section of the
insurance market. NYLIAC markets its products in all 50 of the United States,
the District of Columbia and Taiwan, primarily through its agency force. In
addition, NYLIAC markets Corporate Owned Life Insurance through independent
brokers and brokerage general agents.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements of life insurance enterprises requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. Actual results may differ from estimates.
INVESTMENTS
Fixed maturity investments, which NYLIAC has both the ability and the
intent to hold to maturity, are stated at amortized cost. Investments identified
as available for sale are reported at fair value. Unrealized gains and losses on
available for sale securities are reported in stockholder's equity, net of
deferred taxes and related adjustments. The cost basis of fixed maturities is
adjusted for impairments in value deemed to be other than temporary, with the
associated realized loss reported in net income. Equity securities are carried
at fair value with related unrealized gains and losses reflected in
stockholder's equity, net of deferred taxes and related adjustments. Realized
losses are recognized in net income for other than temporary declines in the
fair value of equity securities. Mortgage loans are carried at unpaid principal
balances, net of impairment reserves, and are generally secured. Investment real
estate, which NYLIAC has the intent to hold for the production of income, is
carried at depreciated cost net of write-downs for other than temporary declines
in fair value. Properties held for sale are carried at the lower of cost or fair
value less estimated selling costs. Policy loans are stated at the aggregate
balance due, which approximates fair value since loans on policies have no
defined maturity date and reduce amounts payable at death or surrender. Cash
equivalents include investments that have maturities of 90 days or less at date
of purchase and are carried at amortized cost, which approximates fair value.
Short-term investments include investments that have maturities of between
91-365 days at date of purchase. They are included in fixed maturities on the
balance sheet, and are carried at amortized cost, which approximates fair value.
F-6
<PAGE> 58
INVESTMENTS -- (CONTINUED)
Derivative financial instruments used by NYLIAC to hedge exposure to
interest rate and foreign currency fluctuations are accounted for on an accrual
basis. Realized gains and losses related to contracts that are effective hedges
on specific assets are deferred and recognized in net income in the same period
as gains and losses on the hedged assets. Amounts payable or receivable under
interest rate, currency and commodity swap agreements and interest rate floor
agreements are recognized as investment income or expense when earned. Premiums
paid for interest rate floor agreements are amortized into interest expense over
the life of the agreement. Unamortized premiums are included in other assets in
the balance sheet.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business and certain costs of issuing policies
that vary with and are primarily related to the production of new business have
been deferred and recorded as an asset in the balance sheet. These consist
primarily of commissions, certain expenses of underwriting and issuing
contracts, and certain agency expenses. Acquisition costs for universal life and
annuity contracts are amortized in proportion to estimated gross profits over
the effective life of the contracts, which is assumed to be 25 years for
universal life contracts and 15 years for annuities. Changes in assumptions are
reflected in the current year's amortization.
The carrying amount of the deferred policy acquisition cost asset is
adjusted at each balance sheet date as if the unrealized gains or losses on
investments associated with these insurance contracts had been realized and
included in the gross profits used to determine current period amortization. The
increase or decrease in the deferred policy acquisition cost asset due to
unrealized gains or losses is recorded in stockholder's equity.
RECOGNITION OF INCOME AND RELATED EXPENSES
Amounts received under universal life and annuity contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period for mortality and expense risk,
policy administration and surrender charges. Policy benefits and claims that are
charged to expense include benefit claims incurred in the period in excess of
related policyholders' account balances.
POLICYHOLDERS' ACCOUNT BALANCES
Policyholders' account balances on universal life and annuity contracts are
equal to cumulative deposits plus credited interest less withdrawals and
charges.
FEDERAL INCOME TAXES
NYLIAC is a member of a group which files a consolidated Federal income tax
return with New York Life. The consolidated income tax provision or benefit is
allocated among the members of the group in accordance with a tax allocation
agreement. The tax allocation agreement provides that each member of the group
is allocated its share of the consolidated tax provision or benefit determined
on a separate company basis. Current Federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or recoverable
as a result of taxable operations for the current year and any adjustments to
such estimates from prior years. Deferred income tax assets and liabilities are
recognized for the future tax consequence of temporary differences between
financial statement carrying amounts and income tax bases of assets and
liabilities.
Current Federal income taxes include a provision for NYLIAC's share of the
equity base tax applicable to mutual life insurance companies and their
subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate (the actual rate will be announced at a later date by
the Internal Revenue Service ("IRS")) used to compute the equity base tax.
F-7
<PAGE> 59
REINSURANCE
NYLIAC enters into reinsurance agreements in the normal course of its
insurance business to reduce overall risk. NYLIAC remains liable for reinsurance
ceded if the reinsurer fails to meet its obligation on the business it has
assumed. NYLIAC evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
SEPARATE ACCOUNTS
NYLIAC has established separate accounts with varying investment objectives
which are segregated from NYLIAC's general account and are maintained for the
benefit of separate account policyholders and NYLIAC. Separate account assets
are stated at market value. The liability for separate accounts represents
policyholders' interests in the separate account assets. For its registered
separate accounts, these liabilities include accumulated net investment income
and realized and unrealized gains and losses on those assets, and generally
reflect market value. For its guaranteed, non-registered separate accounts, the
liability represents amounts due policyholders pursuant to the terms of the
binder agreements.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of various assets and liabilities are included throughout the
notes to financial statements. Specifically, fair value disclosure of fixed
maturities, short-term investments, cash equivalents, equity securities and
mortgage loans is reported in Note 2 -- Significant Accounting Policies and Note
3 -- Investments. Fair values for policyholders' account balances are reported
in Note 5 -- Insurance Liabilities. Fair values for derivative financial
instruments are included in Note 10 -- Derivative Financial Instruments and Risk
Management. Fair values for repurchase agreements are included in Note
11 -- Commitments and Contingencies.
BUSINESS RISKS AND UNCERTAINTIES
The development of policy reserves and deferred policy acquisition costs
for NYLIAC's products requires management to make estimates and assumptions
regarding mortality, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and future expectations
of mortality, morbidity, expense, persistency and investment assumptions. Actual
results could differ from those estimates. Management monitors actual
experience, and where circumstances warrant, revises its assumptions and the
related estimates for policy reserves and deferred policy acquisition costs.
NYLIAC regularly invests in mortgage loans, mortgage-backed securities and
other securities subject to prepayment and call risk. Significant changes in
prevailing interest rates and/or geographic conditions may adversely affect the
timing and amount of cash flows on such securities, as well as their related
values. In addition, the amortization of market premium and accretion of market
discount for mortgage-backed securities is based on historical experience and
estimates of future payment experience on the underlying mortgage loans. Actual
prepayment speeds will differ from original estimates and may result in material
adjustments to amortization or accretion recorded in future periods.
As a subsidiary of a mutual life insurance company, NYLIAC is subject to a
tax on its equity base. The rates applied to NYLIAC's equity base are determined
annually by the IRS after comparison of mutual life insurance company earnings
for the year to the average earnings of the 50 largest stock life insurance
companies for the prior three years. Due to the timing of earnings information,
estimates of the current year's tax rate must be made by management. The
ultimate amounts of equity base tax incurred may vary considerably from the
original estimates.
F-8
<PAGE> 60
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997 the FASB issued SFAS 130, "Reporting Comprehensive Income"
which establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income is composed of two items -- "net
income" and "other comprehensive income". Other comprehensive income includes
all changes in equity from nonowner sources (e.g., unrealized holding gains and
losses on available for sale securities).
This Statement requires that the Company classify items of other
comprehensive income according to their nature and present each item separately
in the financial statement in which other comprehensive income is reported. This
Statement also requires that the accumulated balance of other comprehensive
income be reported as a separate item in the equity section of the balance
sheet. This Statement is effective for the 1998 financial statements of the
Company. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Adoption of this Statement will have no
effect on reported net income or stockholder's equity.
NOTE 3 -- INVESTMENTS
FIXED MATURITIES
For publicly traded fixed maturities, estimated fair value is determined
using quoted market prices. For fixed maturities without a readily ascertainable
market value, NYLIAC has determined an estimated fair value using either a
discounted cash flow approach (including provisions for credit risk) or a
proprietary matrix pricing model.
At December 31, 1997 and 1996, the maturity distribution of fixed
maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE COST FAIR VALUE
------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 480 $ 482 $ 489 $ 491
Due after one year through five years.... 3,053 3,099 3,019 3,039
Due after five years through ten years... 2,156 2,230 2,122 2,151
Due after ten years...................... 2,425 2,608 2,030 2,091
Asset-backed securities:
Government or government agency..... 2,271 2,324 2,866 2,916
Other............................... 1,411 1,427 1,168 1,166
------- ------- ------- -------
Total Available for Sale............ $11,796 $12,170 $11,694 $11,854
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE COST FAIR VALUE
---------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 30 $ 30 $ 24 $ 24
Due after one year through five years.... 225 239 192 194
Due after five years through ten years... 226 240 235 241
Due after ten years...................... 224 238 100 105
Asset-backed securities.................. 96 97 96 96
------- ------- ------- -------
Total Held to Maturity.............. $ 801 $ 844 $ 647 $ 660
======= ======= ======= =======
</TABLE>
F-9
<PAGE> 61
FIXED MATURITIES -- (CONTINUED)
At December 31, 1997 and 1996, the distribution of gross unrealized gains
and losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,066 $ 36 $ 1 $ 1,101
U.S. agencies, state and municipal........ 1,946 42 2 1,986
Foreign governments....................... 237 19 -- 256
Corporate................................. 7,136 276 12 7,400
Other..................................... 1,411 20 4 1,427
------- ---- --- -------
Total Available for Sale............. $11,796 $393 $19 $12,170
======= ==== === =======
HELD TO MATURITY
----------------
Corporate................................. $ 705 $ 42 $-- $ 747
Other..................................... 96 1 -- 97
------- ---- --- -------
Total Held to Maturity............... $ 801 $ 43 $-- $ 844
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,243 $ 24 $ 7 $ 1,260
U.S. agencies, state and municipal........ 2,561 64 15 2,610
Foreign governments....................... 191 13 1 203
Corporate................................. 6,531 131 47 6,615
Other..................................... 1,168 19 21 1,166
------- ---- --- -------
Total Available for Sale............. $11,694 $251 $91 $11,854
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
HELD TO MATURITY COST GAINS LOSSES FAIR VALUE
---------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate................................. $ 551 $ 15 $ 2 $ 564
Other..................................... 96 -- -- 96
------- ---- --- -------
Total Held to Maturity............... $ 647 $ 15 $ 2 $ 660
======= ==== === =======
</TABLE>
F-10
<PAGE> 62
EQUITY SECURITIES
Estimated fair value for equity securities has been determined using quoted
market prices. At December 31, 1997 and 1996, the distribution of gross
unrealized gains and losses on equity securities is as follows (in millions):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997...................... $66 $25 $8 $83
1996...................... $63 $ 8 $1 $70
</TABLE>
MORTGAGE LOANS
NYLIAC's mortgage loans are diversified by property type, location and
borrower, and are generally collateralized by the related property. The carrying
value of mortgage loans was $1,305 million and $1,113 million at December 31,
1997 and 1996, respectively.
The fair market value of the mortgage loan portfolio at December 31, 1997
and 1996 is estimated to be $1,408 million and $1,194 million, respectively.
Market values are determined by discounting the projected cash flow for each
individual loan to determine the current net present value. The discount rate
used approximates the current rate for new mortgages with comparable
characteristics and similar remaining maturities.
At December 31, 1997, contractual commitments to extend credit under
commercial and residential mortgage loan agreements amounted to approximately
$108 million, all at a fixed market rate of interest. These commitments are
diversified by property type and geographic region.
The provision for losses on mortgage loans was $14 million and $20 million
at December 31, 1997 and 1996, respectively. The activity in the specific and
general provision as of December 31, 1997 and 1996 is summarized below (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Beginning balance.................................. $20 $20
Reductions credited to operations.................. (1) (1)
Direct writedowns.................................. -- 9
Recoveries of amounts previously charged off....... (5) (8)
--- ---
Ending balance..................................... $14 $20
=== ===
</TABLE>
Impaired mortgage loans along with specific provisions for losses as of
December 31, 1997 and 1996, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Impaired mortgage loans with provisions for
losses.......................................... $19 $ 39
Provision for losses.............................. (8) (14)
--- ----
Net impaired mortgage loans....................... $11 $ 25
=== ====
</TABLE>
F-11
<PAGE> 63
MORTGAGE LOANS -- (CONTINUED)
NYLIAC accrues interest income on impaired loans to the extent it is deemed
collectible and the loan continues to perform under its original or restructured
contractual terms. Interest income on problem loans is generally recognized on a
cash basis. Cash payments on loans in the process of foreclosure are generally
treated as a return of principal.
At December 31, 1997 and 1996, the distribution of the mortgage loan
portfolio by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Property Type:
Office building.......................... $ 601 $ 643
Retail................................... 255 235
Apartments............................... 187 179
Residential.............................. 172 18
Other.................................... 90 38
------ ------
Total............................... $1,305 $1,113
====== ======
Geographic Region:
Central.................................. $ 250 $ 246
Pacific.................................. 145 133
Middle Atlantic.......................... 426 377
South Atlantic........................... 362 307
New England.............................. 73 33
Other.................................... 49 17
------ ------
Total............................... $1,305 $1,113
====== ======
</TABLE>
REAL ESTATE
At December 31, 1997 and 1996, NYLIAC's real estate portfolio consisted of
the following (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Investment....................................... $103 $105
Acquired through foreclosure..................... 19 39
Real estate joint ventures and limited partnerships 29 7
---- ----
Total real estate...................... $151 $151
==== ====
</TABLE>
Accumulated depreciation on real estate was $8 million and $5 million at
December 31, 1997 and 1996, respectively. Depreciation expense totaled $3
million for each of the years ended December 31, 1997, 1996 and 1995.
F-12
<PAGE> 64
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
The components of net investment income for the years ended December 31,
1997, 1996 and 1995, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Fixed maturities..................... $ 961 $ 920 $ 904
Equity securities.................... 6 3 3
Mortgage loans....................... 96 93 82
Real estate.......................... 18 21 19
Policy loans......................... 39 37 35
Other................................ 1 6 4
------ ------ ------
Gross investment income......... 1,121 1,080 1,047
Investment expenses.................. (55) (32) (35)
------ ------ ------
Net investment income...... $1,066 $1,048 $1,012
====== ====== ======
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, realized investment
gains computed under the specific identification method are as follows (in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities....................... $172 $ (83) $100 $ (64) $ 62 $ (32)
Equity securities...................... 9 (4) 22 (1) 16 (7)
Mortgage loans......................... 12 (8) 15 (19) 15 (19)
Real estate............................ 3 (2) 6 (3) 1 (1)
Derivative instruments................. 80 (71) 46 (41) 102 (102)
Other.................................. 19 (1) 7 (3) 9 (6)
---- ----- ---- ----- ---- -----
Subtotal.......................... $295 $(169) $196 $(131) $205 $(167)
---- ----- ---- ----- ---- -----
Investment gains, net.................. $126 $65 $38
===== ==== ====
</TABLE>
During 1997, one fixed maturity investment that had been classified as held
to maturity was sold due to credit deterioration. The investment had an
amortized cost of $2,791,000, and the sale resulted in a realized gain of
$14,000.
F-13
<PAGE> 65
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES -- (CONTINUED)
Stockholder's equity at December 31, 1997 and 1996 includes net unrealized
gains as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Net unrealized gains on investments before adjustments...... $ 382 $ 163
----- -----
Related adjustments:
Deferred policy acquisition costs...................... (148) (60)
Policyholder liabilities............................... 7 2
Deferred Federal income taxes.......................... (84) (37)
----- -----
(225) (95)
----- -----
Net unrealized gains on investments included in
stockholder's equity...................................... $ 157 $ 68
===== =====
</TABLE>
Changes in net unrealized gains and losses on investments were as follows
(in millions):
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Unrealized gains (losses) on investments:
Beginning of year...................................... $163 $ 535
End of year............................................ 382 163
---- -----
Net change............................................. 219 (372)
Change in related adjustments of balance sheet accounts:
Deferred policy acquisition costs...................... (88) 136
Policyholder liabilities............................... 5 (7)
Deferred Federal income taxes.......................... (47) 84
---- -----
Change in unrealized gains on investments................... 89 (159)
Net unrealized gains on investments at beginning of year.... 68 227
---- -----
Net unrealized gains on investments at end of year.......... $157 $ 68
==== =====
</TABLE>
NOTE 5 -- INSURANCE LIABILITIES
POLICYHOLDERS' ACCOUNT BALANCES
NYLIAC's annuity contracts are primarily deferred annuities. The carrying
value, which approximates fair value, of NYLIAC's liabilities for deferred
annuities at December 31, 1997 and 1996, was $7,150 million and $7,345 million,
respectively.
NOTE 6 -- SEPARATE ACCOUNTS
NYLIAC maintains nine non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products. NYLIAC maintains
investments in the registered separate accounts of $12 million and $42 million
at December 31, 1997 and 1996, respectively. The assets of the separate
accounts, which are carried at market value, represent investments in shares of
the New York Life sponsored MainStay VP Series Fund and other nonproprietary
funds.
In addition, in 1997 two guaranteed, non-registered separate accounts were
established for universal life insurance policies. These accounts provide a
minimum guaranteed interest rate with a market value adjustment imposed upon
certain surrenders. The assets of these separate accounts are carried at market
value.
F-14
<PAGE> 66
NOTE 7 -- DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs (DAC) for the years ended
December 31, 1997, 1996 and 1995 is as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of year before adjustment for
unrealized gains on investments........................... $751 $ 707 $ 667
Current year additions...................................... 200 151 126
Amortized during year....................................... (115) (107) (86)
Balance at end of year before adjustment for unrealized
gains on investments...................................... 836 751 707
Adjustment for unrealized gains on investments.............. (148) (60) (196)
---- ----- -----
Balance at end of year...................................... $688 $ 691 $ 511
==== ===== =====
</TABLE>
NOTE 8 -- FEDERAL INCOME TAXES
The components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Future policyholder benefits........... $153 $131
Employee and agents benefits........... 49 44
Other.................................. 6 16
---- ----
Gross deferred tax assets......... 208 191
==== ====
Deferred tax liabilities:
Deferred policy acquisition costs...... 147 161
Investments............................ 149 68
Other.................................. 5 9
---- ----
Gross deferred tax liabilities.... 301 238
---- ----
Net deferred tax liability........ $ 93 $ 47
==== ====
</TABLE>
The gross deferred tax asset relates to temporary differences that are
expected to reverse as net ordinary deductions. Management believes that
NYLIAC's taxable income in future years will be sufficient to realize the
deferred tax benefits and therefore, no valuation allowance has been recorded.
F-15
<PAGE> 67
NOTE 8 -- FEDERAL INCOME TAXES -- (CONTINUED)
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............. 35.0% 35.0% 35.0%
Equity base tax............................... 3.3 3.2 --
Tax-exempt income............................. (.5) (.7) (1.3)
Other......................................... (.1) (.9) 5.2
---- ---- ----
Effective tax rate............................ 37.7% 36.6% 38.9%
==== ==== ====
</TABLE>
NYLIAC's Federal income tax returns are routinely examined by the IRS and
provisions are made in the financial statements in anticipation of the results
of these audits. The IRS has completed audits through 1993. There were no
material effects on NYLIAC's results of operations as a result of these audits.
NYLIAC believes that its recorded income tax liabilities are adequate for all
open years.
NOTE 9 -- REINSURANCE
A group reinsurance agreement between NYLIAC and New York Life was approved
by the New York State Insurance Department in 1981 and was terminated effective
December 31, 1995. Under the terms of the agreement, NYLIAC assumed the
liabilities for group health long-term disability policies issued by New York
Life. Cash settlements were made between the companies through 1996 as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Premiums due..................................... $-- $(32)
Benefit reimbursement............................ 22 20
Experience refund................................ 4 8
--- ----
Net settlement paid (received) by NYLIAC......... $26 $ (4)
=== ====
</TABLE>
As a result of the termination of the group reinsurance agreement between
NYLIAC and New York Life, NYLIAC transferred $119 million in 1996 as payment for
the reserves held to support the claims of the disabled lives covered under the
group reinsurance contract. At December 31, 1995, NYLIAC had established a
liability of $119 million for this payment.
On April 1, 1997 NYLIAC, under the terms of an assumption reinsurance
agreement, acquired certain bank owned life insurance policies that had been
issued by Confederation Life Insurance Company. In conjunction with this
transaction, NYLIAC recorded a liability for policyholder account balances of
$278 million, and received cash of $245 million and a note receivable of $11
million. The difference of $22 million between the liability recorded and the
assets received has been recorded as DAC, which will be amortized over the
remaining life of the policies, assumed to be 25 years.
F-16
<PAGE> 68
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
NYLIAC uses derivative financial instruments to manage interest rate,
currency and market risk. These derivative financial instruments include foreign
currency forward exchange contracts, interest rate floors, and interest rate and
commodity swaps. NYLIAC has not engaged in derivative financial instrument
transactions for speculative purposes.
Notional or contractual amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts exchanged between the parties engaged in the transaction.
The amounts exchanged are determined by reference to the notional amounts and
other terms of the derivative financial instruments which relate to interest
rates, exchange rates, or other financial indices.
NYLIAC is exposed to credit-related losses in the event that a counterparty
fails to perform its obligations under contractual terms. The credit exposure of
derivative financial instruments is represented by the sum of fair values of
contracts with each counterparty, if the net value is positive, at the reporting
date.
NYLIAC deals with highly rated counterparties and does not expect the
counterparties to fail to meet their obligations. NYLIAC has controls in place
to monitor credit exposures by limiting transactions with specific
counterparties within specified dollar limits and assessing the future
creditworthiness of counterparties. NYLIAC uses master netting agreements and
adjusts transaction levels, when appropriate, to minimize risk.
INTEREST RATE RISK MANAGEMENT
NYLIAC enters into various types of interest rate contracts primarily to
minimize exposure of specific assets held by NYLIAC to fluctuations in interest
rates.
The following table summarizes the notional amounts and credit exposures of
interest rate related derivative transactions (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps........................ $125,000 $2,973 $ 57,000 $992
Interest Rate Floors....................... $150,000 $ 251 $150,000 $120
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed upon notional amount. Swap
contracts outstanding at December 31, 1997 are between seven years, eight months
and twenty years in maturity. At December 31, 1996 such contracts were between
eight years, eight months and fourteen years, four months in maturity. NYLIAC
does not act as an intermediary or broker in interest rate swaps.
F-17
<PAGE> 69
INTEREST RATE RISK MANAGEMENT -- (CONTINUED)
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Receive -- fixed swaps -- Notional amount (in thousands).... $125,000 $57,000
Average receive rate................................... 6.64% 7.19%
Average pay rate....................................... 5.70% 5.92%
</TABLE>
During the term of the swap, net settlement amounts are recorded as
investment income or expense when earned. Fair values of interest rate swaps
were $2,973,000 and $569,000 at December 31, 1997 and 1996, respectively, based
on quoted market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest rates
on a portfolio of assets. Amounts received during the term of interest rate
floor agreements are recorded as investment income.
At December 31, 1997 and 1996, unamortized premiums on interest rate floors
amounted to $447,000 and $522,000, respectively. Fair values of such agreements
were $251,000 and $120,000 at December 31, 1997 and 1996, respectively, based on
quoted market prices.
COMMODITY RISK MANAGEMENT
NYLIAC has certain bond investments with interest payments linked to prices
of commodities such as gold and crude oil. NYLIAC has entered into commodity
swaps with a total notional amount of $18,000,000 as a hedge against commodity
risks. The credit exposure of these swaps is $3,021,000 at December 31, 1997.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
In 1995, NYLIAC and New York Life settled a nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyowners in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyowners in that state
who excluded themselves from the settlement of the nationwide class action was
recently reversed by an intermediate appellate court; plaintiffs have filed a
motion for rehearing in the intermediate appellate court. Most of these actions
seek substantial or unspecified compensatory and punitive damages.
F-18
<PAGE> 70
LITIGATION -- (CONTINUED)
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
LOANED SECURITIES AND REPURCHASE AGREEMENTS
NYLIAC participates in a securities lending program for the purpose of
enhancing income on securities held. At December 31, 1997, $659 million ($826
million at December 31, 1996) of NYLIAC's bonds were on loan to others, but were
fully collateralized in an account held in trust for NYLIAC.
NYLIAC enters into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The
liability reported in the balance sheet (included in other liabilities) at
December 31, 1997 of $184 million ($50 million at December 31, 1996)
approximates fair value. The investments acquired with the funds received from
the securities sold are primarily included in cash and cash equivalents in the
balance sheet.
NOTE 12 -- RELATED PARTY TRANSACTIONS
New York Life provides NYLIAC with services and facilities for the sale of
insurance and other activities related to the business of insurance. NYLIAC
reimburses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life and
NYLIAC. Such costs, amounting to $247 million for the year ended December 31,
1997 ($191 million for 1996 and $166 million for 1995) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
NOTE 13 -- SUPPLEMENTAL CASH FLOW INFORMATION
As a result of the reinsurance agreement with New York Life discussed in
Note 9, NYLIAC transferred $119 million in fixed maturities to New York Life
during 1996.
Federal income taxes paid were $126 million, $146 million, and $57 million
during 1997, 1996 and 1995, respectively.
Interest paid was $5 million, $3 million and $2 million during 1997, 1996
and 1995, respectively.
F-19
<PAGE> 71
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP
Accounting practices used to prepare statutory financial statements for
regulatory filings of life insurance companies differ in certain instances from
GAAP. The following chart reconciles NYLIAC's statutory surplus determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with stockholder's equity on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory Surplus......................................... $1,089 $ 998 $ 878
------ ------ ------
Adjustments:
Deferred policy acquisition costs.................... 688 691 511
Investment related................................... 377 151 511
Asset valuation reserve.............................. 165 164 137
Interest maintenance reserve......................... 105 35 26
Non-admitted assets.................................. 59 31 26
Policyholder liabilities............................. (330) (262) (187)
Deferred taxes....................................... (93) (47) (156)
Employee benefit liabilities......................... (66) (63) (61)
Other................................................ (32) (12) (9)
------ ------ ------
Total adjustments............................... 873 688 798
------ ------ ------
Total GAAP Stockholder's Equity........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
The following chart reconciles NYLIAC's statutory net income determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with net income on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Net Income.................................... $134 $148 $ 95
---- ---- ----
Adjustments:
Deferred policy acquisition costs.................. 63 44 40
Investment related................................. 92 1 (11)
Interest maintenance reserve....................... (14) 9 6
Policyholder liabilities........................... (84) (54) (4)
Deferred taxes..................................... (1) 24 8
Other.............................................. (3) (3) (14)
---- ---- ----
Total Adjustments............................. 53 21 25
---- ---- ----
GAAP Net Income......................................... $187 $169 $120
==== ==== ====
</TABLE>
F-20
<PAGE> 72
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP -- (CONTINUED)
Financial statements prepared on the statutory basis of accounting vary
from those prepared under GAAP, primarily as follows: (1) the costs related to
acquiring business, principally commissions and certain policy issue expenses
are charged to income in the year incurred, whereas under GAAP they would be
deferred and amortized over the periods benefitted; (2) funds received under
deposit-type contracts are reported as premium income, whereas under GAAP, such
funds are recorded as a liability; (3) life insurance reserves are based on
different assumptions than they are under GAAP; (4) life insurance companies are
required to establish an Asset Valuation Reserve ("AVR") by a direct charge to
surplus to offset potential investment losses, whereas under GAAP, the AVR is
not recognized and any reserve for losses on investments would be deducted from
the assets to which they relate and would be charged to income; (5) investments
in fixed maturities are generally carried at amortized cost or values prescribed
by the National Association of Insurance Commissioners ("NAIC"); under GAAP,
investments in fixed maturities, which are available for sale or held for
trading, are generally carried at market value, with changes in market value
charged against equity or reflected in earnings; (6) realized gains and losses
resulting from changes in interest rates on fixed income investments are
deferred in the interest maintenance reserve ("IMR") and amortized into
investment income over the remaining life of the investment sold, whereas under
GAAP, the gains and losses are recognized in income at the time of sale; and (7)
deferred federal income taxes are not provided for as they are under GAAP; (8)
certain assets are considered non-admitted and excluded from assets in the
balance sheet, whereas they are included under GAAP.
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company, and for determining its solvency
under the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with generally accepted accounting
principles in making such determinations.
At December 31, 1997 and 1996, on a statutory basis, admitted assets were
$20,059 million and $17,099 million, respectively, and total liabilities were
$18,970 million and $16,101 million, respectively, which included policy
reserves of $13,666 million and $13,099 million, respectively.
NYLIAC is restricted as to the amounts it may pay as dividends to New York
Life. The maximum amount of dividends which can be paid by a Delaware insurance
company to its stockholders may not exceed that part of its available and
accumulated surplus funds which is derived from net operating profits and
realized capital gains. Such available and accumulated funds at December 31,
1997 were $584 million.
F-21
<PAGE> 73
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 74
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Reference is made to Article VIII of the Depositor's By-Laws.
New York Life maintains Directors and Officers Liability/Company
Reimbursement ("D&O") insurance which covers directors, officers and trustees
of New York Life, its subsidiaries, and its subsidiaries and certain affiliates
including the Depositor while acting in their capacity as such. The total
annual aggregate of D&O coverage is $100 million applicable to all insureds
under the D&O policies. There is no assurance that such coverage will be
maintained by New York Life or for the Depositor in the future as, in the past,
there have been large variances in the availability of D&O insurance for
financial institutions.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Depositor pursuant to the foregoing provisions, or otherwise, the Depositor
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 Depositor of expenses incurred
or paid by a director, officer or controlling person of the Depositor in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Depositor will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
REPRESENTATION AS TO THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
New York Life Insurance and Annuity Corporation ("NYLIAC"), the
sponsoring insurance company of the NYLIAC Corporate Sponsored Variable
Universal Life Separate Account-I, hereby represents that the fees and charges
deducted under the Corporate Sponsored Variable Universal Life Insurance
Policies are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by NYLIAC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 68 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
II-1
<PAGE> 75
The representation as to the reasonableness of aggregate fees and charges.
The signatures.
Written consents of the following persons:
(a) Jonathan E. Gaines, Esq.
(b) Irwin L. Don, Associate Actuary
(c) Price Waterhouse LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of NYLIAC establishing
the Separate Account - Previously filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (1) to
Registrant's initial Registration Statement on Form S-6, and
incorporated herein by reference.
(2) Not applicable.
(3)(a) Distribution Agreement between NYLIFE Distributors Inc. and
NYLIAC - Previously filed in accordance with Regulation S-T,
17 CFR 232.102(e) as Exhibit (3)(a) to Registrant's
Pre-Effective Amendment No. 1 on Form S-6, and incorporated
herein by reference.
(3)(b) Form of Sales Agreement, by and between NYLIFE Distributors
Inc., as Underwriter, NYLIAC as Issuer, and Dealers -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (3)(b) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, and incorporated herein by
reference.
(3)(c) Not applicable.
(4) Not applicable.
(5) Form of Policy - Previously filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (5) to
Registrant's initial Registration Statement on Form S-6, and
incorporated herein by reference.
(6)(a) Restated Certificate of Incorporation of NYLIAC - Previously
filed in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (6)(a) to Registrant's initial Registration Statement
on Form S-6, and incorporated herein by reference.
(6)(b)(1) By-Laws of NYLIAC - Previously filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (6)(b) to
Registrant's initial Registration Statement on Form S-6, and
incorporated herein by reference.
(6)(b)(2) Amendments to By-Laws of NYLIAC - Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit
(6)(b) to Pre-Effective Amendment No. 1 to the registration
statement on Form S-6 for NYLIAC Variable Universal Life
Separate Account-I (File No. 333-39157), and incorporated
herein by reference.
(7) Not applicable.
II-2
<PAGE> 76
(8) Not applicable.
(9)(a) Stock Sales Agreement between NYLIAC and MainStay VP Series
Fund, Inc. (formerly New York Life M.F.A. Series Fund, Inc.)
- Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(a) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, and incorporated herein by
reference.
(9)(b)(1) Participation Agreement among Acacia Capital Corporation,
Calvert Asset Management Company, Inc. and NYLIAC, as amended
- Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(1) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, and incorporated herein by
reference.
(9)(b)(2) Participation Agreement among The Alger American Fund, Fred
Alger and Company, Incorporated and NYLIAC - Previously filed
in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(b)(2) to Registrant's Pre-Effective Amendment No.
1 on Form S-6, and incorporated herein by reference.
(9)(b)(3) Participation Agreement between Janus Aspen Series and NYLIAC
- Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(3) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, and incorporated herein by
reference.
(9)(b)(4) Participation Agreement among Morgan Stanley Universal Funds,
Inc., Morgan Stanley Asset Management, Inc. and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(4) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, and incorporated herein by
reference.
(9)(b)(5) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(5) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, and incorporated herein by
reference.
(9)(b)(6) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(6) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, and incorporated herein by
reference.
(9)(c) Powers of Attorney for the Directors and Officers of NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(c) to Registrant's Pre-Effective
Amendment No. 2 on Form S-6 for the following, and
incorporated herein by reference:
Jay S. Calhoun, Vice President, Treasurer and Director
(Principal Financial Officer)
Richard M. Kernan, Jr., Director
Robert D. Rock, Senior Vice President and Director
Frederick J. Sievert, President and Director
(Principal Executive Officer)
Stephen N. Steinig, Senior Vice President, Chief Actuary
and Director
Seymour Sternberg, Director
(9)(d) Power of Attorney for Maryann L. Ingenito, Vice President and
Controller (Principal Accounting Officer) - Previously filed
in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(d) to Registrant's Pre-Effective Amendment No. 1
on Form S-6, and incorporated herein by reference.
II-3
<PAGE> 77
(9)(e) Power of Attorney for Howard I. Atkins, Executive Vice
President (Principal Financial Officer) - Previously filed as
Exhibit 8(d) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Variable
Universal Life Separate Account-I (File No. 333-39157), and
incorporated herein by reference.
(9)(f) Memorandum describing NYLIAC's issuance, transfer and
redemption procedures for the Policies - Previously filed as
Exhibit (9)(e) to Registrant's Pre-Effective Amendment No. 2
on Form S-6, and incorporated herein by reference.
(9)(g) Supplement to Memorandum describing NYLIAC's issuance,
transfer and redemption procedures for the Policies - Filed
herewith.
(10) Form of Application - Previously filed as Exhibit (10) to
Registrant's Pre-Effective Amendment No. 2 on Form S-6, and
incorporated herein by reference.
2. Opinion and Consent of Jonathan E. Gaines, Esq.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Opinion and Consent of Irwin L. Don, Associate Actuary.
7. Consent of Price Waterhouse LLP.
II-4
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I, certifies that it meets all of the requirements for effectiveness of
this Amendment to the Registration Statement pursuant to Rule 485(b) and has
duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City and State of
New York on the 24th day of April, 1998.
NYLIAC CORPORATE SPONSORED VARIABLE
UNIVERSAL LIFE SEPARATE ACCOUNT-I
(Registrant)
By /s/ Lawrence R. Stoehr
--------------------------------
Lawrence R. Stoehr
Vice President
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
(Depositor)
By /s/ Lawrence R. Stoehr
--------------------------------
Lawrence R. Stoehr
Vice President
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Howard I. Atkins* Executive Vice President (Principal Financial
Officer)
Jay S. Calhoun* Vice President, Treasurer and Director
Maryann L. Ingenito* Vice President and Controller (Principal
Accounting Officer)
Richard M. Kernan, Jr.* Director
Robert D. Rock* Senior Vice President and Director
Frederick J. Sievert* President and Director (Principal Executive
Officer)
Stephen N. Steinig* Senior Vice President, Chief Actuary and
Director
Seymour Sternberg* Director
*By /s/ Lawrence R. Stoehr
-----------------------
Lawrence R. Stoehr
Attorney-in-Fact
April 24, 1998
<PAGE> 79
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
1.(9)(g) Supplement to Memorandum describing NYLIAC's issuance,
transfer and redemption procedures for the Policies.
2. Opinion and Consent of Jonathan E. Gaines, Esq.
6. Opinion and Consent of Irwin L. Don.
7. Consent of Price Waterhouse LLP.
<PAGE> 1
Exhibit 1.(9)(g)
Supplement to
New York Life Insurance and Annuity Corporation's
Issuance, Redemption and Transfer Procedures for
Policies Pursuant to Rule 6e-3(T)(b)(12)(iii)
This Supplement describes administrative procedures (the "Procedures") that
will be followed by New York Life Insurance and Annuity Corporation ("NYLIAC")
in connection with the issuance of the flexible premium corporate sponsored
variable universal life insurance policy (the "Policy") described in this
Registration Statement. All capitalized terms have the meaning given to them in
the Prospectus for the Policy. The Procedures should be read in light of the
following changes:
The second paragraph of Section 1.(b) entitled "Public Offering Price -
Purchase and Related Transactions - Application and Initial Premium Processing"
is deleted in its entirety and replaced with the following paragraphs:
On the Issue Date, NYLIAC will allocate the first Premium (and any other
Premiums received on or before the last day of the Free Look Period) to
the General Account. Sales expense, premium tax and federal tax charges
are deducted from Premiums on the Issue date; however, deductions made on
the Issue Date will be calculated as of the later of the Policy Date or
the date the Premium is received. Also, the monthly contract charge, cost
of insurance charge and cost of any riders are deducted as of the Policy
Date and as of each subsequent Monthly Deduction Day.
The registered representative through whom the Policy was purchased is
required to deliver the Policy to the Owner and obtain the Owner's
signature on a delivery receipt. On the date NYLIAC receives the delivery
receipt, the Free Look Period under the Policy will commence. If NYLIAC
does not receive a delivery receipt within 15 days of issuance, a reminder
notice is sent to the registered representative. After 30 days from issue,
NYLIAC will send the Owner a reminder notice with a copy to the registered
representative notifying them that the delivery receipt is outstanding. If
NYLIAC does not receive a delivery receipt within 45 days of issuance, a
notice will be sent to the Owner indicating that the Policy is being
rescinded. The full amount of all Premiums paid will be returned to the
Owner and notice will be given to the Owner that no coverage was in
effect.
The paragraph under Section 1.(c) entitled "Public Offering Price - Purchase
and Related Transactions - Free Look Provision" is deleted in its entirety and
replaced with the following paragraph:
A Policy may be canceled within 20 days (10 days in New York) after the
Free Look Period commences by returning it to NYLIAC's Service Office or
to the registered representative through whom it was purchased. Premiums
will remain in the General Account through the last day of the Free Look
Period. Amounts in the General
<PAGE> 2
Account will be credited with interest commencing on the later of the Policy
Date or the date we receive such amounts and ending on the last day of the Free
Look Period. The rate of interest is set by us and can change monthly. At the
end of the Free Look Period, Net Premiums less the monthly charges plus
interest will then be allocated to the Investment Divisions or to the Fixed
Account in accordance with the Policyowner's instructions. If the Policy is
returned during the Free Look Period, the Policyowner will receive from NYLIAC
the greater of the Policy's Cash Value as of the date the Policy is returned or
the Premiums paid, less loans and Partial Withdrawals.
<PAGE> 1
EXHIBIT 2
[NEW YORK LIFE INSURANCE COMPANY LOGO]
NEW YORK LIFE INSURANCE COMPANY
51 Madison Avenue, New York, NY 10010
(212) 576-3763
JONATHAN E. GAINES
Vice President and
Associate General Counsel
April 17, 1998
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
RE: NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
CORPORATE SPONSORED VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
Ladies and Gentlemen:
This opinion is furnished in connection with the filing by New York Life
Insurance and Annuity Corporation ("NYLIAC") of Post-Effective Amendment No. 1
to the registration statement on Form S-6 ("Registration Statement") under the
Securities Act of 1933, as amended, of NYLIAC Corporate Sponsored Variable
Universal Life Separate Account-I ("Separate Account-I"). Separate Account-I
receives and invests premiums allocated to it under a flexible premium variable
universal life insurance policy ("Policy"). The Policy is offered in the manner
described in the Registration Statement.
In connection with this opinion, I have made such examination of the law
and have examined such corporate records and such other documents as I consider
appropriate as a basis for the opinion hereinafter expressed. On the basis of
such examination, it is my opinion that:
1. NYLIAC is a corporation duly organized and validly existing under
the laws of the State of Delaware.
2. Separate Account-I is a separate account established and maintained
by NYLIAC pursuant to Section 2932 of the Delaware Insurance Code,
under which the income, gains and losses, realized or unrealized,
from assets allocated to Separate Account-I shall be credited to or
charged against Separate Account-I, without regard to other income,
gains or losses of NYLIAC.
<PAGE> 2
Securities and Exchange Commission
April 17, 1998
Page 2
3. The Policies have been duly authorized by NYLIAC and, when sold in
jurisdictions authorizing such sales, in accordance with the
Registration Statement, will constitute validly issued and binding
obligations of NYLIAC in accordance with their terms.
4. Each owner of a Policy will not be subject to any deductions,
charges, or assessments imposed by NYLIAC other than those provided
in the Policy.
I consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ JONATHAN E. GAINES
Jonathan E. Gaines
Vice President and
Associate General Counsel
<PAGE> 1
EXHIBIT 6
[NEW YORK LIFE LETTERHEAD]
April 8, 1998
Re: New York Life Insurance and Annuity Corporation
NYLIAC Corporate Sponsored Variable Universal Life Separate Account - I
Ladies and Gentlemen:
This opinion is furnished in connection with the referenced registration
statement filed by New York Life Insurance and Annuity Corporation ("NYLIAC")
under the Securities Act of 1933 (the "Registration Statement"). The prospectus
included in the Registration Statement on Form S-6 describes corporate
sponsored variable universal life insurance policies (the "Policies"). I am
familiar with the Registration Statement and Exhibits thereto.
In my opinion, the illustrations of benefits under the Policies included in the
section of the prospectus entitled "Appendix A: Illustrations", based on the
assumptions stated in the illustrations, are consistent with the provisions of
the respective forms of the Policies. The age combination selected in the
illustrations is representative of the manner in which the Policies operate.
In addition, I have reviewed the discount rate used in calculating the present
value of NYLIAC's future tax deductions resulting from the amortization of its
deduction for certain acquisition costs. In my opinion, the DAC tax charge is
reasonable in relation to NYLIAC's increased federal tax burden under Section
848 resulting from the receipt of premium; and the factors taken into account
by NYLIAC in determining the targeted rate of return are appropriate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Very truly yours,
/S/ IRWIN L. DON
Irwin L. Don
Associate Actuary
<PAGE> 1
Exhibit 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No.1 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated February 13, 1998, relating to
the financial statements of New York Life Insurance and Annuity Corporation.
We also consent to the reference to us under the heading "Independent
Accountants" which appears in such Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 17, 1998
