<PAGE> 1
As filed with the Securities and Exchange Commission on April 23, 1999
Registration No. 333-07617
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 3
FORM S-6
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FOR THE REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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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:
Peter E. Panarites Michael J. McLaughlin, Esq.
Freedman, Levy, Kroll & Simonds Senior Vice President
1050 Connecticut Avenue and General Counsel
Suite 825 New York Life Insurance Company
Washington, DC 20036 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, 1999 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on May 1, 1999 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:
Units of interest in a separate account under corporate sponsored variable
universal life insurance policies.
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 Account
6 The Separate Account
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; Loans; The
Separate Account; 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 Account; 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 Dean Witter Universal
Funds, Inc.
12 The Separate Account; Sales and Other
Agreements
13 The Separate Account; 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
Dean Witter Universal Funds, Inc.
14 Basic Questions and Answers About Us and
Our Policy; The Separate Account; Sales
and Other Agreements
15 Basic Questions and Answers About Us and
Our Policy; General Provisions of the
Policy
16 The Separate Account; 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 Dean Witter Universal
Funds, Inc.
<PAGE> 4
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
17 Cash Surrender Value; Partial
Withdrawals; General Provisions
of the Policy
18 The Separate Account; 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 Dean Witter Universal
Funds, Inc.; Investment Return
19 Records and Reports
20 Not Applicable
21 Loans
22 Not Applicable
23 Not Applicable
24 Additional Information
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
<PAGE> 5
NYLIAC CORPORATE SPONSORED VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
PROSPECTUS DATED MAY 1, 1999
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
<TABLE>
<S> <C>
PREMIUM REMITTANCE CENTER: SERVICE OFFICE:
New York Life Insurance and Annuity Corporation New York Life Insurance and Annuity Corporation
P.O. Box 930652 NYLIFE Distributors Inc.
Kansas City, MO 64193-0652 Attention: Executive Benefits
11400 Tomahawk Creek Parkway, Suite 200
Leawood KS 66211
Telephone: (913) 906-4000
</TABLE>
This prospectus describes a flexible premium corporate sponsored variable
universal life insurance policy which New York Life Insurance and Annuity
Corporation ("NYLIAC") issues. We designed the policy to provide 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. Sponsored arrangements include those in which an employer
allows us to sell policies to its employees or retirees on an individual basis.
The policyowner is the person(s) and/or entity(ies) who own(s) the policy. The
policyowner has all rights of ownership while the insured is alive.
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 DEAN WITTER UNIVERSAL FUNDS, INC.
- -- Morgan Stanley Dean Witter 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, while a policy is
in force, a policy's death benefit will never be less than its face amount, less
any policy debt. Although premiums are flexible, the policyowner may have to
make additional premium payments to keep the policy in effect. We may terminate
the policy if its cash surrender value less any policy debt is too small to pay
the policy's monthly charges. We may also terminate the policy if there is an
excess loan and a late period expires without sufficient payment.
The policyowner 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. The policyowner can also surrender the policy. A surrender
charge will apply if the policyowner surrenders the policy during the first nine
policy years. This charge may also apply if the policyowner requests a reduction
of the face amount or if the policy terminates.
The policyowner 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 the policyowner's advantage.
The policyowner should read this prospectus and keep it for further
reference. It contains information that the policyowner should know 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
Dean Witter Universal Funds, Inc. (the "Funds," each individually a "Fund").
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SECTION I: DEFINITION OF TERMS......... 4
SECTION II: BASIC QUESTIONS AND ANSWERS
ABOUT US AND OUR POLICY.............. 5
1. What are NYLIAC and New York
Life?........................... 5
2. What variable life insurance
policy are we offering?......... 5
3. How is the policy available?..... 5
4. What is the Cash Value of the
policy?......................... 5
5. What are the Investment Divisions
of the Separate Account?........ 5
6. How is the value of an
Accumulation Unit determined?... 6
7. What is the Fixed Account?....... 6
8. Does the policy have a Cash
Surrender Value?................ 6
9. How long will the policy remain
in force?....................... 6
10. Is the amount of the death
benefit guaranteed?............. 6
11. Is the death benefit subject to
income taxes?................... 6
12. What is a modified endowment
contract?....................... 7
13. Can the policy become a modified
endowment contract?............. 7
14. What are planned premiums?....... 7
15. What are unplanned premiums?..... 7
16. What happens when the first
premium is paid?................ 7
17. When are subsequent premiums put
into the Fixed Account and the
Separate Account?............... 7
18. How are Net Premiums allocated
among the Allocation
Alternatives?................... 8
19. What are the current charges
against the policy?............. 8
20. Are loans available under the
policy?......................... 8
21. Does the policyowner have a right
to cancel?...................... 8
22. Can the policyowner exchange the
policy?......................... 8
23. How is a person's age
calculated?..................... 8
SECTION III: CHARGES UNDER THE
POLICY............................... 9
Deductions from Premiums............. 9
Sales Expense Charge.............. 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
State Tax Charge.................. 9
Federal Tax Charge................ 9
Deductions from Accumulation Value
and Fixed Account Value........... 9
Monthly Contract Charge........... 9
Cost of Insurance Charge.......... 9
Deductions from the Separate
Account........................... 10
Mortality and Expense Risk
Charge.......................... 10
Other Charges for Federal Income
Taxes........................... 10
Fund Charges......................... 10
Surrender Charge..................... 11
Surrender Charge Limits........... 12
How the Policy Works.............. 12
SECTION IV: THE SEPARATE ACCOUNT, THE
FUNDS AND THE FIXED ACCOUNT.......... 13
The Separate Account................. 13
Your Voting Rights................ 13
Our Rights........................ 13
MainStay VP Series Fund, Inc. ....... 14
The Alger American Fund.............. 14
Calvert Variable Series, Inc. ....... 14
Fidelity Variable Insurance Products
Fund (VIP) and Fidelity Variable
Insurance Products Fund II (VIP
II)............................... 15
Janus Aspen Series................... 15
Morgan Stanley Dean Witter Universal
Funds, Inc. ...................... 15
The Portfolios....................... 16
The Fixed Account.................... 19
Interest Crediting................ 19
Transfers to Investment
Divisions....................... 19
Investment Return.................... 19
SECTION V: GENERAL PROVISIONS OF THE
POLICY............................... 20
When Life Insurance Coverage Begins.. 20
Premiums............................. 20
Termination.......................... 20
Death Benefit Under the Policy....... 20
Selection of Life Insurance
Benefit Table................... 21
Corridor Table.................. 21
CVAT Table...................... 22
The Effect of Investment
Performance on the Death
Benefit......................... 22
Face Amount Changes............... 23
</TABLE>
2
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Life Insurance Benefit Option
Changes......................... 23
Cash Value and Cash Surrender Value.. 23
Cash Value........................ 23
Cash Surrender Value.............. 24
Transfers............................ 24
Partial Withdrawals.................. 24
Loans................................ 24
Loan Account...................... 24
Loan Interest..................... 25
Repayment......................... 25
Free Look Provision.................. 26
Exchange Privilege................... 26
SECTION VI: ADDITIONAL INFORMATION..... 27
Directors and Principal Officers of
NYLIAC............................ 27
Year 2000 Readiness.................. 28
Federal Income Tax Considerations.... 28
Tax Status of NYLIAC and the Separate
Account........................... 28
Charges for Taxes................. 29
Diversification Standards and
Control Issues.................. 29
Life Insurance Status of Policy... 29
Modified Endowment Contract
Status.......................... 30
Surrenders and Partial
Withdrawals..................... 30
Loans and Interest Deductions..... 31
Corporate Alternative Minimum
Tax............................. 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Exchanges or Assignments of
Policies........................ 32
Other Tax Issues.................. 32
Withholding....................... 32
Reinstatement Option................. 32
Additional Benefits Available by
Rider............................. 33
Adjustable Term Insurance Rider... 33
Payment Options...................... 33
Payees............................ 33
Proceeds at Interest Options
(Options 1A and 1B)............. 33
Life Income Option (Option 2)..... 34
Beneficiary.......................... 34
Change of Ownership.................. 34
Assignment........................... 34
Limits on Our Rights to Challenge the
Policy............................ 34
Misstatement of Age or Sex........... 35
Suicide.............................. 35
When We Pay Proceeds................. 35
Records and Reports.................. 35
Sales and Other Agreements........... 35
Legal Proceedings.................... 36
Independent Accountants.............. 36
Experts.............................. 36
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 IS NOT
CONSIDERED AN OFFERING IN ANY JURISDICTION WHERE THE SALE OF THIS POLICY CANNOT
LAWFULLY BE MADE. NYLIAC DOES NOT AUTHORIZE ANY INFORMATION OR REPRESENTATIONS
REGARDING THE OFFERING OTHER THAN AS DESCRIBED IN THIS PROSPECTUS OR IN ANY
ATTACHED SUPPLEMENT TO THIS PROSPECTUS OR IN ANY SUPPLEMENTAL SALES MATERIAL
NYLIAC PRODUCES.
IN CERTAIN JURISDICTIONS, 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> 8
SECTION I:
DEFINITION OF TERMS
ACCUMULATION UNIT--An accounting unit we use 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) you name 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, the day after Independence 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.
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 value in the Fixed
Account and (c) the value in the Loan Account.
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 credits interest at fixed rates
subject to a minimum guarantee. Funds in the Fixed Account are part of NYLIAC's
general 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 any outstanding loans, including accrued interest. It is part of
NYLIAC's general account.
MONTHLY DEDUCTION DAY--The date as of which we deduct the monthly contract
charge, the cost of insurance charge and a rider charge for the cost of any
additional riders 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 you pay less the sales expense, state tax and federal tax
charges.
POLICY DATE--The starting date for determining policy anniversaries, Policy
Years and Monthly Deduction Days, as shown on page 2 of the policy.
POLICY DEBT--The amount of any outstanding loans under the policy, including
accrued interest.
POLICY YEAR--The twelve-month period starting with the Policy Date, and each
twelve-month period thereafter.
PORTFOLIOS--The mutual fund portfolios of the Funds that are available for
investment through the Investment Divisions of the Separate Account.
SEPARATE ACCOUNT--NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I, a segregated asset account NYLIAC established to receive and invest
premiums paid under the policies.
4
<PAGE> 9
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. NYLIAC is also the
depositor for other NYLIAC separate accounts.
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 $25.117 billion at the end of 1998. New York Life has
invested in NYLIAC, and will occasionally make additional contributions to
NYLIAC in order to maintain capital and surplus in accordance with state
requirements.
2. WHAT VARIABLE LIFE INSURANCE POLICY ARE WE OFFERING?
In this prospectus we offer a flexible premium corporate sponsored variable
universal life insurance policy. The policy provides a death benefit, Cash
Surrender Value, loan privileges, withdrawal 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 the
death benefits, policy duration and Cash Surrender Values may go up or down
depending on the performance of the Investment Division(s) to which the
policyowner allocates his or her Cash Value.
The policy is a legal contract between the policyowner and NYLIAC. The
entire contract consists of the policy, the application and any riders to the
policy.
3. HOW IS THE POLICY AVAILABLE?
The policy is available as a non-qualified policy. This means that the
policy is not available for use in connection with certain employee retirement
plans that qualify for special treatment under the federal tax law. The minimum
Base Face Amount of a policy is $25,000. The policyowner may increase the Face
Amount, 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, the policyowner must
give us satisfactory evidence of insurability. We may issue the policy based on
underwriting rules and procedures which are based on NYLIAC's eligibility
standards. These may include guaranteed issue underwriting.
We may issue the policy in certain states on a unisex basis. For policies
issued on a unisex basis, the policyowner should disregard any reference in this
prospectus that makes a distinction based on the gender of the Insured.
4. WHAT IS THE CASH VALUE OF THE POLICY?
The Cash Value is determined by (1) the amount, frequency and timing of
premiums, (2) the investment experience of the Investment Divisions the
policyowner selects, (3) the interest we credit to amounts in the Fixed Account
and the Loan Account, and (4) any partial withdrawals or charges we impose on
the policy. The policyowner bears the investment risk of any depreciation in
value of the assets underlying 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?
After we deduct the sales expense, state tax and federal tax charges from
your premium, the policyowner may allocate it to 19 Allocation Alternatives. The
Allocation Alternatives consist of 18 Investment Divisions and the Fixed
Account. The 18 Investment Divisions are listed on the first page of this
prospectus.
5
<PAGE> 10
6. HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED?
We calculate the value of an Accumulation Unit at the end of each day the
New York Stock Exchange ("NYSE") is open for business. We determine the value of
an Accumulation Unit by multiplying the value of that unit on the prior day when
the NYSE was open by the net investment factor. The net investment factor we use
to calculate the value of an Accumulation Unit is equal to:
(a/b)-c
Where: a = 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 day on which we
calculate the Accumulation Unit value, 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 since the end of the
immediately preceding day on which we calculate an
Accumulation Unit value for that Investment Division.
b = 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 day on which we
calculated an Accumulation Unit value for that Investment
Division.
c = a factor representing the mortality and expense risk
charge. This factor is deducted on a daily basis. For
Policy Years one through ten, it is currently equal to an
annual rate of .70% of the value of each Investment
Division's assets. For Policy Years eleven and later, it
is currently expected to equal an annual rate of .30% of
the value of each Investment Division's assets.
7. WHAT IS THE FIXED ACCOUNT?
In addition to the Investment Divisions, the policyowner may allocate or
transfer amounts to the Fixed Account. We will credit Net Premiums applied to,
and any amounts transferred to, the Fixed Account with a fixed interest rate. We
will set the interest 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, or amounts transferred to, less
amounts withdrawn, transferred from or charged against 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. We also allow partial withdrawals 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, the policyowner may be taxed on all or a part of the amount
distributed for certain partial withdrawals and loans. 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 if the policyowner does not pay
the 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, and we receive satisfactory proof
of death, we will pay the death benefit less any Policy Debt.
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."
6
<PAGE> 11
12. WHAT IS A MODIFIED ENDOWMENT CONTRACT?
A modified endowment contract is a life insurance policy under which the
cumulative premiums paid during the first seven policy years are greater than
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 if there is a gain in the policy. In addition, the policyowner may
incur a penalty tax if he or she is not yet age 59 1/2 and no other exception is
applicable.
13. CAN THE POLICY BECOME A MODIFIED ENDOWMENT CONTRACT?
The policy may become a modified endowment contract. We currently test a
policy when it is issued 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. We base the test on the policy as issued, the first
premium received, and on the assumption that there are no increases in premiums
or decreases in benefits during the period. We also have 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. The policyowner does not have to pay a planned premium to keep the
policy in force if the Cash Surrender Value, less any Policy Debt, is enough to
cover the charges made on the Monthly Deduction Day. The policyowner may
increase or decrease the amount of any planned premium subject to the limits we
set. However, the policyowner may not make a premium payment which would
jeopardize the policy's qualification as "life insurance" under Section 7702 of
the Internal Revenue Code. The policyowner may also change the frequency of
premiums 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, the policyowner may make unplanned premium
payments at any time before the policy anniversary on which the Insured is age
95. However, the policyowner may not make a premium payment which would
jeopardize the policy's qualification 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?
We will allocate the first premium (and any other premiums received on or
before the last day of the free look period) to our general account. We will
deduct sales expense, state tax and federal tax charges from premiums on the
Issue Date. Deductions made on the Issue Date will be calculated as of the later
of the Policy Date or the date the premium is received. We will also deduct the
monthly contract charges, cost of insurance charges and cost for any riders as
of the first Monthly Deduction Day and as of each subsequent Monthly Deduction
Day. The first Monthly Deduction Day will be the monthly anniversary of the
Policy Date on or following the Issue Date. If the Policy Date is prior to the
Issue Date, the deductions made on the first Monthly Deduction Day will cover
the period from the Policy Date until the first Monthly Deduction Day. The Net
Premium less the monthly charges will remain in the general account through the
last day of the free look period. We will credit amounts in the general account
with interest beginning 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. We set the rate
of interest using a fixed interest rate which we declare periodically. We will
allocate Net Premiums less the monthly charges plus interest to the Investment
Divisions or to the Fixed Account in accordance with the policyowner's
instructions when the free look period ends.
17. WHEN ARE SUBSEQUENT PREMIUMS PUT INTO THE FIXED ACCOUNT AND THE SEPARATE
ACCOUNT?
On the Business Day that we receive a subsequent premium, we will apply the
Net Premium to the Separate Account and to the Fixed Account in accordance with
the policyowner's allocation election. We apply Net Premiums at the next
determined Accumulation Unit value.
7
<PAGE> 12
18. HOW ARE NET PREMIUMS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
The policyowner may allocate Net Premiums to the Fixed Account and any of
the 18 Investment Divisions. The policyowner may also 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?
We deduct three charges from each premium, whether planned or unplanned. We
deduct a sales expense charge of 2.25% to partially cover sales expenses. We
also make deductions of 2% and 1.25% for state tax and federal tax charges,
respectively.
In addition, on each Monthly Deduction Day, we make the following
deductions:
(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, we may also make a deduction 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 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, we deduct a mortality and expense risk charge on a daily basis
against the assets of each Investment Division. For Policy Years one through
ten, this charge is calculated at an annual rate of .70% of the value of each
Investment Division's assets. For Policy Years eleven and later, we currently
expect the mortality and expense risk charge to be calculated at an annual rate
of .30% of the value of each Investment Division's assets. At our option, we may
change the mortality and expense risk charge, subject to a maximum annual 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, we may assess a surrender charge. Partial
withdrawals 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, the policyowner can borrow any amount up
to the loan value of the policy. The loan value on any given date is equal to
(i) 90% of the Cash Surrender Value, less (ii) any Policy Debt.
21. DOES THE POLICYOWNER HAVE A RIGHT TO CANCEL?
The policyowner has the right to cancel the policy at any time during the
free look period and receive a refund. The free look period begins on the date
the policy is delivered to the policyowner and the policyowner signs for it and
ends 20 days later. The policyowner may return the policy to our Service Office
or to the registered representative who sold the policy. See "Section V: General
Provisions of the Policy--Free Look Provision."
22. CAN THE POLICYOWNER EXCHANGE THE POLICY?
The policyowner has the right during the first 24 months following the
Issue Date to exchange the policy for a permanent plan of life insurance that we
offer 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, we base the cost of insurance charges on the issue
age and policy duration.
8
<PAGE> 13
SECTION III:
CHARGES UNDER THE POLICY
We deduct certain charges to compensate us 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 state 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.
STATE TAX CHARGE.
Various states and jurisdictions impose a tax on premiums received by
insurance companies. State 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 taxes.
Two percent represents the approximate average of the taxes assessed by the
states, and will be assessed uniformly to all policies. We reserve 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. We reserve 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, we deduct a monthly contract charge, a cost
of insurance charge, and a rider charge for the cost of any additional riders.
The first Monthly Deduction Day will be the monthly anniversary of the Policy
Date on or following the Issue Date. If the Policy Date is prior to the Issue
Date, the deductions made on the first Monthly Deduction Day will cover the
period from the Policy Date until the first Monthly Deduction Day. We deduct
these charges 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.
The monthly charge currently equal to $7.50 ($90.00 annually) compensates
us 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.
The current rates are based on the gender, smoker class, duration, underwriting
class and issue age of the Insured. The current cost of insurance rates may
9
<PAGE> 14
change based on changes in future expectations of such factors as mortality,
investment income, expenses, and persistency. The cost of insurance charge for
any month will equal:
a*(b - c)
Where: a = the applicable cost of insurance rate
b = the number of thousands of death benefit as of the Monthly
Deduction Day divided by 1.0032737,
c = 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.
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, this charge is calculated at an annual
rate of .70% of the value of each Investment Division's assets. For Policy Years
eleven and later, we currently expect the mortality and expense risk charge to
be calculated at an annual rate of .30% of the value of each Investment
Division's assets. We deduct the mortality and expense risk charge on a daily
basis. At our option, we may change the mortality and expense risk charge,
subject to a maximum annual rate 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 1998 expenses, and may reflect estimated changes:
10
<PAGE> 15
<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............... 0.08% 0.09% 0.16% 0.13% 0.08% 0.17% 0.08%
Total Fund Annual Expenses... 0.64% 0.54% 0.72%(a) 0.63% 0.58% 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% 0.07%
Total Fund Annual Expenses... 0.65% 0.52%
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP ALGER AMERICAN CALVERT FIDELITY VIP
GROWTH INDEXED SMALL SOCIAL FIDELITY VIP II EQUITY-
EQUITY EQUITY CAPITALIZATION BALANCED CONTRAFUND INCOME
----------- ----------- -------------- -------- --------------- ------------
<S> <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% 0.70%(b) 0.59% 0.49%
Administration Fees............ 0.20% 0.20% 0.00% 0.00% 0.00% 0.00%
Other Expenses................. 0.06% 0.08% 0.04% 0.18%(b) 0.11% 0.09%
Total Fund Annual Expenses..... 0.51% 0.38% 0.89% 0.88%(b) 0.70%(c) 0.58%(c)
<CAPTION>
JANUS ASPEN MORGAN
JANUS ASPEN SERIES STANLEY
SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
----------- ----------- --------------
<S> <C> <C> <C>
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT (as a % of
average net assets)
Management Fees................ 0.72% 0.65% 0.00%
Administration Fees............ 0.00% 0.00% 0.00%
Other Expenses................. 0.02% 0.07% 1.95%
Total Fund Annual Expenses..... 0.74% 0.72%(d) 1.95%(e)
</TABLE>
- ---------------
(a) "Other Expenses" and "Total Fund Annual Expenses" for the MainStay VP
Convertible and MainStay VP International Equity Portfolios reflect an
expense reimbursement agreement that ended through December 31, 1998
limiting "Other Expenses" to 0.17% annually. In the absence of the expense
reimbursement arrangement, the "Total Fund Annual Expenses" would have been
1.17% for the MainStay VP International Equity Portfolio.
(b) These fees are based on expenses for the fiscal year 1998, and have been
restated to reflect the complete assessment of transfer agency expenses of
0.01% expected to be incurred in 1999. "Other Expenses" reflect an indirect
fee. "Total Fund Annual Expenses" after reductions for fees paid indirectly,
which are restated, would have been 0.86%.
(c) A portion of the brokerage commissions that these Portfolios pay was used to
reduce the Portfolios' expenses. In addition, these Portfolios have entered
into arrangements with their custodian whereby credits realized as a result
of uninvested cash balances were used to reduce custodian expenses.
Including these reductions, the "Total Fund Annual Expenses" would have been
0.66% for the Fidelity VIP II Contrafund Portfolio and 0.57% for the
Fidelity VIP Equity-Income Portfolio.
(d) The "Total Fund Annual Expenses" include a fee reduction to reduce the
"Management Fees" to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the "Management Fees" and
then against "Other Expenses". Janus Capital Corporation has agreed to
continue the other waivers and fee reductions until at least the next annual
renewal of the advisory agreement. Absent such waivers or reductions, the
"Total Fund Annual Expenses" would have been 0.74%.
(e) Morgan Stanley Dean Witter Investment Management Inc. has voluntarily waived
receipt of its "Management Fees" and agreed to reimburse the Portfolio, if
necessary, to the extent that the "Total Fund Annual Expenses" of the
Portfolio exceed 1.75% of average daily net assets. However, Morgan Stanley
Dean Witter has reflected under "Other Expenses" the Portfolio's interest
and foreign tax expenses incurred in 1998 which were equal to 0.20% of the
Portfolio's average daily net assets. The fee waivers and reimbursements
described above may be terminated by Morgan Stanley Dean Witter at any time
without notice. Absent such reductions, it is estimated that "Management
Fees", "Administration Fees" and "Total Fund Annual Expenses" would be
1.25%, 0.25% and 3.45%, respectively.
SURRENDER CHARGE
During the first nine Policy Years, we will assess a surrender charge 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 equal to the applicable
percentage shown in the table below multiplied 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>
The surrender charge may be less than the maximum surrender charge if a
decrease in the Base Face Amount is requested. A requested decrease in Base Face
Amount will result in the imposition of a surrender
11
<PAGE> 16
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.
HOW THE POLICY WORKS.
This example is based on the illustration for the first Policy Year from
page A-3, assuming current charges and a 6% hypothetical gross annual investment
return, which results in a net annual investment return of 4.48% for Policy
Years 1-10 and 4.90% for Policy Years 11 and later:
<TABLE>
<S> <C> <C>
Planned Annual Premium............................................... $7,500.00
less: Sales expense charge (2.25%)................................ 168.75
State 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 daily).............................................. 301.70
---------
equals: Cash Value.................................................. $6,732.95
less: Surrender charge (a percentage of surrender charge
premium).................................................... 1,025.50
---------
equals: Cash Surrender Value........................................ $5,707.45
</TABLE>
12
<PAGE> 17
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
mean that the SEC supervises the management, or the investment practices or
policies, of the Separate Account.
Although the assets of the Separate Account belong to NYLIAC, they are held
separately from the other assets of NYLIAC. The Separate Account's assets are
not chargeable with liabilities incurred in any of NYLIAC's other business
operations (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. We may,
subject to any required regulatory approvals, add or delete Investment Divisions
at our discretion.
YOUR VOTING RIGHTS.
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 and typically 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 policyowner approval.
Specifically, we reserve the right to:
- substitute, add or remove any Investment Division;
- create new separate accounts;
- combine the Separate Account with one or more other separate accounts;
- operate the Separate Account as a management investment company or in any
other form permitted by law;
13
<PAGE> 18
- deregister the Separate Account;
- 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, Inc. MacKay-Shields, Monitor and Madison Square 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, Inc. As compensation for such services, MainStay VP
Series Fund, Inc. pays each investment adviser a fee. The Portfolios, their
investment advisers and the fees are listed in the table below.
<TABLE>
<CAPTION>
INVESTMENT ADVISERS PORTFOLIOS ADVISORY FEE
- --------------------------------------------- --------------------------------------------- ----
(AS A PERCENTAGE
OF THE AGGREGATE
DAILY NET
ASSETS)
<S> <C> <C>
MacKay-Shields Financial Corporation MainStay VP Capital Appreciation .36%
("MacKay-Shields") MainStay VP Cash Management .25%
MainStay VP Convertible .36%
MainStay VP Government .30%
MainStay VP High Yield Corporate Bond .30%
MainStay VP International Equity .60%
MainStay VP Total Return .32%
MainStay VP Value .36%
Monitor Capital Advisors, Inc. ("Monitor") MainStay VP Indexed Equity .10%
Madison Square Advisors, Inc. MainStay VP Bond .25%
("Madison Square") MainStay VP Growth Equity .25%
</TABLE>
See the prospectus for the MainStay VP Series Fund, Inc. 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. 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. 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 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
14
<PAGE> 19
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 (VIP) AND
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
The Separate Account currently invests in the Fidelity VIP II Contrafund
Portfolio of the Variable Insurance Products Fund II trust, and the Fidelity VIP
Equity-Income Portfolio of the Variable Insurance Products Fund trust.
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 Portfolio and Fidelity VIP
Equity-Income Portfolio in accordance with the policies, programs and guidelines
established by the Boards of Trustees of the Variable Insurance Products Fund
and the Variable Insurance Products Fund II. 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 Balanced and Worldwide Growth
Portfolios of the Janus Aspen Series. Currently, the Balanced and 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. This
fee reduction may be terminated or renewed annually. See the prospectus for the
Janus Aspen Series which is attached to this prospectus.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
The Separate Account currently invests in the Emerging Markets Equity
Portfolio of the Morgan Stanley Dean Witter Universal Funds, Inc. (the "Morgan
Stanley Fund"). Currently, the Emerging Markets Equity Portfolio is the only
Portfolio available through the Morgan Stanley Fund for investment by the
Separate Account.
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management") provides investment advisory services to the 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 MSDW Investment
Management 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. MSDW Investment Management 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.
15
<PAGE> 20
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 or the cash value of a
stock or a basket or index of equity securities. Certain of the Portfolio's
investments have speculative characteristics.
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. 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 equity securities.
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<PAGE> 21
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 potential for capital appreciation.
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 focuses
on small, fast-growing companies that offer innovative products, services or
technologies to a rapidly expanding marketplace. Under normal circumstances, the
Portfolio invests primarily in the equity securities of small capitalization
companies. A small capitalization company is one that has a market
capitalization within the range of the Russell 2000 Growth Index or the S&P
Small Capitalization 600 Index.
THE CALVERT SOCIAL BALANCED PORTFOLIO
The Calvert Social Balanced Portfolio seeks to achieve a competitive total
return through an actively managed portfolio of stocks, bonds and money market
instruments which offer income and capital growth opportunity and which satisfy
the investment and social criteria established for this Portfolio.
THE FIDELITY VIP II CONTRAFUND PORTFOLIO
The Fidelity VIP II Contrafund Portfolio seeks long-term capital
appreciation by investing primarily in common stocks. FMR invests in securities
of companies whose value it believes is not fully recognized by the public.
THE FIDELITY VIP EQUITY-INCOME PORTFOLIO
The Fidelity VIP Equity-Income Portfolio seeks reasonable income by
investing at least 65% of total assets in income-producing equity securities.
The Portfolio will also consider the potential for capital appreciation.
Secondarily, the Portfolio seeks a yield that exceeds the composite yield on the
securities comprising the S&P 500 Index.
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<PAGE> 22
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. The Portfolio's investment approach combines top-down country
allocation with bottom-up stock selection. Investment selection criteria include
attractive growth characteristics, reasonable valuations and managements that
focus on shareholder value.
------------------------
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." Except for the MainStay VP Series Fund, shares of all other
Funds may also be available to separate accounts of insurance companies
unaffiliated with NYLIAC. 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 a
certain Fund 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 provide certain services to policyowners 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 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. We may do this if the
shares of the Portfolios are no longer available for investment or if we believe
investment in any Portfolio would become inappropriate in view of the purposes
of the Separate Account. To the extent required by the law, 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.
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<PAGE> 23
THE FIXED ACCOUNT
We credit amounts in the Fixed Account with 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. The Fixed Account is not registered under the federal
securities laws as an investment company. Accordingly, neither the Fixed Account
nor any interests in the Fixed Account are subject to the provisions of these
statutes. 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, less amounts withdrawn, transferred from
or charged against the Fixed Account receive the rate in effect at that time.
TRANSFERS TO INVESTMENT DIVISIONS.
In each Policy Year, the policyowner 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 value in
the Fixed Account at the beginning of the Policy Year may be transferred
during that Policy Year. During the retirement year (the Policy Year
following the Insured's 65th birthday, the date you indicate in the
application or another date if we approve) only, 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 value remaining in the Fixed Account
after the transfer must be at least $500. If the remaining value would be
less than $500, that amount must be included in the transfer.
Transfer requests must be in writing on a form we have approved.
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 day on which we calculate an Accumulation Unit
value for each Investment Division.
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<PAGE> 24
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.
WHEN LIFE INSURANCE COVERAGE BEGINS
Insurance coverage under the policy will begin on the later of the date the
policy is approved by our underwriters or the date we receive the first premium
payment. However, in no event will coverage begin prior to the Policy Date.
PREMIUMS
While the policy is in force, the policyowner may make premium payments at
any time while the Insured is living and before the policy anniversary on which
the Insured is age 95. Subject to certain restrictions, the policyowner may make
premium payments at any interval and by any method we make available. Premiums
must be sent to our Premium Remittance Center or to the address indicated for
payment on the premium 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. The policyowner may elect not to make a planned
premium payment at any time.
The policyowner 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.
No premium, planned or unplanned, may be an amount which would jeopardize
the policy's qualification 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. The policy 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 the 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.
We will mail a notice to the policyowner at his or her 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 the policyowner
has chosen Life Insurance Benefit Option 1 or Life Insurance Benefit Option 2.
Life Insurance Benefit Option 1 provides a life insurance benefit equal to the
greater of (i) the Face Amount or (ii) the Cash Value multiplied by the
percentage in the appropriate Internal Revenue Code Section 7702 table. Life
Insurance Benefit Option 2 provides a life insurance benefit equal to the
greater of (i) the Face Amount plus the Cash Value or (ii) the Cash Value
20
<PAGE> 25
multiplied by the percentage in the appropriate Internal Revenue Code Section
7702 table. The value of any additional benefits provided by rider is added to
the amount of the death benefit. 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 Policy Debt and any charges incurred but not yet
deducted, and then credit the interest on the balance.
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. We will
reduce the amount of the life insurance benefit proceeds by any Policy Debt.
Also, no further monthly deductions will be made for cost of insurance.
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 Internal Revenue 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 Internal Revenue Code Section 7702, a policy may be treated as life
insurance for federal tax purposes if at all times it meets either (1) both a
"guideline premium" test and a "cash value corridor" test or (2) a "cash value
accumulation" test. The Corridor table is designed to meet the cash value
corridor test while the CVAT table is designed to meet the cash value
accumulation 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>
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<PAGE> 26
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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<PAGE> 27
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 that
the age at death is 45:
<TABLE>
<CAPTION>
POLICY A POLICY B
-------- --------
<S> <C> <C>
(1) Face Amount............................................. $100,000 $100,000
(2) Cash Value on Date of Death............................. $ 50,000 $ 40,000
(3) Percentage on Date of Death from Corridor Table......... 215% 215%
(4) Cash Value multiplied by Percentage from Corridor
Table..................................................... $107,500 $ 86,000
(5) Death Benefit = Greater of (1) and (4).................. $107,500 $100,000
</TABLE>
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 Insured is
male, and assuming that the age at death is 45:
<TABLE>
<CAPTION>
POLICY A POLICY B
-------- --------
<S> <C> <C>
(1) Face Amount............................................. $100,000 $100,000
(2) Cash Value on Date of Death............................. $ 50,000 $ 30,000
(3) Percentage on Date of Death from CVAT Table............. 294% 294%
(4) Cash Value multiplied by Percentage from CVAT Table..... $147,000 $ 88,200
(5) Death Benefit = Greater of (1) and (4).................. $147,000 $100,000
</TABLE>
FACE AMOUNT CHANGES.
The policyowner can apply in writing to increase the Face Amount of the
policy. In addition, on or after the first policy anniversary, the policyowner
can apply in writing to decrease the Face Amount of the policy. The policyowner
can change the Face Amount while the Insured is living, but only if the policy
will continue to qualify as life insurance under Internal Revenue 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 the surrender charge
premium.
The amount of an increase in Face Amount is subject to our maximum
retention limits. We require evidence of insurability which is satisfactory to
us for an increase. If this evidence results in a change of underwriting class,
we will issue a new policy 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 the policyowner's request for the
increase. An increase in Face Amount may increase the cost of insurance charge.
The policyowner may also request decreases in coverage. 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 the policyowner's 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, the policyowner can change the
Life Insurance Benefit Option. Any change will take effect on the Monthly
Deduction Day on or after the Business Day we approve the policyowner's signed
request. If the policyowner changes 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 the policyowner
changes 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 value in the Fixed Account and
the value in the Loan Account. Subsequent Net Premiums are allocated among the
Fixed Account and/or the Investment Divisions according to the allocation
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<PAGE> 28
percentages requested in the application, or as subsequently changed by the
policyowner. A portion of the policyowner's Cash Value is allocated to the Loan
Account if a loan is taken under the 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 value in the Fixed
Account 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 we approved. 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 policyowner may make a partial withdrawal of the policy's Cash
Surrender Value, at any time while the Insured is living. The maximum partial
withdrawal cannot exceed the value of the Accumulation Units in the Investment
Divisions plus the value of the Fixed Account less any Policy Debt. 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, the policyowner can borrow up to the
loan value of the policy. The loan value on any given date is equal to (i) 90%
of the Cash Surrender Value, less (ii) any Policy Debt.
LOAN ACCOUNT.
The Loan Account secures any 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
the policyowner requests 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
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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.
The value in the Loan Account will never be less than (a+b) - c, where:
a = the amount in the Loan Account on the prior policy anniversary
b = the amount of any loan taken since the prior policy anniversary
c = 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 additional amounts transferred will be allocated according to the
policyowner's premium allocation in effect at the time of transfer unless the
policyowner tells us otherwise.
The value in the Loan Account 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 will be subject to the following conditions:
(1) The effective date of any increase in the interest rate for loans will
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 will not exceed
one percent per year, but the interest will 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 the policyowner 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, we will
transfer immediately the excess amount in the Loan Account resulting from the
loan repayment in accordance with the procedures set forth under "Loan Account"
above. We will also transfer excess amounts in the Loan Account resulting from
interest accrued in accordance with those procedures.
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 the policyowner at his or her 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
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notice to the policyowner 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. The free look period begins
on the date the policy is delivered to the policyowner and the policyowner signs
for it and ends 20 days later. 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.
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 offer 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 old
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 the policyowner sends us
the policy along with a signed request; or (b) the Business Day we receive the
policy at our Service Office, or such other location that we indicate to the
policyowner in writing, and the necessary payment for the exchange, if any.
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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.
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.
George G. Trapp.............
Executive Vice President of New York Life from June
1995 to date and Corporate Secretary of New York Life
from November 1995 to date; Senior Vice President of
New York Life from 1991 until June 1995. Member of the
Executive Management Committee of New York Life since
1994.
Phillip J. Hildebrand.......
Executive Vice President of New York Life from March
1999 to date; Senior Vice President in charge of the
Agency Department of New York Life from 1996 to March
1999. Managing Partner of Dallas General Office of New
York Life from 1994 to 1996.
Frank M. Boccio.............
Senior Vice President in charge of Individual Policy
Services Department of New York Life since July 1995;
Vice President of New York Life from 1994 to 1995.
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
prior thereto. Senior Vice President of NYLIAC from
April 1992 to date.
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 Midlantic Corporation prior
thereto.
OFFICERS:
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; 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.
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
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November 1996 to date. Senior Vice President,
Individual Strategic Business Unit, Business Men's
Assurance Company, prior thereto.
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.
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.
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.
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
We rely upon various computer systems to process all policy transactions
and valuations. These systems are being adjusted to enable us to continue to
administer the policies in Year 2000 and later. As is the case with most systems
projects, risks and uncertainties exist, in part due to our reliance on systems
that belong to service providers who are not affiliated with NYLIAC.
We are devoting substantial resources to make all necessary systems
modifications and have received assurances from our service providers that they
are taking all necessary steps to address Year 2000 modifications with respect
to the computer systems that they use. Although we cannot give you guarantees,
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 following discussion is general in nature. It 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 we reserve the right to make changes in the policy to assure that it
continues to qualify as life insurance for tax purposes, we 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, the policyowner 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.
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TAX STATUS OF NYLIAC AND THE SEPARATE ACCOUNT.
NYLIAC is taxed as a life insurance company under Subchapter L of the
Internal Revenue 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 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.
CHARGES FOR TAXES.
We impose 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 Internal Revenue Code Section 848 by reason of its receipt of premiums
under the policy. We may increase the federal tax charge if the federal
government increases this charge. 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 Internal Revenue Code, a
policy will qualify as life insurance only if the diversification requirements
of Internal Revenue 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, we intend to comply with Section 817(h) and its regulations
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 U.S. 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 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 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 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.
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LIFE INSURANCE STATUS OF POLICY.
NYLIAC believes that the policy meets the statutory definition of life
insurance under Internal Revenue 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
Internal Revenue 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 under the policy
until proceeds of the policy are received upon a surrender of the policy or a
partial withdrawal.
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 Internal Revenue 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, we have 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 the policyowner pays a premium that exceeds the 7-pay limit, we will
notify and give the policyowner the opportunity to prevent the policy from
becoming a modified endowment contract by requesting that the excess premium be
returned to him or her. If the 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. 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.
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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, Internal Revenue 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 Internal Revenue 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. We suggest 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 endowment contract, the Internal Revenue 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 Internal Revenue Code
Section 72(v). Limited exceptions from the additional penalty tax are available
for certain distributions to individual policyowners. This 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.
We also believe that under current law any loan received under the policy
will be treated as policy debt 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% penalty tax.
Internal Revenue 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. We suggest consultation with a tax advisor for further guidance.
Certain changes to the Internal Revenue Code were recently proposed that
would negatively impact corporate owned and corporate sponsored life insurance,
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.
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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, Internal Revenue Code Section 101(a)
provides, subject to 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
policyowner should consult with a qualified tax advisor.
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 Internal Revenue 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 us 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, the policyowner 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 less any Policy Debt. 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.
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- 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. The surrender charge that is
reinstated is based on the Policy Year in which the reinstatement is made. See
"Section III: Charges Under the Policy -- Surrender Charge." 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.
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. The policyowner can also elect to
change the term amount at any time. The policyowner must furnish evidence of
insurability, satisfactory to us, in connection with any request to increase the
term amount.
PAYMENT OPTIONS
We will pay death benefits in one sum or, if elected, we will apply all or
part of the death benefit 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, less Policy Debt, 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, the policyowner can elect or change a payment
option. The policyowner 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.
33
<PAGE> 38
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%.
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 the policyowner names to receive the
Death Benefit after the Insured dies. The policyowner names the Beneficiary when
he or she applies 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 the original policyowner dies, if the original
policyowner dies before the Insured. If no successor policyowner survives the
original policyowner and the original policyowner dies before the Insured, the
original policyowner's estate becomes the new policyowner.
The policyowner 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 policyowner.
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. This
is 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.
34
<PAGE> 39
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 the policyowner 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.
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 less
any Policy Debt, 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 the
policyowner a report showing the Cash Value and any 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"), a member of the National
Association of Securities Dealers, is the principal underwriter and the
distributor of the policies. NYLIFE Distributors is an indirect
35
<PAGE> 40
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
NYLIAC is a defendant in individual and/or alleged class action suits
arising from its agency sales force, insurance (including variable contracts
registered under the federal securities law), investment, retail securities
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 which cannot be predicted, NYLIAC nevertheless believes that, after
provisions made in the financial statements, the ultimate liability that could
result from 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 and the Separate Account have been
included in reliance upon the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of NYLIAC 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 L. Don,
FSA, MAAA, Associate Actuary. An opinion on actuarial matters is filed with the
SEC as an exhibit to the registration statement.
36
<PAGE> 41
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 Internal Revenue Code Section 7702 Guideline Premium Corridor Table have
been selected. It also assumes that 100% of the Net Premium is allocated to
purchase Accumulation Units.
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 Cash Value, Cash Surrender Value and death
benefit of the policy with other corporate sponsored variable universal life
insurance plans.
The Cash Value, Cash Surrender Value and death benefit 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 or if premiums were not paid on the policy anniversary
during the period of time illustrated.
The first table reflects all charges under the policy. It 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 and the Accumulation
Value at the current levels. It also reflects a mortality and expense risk
charge assessed against the Separate Account equal to an annual rate of 0.70%
(for Policy Years one through ten) and a currently expected annual rate of 0.30%
(for Policy Years eleven and later), which is deducted daily.
The second table reflects all charges under the policy. It 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 and the
Accumulation Value at their guaranteed maximum levels. It also reflects a
mortality and expense risk charge assessed against the assets of the Separate
Account equal to an annual rate of 0.90% (for all Policy Years), which is
deducted daily.
The tables also reflect total assumed fees and expenses incurred by the
Funds of 0.74% of the average daily net assets of the Funds. The total is based
upon (a) 0.41% of average daily net assets, which is an average of the
management fees of each Portfolio; (b) 0.12% of average daily net assets, which
is an average of the administrative fees for each Portfolio; and (c) 0.21% 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 that ended 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, 1998, would have
been 1.17% for the MainStay VP International Equity Portfolio.
For the Calvert Social Balanced Portfolio, the fees are based on expenses
for the fiscal year 1998 and have been restated to reflect the complete
assessment of transfer agency expenses of 0.03%, expected to be incurred in
1999. "Other Expenses" reflect an indirect fee. "Total Fund Annual Expenses"
after reductions for fees paid indirectly, which are restated, would have been
0.86%.
A-1
<PAGE> 42
A portion of the brokerage commissions that Fidelity VIP II Contrafund and
Fidelity VIP Equity-Income Portfolios pay was used to reduce the Portfolios'
expenses. In addition, these Portfolios have entered into arrangements with
their custodian whereby credit realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the "Total
Fund Annual Expenses" would have been 0.66% for the Fidelity VIP II Contrafund
Portfolio and 0.57% for the Fidelity VIP Equity-Income Portfolio.
The "Total Fund Annual Expenses" for the Janus Aspen Series Worldwide
Growth Portfolio include a fee reduction to reduce the "Management Fees" to the
level of the corresponding Janus retail fund. Other waivers, if applicable, are
first applied against the "Management Fees" and then against "Other Expenses."
Janus Capital Corporation has agreed to continue the other waivers and fee
reductions until at least the next annual renewal of the advisory agreement.
Absent such waivers or reductions, the "Total Fund Annual Expenses" for the
fiscal year ended December 31, 1998 would have been 0.74%, for the Portfolio.
Morgan Stanley Dean Witter Investment Management Inc. has voluntarily
waived receipt of its "Management Fees" and agreed to reimburse the Portfolio,
if necessary, to the extent that the "Total Fund Annual Expenses" of the
Portfolio exceed 1.75% of average daily net assets. However, Morgan Stanley Dean
Witter has reflected under "Other Expenses" the Portfolio's interest and foreign
tax expenses incurred in 1998 which were equal to 0.20% of the Portfolio's
average daily net assets. The fee waivers and reimbursements described above may
be terminated by Morgan Stanley Dean Witter at any time without notice. Absent
such reductions, it is estimated that "Management Fees", "Administration Fees"
and "Total Fund Annual Expenses" would be 1.25%, 0.25% and 3.45%, 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 illustrated net investment
returns of -1.43%, 4.48% and 10.39%, respectively, based on the current charge
for mortality and expense risks, applicable to Policy Years one through ten;
- -1.04%, 4.90% and 10.84%, respectively, based on the current expected charge for
mortality and expense risks, applicable to Policy Years eleven and later; and
- -1.63%, 4.27% and 10.17%, respectively, based on the guaranteed maximum charge
for mortality and expense risks, applicable to all Policy Years.
The second column of each table shows the amount which would accumulate if
an amount equal to the scheduled annual premium were invested and earned
interest, after taxes, at 5% per year, compounded annually.
We 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> 43
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 6,733 7,132 5,309 5,707 6,106
2 16,144 360,000 350,000 350,000 12,493 13,680 14,916 11,468 12,655 13,890
3 24,826 350,000 350,000 350,000 18,512 20,888 23,459 17,487 19,863 22,433
4 33,942 350,000 350,000 350,000 24,381 28,357 32,829 23,356 27,331 31,804
5 43,514 350,000 350,000 350,000 30,104 36,101 43,120 29,078 35,076 42,094
6 53,565 350,000 350,000 350,000 35,674 44,127 54,423 34,855 43,308 53,604
7 64,118 350,000 350,000 350,000 41,078 52,435 66,836 40,462 51,819 66,220
8 75,199 350,000 350,000 350,000 46,198 60,922 80,368 45,789 60,513 79,959
9 86,834 350,000 350,000 350,000 51,255 69,815 95,356 51,049 69,608 95,150
10 99,051 350,000 350,000 350,000 56,246 79,130 111,956 56,246 79,130 111,956
15 169,931 350,000 350,000 350,000 79,736 133,540 229,072 79,736 133,540 229,072
20 260,394 350,000 350,000 519,936 97,965 200,741 426,177 97,965 200,741 426,177
30 523,206 350,000 429,648 1,383,403 115,271 401,540 1,292,900 115,271 401,540 1,292,900
</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> 44
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 5,150 5,506 5,862 4,124 4,480 4,837
2 16,144 350,000 350,000 350,000 10,118 11,148 12,223 9,093 10,123 11,197
3 24,826 350,000 350,000 350,000 14,910 16,938 19,139 13,885 15,913 18,113
4 33,942 350,000 350,000 350,000 19,493 22,848 26,635 18,468 21,822 25,609
5 43,514 350,000 350,000 350,000 23,873 28,887 34,781 22,847 27,862 33,756
6 53,565 350,000 350,000 350,000 28,056 35,070 43,657 27,237 34,251 42,838
7 64,118 350,000 350,000 350,000 32,010 41,371 53,313 31,394 40,755 52,697
8 75,199 350,000 350,000 350,000 35,705 47,767 63,810 35,296 47,358 63,401
9 86,834 350,000 350,000 350,000 39,149 54,273 75,258 38,943 54,066 75,051
10 99,051 350,000 350,000 350,000 42,313 60,867 87,746 42,313 60,867 87,746
15 169,931 350,000 350,000 350,000 53,370 95,025 170,711 53,370 95,025 170,711
20 260,394 350,000 350,000 376,671 54,162 130,636 308,747 54,162 130,636 308,747
30 523,206 * 350,000 950,606 * 198,730 888,417 * 198,730 888,417
</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.
* Without additional premiums above the annual scheduled premiums, the policy
would terminate in this scenario.
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> 45
APPENDIX B
SURRENDER CHARGE PREMIUM RATES PER THOUSANDS
The surrender charge premium for the policy at the time of issue is equal
to (a * 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> 46
FINANCIAL STATEMENTS
F-1
<PAGE> 47
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
------------------------------------------------
ASSETS:
Investment at net asset value......................... $ 350,765 $ 47,828 $ 9,615
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation for mortality and expense risk
charges............................................. 622 82 15
---------- ---------- ----------
Total equity...................................... $ 350,143 $ 47,746 $ 9,600
========== ========== ==========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 29,280;
46,188; 895; 486; 43,443; 31; 27,593; 37,916,
respectively...................................... $ 350,143 $ 47,746 $ 9,600
========== ========== ==========
Variable accumulation unit value.................... $ 11.96 $ 1.03 $ 10.73
========== ========== ==========
Identified Cost of Investment........................... $ 302,847 $ 47,828 $ 9,536
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
------------------------------------------------
ASSETS:
Investment at net asset value......................... $ 813,451 $ 5,820 $ 1,824
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation for mortality and expense risk
charges............................................. 1,490 9 2
---------- ---------- ----------
Total equity...................................... $ 811,961 $ 5,811 $ 1,822
========== ========== ==========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 72,252;
543; 169; 1,534; 39,048; 455,773; 18,
respectively...................................... $ 811,961 $ 5,811 $ 1,822
========== ========== ==========
Variable accumulation unit value.................... $ 11.24 $ 10.70 $ 10.75
========== ========== ==========
Identified Cost of Investment........................... $ 743,296 $ 5,245 $ 1,829
========== ========== ==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-2
<PAGE> 48
NYLIAC CSVUL SEPARATE ACCOUNT-I
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP GROWTH
CORPORATE BOND EQUITY VALUE BOND EQUITY
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
$ 4,725 $ 463,205 $ 257 $ 295,218 $ 416,570
8 863 -- 517 753
---------- ---------- ---------- ---------- ----------
$ 4,717 $ 462,342 $ 257 $ 294,701 $ 415,817
========== ========== ========== ========== ==========
$ 4,717 $ 462,342 $ 257 $ 294,701 $ 415,817
========== ========== ========== ========== ==========
$ 9.71 $ 10.64 $ 8.20 $ 10.68 $ 10.97
========== ========== ========== ========== ==========
$ 5,278 $ 448,837 $ 255 $ 305,145 $ 411,806
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
$ 18,065 $ 386,805 $5,476,637 $ 200
27 716 9,693 --
---------- ---------- ---------- ----------
$ 18,038 $ 386,089 $5,466,944 $ 200
========== ========== ========== ==========
$ 18,038 $ 386,089 $5,466,944 $ 200
========== ========== ========== ==========
$ 11.76 $ 9.89 $ 11.99 $ 10.85
========== ========== ========== ==========
$ 15,510 $ 388,459 $4,695,527 $ 194
========== ========== ========== ==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-3
<PAGE> 49
STATEMENT OF OPERATIONS
For the period March 27, 1998 (Commencement of Investments) through December 31,
1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
------------------------------------------------
INVESTMENT INCOME (LOSS):
Dividend income......................................... $ 305 $ 1,286 $ 401
Mortality and expense risk charges...................... (1,068) (178) (35)
--------- --------- ---------
Net investment income (loss)........................ (763) 1,108 366
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments....................... 25,263 3,858 609
Cost of investments sold................................ (25,230) (3,858) (578)
--------- --------- ---------
Net realized gain (loss) on investments............. 33 -- 31
Realized gain distribution received..................... 3,223 -- --
Change in unrealized appreciation (depreciation)
on investments........................................ 47,918 -- 79
--------- --------- ---------
Net gain (loss) on investments...................... 51,174 -- 110
--------- --------- ---------
Decrease attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account.......................... (82) (1) --
--------- --------- ---------
Net increase (decrease) in total equity resulting
from operations................................... $ 50,329 $ 1,107 $ 476
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
------------------------------------------------
INVESTMENT INCOME (LOSS):
Dividend income......................................... $ 7,987 $ -- $ 41
Mortality and expense risk charges...................... (3,211) (14) (5)
--------- --------- ---------
Net investment income (loss)........................ 4,776 (14) 36
--------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments....................... 62,401 380 203
Cost of investments sold................................ (62,530) (475) (203)
--------- --------- ---------
Net realized gain (loss) on investments............. (129) (95) --
Realized gain distribution received..................... 6,801 220 91
Change in unrealized appreciation (depreciation)
on investments........................................ 70,155 575 (5)
--------- --------- ---------
Net gain (loss) on investments...................... 76,827 700 86
--------- --------- ---------
Decrease attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account.......................... (153) (1) --
--------- --------- ---------
Net increase (decrease) in total equity resulting
from operations................................... $ 81,450 $ 685 $ 122
========= ========= =========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE> 50
NYLIAC CSVUL SEPARATE ACCOUNT-I
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP GROWTH
CORPORATE BOND EQUITY VALUE BOND EQUITY
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
$ 429 $ 9,199 $ -- $ 15,329 $ 3,028
(21) (1,786) -- (1,045) (1,935)
--------- --------- --------- --------- ---------
408 7,413 -- 14,284 1,093
--------- --------- --------- --------- ---------
164 37,568 343 24,172 33,676
(170) (37,797) (372) (23,500) (34,708)
--------- --------- --------- --------- ---------
(6) (229) (29) 672 (1,032)
14 -- -- 7,525 30,785
(554) 14,368 2 (9,927) 4,765
--------- --------- --------- --------- ---------
(546) 14,139 (27) (1,730) 34,518
--------- --------- --------- --------- ---------
-- (71) -- (12) (79)
--------- --------- --------- --------- ---------
$ (138) $ 21,481 $ (27) $ 12,542 $ 35,532
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
$ -- $ -- $ 66,234 $ 3
(43) (1,898) (13,177) --
--------- --------- --------- ---------
(43) (1,898) 53,057 3
--------- --------- --------- ---------
943 31,773 617,823 82
(928) (33,821) (666,464) (85)
--------- --------- --------- ---------
15 (2,048) (48,641) (3)
-- -- 1,640 1
2,555 (1,654) 781,110 6
--------- --------- --------- ---------
2,570 (3,702) 734,109 4
--------- --------- --------- ---------
(2) (28) (1,199) --
--------- --------- --------- ---------
$ 2,525 $ (5,628) $ 785,967 $ 7
========= ========= ========= =========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-5
<PAGE> 51
STATEMENT OF CHANGES IN TOTAL EQUITY
For the period March 27, 1998 (Commencement of Investments) through December 31,
1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
--------------------------------------------------
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)............................ $ (763) $ 1,108 $ 366
Net realized gain (loss) on investments................. 33 -- 31
Realized gain distribution received..................... 3,223 -- --
Change in unrealized appreciation (depreciation) on
investments........................................... 47,918 -- 79
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account.............. (82) (1) --
---------- ---------- ----------
Net increase (decrease) in total equity resulting
from operations..................................... 50,329 1,107 476
---------- ---------- ----------
Contributions and withdrawals:
Policyowners' premium payments.......................... 202,881 26,274 3,943
Cost of insurance....................................... (8,151) (1,757) (648)
Net transfers from Fixed Account........................ 105,084 22,122 5,829
---------- ---------- ----------
Net contributions and withdrawals..................... 299,814 46,639 9,124
---------- ---------- ----------
Increase in total equity............................ 350,143 47,746 9,600
TOTAL EQUITY:
Beginning of period..................................... -- -- --
---------- ---------- ----------
End of period........................................... $ 350,143 $ 47,746 $ 9,600
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
--------------------------------------------------
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)............................ $ 4,776 $ (14) $ 36
Net realized gain (loss) on investments................. (129) (95) --
Realized gain distribution received..................... 6,801 220 91
Change in unrealized appreciation (depreciation) on
investments........................................... 70,155 575 (5)
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account.............. (153) (1) --
---------- ---------- ----------
Net increase (decrease) in total equity resulting
from operations..................................... 81,450 685 122
---------- ---------- ----------
Contributions and withdrawals:
Policyowners' premium payments.......................... 243,408 2,686 1,459
Cost of insurance....................................... (46,439) (400) (228)
Net transfers from Fixed Account........................ 533,542 2,840 469
---------- ---------- ----------
Net contributions and withdrawals..................... 730,511 5,126 1,700
---------- ---------- ----------
Increase in total equity............................ 811,961 5,811 1,822
TOTAL EQUITY:
Beginning of period..................................... -- -- --
---------- ---------- ----------
End of period........................................... $ 811,961 $ 5,811 $ 1,822
========== ========== ==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-6
<PAGE> 52
NYLIAC CSVUL SEPARATE ACCOUNT-I
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP MAINSTAY VP
CORPORATE BOND EQUITY VALUE BOND GROWTH EQUITY
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
$ 408 $ 7,413 $ -- $ 14,284 $ 1,093
(6) (229) (29) 672 (1,032)
14 -- -- 7,525 30,785
(554) 14,368 2 (9,927) 4,765
-- (71) -- (12) (79)
---------- ---------- ---------- ---------- ----------
(138) 21,481 (27) 12,542 35,532
---------- ---------- ---------- ---------- ----------
420 195,556 319 193,447 1,610
(171) (19,904) (112) (7,428) (32,484)
4,606 265,209 77 96,140 411,159
---------- ---------- ---------- ---------- ----------
4,855 440,861 284 282,159 380,285
---------- ---------- ---------- ---------- ----------
4,717 462,342 257 294,701 415,817
-- -- -- -- --
---------- ---------- ---------- ---------- ----------
$ 4,717 $ 462,342 $ 257 $ 294,701 $ 415,817
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C>
--------------------------------------------------------------------
$ (43) $ (1,898) $ 53,057 $ 3
15 (2,048) (48,641) (3)
-- -- 1,640 1
2,555 (1,654) 781,110 6
(2) (28) (1,199) --
---------- ---------- ---------- ----------
2,525 (5,628) 785,967 7
---------- ---------- ---------- ----------
8,723 6,244 3,476,276 233
(1,171) (31,373) (85,847) (94)
7,961 416,846 1,290,548 54
---------- ---------- ---------- ----------
15,513 391,717 4,680,977 193
---------- ---------- ---------- ----------
18,038 386,089 5,466,944 200
-- -- -- --
---------- ---------- ---------- ----------
$ 18,038 $ 386,089 $5,466,944 $ 200
========== ========== ========== ==========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-7
<PAGE> 53
NYLIAC CSVUL SEPARATE ACCOUNT-I
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
NYLIAC Corporate Sponsored Variable Universal Life Separate Account-I ("CSVUL
Separate Account-I") was established on May 24, 1996, under Delaware law by New
York Life Insurance and Annuity Corporation ("NYLIAC"), a wholly-owned
subsidiary of New York Life Insurance Company. Investments into CSVUL Separate
Account-I commenced on March 27, 1998. The CSVUL Separate Account-I policies
are designed for Group or Sponsored arrangements who seek lifetime insurance
protection and flexibility with respect to premium payments and death benefits.
The policies are distributed by NYLIFE Distributors Inc. and sold by registered
representatives of broker-dealers who have entered into dealer agreements with
NYLIFE Distributors Inc. NYLIFE Distributors Inc. is a wholly-owned subsidiary
of NYLIFE Inc., which is a wholly-owned subsidiary of New York Life Insurance
Company. CSVUL Separate Account-I is registered under the Investment Company
Act of 1940, as amended, as a unit investment trust.
The assets of CSVUL Separate Account-I are invested in the shares of the
MainStay VP Series Fund, Inc., the Alger American Fund, the Calvert Variable
Series, Inc. (formerly, "Acacia Capital Corporation"), the Fidelity Variable
Insurance Products Fund II, the Fidelity Variable Insurance Products Fund, the
Janus Aspen Series and the Morgan Stanley Universal Funds, Inc. (collectively,
"Funds"). These assets are clearly identified and distinguished from the other
assets and liabilities of New York Life Insurance and Annuity Corporation.
CSVUL Separate Account-I offers the following eighteen variable Investment
Divisions, with their respective fund portfolios, for Policyowners to invest
premium payments: 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
(formerly "Calvert Socially Responsible"), Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced, Janus Aspen Series Worldwide
Growth and Morgan Stanley Emerging Markets Equity. As of December 31, 1998 no
investments have been made in the following Investment Divisions: MainStay VP
Convertible, MainStay VP Total Return, and Morgan Stanley Emerging Markets
Equity. Each Investment Division of CSVUL Separate Account-I will invest
exclusively in the corresponding Eligible Portfolio.
Initial premium payments received are allocated to NYLIAC's General Account
until 20 days after the policy delivery date. Thereafter, premium payments will
be allocated to the Investment Divisions of CSVUL Separate Account-I in
accordance with the Policyowner's instructions. In addition, the Policyowner has
the option to transfer amounts between the Investment Divisions of CSVUL
Separate Account-I and the Fixed Account of New York Life Insurance and Annuity
Corporation.
No Federal income tax is payable on investment income or capital gains of
CSVUL Separate Account-I under current Federal income tax law.
Security Valuation--The investments are valued at the net asset value of
shares of the respective Fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
F-8
<PAGE> 54
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-9
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1998, the investments of CSVUL Separate Account-I are as
follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
------------------------------------------------------
Number of shares......................................... 11 48 1
Identified cost*......................................... $ 303 $ 48 $ 10
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
------------------------------------------------------
Number of shares......................................... 31 -- 1
Identified cost*......................................... $ 743 $ 5 $ 2
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the period March 27, 1998 (Commencement of
Investments) through December 31, 1998, was as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
------------------------------------------------------
Purchases................................................ $ 328 $ 52 $ 10
Proceeds from sales...................................... 25 4 1
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
------------------------------------------------------
Purchases................................................ $ 806 $ 6 $ 2
Proceeds from sales...................................... 62 -- --
</TABLE>
F-10
<PAGE> 56
NYLIAC CSVUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP GROWTH
CORPORATE BOND EQUITY VALUE BOND EQUITY
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
-- 37 -- 22 18
$ 5 $ 449 $ -- $ 305 $ 412
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
1 15 243 --
$ 16 $ 388 $4,696 $ --
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP GROWTH
CORPORATE BOND EQUITY VALUE BOND EQUITY
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------
$ 5 $ 487 $ 1 $ 329 $ 447
-- 38 -- 24 34
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------
$ 16 $ 422 $5,362 $ --
1 32 618 --
</TABLE>
F-11
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
CSVUL Separate Account-I is charged for the mortality and expense risks
assumed by New York Life Insurance and Annuity Corporation. These charges are
made daily at an annual rate of .70% of the daily net asset value of each
Investment Division for policy years one through ten. For policy years eleven
and later, an annual rate of .30% is deducted. New York Life Insurance and
Annuity Corporation may increase these charges in the future up to a maximum
annual rate of .90%. The amounts of these charges retained in the Investment
Divisions represent funds of New York Life Insurance and Annuity Corporation.
Accordingly, New York Life Insurance and Annuity Corporation participates in
the results of each Investment Division ratably with the Policyowners.
- --------------------------------------------------------------------------------
NOTE 4 --Distribution of Net Income:
- --------------------------------------------------------------------------------
CSVUL Separate Account-I does not expect to declare dividends to Policyowners
from accumulated net investment income and realized gains. The income and gains
are distributed to Policyowners as part of withdrawals of amounts (in the form
of surrenders, death benefits or transfers) in excess of the net premium
payments.
F-12
<PAGE> 58
NYLIAC CSVUL SEPARATE ACCOUNT-I
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-13
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1998, the cost to Policyowners for accumulation units
outstanding, with adjustments for net investment income, market appreciation
(depreciation) and deduction for expenses is as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
--------------------------------------------------------
Cost to Policyowners (net of withdrawals)............. $ 320 $ 51 $ 11
Sales charges......................................... (12) (2) --
Cost of insurance..................................... (8) (2) (1)
Accumulated net investment income (loss).............. (1) 1 --
Accumulated net realized gain on investments and
realized gain distributions received................ 3 -- --
Unrealized appreciation (depreciation) on
investments......................................... 48 -- --
------ ------ ------
Net amount applicable to Policyowners................. $ 350 $ 48 $ 10
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
--------------------------------------------------------
Cost to Policyowners (net of withdrawals)............. $ 790 $ 5 $ 2
Sales charges......................................... (14) -- --
Cost of insurance..................................... (46) -- --
Accumulated net investment income (loss).............. 5 -- --
Accumulated net realized gain (loss) on investments
and
realized gain distributions received................ 7 -- --
Unrealized appreciation (depreciation) on
investments......................................... 70 1 --
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account............ -- -- --
------ ------ ------
Net amount applicable to Policyowners................. $ 812 $ 6 $ 2
====== ====== ======
</TABLE>
F-14
<PAGE> 60
NYLIAC CSVUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP GROWTH
CORPORATE BOND EQUITY VALUE BOND EQUITY
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------
$ 6 $ 473 $ -- $ 301 $ 412
-- (12) -- (11) --
-- (20) -- (7) (32)
-- 7 -- 14 1
-- -- -- 8 30
(1) 14 -- (10) 5
------ ------ ------ ------ ------
$ 5 $ 462 $ -- $ 295 $ 416
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
$ 17 $ 423 $4,969 $ --
(1) -- (202) --
(1) (31) (86) --
-- (2) 53 --
-- (2) (47) --
3 (2) 781 --
-- -- (1) --
------ ------ ------ ------
$ 18 $ 386 $5,467 $ --
====== ====== ====== ======
</TABLE>
F-15
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
T
ransactions in accumulation units for the period March 27, 1998
(Commencement of Investments) through December 31, 1998, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
--------------------------------------------------
Units issued on premium payments............................ 20 26 --
Units redeemed on cost of insurance......................... (1) (2) --
Units issued on net transfers from
Fixed Account............................................. 10 22 1
--- --- ---
Net increase.............................................. 29 46 1
Units outstanding, beginning of period...................... -- -- --
--- --- ---
Units outstanding, end of period............................ 29 46 1
=== === ===
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
--------------------------------------------------
Units issued on premium payments............................ 24 -- --
Units redeemed on cost of insurance......................... (5) -- --
Units issued on net transfers from
Fixed Account............................................. 53 1 --
--- --- ---
Net increase.............................................. 72 1 --
Units outstanding, beginning of period...................... -- -- --
--- --- ---
Units outstanding, end of period............................ 72 1 --
=== === ===
</TABLE>
F-16
<PAGE> 62
NYLIAC CSVUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP MAINSTAY VP
CORPORATE BOND EQUITY VALUE BOND GROWTH EQUITY
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
-- 20 -- 20 --
-- (2) -- (1) (3)
-- 25 -- 9 41
--- --- --- --- ---
-- 43 -- 28 38
-- -- -- -- --
--- --- --- --- ---
-- 43 -- 28 38
=== === === === ===
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C>
--------------------------------------------------------------------
1 1 339 --
-- (3) (8) --
1 41 125 --
--- --- --- ---
2 39 456 --
-- -- -- --
--- --- --- ---
2 39 456 --
=== === === ===
</TABLE>
F-17
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and capital
changes (for an accumulation unit outstanding throughout the period March 27,
1998 (Commencement of Investments) through December 31, 1998) with respect to
each Investment Division of CSVUL Separate Account-I:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
--------------------------------------------------
Unit value, beginning of period............................. $10.00 $ 1.00 $10.00
Net investment income (loss)................................ (0.05) 0.04 0.53
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 2.01 (0.01) 0.20
------ ------ ------
Unit value, end of period................................... $11.96 $ 1.03 $10.73
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN CALVERT
INDEXED SMALL SOCIAL
EQUITY CAPITALIZATION BALANCED
<S> <C> <C> <C>
--------------------------------------------------
Unit value, beginning of period............................. $10.00 $10.00 $10.00
Net investment income (loss)................................ 0.11 (0.07) 0.35
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.13 0.77 0.40
------ ------ ------
Unit value, end of period................................... $11.24 $10.70 $10.75
====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the period.
F-18
<PAGE> 64
NYLIAC CSVUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL MAINSTAY VP MAINSTAY VP GROWTH
CORPORATE BOND EQUITY VALUE BOND EQUITY
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------
... $10.00 $10.00 $10.00 $10.00 $10.00
... 0.87 0.29 -- 0.75 0.04
... (1.16) 0.35 (1.80) (0.07) 0.93
------ ------ ------ ------ ------
... $ 9.71 $10.64 $ 8.20 $10.68 $10.97
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
FIDELITY FIDELITY JANUS ASPEN SERIES
VIP II VIP SERIES WORLDWIDE
CONTRAFUND EQUITY-INCOME BALANCED GROWTH
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------
... $10.00 $10.00 $10.00 $10.00
... (0.07) (0.07) 0.29 0.32
... 1.83 (0.04) 1.70 0.53
------ ------ ------ ------
... $11.76 $ 9.89 $11.99 $10.85
====== ====== ====== ======
</TABLE>
F-19
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance and
Annuity Corporation and the Corporate Sponsored Variable Universal Life
Policyowners:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations, of changes in total equity and the selected
per unit data present fairly, in all material respects, the financial position
of 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, MainStay VP Indexed Equity, Alger
American Small Capitalization, Calvert Social Balanced, formerly known as
Calvert Socially Responsible, 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 (constituting
the NYLIAC Corporate Sponsored Variable Universal Life Separate Account-I) at
December 31, 1998, and the results of each of their operations, the changes in
each of their total equity, and the selected per unit data for the period March
27, 1998 (Commencement of Investment) through December 31, 1998 in conformity
with generally accepted accounting principles. These financial statements and
the selected per unit data (herein referred to as the "financial statements")
are the responsibility of management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audit of these financial 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 the overall financial statement presentation. We believe that our
audit, which included confirmation of investments at December 31, 1998 with 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., provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
F-20
<PAGE> 66
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value $13,081 $12,170
Held to maturity, at amortized cost 725 801
Equity securities 100 83
Mortgage loans 1,622 1,305
Real estate 116 151
Policy loans 491 481
Other long-term investments 26 20
------- -------
Total investments 16,161 15,011
Cash and cash equivalents 948 773
Deferred policy acquisition costs 859 688
Other assets 297 345
Separate account assets 6,852 4,315
------- -------
Total Assets $25,117 $21,132
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $14,709 $13,716
Future policy benefits 315 276
Policy claims 60 55
Deferred taxes 101 93
Other liabilities 992 727
Separate account liabilities 6,792 4,303
------- -------
Total Liabilities 22,969 19,170
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
Accumulated other comprehensive income 201 157
Retained earnings 1,442 1,300
------- -------
Total stockholder's equity 2,148 1,962
------- -------
Total liabilities and stockholder's equity $25,117 $21,132
======= =======
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 67
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,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees $ 293 $ 271 $ 236
Net investment income 1,115 1,066 1,048
Investment gains, net 56 126 65
Other income 122 78 56
------ ------ ------
Total revenues 1,586 1,541 1,405
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances 784 748 723
Policyholder benefits 175 141 117
Operating expenses 405 352 299
------ ------ ------
Total expenses 1,364 1,241 1,139
------ ------ ------
Income before Federal income taxes 222 300 266
Federal income taxes:
Current 97 114 121
Deferred (17) (1) (24)
------ ------ ------
Total Federal income taxes 80 113 97
------ ------ ------
Net income $ 142 $ 187 $ 169
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 68
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Net Income $142 $187 $ 169
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during period 79 -- --
Unrealized holding gains arising during period,
including reclassification adjustments -- 89 (159)
Less: reclassification adjustment for gains included
in net income 35 -- --
---- ---- -----
Other comprehensive income 44 89 (159)
---- ---- -----
Comprehensive income $186 $276 $ 10
==== ==== =====
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 69
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,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Stockholder's equity, beginning of year $1,962 $1,686 $1,676
Net Income 142 187 169
Other comprehensive income 44 89 (159)
------ ------ ------
Stockholder's equity, end of year $2,148 $1,962 $1,686
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 70
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,
------------------------------
1998 1997 1996
------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 142 $ 187 $ 169
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2 (43) (18)
Net capitalization of deferred policy acquisition costs (192) (85) (44)
Universal life and annuity fees (198) (202) (188)
Interest credited to policyholders' account balances 784 748 723
Net realized investment gains (56) (126) (65)
Deferred income taxes (17) (1) (24)
(Increase) decrease in net separate account assets (42) 30 6
Increase (decrease) in loaned securities 425 -- --
(Increase) decrease in other assets and other
liabilities (90) 126 (127)
Increase (decrease) in policy claims 4 (2) (24)
Increase (decrease) in future policy benefits 39 25 18
------- -------- -------
Net cash provided by operating activities 801 657 426
------- -------- -------
Cash Flows from Investing Activities:
Proceeds from sale of available for sale fixed maturities 5,325 13,378 5,787
Proceeds from maturity of available for sale fixed
maturities 1,610 1,137 1,505
Proceeds from sale of held to maturity fixed securities -- 3 --
Proceeds from maturity of held to maturity fixed
maturities 102 112 141
Proceeds from sale of equity securities 77 140 47
Proceeds from repayment of mortgage loans 238 220 143
Proceeds from sale of real estate and other invested
assets 47 40 59
Cost of available for sale fixed maturities acquired (7,670) (14,391) (7,447)
Cost of held to maturity fixed maturities acquired (49) (281) (95)
Cost of equity securities acquired (83) (163) (43)
Cost of mortgage loans acquired (558) (413) (280)
Cost of real estate and other invested assets acquired (20) (29) (43)
Policy loans (10) (17) (29)
Securities sold under agreements to repurchase (net) (45) 134 (37)
------- -------- -------
Net cash used in investing activities (1,036) (130) (292)
------- -------- -------
Cash Flows from Financing Activities:
Policyholders' account balances:
Deposits 1,493 1,189 929
Withdrawals (1,151) (1,235) (1,188)
Net transfers from the separate accounts 67 58 33
------- -------- -------
Net cash provided (used) by financing activities 409 12 (226)
------- -------- -------
Effect of exchange rate changes on cash and cash equivalents 1 (2) 2
------- -------- -------
Net increase (decrease) in cash and cash equivalents 175 537 (90)
------- -------- -------
Cash and cash equivalents, beginning of year 773 236 326
------- -------- -------
Cash and cash equivalents, end of year $ 948 $ 773 $ 236
======= ======== =======
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 71
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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.
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the current year presentation.
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 maturity and
equity securities are 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. 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 that have maturities of between 91-365 days at date of purchase are
included in fixed maturities on the balance sheet and are carried at amortized
cost, which approximates fair value.
Derivative financial instruments hedging exposure to interest rate
fluctuation on available for sale securities are accounted for at fair market
value. Unrealized gains and losses are reported in stockholder's equity, net of
deferred taxes and related adjustments. Amounts payable or receivable under
interest rate 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. Realized gains and losses are recognized in net income upon
termination or maturity of the contracts.
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
F-26
<PAGE> 72
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
DEFERRED POLICY ACQUISITION COSTS -- (CONTINUED)
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 comprehensive income.
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 expenses 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 NYLIAC is allocated its
share of the consolidated tax provision or benefit determined generally 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
insurance subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate ("DER") (the actual rate will be announced at a later
date by the Internal Revenue Service ("IRS")) used to compute the equity base
tax.
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 includes interest credited to the policies.
F-27
<PAGE> 73
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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/or 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.
ACCOUNTING CHANGES
During 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income" which establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income is defined as net income adjusted for changes in stockholder's equity
resulting from events other than net income.
This Statement was adopted for the 1998 NYLIAC financial statements. The
1997 and 1996 financial statements were not restated to report the
reclassification adjustments separately from unrealized gains (losses) which
arose during the period. Adoption of this Statement had no effect on reported
net income or stockholder's equity.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement). This Statement establishes new
GAAP accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
This Statement is effective for the 2000 financial statements of the Company.
NYLIAC is currently evaluating what impact, if any, this Statement will have on
its financial results.
This Statement requires that derivatives be reported in the balance sheet
at their fair value, regardless of any hedging relationship that may exist.
Accounting for the gains or losses resulting from changes in the values of those
derivatives would depend on the use of the derivative and whether it qualifies
for hedge accounting. Changes in fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria will be
reported in earnings.
F-28
<PAGE> 74
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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 generally
based upon the assumption such securities will be held to maturity, or a
proprietary matrix pricing model.
At December 31, 1998 and 1997, the maturity distribution of fixed
maturities was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE COST FAIR VALUE
- ------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 518 $ 521 $ 480 $ 482
Due after one year through five years 3,473 3,533 3,053 3,099
Due after five years through ten years 1,804 1,885 2,156 2,230
Due after ten years 3,028 3,235 2,425 2,608
Asset-backed securities:
Government or government agency 2,080 2,121 2,271 2,324
Other 1,740 1,786 1,411 1,427
------- ------- ------- -------
Total Available for Sale $12,643 $13,081 $11,796 $12,170
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $ 27 $ 28 $ 30 $ 30
Due after one year through five years 225 291 225 239
Due after five years through ten years 219 228 226 240
Due after ten years 193 207 224 238
Asset-backed securities 61 62 96 97
------- ------- ------- -------
Total Held to Maturity $ 725 $ 816 $ 801 $ 844
======= ======= ======= =======
</TABLE>
At December 31, 1998 and 1997, the distribution of gross unrealized gains
and losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1998
---------------------------------------------------
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 $ 1,006 $ 45 $ 1 $ 1,050
U.S. agencies, state and municipal 1,927 39 4 1,962
Foreign governments 234 22 -- 256
Corporate 7,736 338 47 8,027
Other 1,740 48 2 1,786
------- ---- --- -------
Total Available for Sale $12,643 $492 $54 $13,081
======= ==== === =======
HELD TO MATURITY
Corporate $ 664 $ 91 $ 1 $ 754
Other 61 1 -- 62
------- ---- --- -------
Total Held to Maturity $ 725 $ 92 $ 1 $ 816
======= ==== === =======
</TABLE>
F-29
<PAGE> 75
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
FIXED MATURITIES -- (CONTINUED)
<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>
EQUITY SECURITIES
Estimated fair value of equity securities has been determined using quoted
market prices for publicly traded securities and a matrix pricing model for
private placement securities. At December 31, 1998 and 1997, 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>
1998 $76 $27 $3 $100
1997 $66 $25 $8 $ 83
</TABLE>
MORTGAGE LOANS
NYLIAC's mortgage loans are diversified by property type, location and
borrower, and are generally collateralized by the related property.
The fair market value of the mortgage loan portfolio at December 31, 1998
and 1997 is estimated to be $1,728 million and $1,408 million, respectively.
Market values are determined by discounting the projected cash flows for each
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, 1998 and 1997, contractual commitments to extend credit
under commercial and residential mortgage loan agreements amounted to
approximately $76 million and $108 million, respectively, 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 $1 million and $14 million
at December 31, 1998 and 1997, respectively. The activity in the specific and
general reserves as of December 31, 1998 and 1997 is summarized below (in
millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Beginning Balance $14 $20
Reductions credited to operations (5) (1)
Recoveries of amounts previously written-down (8) (5)
--- ---
Ending Balance $ 1 $14
=== ===
</TABLE>
F-30
<PAGE> 76
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
MORTGAGE LOANS -- (CONTINUED)
Impaired mortgage loans along with specific provisions for losses as of
December 31, 1998 and 1997, were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Impaired mortgage loans with provisions for losses $-- $19
Provision for losses -- (8)
-- ---
Net impaired mortgage loans $-- $11
== ===
</TABLE>
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, 1998 and 1997, the distribution of the mortgage loan
portfolio by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Property Type:
Office building $ 753 $ 601
Retail 330 255
Apartments 187 187
Residential 247 172
Other 105 90
------ ------
Total $1,622 $1,305
====== ======
Geographic Region:
Central $ 359 $ 250
Pacific 211 145
Middle Atlantic 451 426
South Atlantic 418 362
New England 121 73
Other 62 49
------ ------
Total $1,622 $1,305
====== ======
</TABLE>
REAL ESTATE
At December 31, 1998 and 1997, NYLIAC's real estate portfolio consisted of
the following (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Investment $105 $103
Acquired through foreclosures 11 19
Real estate joint ventures and limited partnerships -- 29
---- ----
Total real estate $116 $151
==== ====
</TABLE>
Accumulated depreciation on real estate at December 31, 1998 and 1997, was
$12 million and $8 million, respectively. Depreciation expense totaled $3
million in 1998, 1997 and 1996.
F-31
<PAGE> 77
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
The components of net investment income for the years ended December 31,
1998, 1997 and 1996, were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Fixed maturities $ 972 $ 961 $ 920
Equity securities 7 6 3
Mortgage loans 116 96 93
Real estate 15 18 21
Policy loans 40 39 37
Other 9 1 6
------ ------ ------
Gross investment income 1,159 1,121 1,080
Investment expenses (44) (55) (32)
------ ------ ------
Net investment income $1,115 $1,066 $1,048
====== ====== ======
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, realized investment
gains computed under the specific identification method are as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- --------------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturities $ 87 $(29) $172 $ (83) $100 $ (64)
Equity securities 7 (7) 9 (4) 22 (1)
Mortgage loans 16 (8) 12 (8) 15 (19)
Real estate 6 (2) 3 (2) 6 (3)
Derivative instruments -- -- 80 (71) 46 (41)
Other 3 (17) 19 (1) 7 (3)
---- ---- ---- ----- ---- -----
Subtotal $119 $(63) $295 $(169) $196 $(131)
---- ---- ---- ----- ---- -----
Investment gains, net $56 $126 $65
=== ==== ===
</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.
Stockholder's equity at December 31, 1998 and 1997 includes net unrealized
gains as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Net unrealized gains on investments before adjustments $ 472 $ 382
----- -----
Related adjustments
Deferred policy acquisition costs (169) (148)
Policyholder liabilities 6 7
Deferred Federal income taxes (108) (84)
----- -----
(271) (225)
----- -----
Net unrealized gains on investments included in
Stockholder's equity $ 201 $ 157
===== =====
</TABLE>
F-32
<PAGE> 78
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES -- (CONTINUED)
Changes in net unrealized gains and losses on investments were as follows
(in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Unrealized gains (losses) on investments:
Beginning of year $382 $163
End of year 472 382
---- ----
Net change 90 219
Change in related adjustments of balance sheet accounts:
Deferred policy acquisition costs (21) (88)
Policyholder liabilities (1) 5
Deferred Federal income taxes (24) (47)
---- ----
Change in unrealized gains on investments 44 89
Net unrealized gains on investments at beginning of year 157 68
---- ----
Net unrealized gains on investments at end of year $201 $157
==== ====
</TABLE>
NOTE 5 -- INSURANCE LIABILITIES
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, 1998 and 1997, was $6,905 million and $7,150 million,
respectively.
NOTE 6 -- SEPARATE ACCOUNTS
NYLIAC maintains eight non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products. NYLIAC maintains
investments in the registered separate accounts of $54 million and $12 million
at December 31, 1998 and 1997, 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 non-proprietary
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. At December 31, 1998, no policies had yet been issued for one of these
separate accounts.
NOTE 7 -- DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs (DAC) for the years ended
December 31, 1998, 1997 and 1996 is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Balance at beginning of year before adjustment for
unrealized gains on investments $ 836 $ 751 $ 707
Current year additions 286 200 151
Amortized during year (94) (115) (107)
Balance at end of year before adjustment for
unrealized gains on investments 1,028 836 751
Adjustment for unrealized gains on investments (169) (148) (60)
------ ----- -----
Balance at end of year $ 859 $ 688 $ 691
====== ===== =====
</TABLE>
F-33
<PAGE> 79
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 8 -- FEDERAL INCOME TAXES
The components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policyholder benefits $196 $153
Employee and agents' benefits 53 49
Other -- 6
---- ----
Gross deferred tax assets 249 208
==== ====
Deferred tax liabilities:
Deferred policy acquisition costs 168 147
Investments 174 149
Other 8 5
---- ----
Gross deferred tax liabilities 350 301
---- ----
Net deferred tax liability $101 $ 93
==== ====
</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.
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Equity base tax 1.7 3.3 3.2
Tax exempt income (.5) (.5) (.7)
Other (.2) (.1) (.9)
---- ---- ----
Effective tax rate 36.0% 37.7% 36.6%
==== ==== ====
</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
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.
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
NYLIAC uses derivative financial instruments to manage interest rate,
commodity and market risk. These derivative financial instruments include
interest rate floors and interest rate and commodity swaps. NYLIAC has not
engaged in derivative financial instrument transactions for speculative
purposes.
F-34
<PAGE> 80
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- (CONTINUED)
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 and 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>
1998 1997
-------------------- --------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps $125,000 $9,125 $125,000 $2,973
Floors $150,000 $ 748 $150,000 $ 251
</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, 1998 are between six years, eight months
and nineteen years in maturity. At December 31, 1997 such contracts were between
seven years, eight months and twenty years in maturity. NYLIAC does not act as
an intermediary or broker in interest rate swaps.
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>
1998 1997
-------- --------
<S> <C> <C>
Receive - fixed swaps - Notional amount (in thousands) $125,000 $125,000
Average receive rate 6.64% 6.64%
Average pay rate 5.65% 5.70%
</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 $9,125,000 and $2,973,000 at December 31, 1998 and 1997, 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, 1998 and 1997, unamortized premiums on interest rate floors
amounted to $372,000 and $447,000, respectively. Fair values of such agreements
were $748,000 and $251,000 at December 31, 1998 and 1997, respectively, based on
quoted market prices.
F-35
<PAGE> 81
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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 in both 1998 and 1997. The credit exposure of these swaps was $1,290,000
and $3,021,000 at December 31, 1998 and 1997, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
NYLIAC is a defendant in individual and/or alleged class action suits
arising from its agency sales force, insurance (including variable contracts
registered under the federal securities law), investment, retail securities
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 which cannot be predicted, NYLIAC nevertheless believes that, after
provisions made in the financial statements, the ultimate liability that could
result from 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, 1998 and 1997, $571 million
and $659 million, respectively, of NYLIAC's fixed maturities and equity
securities were on loan to others, but were fully collateralized in an account
held in trust for NYLIAC. Such assets reflect the extent of NYLIAC's involvement
in securities lending, not NYLIAC's risk of loss.
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, 1998 of $139 million ($184 million at December 31, 1997)
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 $342 million for the year ended December 31,
1998 ($247 million for 1997 and $191 million for 1996) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
In 1998, NYLIAC sold a Corporate Owned Life (COLI) policy to its parent,
New York Life Insurance Company, for $250 million in premium. The policy was
sold on the same basis as policies sold to unrelated customers.
F-36
<PAGE> 82
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 13 -- ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated Other Comprehensive Income is as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Unrealized gains on securities:
Beginning balance $157 $ 68 $ 227
Current period change 44 89 (159)
---- ---- -----
Ending balance $201 $157 $ 68
==== ==== =====
</TABLE>
The related tax effects allocated to Other Comprehensive Income are as
follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period $123 $(44) $79
Less: reclassification adjustment for gains
(losses) in net income 54 (19) 35
---- ---- ---
Other Comprehensive Income $ 69 $(25) $44
==== ==== ===
</TABLE>
NOTE 14 -- SUPPLEMENTAL CASH FLOW INFORMATION
Federal income taxes paid were $67 million, $126 million, and $146 million
during 1998, 1997 and 1996, respectively.
Total interest paid was $27 million, $35 million and $10 million during
1998, 1997 and 1996, respectively.
NOTE 15 -- 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,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory Surplus $1,095 $1,089 $ 998
------ ------ ------
Adjustments:
Deferred policy acquisition costs 859 688 691
Investment related 458 377 151
Asset valuation reserve 197 165 164
Interest maintenance reserve 120 105 35
Non-admitted assets 66 59 31
Policyholder liabilities (447) (330) (263)
Deferred taxes (101) (94) (47)
Employee benefit liabilities (79) (74) (72)
Other (20) (23) (2)
------ ------ ------
Total adjustments 1,053 873 688
------ ------ ------
Total GAAP Stockholder's Equity $2,148 $1,962 $1,686
====== ====== ======
</TABLE>
F-37
<PAGE> 83
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 15 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP -- (CONTINUED)
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,
------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Statutory Net Income $ 10 $134 $148
----- ---- ----
Adjustments:
Deferred policy acquisition costs 192 63 44
Investment related 19 7 2
Interest maintenance reserve 15 70 9
Policyholder liabilities (110) (84) (62)
Deferred taxes 17 1 24
Other (1) (4) 4
----- ---- ----
Total Adjustments 132 53 21
----- ---- ----
GAAP Net Income $ 142 $187 $169
===== ==== ====
</TABLE>
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 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; (7) deferred
federal income taxes are not provided for as they are under GAAP; and (8)
certain assets are considered non-admitted and are excluded from assets in the
balance sheet, whereas they are included under GAAP.
The Delaware 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
Delaware 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, 1998 and 1997 on a statutory basis, admitted assets were
$23,351 million and $20,059 million respectively, and total liabilities were
$22,256 million and $18,970 million, respectively, which included policy
reserves of $14,626 million and $13,666 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 statutory surplus funds which is derived from net operating profits
and realized capital gains. Such available and accumulated funds at December 31,
1998 were $590 million.
F-38
<PAGE> 84
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 and comprehensive 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, 1998 and 1997, and
the results of its operations and its cash flows for the three years in the
period ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York 10036
March 9, 1999
F-39
<PAGE> 85
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 $150 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 80 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
II-1
<PAGE> 86
The representation as to the reasonableness of aggregate fees and charges.
The signatures.
Written consents of the following persons (filed herewith):
(a) Jonathan E. Gaines, Esq.
(b) Irwin L. Don, Associate Actuary
(c) PricewaterhouseCoopers 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> 87
(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> 88
(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 -
Previously filed as Exhibit 1.9(g) to Registrant's Post-
Effective Amendment No. 1 on Form S-6 and incorporated
herein by reference.
(9)(h) Power of Attorney for Certain Directors of NYLIAC -
Previously filed as Exhibit 10(e) to Post-Effective Amendment
No. 6 to the registration statement on Form N-4 for NYLIAC
Variable Annuity Separate Account - III (File No. 33-87382),
and incorporated herein by reference for the following:
George J. Trapp, Director
Frank M. Boccio, Director
Phillip J. Hildebrand, Director
Michael G. Gallo, Director
Solomon Goldfinger, Director
Howard I. Atkins, Director
(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. - Filed herewith.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Opinion and Consent of Irwin L. Don, Associate Actuary. - Filed herewith.
7. Consent of PricewaterhouseCoopers LLP - Filed herewith.
II-4
<PAGE> 89
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 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 19th day of April, 1999.
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 and Director
(Principal Financial Officer)
Frank M. Boccio* Director
Michael G. Gallo* Director
Solomon Goldfinger* Director
Phillip J. Hildebrand* 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)
Seymour Sternberg* Director
George J. Trapp* Director
*By /s/ Lawrence R. Stoehr
-----------------------
Lawrence R. Stoehr
Attorney-in-Fact
April 19, 1999
<PAGE> 90
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2. Opinion and Consent of Jonathan E. Gaines, Esq.
6. Opinion and Consent of Irwin Don, Associate
Actuary
7. Consent of PricewaterhouseCoopers LLP
<PAGE> 1
[NEW YORK LIFE LOGO] The Company You Keep 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 19, 1999
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
INVESTMENT COMPANY ACT FILE NUMBER: 811-07697
SECURITIES ACT FILE NUMBER: 333-07617
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. 3 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 19, 1999
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
NEW YORK LIFE INSURANCE COMPANY
11400 Tomahawk Creek Parkway, Suite 200
Leawood, Kansas 66211
(913) 906-4059 FAX (913) 906-4140
IRWIN L. DON, FSA, MAAA
Associate Actuary
April 19, 1999
Re: New York Life Insurance and Annuity Corporation
NYLIAC Corporate Sponsored Variable Universal Life Separate Account - I
Investment Company Act File Number: 811-07697
Securities Act File Number: 333-07617
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 S. DON
Irwin L. Don
Associate Actuary
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 3 to registration statement on Form S-6 (the
"Registration Statement") of our report dated March 9, 1999, relating to the
financial statements of New York Life Insurance and Annuity Corporation, and of
our report dated February 19, 1999, relating to the financial statements and
selected per unit data of New York Life Insurance and Annuity Corporation
Corporate Sponsored Variable Universal Life Separate Account-I. We also consent
to the reference to us under the heading "Independent Accountants" which
appears in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York
April 16, 1999
