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NYLIAC CORPORATE SPONSORED VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
PROSPECTUS DATED MAY 1, 2000
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
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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
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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 twenty-two variable investment options. The variable investment
options invest in a corresponding portfolio of a mutual fund, as specified
below:
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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
- -- American Century Income & Growth
- -- Dreyfus Large Company Value
- -- Eagle Asset Management Growth Equity
THE ALGER AMERICAN FUND
- -- Alger American Small Capitalization
CALVERT VARIABLE SERIES, INC.
- -- Calvert Social Balanced
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
- -- Fidelity VIP Equity-Income
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
- -- Fidelity VIP II Contrafund(R)
JANUS ASPEN SERIES
- -- Janus Aspen Series Balanced
- -- Janus Aspen Series Worldwide Growth
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
- -- Morgan Stanley UIF Emerging Markets Equity
T. ROWE PRICE EQUITY SERIES, INC.
- -- T. Rowe Price Equity Income
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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. In either case, we will give you a period of time to make a
sufficient payment and avoid termination.
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, The Universal
Institutional Funds, Inc., and the T. Rowe Price Equity Series, 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.
THE POLICIES INVOLVE RISKS, INCLUDING POTENTIAL LOSS OF PRINCIPAL INVESTED.
THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
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TABLE OF CONTENTS
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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?................... 7
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?............... 8
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?......................... 9
23. How is a person's age
calculated?..................... 9
SECTION III: CHARGES UNDER THE
POLICY............................... 10
Deductions from Premiums............. 10
Sales Expense Charge.............. 10
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State Tax Charge.................. 10
Federal Tax Charge................ 10
Deductions from Accumulation Value
and Fixed Account Value........... 10
Monthly Contract Charge........... 10
Cost of Insurance Charge.......... 10
Deductions from the Separate
Account........................... 11
Mortality and Expense Risk
Charge.......................... 11
Other Charges for Federal Income
Taxes........................... 11
Fund Charges......................... 11
Surrender Charge..................... 12
Surrender Charge Limits........... 13
How the Policy Works.............. 13
SECTION IV: THE SEPARATE ACCOUNT, THE
FUNDS AND THE FIXED ACCOUNT.......... 14
The Separate Account................. 14
Your Voting Rights................ 14
Our Rights........................ 14
MainStay VP Series Fund, Inc. ....... 15
The Alger American Fund.............. 15
Calvert Variable Series, Inc. ....... 16
Fidelity Variable Insurance Products
Fund (VIP) and Fidelity Variable
Insurance Products Fund II (VIP
II)............................... 16
Janus Aspen Series................... 16
The Universal Institutional Funds,
Inc. ............................. 16
T. Rowe Price Equity Series, Inc..... 17
The Portfolios....................... 17
The Fixed Account.................... 20
Interest Crediting................ 20
Transfers to Investment
Divisions....................... 20
Investment Return.................... 21
Performance Calculations............. 21
SECTION V: GENERAL PROVISIONS OF THE
POLICY............................... 22
When Life Insurance Coverage Begins.. 22
Premiums............................. 22
Payments Returned for Insufficient
Funds............................. 22
Termination.......................... 22
Death Benefit Under the Policy....... 22
Selection of Life Insurance
Benefit Table................... 23
Corridor Table.................. 24
CVAT Table...................... 25
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The Effect of Investment
Performance on the Death
Benefit......................... 25
Face Amount Changes............... 26
Life Insurance Benefit Option
Changes......................... 26
Cash Value and Cash Surrender Value.. 26
Cash Value........................ 26
Cash Surrender Value.............. 27
Transfers............................ 27
Third Party Investment Advisory
Arrangements...................... 27
Partial Withdrawals.................. 27
Loans................................ 28
Loan Account...................... 28
Interest on Value in Loan
Account......................... 28
Loan Interest..................... 28
Repayment......................... 29
Free Look Provision.................. 29
Exchange Privilege................... 29
SECTION VI: ADDITIONAL INFORMATION..... 30
Directors and Principal Officers of
NYLIAC............................ 30
Federal Income Tax Considerations.... 31
Tax Status of NYLIAC and the Separate
Account........................... 31
Charges for Taxes................. 32
Diversification Standards and
Control Issues.................. 32
Life Insurance Status of Policy... 32
Modified Endowment Contract
Status.......................... 33
Surrenders and Partial
Withdrawals..................... 33
Loans and Interest Deductions..... 34
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Corporate Alternative Minimum
Tax............................. 34
Exchanges or Assignments of
Policies........................ 35
Other Tax Issues.................. 35
Withholding....................... 35
Reinstatement Option................. 35
Additional Benefits Available by
Rider............................. 36
Adjustable Term Insurance Rider... 36
Alternate Cash Surrender Value
Benefit Rider................... 36
Payment Options...................... 36
Payees............................ 37
Proceeds at Interest Options
(Options 1A and 1B)............. 37
Life Income Option (Option 2)..... 37
Beneficiary.......................... 37
Change of Ownership.................. 38
Assignment........................... 38
Limits on Our Rights to Challenge the
Policy............................ 38
Misstatement of Age or Sex........... 38
Suicide.............................. 38
When We Pay Proceeds................. 38
Records and Reports.................. 39
Sales and Other Agreements........... 39
Legal Proceedings.................... 39
Experts.............................. 39
Financial Statements................. 40
APPENDIX A: ILLUSTRATIONS.............. A-1
APPENDIX B: SURRENDER CHARGE PREMIUM
RATES PER THOUSAND................... B-1
FINANCIAL STATEMENTS................... F-1
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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.
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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 22 Investment Divisions of the Separate Account and
the Fixed Account. Policyowners may invest in a total of 21 Allocation
Alternatives at any one time.
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 regular trading on 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.
FUND--An open-end management investment company.
INSURED--The person whose life the policy insures.
INVESTMENT DIVISIONS--The 22 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 first 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. Portfolios
described in this prospectus are different from portfolios available directly to
the general public. Investment results will differ.
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.
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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 $29.669 billion at the end of 1999. 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 (or increasing its face
amount), 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. If our procedures for any group or sponsored arrangements call for
less than full medical underwriting, insureds in good health may be able to
obtain coverage more economically under a policy that requires full medical
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 the remaining amount to 23 Allocation
Alternatives. The Allocation Alternatives consist of
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22 Investment Divisions and the Fixed Account. The 22 Investment Divisions are
listed on the first page of this prospectus.
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 average daily net asset value
of each Investment Division's assets. For Policy Years
eleven and later, we currently expect to reduce this
charge to an annual rate of .30% of the average daily net
asset 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 and if 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.
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11. IS THE DEATH BENEFIT SUBJECT TO INCOME TAXES?
A death benefit paid under our policies may be fully excludable from the
gross income of the Beneficiary for federal income tax purposes. See "Section
VI: Additional Information--Federal Income Tax Considerations."
12. WHAT IS A MODIFIED ENDOWMENT CONTRACT?
A modified endowment contract 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 after it is issued 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 two 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.
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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.
18. HOW ARE NET PREMIUMS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
The policyowner may allocate Net Premiums to the Fixed Account and any of
the 22 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 two of the policy. The first
Monthly Deduction Day is the first 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, we currently charge an annual rate of .70% of the average daily net asset
value of each Investment Division. For Policy Years eleven and later, we
currently expect to reduce the mortality and expense risk charge to an annual
rate of .30% of the average daily net asset value of each Investment Division.
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 (or such period as may be required by state law in some
cases). 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."
8
<PAGE> 9
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.
9
<PAGE> 10
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. In Oregon, this
tax is referred to as a "State Tax Charge Back," and the rate may not be changed
for the life of the policy.
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.
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, record-keeping, 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. We may change the current cost of insurance
10
<PAGE> 11
rates 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).
For insureds rated sub-standard risks, an additional charge may be assessed
as part of the cost of insurance charge. Any additional flat extra charges
(which might apply to certain insureds based on our underwriting) and charges
for 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, we currently charge an annual rate of
.70% of the average daily net asset value of each Investment Division. For
Policy Years eleven and later, we currently expect the mortality and expense
risk charge to reduce to an annual rate of .30% of the average daily net asset
value of each Investment Division. 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. We
may use these funds for any corporate purpose, including expenses relating to
the sale of the policies, to the extent that surrender charges do not adequately
cover sales expenses.
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 Portfolios at net
asset value. The price reflects advisory fees, administration fees and other
expenses that have already been deducted from the assets of the Portfolios. The
Portfolios do not impose a sales charge. The advisory 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 1999 expenses, and may reflect estimated changes:
11
<PAGE> 12
<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)(a)
Advisory 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............... 0.06% 0.06% 0.15% 0.09% 0.07% 0.27% 0.06%
Total Fund Annual Expenses... 0.62% 0.51% 0.71% 0.59% 0.57% 1.07% 0.58%
<CAPTION>
MAINSTAY VP MAINSTAY VP
VALUE BOND
----------- -----------
<S> <C> <C>
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT (as a % of
average net assets)(a)
Advisory Fees................ 0.36% 0.25%
Administration Fees.......... 0.20% 0.20%
Other Expenses............... 0.07% 0.05%
Total Fund Annual Expenses... 0.63% 0.50%
</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)(a)
Advisory Fees.................. 0.25% 0.10% 0.85% 0.70%(c) 0.59% 0.49%
Administration Fees............ 0.20% 0.20% 0.00% 0.00% 0.00% 0.00%
Other Expenses................. 0.04% 0.06% 0.04% 0.18%(c) 0.11% 0.09%
Total Fund Annual Expenses..... 0.49% 0.36% 0.89% 0.88%(c) 0.70%(d) 0.58%(d)
<CAPTION>
JANUS ASPEN MORGAN
JANUS ASPEN SERIES STANLEY UIF
SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
----------- ----------- --------------
<S> <C> <C> <C>
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT (as a % of
average net assets)(a)
Advisory Fees.................. 0.65% 0.65% 0.00%
Administration Fees............ 0.00% 0.00% 0.00%
Other Expenses................. 0.02% 0.05% 1.95%
Total Fund Annual Expenses..... 0.67%(e) 0.70%(e) 1.95%(f)
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
AMERICAN DREYFUS EAGLE ASSET
CENTURY LARGE MANAGEMENT T. ROWE
INCOME & COMPANY GROWTH PRICE EQUITY
GROWTH VALUE EQUITY INCOME
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT (as a % of
average net assets)(a)
Advisory Fees............................................... 0.50% 0.60% 0.50% 0.85%(g)
Administration Fees......................................... 0.20% 0.20% 0.20% --
Other Expenses.............................................. 0.15%(b) 0.15%(b) 0.15%(b) --
Total Fund Annual Expenses.................................. 0.85% 0.95% 0.85% 0.85%
</TABLE>
- ---------------
(a) The Fund or its agents provided the fees and charges, which are based on
1999 expenses and may reflect estimated charges, except for Janus. We have
not verified the accuracy of the information provided by the agents.
(b) "Other Expenses" and "Total Fund Annual Expenses" for the MainStay VP
American Century Income & Growth, MainStay VP Dreyfus Large Company Value,
and MainStay VP Eagle Asset Management Growth Equity Portfolios reflect an
expense reimbursement agreement that ended December 31, 1999 limiting "Other
Expenses" to 0.15% annually. In the absence of the expense reimbursement
arrangement, the "Total Fund Annual Expenses" would have been 0.92%, 1.00%,
and 0.87% for the MainStay VP American Century Income & Growth, MainStay VP
Dreyfus Large Company Value and Eagle Asset Management Growth Equity
Portfolios, respectively.
(c) "Other Expenses" reflect an indirect fee. Net fund operating expenses after
reductions for fees paid indirectly would be 0.86% for Social Balanced
Portfolio. Total expenses have been restated to reflect expenses expected
to be incurred in 2000.
(d) Through arrangements with certain funds or FMR on behalf of certain funds'
custodian, credits realized as a result of uninvested cash balances were
used to reduce a portion of each applicable fund's expenses. Without these
reductions, total operating expenses presented in the table would have been
0.67% for the Fidelity VIP II Contrafund(R) Portfolio and 0.57% for the
Fidelity VIP Equity-Income Portfolio.
(e) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Worldwide
Growth and Balanced portfolios. Expenses are stated both with and without
contractual waivers by Janus Capital. Waivers, if applicable, are first
applied against the management fee and then against other expenses, and
will continue until at least the next annual renewal of the advisory
agreement. All expenses are shown without the effect of expense offset
arrangements.
(f) Morgan Stanley Asset Management has voluntarily agreed to waive its
"Advisory Fees" and/or reimburse the Portfolio, if necessary, to the extent
that the "Total Fund Annual Expenses" of the Portfolio exceeds 1.75% of
average daily net assets. For purposes of determining the amount of the
voluntary advisory fee waiver and/or reimbursement, if any, the portfolio's
annual operating expenses include certain investment related expenses such
as foreign country tax expense and interest expense on amounts borrowed
which were 0.04% of the average daily net assets for 1999. The fee waivers
and reimbursements described above may be terminated by Morgan Stanley
Asset Management at any time without notice. Absent such reductions, it is
estimated that "Advisory Fees", "Administration Fees" and "Total Fund
Annual Expense" would have been 1.25%, 0.25% and 2.62% respectively.
(g) The "Advisory Fees" include the ordinary operating expenses of the Fund.
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.
12
<PAGE> 13
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 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 4.47% for Policy
Years 1-10 and 4.89% 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).............................................. 301.03
---------
equals: Cash Value.................................................. $6,732.28
less: Surrender charge (a percentage of surrender charge
premium).................................................... 1,025.50
---------
equals: Cash Surrender Value........................................ $5,706.78
</TABLE>
13
<PAGE> 14
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 22 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;
14
<PAGE> 15
- 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 fourteen Portfolios of the
MainStay VP Series Fund, Inc. MacKay Shields LLC, Monitor Capital Advisors LLC,
Madison Square Advisors LLC and New York Life Insurance Company provide
investment advisory services to these Portfolios. SP -- American Century
Investment Management, Inc., The Dreyfus Corporation and Eagle Asset Management,
Inc. provide investment subadvisory services to certain Portfolios. As
compensation for providing investment advisory services, MainStay VP Series
Fund, Inc. pays each investment adviser a fee.
The Portfolios, their investment advisers, subadvisers and fees are listed
in the table below.
<TABLE>
<CAPTION>
INVESTMENT ADVISERS PORTFOLIOS ADVISORY FEE
------------------- ---------- -----------------
(AS A PERCENTAGE
OF THE AVERAGE
DAILY NET ASSETS)
<S> <C> <C>
MacKay Shields LLC ("MacKay Shields") MainStay VP Capital Appreciation .36%
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 LLC ("Monitor") MainStay VP Indexed Equity .10%
Madison Square Advisors LLC MainStay VP Bond .25%
("Madison Square") MainStay VP Growth Equity .25%
Adviser: New York Life Insurance Company MainStay VP American Century Income & Growth 0.50%
Subadviser: American Century Investment
Management, Inc.
Adviser: New York Life Insurance Company MainStay VP Dreyfus Large Company Value 0.60%
Subadviser: The Dreyfus Corporation
Adviser: New York Life Insurance Company MainStay VP Eagle Asset Management Growth 0.50%
Equity
Subadviser: Eagle Asset Management, Inc.
</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. 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.
15
<PAGE> 16
CALVERT VARIABLE SERIES, INC.
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. 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
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. 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. 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.
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
The Separate Account currently invests in the Emerging Markets Equity
Portfolio of the Universal Institutional Funds, Inc. (the "Universal Fund").
Currently, the Emerging Markets Equity Portfolio is the only Portfolio available
through the Universal Fund for investment by the Separate Account.
Morgan Stanley Asset Management Inc. ("MS Asset Management") provides
investment advisory services to the Emerging Markets Equity Portfolio. As
compensation for such services, the Universal Fund pays MS Asset 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. MS Asset 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
16
<PAGE> 17
exceed 1.75% of average daily net assets. See the prospectus for the Universal
Fund which is attached to this prospectus.
T. ROWE PRICE EQUITY SERIES, INC.
The Separate Account currently invests in the T. Rowe Price Equity Income
Portfolio of the T. Rowe Price Equity Series, Inc. Currently, the T. Rowe Price
Equity Income Portfolio is the only Eligible Portfolio available through the T.
Rowe Price Equity Series, Inc. for investment by the Separate Account.
T. Rowe Price Associates, Inc. provides investment advisory services to the
T. Rowe Price Equity Income Portfolio. As compensation for such services, the T.
Rowe Price Associates, Inc. pays a management fee in the form of a daily charge
at an annual rate of 0.85% of the average daily net assets of the T. Rowe Price
Equity Income Portfolio. See the prospectus for the T. Rowe Price Equity Series,
Inc. which is attached to this supplement.
THE PORTFOLIOS
The assets of each Portfolio are separate from the others and each
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. Portfolios described in this prospectus are different from portfolios
available directly to the general public. Investment results may differ.
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 Stock 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,
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<PAGE> 18
Inc. ("Moody's") or BBB to B by Standard & Poor's(C) ("S&P(C)"). Securities
rated lower than Baa by Moody's or BBB by S&P(C), 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.
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 that 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(R). Using a full replication method, the Portfolio invests in all 500 stocks
in the S&P 500(R) in the same proportion as their representation in the S&P
500(R). The S&P 500(R) 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(C). Standard & Poor's(R), S&P 500(R),
"S&P(R)"; "Standard & Poor's 500" and "500" are trademarks of The McGraw-Hill
Companies, Inc. and have been licensed for use by Monitor Capital. S&P does not
sponsor, endorse, sell or promote the Indexed Equity Portfolio or represent the
advisability of investing in the Portfolio.
THE MAINSTAY VP AMERICAN CENTURY INCOME & GROWTH PORTFOLIO
The MainStay VP American Century Income & Growth Portfolio seeks dividend
growth, current income and capital appreciation by primarily investing in equity
securities of the 1,500 largest companies traded in the United States (ranked by
market capitalization).
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<PAGE> 19
THE MAINSTAY VP DREYFUS LARGE COMPANY VALUE PORTFOLIO
The MainStay VP Dreyfus Large Company Value Portfolio seeks capital
appreciation by investing principally in a portfolio of publicly traded equity
securities of domestic and foreign issuers which are characterized as value
companies.
THE MAINSTAY VP EAGLE ASSET MANAGEMENT GROWTH EQUITY PORTFOLIO
The MainStay VP Eagle Asset Management Growth Equity Portfolio seeks growth
through long-term capital appreciation by investing in common stocks that Eagle
Asset Management, Inc., the Portfolio's subadviser, believes have sufficient
growth potential to offer above average long-term capital appreciation.
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(R) 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.
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 UIF EMERGING MARKETS EQUITY PORTFOLIO
The Morgan Stanley UIF 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.
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<PAGE> 20
THE T. ROWE PRICE EQUITY INCOME PORTFOLIO
The T. Rowe Price Equity Income Portfolio seeks to provide substantial
dividend income and also long-term capital appreciation by primarily investing
in dividend-paying stocks, particularly of established companies, with favorable
prospects for both increasing dividends and capital appreciation.
------------------------
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 annuity contracts 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.
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:
20
<PAGE> 21
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 the policy's
mortality and expense risk charge [at .90% per annum]. These performance figures
do not reflect any other policy charges, and, if they did, the returns shown
would be reduced. See Appendix A for illustrations that show the impact of all
policy charges (based on the assumptions there stated) of various assumed rates
of investment return.
PERFORMANCE CALCULATIONS
From time to time, we may advertise the performance of the Investment
Divisions. These performance figures do not include contract charges such as the
policy service fee, sales expense charge, tax charges, cost of insurance, rider
charges and surrender charges.
Performance data for the Investment Divisions may be compared, in
advertisements, sales literature and reports to shareholders, to: (i) the
investment returns on various mutual funds, stocks, bonds, certificates of
deposit, tax free bonds or common stock and bond indexes; and (ii) other groups
of variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which ranks
mutual funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications or
persons who rank such investment companies on overall performance or other
criteria.
Reports and promotional literature may also contain the ratings New York
Life and NYLIAC have received from independent rating agencies. New York Life
and NYLIAC are among only a few companies that have consistently received among
the highest possible ratings from the four major independent rating companies:
A.M. Best and Moody's (for financial stability and strength) and Standard and
Poor's and Duff & Phelps (for claims paying ability). However, neither New York
Life nor NYLIAC guarantees the investment performance of the Investment
Divisions.
We may also advertise a hypothetical illustration of policy values,
including all contract charges.
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<PAGE> 22
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 two 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 that would jeopardize
the policy's qualification as life insurance under Section 7702 of the Internal
Revenue Code.
PAYMENTS RETURNED FOR INSUFFICIENT FUNDS
If your premium payment is returned for insufficient funds, we reserve the
right to reverse the investment options chosen and charge you a $20.00 fee for
each returned payment. In addition, the Fund may also redeem shares to cover any
losses it incurs as a result of a returned payment. If payment by check is
returned for insufficient funds for two consecutive periods, the privilege to
pay by check or electronically will be suspended until you notify us to
reinstate it and we agree.
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
22
<PAGE> 23
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
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, which test limits the amount of
premiums that may be paid into the policy.
Also, because the percentages used for a corridor test under the guideline
premium test are lower than under the cash value accumulation test, a guideline
premium/cash value corridor policy must attain a higher level of cash value
before the relevant Internal Revenue Code table will result in an automatic
death benefit increase. Any such automatic increase in death benefit can result
in additional cost of insurance charges. Therefore, a cash value accumulation
test policy is more likely to incur such additional charges.
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<PAGE> 24
CORRIDOR TABLE
<TABLE>
<CAPTION>
INSURED'S AGE INSURED'S AGE
ON POLICY % OF ON POLICY % OF
ANNIVERSARY CASH VALUE ANNIVERSARY CASH VALUE
- ------------- ---------- ------------- ----------
<S> <C> <C> <C>
0-40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75-90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 101
59 134 95 & Over 100
60 130
</TABLE>
24
<PAGE> 25
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> 26
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 that 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> 27
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 have 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.
THIRD PARTY INVESTMENT ADVISORY ARRANGEMENTS
In some cases, the policy may be sold to policyowners who independently
utilize the services of a third party advisor offering asset allocation and/or
market timing services. NYLIAC may honor transfer and withdrawal instructions
from such asset allocation and market timing services if it has received
authorization to do so from the policyowner participating in the service. We do
not endorse, approve or recommend such services in any way and you should be
aware that fees paid for such services are separated from and in addition to
fees paid under the policy.
Because the amounts associated with some of these transactions may be
unusually large, the investment advisers may have difficulty processing the
transactions. In addition, execution of such transactions may possibly adversely
affect the Accumulation Values of policyowners who are not utilizing asset
allocation or market timing services. Accordingly, NYLIAC reserves the right to
not accept transfer instructions which are submitted by asset allocation and/or
market timing services on behalf of policyowners. We will exercise this right
only in accordance with uniform procedures that we may establish from time to
time and that will not unfairly discriminate against similarly situated
policyowners.
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.
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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 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; and
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.
INTEREST ON VALUE IN LOAN ACCOUNT.
The amount held in the Loan Account earns interest at a rate we determine.
Such rate will never be lower than 2% less than the effective annual loan
interest rate and in no event will it be less than 4%. Currently, the amount in
the Loan Account is credited with interest at a rate that is 2% less than the
effective annual loan interest rate during the first 10 Policy Years, and we
currently expect to credit 0.5% less than the effective annual loan interest
rate in subsequent Policy Years. These rates are not guaranteed and we can
change them at any time, subject to the above-mentioned minimums.
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.
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(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. Payments received by New
York Life will be applied as directed by the policy owner.
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 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.
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.
Richard M. Kernan, Jr.......
Executive Vice President and Chief Investment Officer
of New York Life from March 1991 to date.
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.
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.
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.
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.
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.
Joel M. Steinberg...........
Vice President and Actuary of New York Life from March
1998 to date; Corporate Vice President and Actuary
from March 1996 to March 1998. Actuary prior to March
1996.
Gary E. Wendlandt...........
Executive Vice President in charge of the Asset
Management business of New York Life from May 1999 to
date. Executive Vice President of NYLIAC from March
2000 to date. Executive Vice President and Chief
Investment Officer of MassMutual Life Insurance
Company, June 1992 to April 1999.
Richard C. Schwartz.........
Senior Vice President of New York Life from March 1998
to date. Senior Vice President of NYLIAC from March
2000 to date. Vice President of New York Life from
1993.
David F. Boyle..............
Vice President of New York Life from October 1999 to
date. Vice President of NYLIAC from November 1999 to
date. Vice President, Large Corporate Markets,
MassMutual Life Insurance Company prior thereto.
John A. Cullen..............
Vice President and Deputy Controller of New York Life
from November 1999 to date; Vice President prior
thereto. Vice President and Controller of NYLIAC from
December 1999 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.
* Principal business address is 51 Madison Avenue, New York, New York 10010.
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.
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.
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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 tax liability. 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.
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
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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.
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
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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.
In addition, if your policy lapses or you surrender it with an outstanding
loan, and the amount of the loan plus the cash surrender value is more than the
sum of premiums you paid, you will generally be liable for taxes on the excess.
Such amount will be taxed as ordinary income.
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
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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.
- 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
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<PAGE> 36
"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. If the policyowner requests a
change in the base policy face amount, or if the amount of death benefit under
the base policy automatically increases or decreases in order to satisfy IRC
Section 7702 requirements, the term benefit will be adjusted on each policy
anniversary accordingly to maintain a level overall total death benefit. In
addition, the policyowner can 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.
ALTERNATE CASH SURRENDER VALUE BENEFIT RIDER
This rider provides for an alternate cash surrender value benefit equal to
the policy's cash value plus the value of the deferred premium account if every
policy owned by you and which is part of a policy series is surrendered at the
same time. "Policy series" means all policies owned by you issued with this
rider. This rider expires at the earliest of the date a partial withdrawal or
loan is taken, the policy lapse date or the rider expiry date. The rider must be
selected at policy application.
Charges deducted from the premium, including the Sales Expense Charge, the
State Tax Charge and the Federal Tax Charge, are held in the deferred premium
account. The deferred premium account is not an Investment Division. It does not
accrue interest and is not considered when calculating maximum loan or partial
withdrawal amounts. During the first policy year, the value of the deferred
premium account is equal to the sum of all the premium expense charges
collected. Starting with the first monthly deduction day in the second policy
year and ending on the last monthly deduction day prior to the rider expiry
date, the balance held in the deferred premium account is reduced based on a
straight line amortization.
The cost for this rider is deducted on each monthly deduction day while the
rider is in effect. The monthly cost of the rider is calculated as the monthly
rider rate times the sum of the value of the deferred premium account and the
surrender charge as of the prior monthly deduction day. Monthly rider rates will
be set by us in advance, and will not exceed 2.5%.
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
36
<PAGE> 37
given the right to do one or more of these things if the person who elects the
option tells us in writing and we agree.
If we agree, a payee who has elected a payment option may later elect to
have any unpaid amount, or the present value of any elected payments, placed
under another option described in this section. When any payment under an option
would be less than $100, we may pay any unpaid amount or present value in one
sum.
PAYEES.
Only individuals who are to receive payments in their own behalf may be
named as payees or successor payees, unless we agree to some other payee. We may
require proof of the age or the survival of a payee.
It may happen that when the last surviving payee dies, we still have an
unpaid amount, or there are some payments that remain to be made. If so, we will
pay the unpaid amount with interest to the date of payment, or pay the present
value of the remaining payments, to that payee's estate in one sum. The present
value of the remaining payments is based on the interest rate used to compute
them, and is always less than their sum.
PROCEEDS AT INTEREST OPTIONS (OPTIONS 1A AND 1B).
The policy proceeds may be left with us at interest. We will set the
interest rate each year. This rate will be at least 3% per year.
For the Interest Accumulation Option (Option 1A), we credit interest each
year on the amount we still have. This amount can be withdrawn at any time in
sums of $100 or more. We pay interest to the date of withdrawal on sums
withdrawn.
For the Interest Payment Option (Option 1B), we pay interest once each
month, every 3 months, every 6 months, or once each year, as chosen, based on
the amount we still have.
LIFE INCOME OPTION (OPTION 2).
We make equal payments each month during the lifetime of the payee or
payees. We determine the amount of the monthly payment by applying the death
benefit to purchase a corresponding single premium life annuity contract that is
being issued when the first payment is due. Payments are based on the
appropriately adjusted annuity premium rate in effect at that time, but will not
be less than the corresponding minimum amount shown in the Option 2 Table, which
appears in Section 9 of your policy. These minimum amounts are based on the 1983
Table "a" with Projection Scale G and with interest compounded each year at 3%.
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 years +1 year 0 -1 year -2 years -3 years
</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.
37
<PAGE> 38
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.
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 also delay payment of any amounts attributable to a check you have
given us for a reasonable time (but not more than 2 weeks) to allow your check
to clear.
38
<PAGE> 39
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 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.
For policies issued prior to September 28, 1999, 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.
For policies issued on or after September 28, 1999, the commissions paid
during a policy's first year will not exceed 35% of the premiums paid up to a
policy's surrender charge premium (2.5% in Policy Years two through ten) plus
1.25% of premiums paid in excess of such amount. No commissions are paid in
Policy Years eleven and beyond. Apart from commissions, registered
representatives may receive compensation for policy administration services
which they provide pursuant to the terms of a service agreement.
A table of surrender charge premium rates per thousand appears in Appendix
B to the Policy 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.
EXPERTS
The financial statements of NYLIAC as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report (which includes an
explanatory paragraph relating to a change in its method of accounting for the
cost of computer software developed or obtained for internal use as described in
Note 2 to the financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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<PAGE> 40
The financial statements of the Separate Accounts as of December 31, 1999
and for the year then ended included in this prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
Actuarial matters in this prospectus have been examined by Irwin L. Don,
FSA, MAAA, Actuary. An opinion on actuarial matters is filed with the SEC as an
exhibit to the registration statement.
FINANCIAL STATEMENTS
We have included in this prospectus the audited financial statements of
NYLIAC (including the auditor's report) for the fiscal years ended December 31,
1999, 1998, and 1997, and of the Separate Account (including the Auditor's
report) for the year ended December 31, 1999. You should consider the financial
statements of NYLIAC as bearing only upon the ability of NYLIAC to meet its
obligations under the policy.
40
<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 planned 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 tables will
help you understand how the policy works.
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 the planned premium payments 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 their current levels. It also reflects a daily mortality and expense
risk charge assessed against the Separate Account equal to the current annual
rate of 0.70% (for Policy Years one through ten) and the currently expected
annual rate of 0.30% (for Policy Years eleven and later), which is deducted
daily.
The second table also 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 premium
and the Accumulation Value at their guaranteed maximum levels. It also reflects
a daily mortality and expense risk charge assessed against 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 investment advisory fees together
with the expenses incurred by the Funds of 0.75% of the average daily net assets
of the Funds. The total is based upon (a) 0.46% of average daily net assets,
which is an average of the management fees of each Portfolio; (b) 0.14% of
average daily net assets, which is an average of the administrative fees for
each Portfolio; and (c) 0.15% 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 certain Portfolios
reflect expense reimbursements that are referred to in the table above under
"Fund Charges".
"Other Expenses" and "Total Fund Annual Expenses" for the MainStay VP
American Century Income & Growth, MainStay VP Dreyfus Large Company Value and
MainStay VP Eagle Asset Management Growth Equity Portfolios reflect an expense
reimbursement arrangement that ended December 31, 1999 limiting "Other Expenses"
to 0.15% annually. In the absence of the expense reimbursement arrangement, the
"Total Fund Annual Expenses" would have been 0.92%, 1.00%, and 0.87% for the
MainStay VP American Century Income & Growth, MainStay VP Dreyfus Large Company
Value and MainStay VP Eagle Asset Management Growth Equity Portfolios,
respectively.
A-1
<PAGE> 42
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 -1.44%, 4.47% and 10.38%, respectively, based on the current charge
for mortality and expense risks, applicable to Policy Years one through ten;
- -1.05%, 4.89% and 10.83%, respectively, based on the current expected charge for
mortality and expense risks, applicable to Policy Years eleven and later, and
- -1.64%, 4.26% and 10.16%, respectively, based on the guaranteed maximum charge
for mortality and expense risks, applicable to all Policy Years.
The actual investment advisory fees and expenses may be more or less than
the amounts illustrated and will depend on the allocations made by the
policyowner.
The second column of each table shows the amount which would accumulate if
an amount equal to the planned annual premium was 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
PLANNED 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
VALUE(2) 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 6,334 6,732 7,131 5,309 5,707 6,105
2 16,144 350,000 350,000 350,000 12,491 13,678 14,913 11,466 12,653 13,888
3 24,826 350,000 350,000 350,000 18,508 20,884 23,454 17,483 19,859 22,429
4 33,942 350,000 350,000 350,000 24,375 28,350 32,821 23,349 27,324 31,796
5 43,514 350,000 350,000 350,000 30,094 36,090 43,107 29,069 35,065 42,082
6 53,565 350,000 350,000 350,000 35,661 44,111 54,404 34,842 43,292 53,585
7 64,118 350,000 350,000 350,000 41,061 52,413 66,808 40,445 51,797 66,192
8 75,199 350,000 350,000 350,000 46,177 60,894 80,330 45,767 60,484 79,921
9 86,834 350,000 350,000 350,000 51,229 69,778 95,306 51,022 69,572 95,099
10 99,051 350,000 350,000 350,000 56,214 79,084 111,890 56,214 79,084 111,890
15 169,931 350,000 350,000 350,000 79,668 133,421 228,860 79,668 133,421 228,860
20 260,394 350,000 350,000 519,277 97,851 200,490 425,637 97,851 200,490 425,637
30 523,206 350,000 428,800 1,380,622 115,030 400,747 1,290,301 115,030 400,747 1,290,301
</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
VALUE(2) PLUS INTEREST AT 6% ------------------------------ ----------------------------- -----------------------------
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 5,149 5,505 5,862 4,124 4,480 4,836
2 16,144 350,000 350,000 350,000 10,116 11,146 12,221 9,091 10,121 11,195
3 24,826 350,000 350,000 350,000 14,907 16,935 19,135 13,882 15,909 18,109
4 33,942 350,000 350,000 350,000 19,488 22,842 26,628 18,462 21,816 25,603
5 43,514 350,000 350,000 350,000 23,865 28,878 34,771 22,839 27,853 33,745
6 53,565 350,000 350,000 350,000 28,045 35,057 43,641 27,226 34,238 42,822
7 64,118 350,000 350,000 350,000 31,996 41,353 53,290 31,380 40,737 52,674
8 75,199 350,000 350,000 350,000 35,688 47,744 63,779 35,278 47,334 63,369
9 86,834 350,000 350,000 350,000 39,128 54,243 75,216 38,921 54,036 75,010
10 99,051 350,000 350,000 350,000 42,287 60,830 87,691 42,287 60,830 87,691
15 169,931 350,000 350,000 350,000 53,319 94,931 170,541 53,319 94,931 170,541
20 260,394 350,000 350,000 376,137 54,079 130,444 308,309 54,079 130,444 308,309
30 523,206 * 350,000 948,617 * 198,043 886,558 * 198,043 886,558
</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 premium, 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
