<PAGE>
NYLIAC MFA SEPARATE ACCOUNT I
NYLIAC MFA SEPARATE ACCOUNT II
PROSPECTUS
FOR THE
FACILITATOR (R)*
MULTI-FUNDED RETIREMENT ANNUITY POLICIES
OFFERED BY
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
This prospectus describes the Multi-Funded Retirement Annuity Policies
("Policies" or, individually, "Policy") offered by New York Life Insurance and
Annuity Corporation ("NYLIAC"). The Policies are primarily designed to assist
individuals in their retirement planning regardless of whether the individual
is covered under a plan which qualifies for special federal income tax
treatment.
Two types of Policies are described in this prospectus: A Single Premium
Policy and a Flexible Premium Policy. Sales of both types of Policies have
been discontinued, however, purchase payments are still being accepted under
outstanding Policies. For Policies issued under plans that qualify for special
federal income tax treatment for the participant, premium payments ("Purchase
Payments") under either type of Policy may be allocated in whole or in part to
the NYLIAC MFA Separate Account I ("Variable Account I"). For Policies that do
not qualify for special federal income tax treatment, Purchase Payments may be
allocated to the NYLIAC MFA Separate Account II ("Variable Account II").
Prior to the Retirement Date, the Policy Owner may direct that Purchase
Payments accumulate on a completely variable basis, a completely fixed basis,
or a combination variable and fixed basis. Annuity payments ("Income
Payments") for Qualified Policies may be elected to be received on a
completely variable basis, completely fixed basis, or a combined variable and
fixed basis; Income Payments for Non-Qualified Policies can be received on a
fixed basis and, subject to state filing and review, on a variable basis or on
a combined variable and fixed basis. The Policy Owner also has significant
flexibility in determining the frequency and amount of each Purchase Payment
and the Retirement Date on which Income Payments are scheduled to commence.
The Policy Value can be withdrawn in whole or in part before the Retirement
Date, although in certain circumstances withdrawals are subject to a surrender
charge and tax penalty. The Policy provides the flexibility necessary to
permit a Policy Owner to devise an annuity that best fits his or her needs.
Both Variable Account I and Variable Account II (collectively, the "Variable
Accounts") invest their assets in shares of the New York Life MFA Series Fund,
Inc. (the "Fund"), a mutual fund registered under the Investment Company Act
of 1940. The Fund has available to the Variable Accounts three investment
Portfolios: the Growth Equity Portfolio, the Bond Portfolio, and the Cash
Management Portfolio (the "Eligible Portfolios" or the "Portfolios"). The
Policy Value will vary in accordance with the investment performance of the
Portfolios selected by the Policy Owner, and the Policy Owner bears the entire
investment risk for any amounts allocated to the Variable Accounts.
This Prospectus sets forth the information that a prospective investor
should know before investing. A Statement of Additional Information about the
Policies and Variable Accounts is available free by writing NYLIAC at the
address above or by calling (212) 576-7243. The Statement of Additional
Information, which has the same date as this Prospectus, has been filed with
the Securities and Exchange Commission and is incorporated herein by
reference. The table of contents of the Statement of Additional Information is
included at the end of this Prospectus.
THIS PROSPECTUS MUST BE ATTACHED TO A CURRENT PROSPECTUS FOR THE NEW YORK LIFE
MFA SERIES FUND, INC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996
*FACILITATOR (R) IS NYLIAC'S REGISTERED SERVICE MARK FOR THE POLICIES AND IS
NOT MEANT TO CONNOTE PERFORMANCE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS............... 3
POLICY OWNER AND FUND
EXPENSES................. 5
QUESTIONS AND ANSWERS
ABOUT THE FACILITATOR.... 7
CONDENSED FINANCIAL
INFORMATION.............. 13
FINANCIAL STATEMENTS...... 17
NEW YORK LIFE INSURANCE
AND ANNUITY CORPORATION
AND THE VARIABLE
ACCOUNTS................. 18
New York Life Insurance
and Annuity Corporation. 18
The Variable Accounts.... 18
NEW YORK LIFE MFA SERIES
FUND, INC. .............. 19
The Growth Equity
Portfolio............... 19
The Bond Portfolio....... 19
The Cash Management
Portfolio............... 19
Additions, Deletions, or
Substitutions of
Investments............. 20
Reinvestment............. 21
THE POLICIES.............. 21
Purpose of Policies...... 21
Purchase Payments........ 21
Total Disability Benefit
Rider................... 22
Transfers................ 22
Accumulation Period...... 23
(a)Crediting of Net
Purchase Payments... 23
(b)Valuation of
Accumulation Units.. 23
Policy Owner Inquiries... 23
CHARGES AND DEDUCTIONS.... 23
Surrender Charges........ 23
Exceptions to Surrender
Charges................. 24
Other Charges............ 25
Taxes.................... 26
DISTRIBUTIONS UNDER THE
POLICY................... 27
Surrenders and
Withdrawals............. 27
(a)Surrenders........... 28
(b)Partial Withdrawals.. 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(c)Periodic Partial Withdrawals.......................................... 28
(d)Hardship Withdrawals.................................................. 28
Cancellations............................................................. 28
Retirement Date........................................................... 29
Death Before Retirement................................................... 29
Income Payments........................................................... 30
(a)Election of Income Payment Options.................................... 30
(b)Fixed Income Payments................................................. 30
(c)Variable Income Payments.............................................. 31
(d)Value of Variable Income Payments..................................... 32
(e)Other Methods of Payment.............................................. 32
(f)Legal Developments Regarding Income Payments.......................... 32
(g)Proof of Survivorship................................................. 33
Delay of Payments......................................................... 33
Designation of Beneficiary................................................ 33
Restrictions Under the Texas Optional Retirement Program.................. 33
Restrictions Under Internal Revenue Code Section 403(b)(11)............... 33
THE FIXED ACCOUNT.......................................................... 34
(a) Interest Crediting................................................... 34
(b)Surrender Charges..................................................... 34
(c)Transfers to Investment Divisions..................................... 35
(d)General Matters....................................................... 35
FEDERAL TAX MATTERS........................................................ 36
Introduction.............................................................. 36
Taxation of Annuities in General.......................................... 36
Qualified Plans........................................................... 38
(a) Section 403(b) Plans................................................. 38
(b) Individual Retirement Annuities...................................... 38
(c) Corporate Pension and Profit-Sharing Plans and H.R. 10 Plans......... 38
(d) Deferred Compensation Plans.......................................... 38
DISTRIBUTOR OF THE POLICIES................................................ 39
VOTING RIGHTS.............................................................. 39
STATEMENT OF ADDITIONAL INFORMATION........................................ 40
</TABLE>
2
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD--The period between the initial Purchase Date and the
Retirement Date.
ACCUMULATION UNIT--An accounting unit used to calculate the Policy Value prior
to the Retirement Date. Each Investment Division of each Variable Account has
a distinct Accumulation Unit value.
AGE--Age on the nearest birthday.
ALLOCATION ALTERNATIVES--The Investment Divisions of the applicable Variable
Account and the Fixed Account constitute the Allocation Alternatives.
ANNUITANT--A person whose life determines the duration of Income Payments
involving life contingencies, and upon whose death, prior to the Retirement
Date, benefits under the Policy are paid.
ANNUITY UNIT--An accounting unit used to calculate Variable Income Payments.
BENEFICIARY--The person to whom benefits may be paid upon the Policy Owner's
or the Annuitant's death. In the event a Beneficiary is not designated, the
Policy Owner or the estate of the Policy Owner is the Beneficiary.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange is open
for trading except for the Friday after Thanksgiving and Christmas Eve. Our
Business Day ends at 4:00 p.m. Eastern Time or the closing of the New York
Stock Exchange, if earlier.
ELIGIBLE PORTFOLIOS ("PORTFOLIOS")--The available mutual fund Portfolios of
the New York Life MFA Series Fund, Inc. The New York Life MFA Series Fund,
Inc. currently has three separate Portfolios available to the Variable
Accounts: the Growth Equity Portfolio, the Bond Portfolio, and the Cash
Management Portfolio.
FIXED ACCOUNT--Assets of NYLIAC that are not segregated in any of the separate
accounts of NYLIAC.
FIXED INCOME PAYMENTS--Income Payments having a guaranteed amount.
FUND--New York Life MFA Series Fund, Inc., a diversified, open-end management
investment company which is advised by New York Life Insurance Company.
INCOME PAYMENTS--Periodic payments made by NYLIAC to the Payee.
INVESTMENT DIVISION ("DIVISION")--A division of each of the Variable Accounts.
There will be a separate Investment Division in each Variable Account for
Single and Flexible Premium Policies corresponding to each Eligible Portfolio.
Each Investment Division invests exclusively in shares of a specified Eligible
Portfolio.
NET PURCHASE PAYMENT--A Purchase Payment less any premiums for riders and less
any required state premium tax.
NON-QUALIFIED POLICIES--Policies that do not qualify for special federal
income tax treatment.
NYLIAC ("WE, US, OUR")--New York Life Insurance and Annuity Corporation, which
is a wholly-owned Delaware subsidiary of New York Life Insurance Company.
PAYEE--The person designated to receive payments under an Income Payment
option. The Payee may be the Policy Owner, the Annuitant, a Beneficiary or any
person designated by the Policy Owner.
3
<PAGE>
POLICY ANNIVERSARY--An anniversary of the Policy Date.
POLICY DATE--The date established when a Policy is issued, from which
subsequent Policy Years, months and anniversaries are measured, unless
otherwise indicated.
POLICY OWNER ("YOU, YOUR")--The person designated as the owner in the Policy
(or surviving spouse of the Policy Owner who is named as Beneficiary, or as
Beneficiary and Contingent Annuitant, and who becomes the new Policy Owner),
or as subsequently changed, and upon whose death prior to the Retirement Date
benefits under the Policy may be paid. Generally, NYLIAC will not issue a
Policy to joint owners. However, if NYLIAC makes an exception and issues a
jointly owned policy, ownership rights and privileges under the Policy must be
exercised jointly and benefits under the Policy will be paid upon the death of
any joint owner.
POLICY VALUE--The sum of the values on any day during the Accumulation Period
of the Accumulation Units, plus the amounts in the Fixed Account and interest
credited on such amounts.
POLICY YEAR--A year commencing on the Policy Date. Subsequent Policy Years
begin on each Policy Anniversary, unless otherwise indicated.
PURCHASE DATE--The Business Day on which a Purchase Payment is received by us
and credited under the Policy.
PURCHASE PAYMENTS--The premiums paid by the Policy Owner to NYLIAC.
QUALIFIED POLICIES--Policies issued under plans that qualify for special
federal income tax treatment.
RETIREMENT DATE--The date Income Payments are scheduled to begin under the
Policy.
SERVICE OFFICE--An office authorized by NYLIAC to receive applications and/or
Purchase Payments for the Policies.
VALUATION PERIOD--A period between two successive Business Days commencing at
the close of business on the first Business Day and ending at the close of
business of the following Business Day.
VARIABLE ACCOUNT I--NYLIAC MFA Separate Account I, a segregated asset account
established by NYLIAC to receive and invest Net Purchase Payments paid under
Qualified Policies.
VARIABLE ACCOUNT II--NYLIAC MFA Separate Account II, a segregated asset
account established by NYLIAC to receive and invest Net Purchase Payments paid
under Non-Qualified Policies.
VARIABLE INCOME PAYMENTS--Income Payments that have no predetermined or
guaranteed dollar amount. Variable Income Payments will vary in amount
depending upon the investment experience of the Growth Equity Portfolio. The
Policy Value you tell us to apply to provide Variable Income Payments under
either Single or Flexible Premium Policies will be used to purchase Annuity
Units in the Common Stock Investment Division for Single Premium Policies. The
amount of Variable Income Payments will increase or decrease according to the
value of the Annuity Units which reflects the investment experience of that
Common Stock Investment Division.
4
<PAGE>
POLICY OWNER AND FUND EXPENSES
NYLIAC MFA SEPARATE ACCOUNTS
FLEXIBLE PREMIUM POLICIES
(SALES OF FLEXIBLE PREMIUM POLICIES WERE DISCONTINUED AS OF SEPTEMBER 1, 1989)
<TABLE>
<CAPTION>
GROWTH CASH
EQUITY BOND MANAGEMENT
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ----------
<S> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load (as a %
of amount withdrawn).......................... 7%+ 7%+ 7%+
Annual Policy Fee.............................. Lesser of $30 Per Policy or 1%
of the Policy Value.
- --------
+ The contingent deferred sales load percentage declines from 7% in the first
four Policy Years to 1% in the tenth Policy Year with no charge thereafter.
(See "Surrender Charges" on page 23.)
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees............... 1.25% 1.25% 1.25%
Administration Fees........................... .50% .50% .50%
Total Variable Account Annual Expenses........ 1.75% 1.75% 1.75%
MFA SERIES FUND ANNUAL EXPENSES AFTER REIMBURSE-
MENT
(as a % of average account value)
Management Fees............................... .25% .25% .25%
Administration Fees........................... .20% .20% .20%
Other Expenses................................ .17% .17% .17%
Total Series Annual Expenses*................. .62% .62% .62%
</TABLE>
- --------
* This number reflects an expense reimbursement agreement effective through
December 31, 1996, limiting "Other Expenses" to .17% annually. In the
absence of the expense reimbursement agreement, the total annual expenses
for the year ended December 31, 1995, were 0.91%, 0.91% and 0.94% for the
Growth Equity, Bond and Cash Management Portfolios, respectively.
The purpose of this Table is to assist the Policy Owner in understanding the
various costs and expenses that a Policy Owner will bear directly and
indirectly. The Table reflects charges and expenses of the Variable Account as
well as the Fund for the year ended December 31, 1995; charges and expenses
may be higher or lower in future years. For more information on the charges
described in this Table see Charges and Deductions on page 23 and the Fund
Prospectus which accompanies this Prospectus. Premium taxes will be deducted
from some Policies, in accordance with state law.
EXAMPLES
A Policy Owner would pay the following expenses on a $1,000 investment, as-
suming a 5% annual return on assets:
1. If you surrender your Policy at the end of the applicable time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Equity Portfolio.................. $106 $179 $243 $382
Bond Portfolio........................... $106 $179 $243 $382
Cash Management Portfolio................ $106 $179 $243 $382
2. If you do not surrender or annuitize your Policy:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Equity Portfolio.................. $ 35 $105 $178 $371
Bond Portfolio........................... $ 35 $105 $178 $371
Cash Management Portfolio................ $ 35 $105 $178 $371
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
POLICY OWNER AND FUND EXPENSES
NYLIAC MFA SEPARATE ACCOUNTS
SINGLE PREMIUM POLICIES
(SALES OF SINGLE PREMIUM POLICIES WERE DISCONTINUED AS OF DECEMBER 19, 1994)
<TABLE>
<CAPTION>
GROWTH CASH
EQUITY BOND MANAGEMENT
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ----------
<S> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load (as a %
of Policy Value withdrawn).................... 7%+ 7%+ 7%+
- --------
+ The sales charge percentage declines from 7% during the first Policy Year to
1% in the seventh Policy Year with no charge thereafter. There are a number
of exceptions to the surrender charges, including, that no surrender charge
will be imposed if the amount withdrawn in any year is 10% or less of the
beginning Policy Value. (See "Exceptions to Surrender Charges" on page 24.)
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees............... 1.25% 1.25% 1.25%
Total Variable Account Annual Expenses........ 1.25% 1.25% 1.25%
MFA SERIES FUND ANNUAL EXPENSES AFTER REIMBURSE-
MENT
(as a % of average account value)
Management Fees............................... .25% .25% .25%
Administration Fees........................... .20% .20% .20%
Other Expenses................................ .17% .17% .17%
Total Series Annual Expenses*................. .62% .62% .62%
</TABLE>
- --------
* This number reflects an expense reimbursement agreement effective through
December 31, 1996, limiting "Other Expenses" to .17% annually. In the
absence of the expense reimbursement agreement, the total annual expenses
for the year ended December 31, 1995, were 0.91%, 0.91%, and 0.94% for the
Growth Equity, Bond and Cash Management Portfolios, respectively.
The purpose of this Table is to assist the Policy Owner in understanding the
various costs and expenses that a Policy Owner will bear directly and
indirectly. The Table reflects charges and expenses of the Variable Account as
well as the Fund for the year ended December 31, 1995; charges and expenses
may be higher or lower in future years. For more information on the charges
described in this Table see Charges and Deductions on page 23 and the Fund
Prospectus which accompanies this Prospectus. Premium taxes will be deducted
from some Policies, in accordance with state law.
EXAMPLES
A Policy Owner would pay the following expenses on a $1,000 investment, as-
suming a 5% annual return on assets:
1. If you surrender your Policy at the end of the applicable time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Equity Portfolio.................. $91 $114 $137 $221
Bond Portfolio........................... $91 $114 $137 $221
Cash Management Portfolio................ $91 $114 $137 $221
2. If you do not surrender or annuitize your Policy:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Equity Portfolio.................. $19 $ 59 $102 $221
Bond Portfolio........................... $19 $ 59 $102 $221
Cash Management Portfolio................ $19 $ 59 $102 $221
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
EXPENSES AND THE ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE FACILITATOR(R)
NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT THE
FACILITATOR. REFERENCE SHOULD BE MADE TO THE BODY OF THIS PROSPECTUS FOR MORE
DETAILED INFORMATION. ALSO, "YOU" OR "YOUR" REFERS TO THE POLICY OWNER; "WE,"
"US" OR "OUR" REFERS TO NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION.
1. WHAT IS THE FACILITATOR?
Facilitator is the name of the Multi-Funded Retirement Annuity Policies
offered by NYLIAC. Such policies may be either Single Premium or Flexible
Premium Policies. (See "The Policies" at page 21). Depending upon the type of
Policy (Single Premium or Flexible Premium) and its purpose (Qualified or Non-
Qualified), Net Purchase Payments may be allocated to one or more of the
Investment Divisions of each of the Variable Accounts. The Variable Accounts
in turn invest in shares of the Fund. The Policy Value will vary in amount
according to the investment results of the Investment Divisions selected. Net
Purchase Payments may also be allocated, in whole or in part, to the Fixed
Account.
2. WHAT IS A RETIREMENT ANNUITY AND WHY MAY BENEFITS VARY?
A retirement annuity provides payments for the life of an Annuitant (or an
Annuitant and another person, the "Joint Annuitant") with a guaranteed number
of Income Payments or for an ascertainable sum. Annuity payments which remain
the same throughout the payment period are referred to in this prospectus as
"Fixed Income Payments." Annuity payments which vary in accordance with the
investment experience of the Growth Equity Portfolio are referred to in this
prospectus as "Variable Income Payments." The Policy Value you tell us to
apply to provide Variable Income Payments under either Single or Flexible
Premium Policies will be used to purchase Annuity Units in the Common Stock
Investment Division for Single Premium Policies. The amount of Variable Income
Payments will increase or decrease according to the value of the Annuity Units
which reflects the investment experience of that Common Stock Investment
Division. Fixed Income Payments will always be the same specified amount. (See
"Income Payments" at page 30.)
3. WHAT ARE THE AVAILABLE ALLOCATION ALTERNATIVES?
As selected by the Policy Owner, Net Purchase Payments are allocated to one
or more of the following Allocation Alternatives:
(a) Variable Accounts
Variable Account I is used for Qualified Policies, and Variable
Account II for Non-Qualified Policies. Each of the Variable Accounts
consists of three Investment Divisions for Single Premium Policies and
three for Flexible Premium Policies.
The Investment Divisions of the Variable Accounts invest exclusively
in shares of the Fund, a diversified, open-end management investment
company with three separate portfolios available for investment under
the Policies (the "Eligible Portfolios"):
<TABLE>
<CAPTION>
CORRESPONDING
INVESTMENT DIVISION ELIGIBLE PORTFOLIO
------------------- -------------------------
<S> <C>
Common Stock Division Growth Equity Portfolio
Bond Division Bond Portfolio
Money Market Division Cash Management Portfolio
</TABLE>
7
<PAGE>
Each Investment Division of the Variable Accounts will invest
exclusively in the corresponding Eligible Portfolio. The three
Investment Divisions, together with the Fixed Account, constitute the
Allocation Alternatives that generally are available under each type of
Policy. For Non-Qualified Policies, the Common Stock Investment
Division is not available in New York.
(b) Fixed Account
Net Purchase Payments or portions of Net Purchase Payments allocated
to the Fixed Account will reflect a fixed interest rate. (See "The
Fixed Account" at page 34.)
4. CAN AMOUNTS BE TRANSFERRED AMONG THE ALLOCATION ALTERNATIVES?
Prior to 30 days before the Retirement Date, transfers of the value of
Accumulation Units in one Investment Division to another Investment Division
within the applicable Variable Account, or to the Fixed Account, are
permitted. The minimum amount which may be transferred generally is $1,000 for
Single Premium Policies or $500 for Flexible Premium Policies. Transfers may
be limited to no more than four in any one Policy Year. (See "Transfers" at
page 22.)
Transfers may also be made from the Fixed Account to the Investment
Divisions but only in certain situations. (See "The Fixed Account" at page
34.)
5. WHAT ARE THE CHARGES OR DEDUCTIONS?
For Single Premium Policies, there is no anniversary charge for policy
administration expenses or daily charges for administrative services.
During the Accumulation Period for Flexible Premium Policies, a charge for
Policy administration expenses will be made once each year on the Policy
Anniversary if on that date the total cash value does not equal or exceed
$10,000. This charge will be the lesser of $30 or 1% of the Policy Value at
the end of the Policy Year. In addition, during the Accumulation Period,
Flexible Premium Policies will be subject to a daily charge for administrative
services equal to .50%, on an annual basis, of the daily asset value of the
applicable Variable Account. (See "Other Charges" at page 25.)
All Policies are subject to a daily charge for certain mortality and expense
risks assumed by NYLIAC. This charge is equal, on an annual basis, to 1.25% of
the daily net asset value of the applicable Variable Account. (See "Other
Charges" at page 25.)
Although there is no deduction from Purchase Payments for sales charges, a
contingent deferred sales charge ("surrender charge") may be imposed on any
partial withdrawal or surrender of the Policies. The amount of the charge
under a Single Premium Policy declines from 7% during the first Policy Year to
1% during the seventh Policy Year, with no charge thereafter. For Single
Premium Policies, four additional Purchase Payments may be made each Policy
Year and Policy Years apply separately for each additional Purchase Payment.
In the case of Flexible Premium Policies, this charge is imposed, as a
percentage of the amount withdrawn, during the first ten years after the
policy is issued; the applicable percentage declines from 7% in the first four
Policy Years to 1% in the tenth Policy Year, with no charge thereafter. (See
"Surrender Charges" at page 23 and "Exceptions to Surrender Charges" at page
24.)
8
<PAGE>
Finally, the value of the Fund shares reflects management fees (0.25% of the
aggregate daily net assets of the Fund for the available Portfolios)
administration fees (0.20% of the aggregate daily net assets of the Fund) and
other expenses deducted from the assets of the Fund. (See the prospectus for
New York Life MFA Series Fund, Inc., "The Fund and its Management.")
6. WHAT ARE THE MINIMUM AND MAXIMUM ADDITIONAL PURCHASE PAYMENTS?
Any additional Purchase Payments under a Non-Qualified or Qualified Single
Premium Policy must be at least $2,000 and may be limited to four in any one
Policy Year.
For a Flexible Premium Policy, Purchase Payments (of at least $40 each) can
be made at any interval or by any method we make available. The available
methods of payment are direct payments to NYLIAC, and preauthorized monthly
deductions from bank checking accounts and public or private employee payroll
deductions. For Non-Qualified Flexible Premium Policies, the maximum Purchase
Payments (excluding the premium amounts for any riders) in each Policy Year is
the greater of (a) twice the Purchase Payments scheduled to be paid in the
first Policy Year, or (b) $7,500. In effect, you set the maximum payment when
the Policy is applied for. However, Purchase Payments scheduled for the first
Policy Year could not exceed $4,999.
Purchase Payments under Qualified Flexible Premium Policies, and Purchase
Payments and additional Purchase Payments under Qualified Single Premium
Policies, may not be more than the amount permitted by law for the plan
indicated in the application for the Policy.
We reserve the right to limit the dollar amount of any Purchase Payment.
7. HOW ARE NET PURCHASE PAYMENTS ALLOCATED AMONG THE ALLOCATION
ALTERNATIVES?
You may allocate Net Purchase Payments to any of the Allocation Alternatives
each time you make a Purchase Payment, except in New York where the Common
Stock Investment Division is not available for Non-Qualified Policies. You do
not need to make allocations to each Allocation Alternative. Moreover, you may
raise or lower the percentages of the Net Purchase Payment (which must be in
whole number percentages) allocated to each Allocation Alternative at the time
you make a Purchase Payment. The minimum amount which may be allocated to any
one Allocation Alternative is $1,000 for a Single Premium Policy and $10 for a
Flexible Premium Policy.
8. WHAT HAPPENS IF PURCHASE PAYMENTS FOR A FLEXIBLE PREMIUM POLICY ARE NOT
MADE?
In the event that no Purchase Payment is received for two or more years in a
row and both (a) the total Purchase Payments for the Policy, less any partial
withdrawals and any surrender charges, and (b) the Policy Value, are less than
$2,000, we reserve the right, subject to any applicable state insurance law or
regulation, to terminate the Policy by paying you the Policy Value in one sum.
We will notify you in your annual report of our intention to exercise this
right on the 90th day following that Policy Anniversary unless a Purchase
Payment is received before the end of that 90-day period. Unless the Policy is
terminated, it can be continued until the Retirement Date.
9
<PAGE>
9. CAN MONEY BE WITHDRAWN FROM THE POLICY PRIOR TO THE RETIREMENT DATE?
Yes, withdrawals ($100 minimum) may be made. We will pay you all or part of
the Policy Value when we receive your written request before the Retirement
Date and while the Annuitant is living. However, a withdrawal or surrender may
be subject to a surrender charge as explained under Question 5 at page 8,
and/or a penalty tax. (See "Distributions Under the Policy" at page 27 and
"Federal Tax Matters" at page 36.)
10.HOW WILL INCOME PAYMENTS BE DETERMINED ON THE RETIREMENT DATE?
Income Payments under Qualified Policies can be either variable, fixed, or a
combination of both. Income Payments under Non-Qualified Policies can be
received on a fixed basis and, subject to state filing and review processes,
on a variable basis or a combination of both. The Owner elects the type of
payments.
There are a number of ways to determine and receive Income Payments. They
include monthly payments for a specified number of years, an annuity for life
with payments guaranteed for a minimum of 5, 10, 15 or 20 years or a joint and
survivor annuity.
Fixed Income Payments will always be in the same specified amount. However,
the amount of Variable Income Payments will increase or decrease according to
the investment experience of a Common Stock Investment Division. The Policy
Value you tell us to apply to provide Variable Income Payments under either
Single or Flexible Premium Policies will be used to purchase Annuity Units in
the Common Stock Investment Division for Single Premium Policies. The amount
of Variable Income Payments will increase or decrease according to the value
of the Annuity Units which reflects the investment experience of that Common
Stock Investment Division. (See "Income Payments" at page 30.)
11.WHAT IF THE ANNUITANT BECAME TOTALLY DISABLED?
If you applied for and have a Total Disability Benefit rider included in
your Flexible Premium Policy, it will provide for the crediting of benefit
amounts as Net Purchase Payments to your Policy during the period of the
Annuitant's total disability. There is an additional charge for this rider.
(See "Total Disability Benefit Rider" at page 22.)
12.WHAT HAPPENS IF THE ANNUITANT DIES BEFORE THE RETIREMENT DATE?
In the event the Annuitant dies before the Retirement Date, we will pay the
Beneficiary named in the Policy an amount equal to the greater of (a) the
Policy Value or (b) the total Purchase Payments less any partial withdrawals,
surrender charges, and premium amounts paid for riders. However, if the Policy
Owner is the Annuitant and the Policy Owner/Annuitant's spouse is the
Beneficiary and Contingent Annuitant, see Questions & Answers 13 & 14. (Also
see "Death Before Retirement" at page 29 and "Federal Tax Matters" at
page 36.)
13.WHAT HAPPENS IF THE POLICY OWNER DIES BEFORE THE RETIREMENT DATE?
In the event the Policy Owner dies before the Retirement Date, we will pay
the Beneficiary named in the Policy an amount equal to the greater of (a) the
Policy Value or (b) the total Purchase Payments less any partial withdrawals,
surrender charges, and premium amounts paid for riders. Generally we will not
issue a Policy unless the Policy Owner and Annuitant are the same person.
(There are exceptions, however--for example, if the Policy
10
<PAGE>
Owner is to be a non-individual such as a trust or corporation.) However, if
the Policy Owner is not the Annuitant but the Policy Owner's spouse is the
Beneficiary, or if the Policy Owner/Annuitant's spouse is the Beneficiary and
Contingent Annuitant, the proceeds can be paid to the surviving spouse on the
death of the Policy Owner prior to the Retirement Date, or the Policy can
continue with the surviving spouse as the new Policy Owner. (See "Death Before
Retirement" at page 29 and "Federal Tax Matters" at page 36.)
14.WHAT IS A CONTINGENT ANNUITANT?
Previously, a Contingent Annuitant could be named in the application for a
Non-Qualified Policy. (Qualified Policies do not provide for the naming of a
Contingent Annuitant.) The Contingent Annuitant, who generally must be the
spouse of the Annuitant, is the person who becomes the Annuitant at the death
of the "Primary Annuitant" before the Retirement Date if the Policy Owner is
still living. The Primary Annuitant is the person named as the Annuitant in
the application for a Non-Qualified Policy. Currently, the Policies do not
provide for the naming of Contingent Annuitants.
15.WHAT ABOUT VOTING RIGHTS?
You may instruct NYLIAC how to vote shares of the Fund held by your Variable
Account. (See "Voting Rights" at page 39.)
16.HOW IS THE PAST INVESTMENT PERFORMANCE OF THE VARIABLE ACCOUNTS
CALCULATED?
From time to time, NYLIAC may advertise yields and total returns for the
Investment Divisions of the Variable Accounts. In addition, NYLIAC may
advertise the effective yield of the Money Market Investment Divisions. These
figures will be based on historical information for various periods of time
measured from the date the Investment Division commenced operations. They are
not intended to indicate future performance.
The yield of the Money Market Investment Divisions refers to the annualized
income generated by an investment in that Investment Division over a specified
seven-day period. The yield is calculated by assuming that the income
generated for that seven-day period is generated each seven-day period over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly but, when annualized, the income earned by an
investment in that Investment Division is assumed to be reinvested. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
The yield of a Bond Investment Division refers to the annualized income
generated by an investment in the Investment Division over a specified thirty-
day period. The yield is calculated by assuming that the income generated by
the investment during that thirty-day period is generated each thirty-day
period over a 12-month period and is shown as a percentage of the investment.
The total return of a Bond or Common Stock Investment Division refers to
return quotations assuming an investment has been held in the Investment
Division for various periods of time including, but not limited to, one year,
five years, ten years and a period measured from the date the Investment
Division commenced operations. The total return quotations will represent the
average annual compounded rates of return that would equate
11
<PAGE>
an initial investment of $1,000 to the redemption value of that investment
(after deduction of any applicable surrender charge) as of the last day of
each of the periods for which total return quotations are provided.
The yield calculations do not reflect the effect of any surrender charge
that may be applicable to a particular Policy. To the extent that the
surrender charge is applicable to a particular Policy, the yield of that
Policy will be reduced.
For additional information regarding yields and total returns calculated
using the standard formats briefly described above, please refer to the
Statement of Additional Information.
NYLIAC may from time to time also disclose average annual total return in
non-standard formats and cumulative total return for the Investment Divisions.
The non-standard average annual total return and cumulative total return will
assume that no surrender charge is applicable. NYLIAC may from time to time
also disclose yield, standard total returns, and non-standard total returns
for the Portfolios of the MFA Series Fund, but only if the performance data
for the Portfolios is accompanied by comparable data for the corresponding
Investment Division in equal prominence.
All non-standard performance data will only be disclosed if the standard
performance data for the same period, as well as for the required periods, are
also disclosed. For additional information regarding the calculation of other
performance data, please refer to the Statement of Additional Information.
12
<PAGE>
CONDENSED FINANCIAL INFORMATION
VARIABLE ACCOUNT I
The following accumulation unit values and the number of Accumulation Units
outstanding for each Investment Division in 1984 through 1995 have been
audited by Price Waterhouse LLP, independent accountants, whose report on the
related financial statements appears in the Statement of Additional
Information. This information should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1995, which
appear in the Statement of Additional Information.
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 23, 1984* TO DECEMBER 31, 1984
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/23/84.......... $9.79 $9.79 $10.25 $10.24 $10.16 $10.16
Accumulation unit value
as of 12/31/84......... $9.65 $9.60 $11.20 $11.15 $10.99 $10.93
Number of units
outstanding as of
12/31/84............... 110,607 103,538 54,212 53,620 50,248 64,613
<CAPTION>
JANUARY 1, 1985 TO DECEMBER 31, 1985
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/85........... $ 9.65 $ 9.60 $11.20 $11.15 $10.99 $10.93
Accumulation unit value
as of 12/31/85......... $11.79 $11.68 $13.42 $13.29 $11.73 $11.61
Number of units
outstanding as of
12/31/85............... 428,513 710,550 371,990 338,363 84,625 131,467
<CAPTION>
JANUARY 1, 1986 TO DECEMBER 31, 1986
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/86........... $11.79 $11.68 $13.42 $13.29 $11.73 $11.61
Accumulation unit value
as of 12/31/86......... $12.01 $11.83 $15.07 $14.85 $12.35 $12.17
Number of units
outstanding as of
12/31/86............... 2,459,061 3,626,426 1,993,244 2,262,947 182,666 209,949
<CAPTION>
JANUARY 1, 1987 TO DECEMBER 31, 1987
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/87........... $12.01 $11.83 $15.07 $14.85 $12.35 $12.17
Accumulation unit value
as of 12/31/87......... $11.70 $11.47 $15.06 $14.76 $13.01 $12.75
Number of units
outstanding as of
12/31/87............... 3,174,755 5,534,150 1,927,300 3,065,027 557,777 573,381
<CAPTION>
JANUARY 1, 1988 TO DECEMBER 31, 1988
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/88........... $11.70 $11.47 $15.06 $14.76 $13.01 $12.75
Accumulation unit value
as of 12/31/88......... $13.50 $13.17 $16.10 $15.70 $13.82 $13.48
Number of units
outstanding as of
12/31/88............... 2,593,056 5,503,878 1,654,124 3,202,898 539,844 833,372
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1, 1989 TO DECEMBER 31, 1989
-----------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ---------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/89........... $13.50 $13.17 $16.10 $15.70 $13.82 $13.48
Accumulation unit value
as of 12/31/89......... $16.76 $16.27 $17.81 $17.28 $14.93 $14.48
Number of units
outstanding as of
12/31/89............... 2,342,502 5,283,687 1,698,812 3,263,694 785,457 1,194,270
<CAPTION>
JANUARY 1, 1990 TO DECEMBER 31, 1990
-----------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ---------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/90........... $16.76 $16.27 $17.81 $17.28 $14.93 $14.48
Accumulation unit value
as of 12/31/90......... $15.54 $15.01 $18.87 $18.22 $15.96 $15.41
Number of units
outstanding as of
12/31/90............... 2,214,950 5,254,923 1,674,155 3,259,172 1,046,450 1,346,706
<CAPTION>
JANUARY 1, 1991 TO DECEMBER 31, 1991
-----------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ---------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/91........... $15.54 $15.01 $18.87 $18.22 $15.96 $15.41
Accumulation unit value
as of 12/31/91......... $20.61 $19.80 $21.69 $20.84 $16.70 $16.04
Number of units
outstanding as of
12/31/91............... 2,284,837 5,220,704 1,783,401 3,241,712 938,476 1,318,974
<CAPTION>
JANUARY 1, 1992 TO DECEMBER 31, 1992
-----------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ---------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/92........... $20.61 $19.80 $21.69 $20.84 $16.70 $16.04
Accumulation unit value
as of 12/31/92......... $22.90 $21.90 $23.19 $22.17 $17.07 $16.32
Number of units
outstanding as of
12/31/92............... 2,766,943 5,343,557 2,112,825 3,248,734 815,708 1,114,559
<CAPTION>
JANUARY 1, 1993 TO DECEMBER 31, 1993
-----------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ---------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/93........... $22.90 $21.90 $23.19 $22.17 $17.07 $16.32
Accumulation unit value
as of 12/31/93......... $25.73 $24.48 $25.51 $24.26 $17.36 $16.51
Number of units
outstanding as of
12/31/93............... 2,913,244 5,373,561 2,166,420 3,200,206 684,440 828,045
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1, 1994 TO DECEMBER 31, 1994
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/94........... $25.73 $24.48 $25.51 $24.26 $17.36 $16.51
Accumulation unit value
as of 12/31/94......... $25.72 $24.34 $24.34 $23.03 $17.81 $16.85
Number of units
outstanding as of
12/31/94............... 2,852,858 5,351,888 1,851,148 2,989,443 489,793 691,078
<CAPTION>
JANUARY 1, 1995 TO DECEMBER 31, 1995
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/95........... $25.72 $24.34 $24.34 $23.03 $17.81 $16.85
Accumulation unit value
as of 12/31/95......... $32.81 $30.90 $28.44 $26.78 $18.57 $17.48
Number of units
outstanding as of
12/31/95............... 2,674,820 5,051,929 1,570,132 2,773,811 443,723 637,190
- -------
</TABLE>
* Effective date of original registration statement.
VARIABLE ACCOUNT II
The following accumulation unit values and the number of Accumulation Units
outstanding for each Investment Division in 1984 through 1995 have been
audited by Price Waterhouse LLP, independent accountants, whose report on the
related financial statements appears in the Statement of Additional
Information. This information should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1995, which
appear in the Statement of Additional Information.
<TABLE>
<CAPTION>
FOR THE PERIOD JANUARY 23, 1984
TO DECEMBER 31, 1984*
-------------------------------------------
COMMON STOCK MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- ---------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Accumulation unit value
as of 1/23/84.......... $10.23 $10.23 $10.16 $10.16
Accumulation unit value
as of 12/31/84......... $11.25 $11.16 $10.99 $10.93
Number of units
outstanding as of
12/31/84............... 68,315 20,493 99,371 25,693
<CAPTION>
FOR THE PERIOD
JANUARY 18, 1985* TO DECEMBER 31, 1985
JANUARY 1, 1985 TO DECEMBER 31, 1985
------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- --------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
beginning of period.... $10.00 $10.00 $11.25 $11.16 $10.99 $10.93
Accumulation unit value
as of 12/31/85......... $11.79 $11.68 $13.47 $13.31 $11.73 $11.61
Number of units
outstanding as of
12/31/85............... 553,232 62,905 858,915 95,436 130,129 41,998
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1, 1986 TO DECEMBER 31, 1986
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/86........... $11.79 $11.68 $13.47 $13.31 $11.73 $11.61
Accumulation unit value
as of 12/31/86......... $12.01 $11.83 $15.13 $14.87 $12.35 $12.17
Number of units
outstanding as of
12/31/86............... 3,637,419 391,373 4,112,082 386,725 242,590 54,590
<CAPTION>
JANUARY 1, 1987 TO DECEMBER 31, 1987
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/87........... $12.01 $11.83 $15.13 $14.87 $12.35 $12.17
Accumulation unit value
as of 12/31/87......... $11.70 $11.47 $15.12 $14.78 $13.01 $12.75
Number of units
outstanding as of
12/31/87............... 3,924,474 544,419 3,098,546 430,626 723,476 89,337
<CAPTION>
JANUARY 1, 1988 TO DECEMBER 31, 1988
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/88........... $11.70 $11.47 $15.12 $14.78 $13.01 $12.75
Accumulation unit value
as of 12/31/88......... $13.50 $13.17 $16.16 $15.73 $13.82 $13.48
Number of units
outstanding as of
12/31/88............... 2,660,790 517,898 2,410,480 425,492 689,116 106,127
<CAPTION>
JANUARY 1, 1989 TO DECEMBER 31, 1989
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/89........... $13.50 $13.17 $16.16 $15.73 $13.82 $13.48
Accumulation unit value
as of 12/31/89......... $16.76 $16.27 $17.87 $17.31 $14.93 $14.48
Number of units
outstanding as of
12/31/89............... 2,227,862 486,052 2,256,246 407,608 928,897 145,821
<CAPTION>
JANUARY 1, 1990 TO DECEMBER 31, 1990
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/90........... $16.76 $16.27 $17.87 $17.31 $14.93 $14.48
Accumulation unit value
as of 12/31/90......... $15.54 $15.01 $18.94 $18.25 $15.96 $15.41
Number of units
outstanding as of
12/31/90............... 2,053,173 469,198 2,131,300 379,901 1,140,319 160,350
<CAPTION>
JANUARY 1, 1991 TO DECEMBER 31, 1991
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/91........... $15.54 $15.01 $18.94 $18.25 $15.96 $15.41
Accumulation unit value
as of 12/31/91......... $20.61 $19.80 $21.77 $20.87 $16.70 $16.04
Number of units
outstanding as of
12/31/91............... 2,131,325 452,668 2,280,073 366,317 1,008,342 145,561
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
JANUARY 1, 1992 TO DECEMBER 31, 1992
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/92........... $20.61 $19.80 $21.77 $20.87 $16.70 $16.04
Accumulation unit value
as of 12/31/92......... $22.90 $21.90 $23.28 $22.20 $17.07 $16.32
Number of units
outstanding as of
12/31/92............... 2,819,763 450,395 2,833,731 361,717 1,051,672 116,833
<CAPTION>
JANUARY 1, 1993 TO DECEMBER 31, 1993
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/93........... $22.90 $21.90 $23.28 $22.20 $17.07 $16.32
Accumulation unit value
as of 12/31/93......... $25.73 $24.48 $25.60 $24.30 $17.36 $16.51
Number of units
outstanding as of
12/31/93............... 3,212,290 451,814 3,085,495 329,502 696,844 89,155
<CAPTION>
JANUARY 1, 1994 TO DECEMBER 31, 1994
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/94........... $25.73 $24.48 $25.60 $24.30 $17.36 $16.51
Accumulation unit value
as of 12/31/94......... $25.72 $24.34 $24.43 $23.07 $17.81 $16.85
Number of units
outstanding as of
12/31/94............... 3,185,075 443,527 2,533,048 302,955 603,513 76,118
<CAPTION>
JANUARY 1, 1995 TO DECEMBER 31, 1995
--------------------------------------------------------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of 1/1/95........... $25.72 $24.34 $24.43 $23.07 $17.81 $16.85
Accumulation unit value
as of 12/31/95......... $32.81 $30.90 $28.54 $26.82 $18.57 $17.48
Number of units
outstanding as of
12/31/95............... 2,964,118 428,464 2,176,703 276,158 638,761 66,541
</TABLE>
- -------
* Effective date of original registration statement.
FINANCIAL STATEMENTS
The financial statements for the Variable Accounts and the financial
statements of NYLIAC, as well as the independent accountant's reports thereon
(which also cover the above Condensed Financial Information) are included in
the Statement of Additional Information.
* * *
This Prospectus describes only the variable aspects of the Policies, except
where fixed aspects are specifically mentioned. See the Policy itself for a
description of the fixed aspects.
17
<PAGE>
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
AND THE VARIABLE ACCOUNTS
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
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 the District of Columbia
and all states. In addition to the Policies described in this prospectus,
NYLIAC offers other life insurance policies and annuities. NYLIAC's Financial
Statements are found in the Statement of Additional Information.
NYLIAC is a wholly-owned subsidiary of New York Life Insurance Company ("New
York Life"), a mutual life insurance company founded in New York in 1845. New
York Life had consolidated total assets amounting to $74.3 billion at the end
of 1995, and is authorized to do business in all states, the District of
Columbia and the Commonwealth of Puerto Rico. New York Life has invested in
NYLIAC, and will occasionally make additional contributions to NYLIAC to the
extent necessary to maintain capital and surplus in accordance with state
requirements.
THE VARIABLE ACCOUNTS
Each of the Variable Accounts (segregated asset accounts of NYLIAC) was
established in May 1983, pursuant to resolutions of the NYLIAC Board of
Directors. The Variable Accounts are registered as unit investment trusts with
the Securities and Exchange Commission under the Investment Company Act of
1940, but such registration does not signify that the Securities and Exchange
Commission supervises the management, or the investment practices or policies,
of the Variable Accounts. The Variable Accounts meet the definition of
"separate account" under the federal securities laws.
Although the assets of each of the Variable Accounts belong to NYLIAC, these
assets are held separately from the other assets of NYLIAC, and are not
chargeable with liabilities incurred in any other business operations of
NYLIAC (except to the extent that assets in the Variable Accounts exceed the
reserves and other liabilities of that Variable Account). The income, capital
gains and capital losses incurred on the assets of the Variable Accounts are
credited to or are charged against the assets of those Variable Accounts,
without regard to the income, capital gains or capital losses arising out of
any other business NYLIAC may conduct. Therefore, the investment performance
of the Variable Accounts is entirely independent of both the investment
performance of NYLIAC's Fixed Account and the performance of any other
separate account.
Each of the Variable Accounts currently has six Investment Divisions, three
of which invest Flexible Premium Policy Net Purchase Payments and three of
which invest Single Premium Policy Net Purchase Payments solely in the
corresponding eligible Portfolios of the Fund. The Eligible Portfolios are the
Growth Equity Portfolio, the Bond Portfolio and the Cash Management Portfolio.
Additional Investment Divisions may be added at the discretion of NYLIAC.
18
<PAGE>
NEW YORK LIFE MFA SERIES FUND, INC.
The Variable Accounts will invest exclusively in the New York Life MFA
Series Fund, Inc. (the "Fund"), a diversified open-end management investment
company.
New York Life is the investment adviser to the Growth Equity and Bond
Portfolios. MacKay Shields Financial Corporation ("MacKay Shields") is the
investment adviser to the Cash Management Portfolio. New York Life and MacKay
Shields provide investment advisory services to the Portfolios in accordance
with the policies, programs and guidelines established by the Board of
Directors of the Fund. As compensation for such services, the Fund pays New
York Life a fee in the form of a daily charge at an annual rate of .25% of the
aggregate daily net assets of the Growth Equity and Bond Portfolios. The Fund
pays MacKay Shields a fee in the form of a daily charge at an annual rate of
.25% of the aggregate daily net assets of the Cash Management Portfolio.
The Fund currently has three portfolios (the Growth Equity Portfolio, the
Bond Portfolio and the Cash Management Portfolio) that are available under the
policies which constitute the "Eligible Portfolios." The assets of each
Eligible Portfolio are separate from the others and each Portfolio has
different investment objectives and policies. As a result, each Eligible
Portfolio operates as a separate investment fund and the investment
performance of one Portfolio has no effect on the investment performance of
any other Portfolio.
THE GROWTH EQUITY PORTFOLIO
The 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
companies which the Fund believes are well-established and well-managed and
which appear to have better than average growth potential.
THE BOND PORTFOLIO
The 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 CASH MANAGEMENT PORTFOLIO
The 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
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.
THERE IS NO ASSURANCE THAT ANY OF THE ELIGIBLE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES.
19
<PAGE>
Additional information concerning the investment objectives and policies of
the Eligible Portfolios and the investment advisory services and charges can
be found in the current prospectus for the Fund, which is attached to this
Prospectus. The Fund prospectus should be read carefully before any decision
is made concerning the allocation of Net Purchase Payments to an Investment
Division corresponding to a particular Eligible Portfolio.
The Fund's shares are also available to certain separate accounts funding
variable life insurance policies offered by NYLIAC. This is called "mixed
funding". Although we do not anticipate any inherent difficulties arising from
mixed funding, it is theoretically possible that, due to differences in tax
treatment or other considerations, the interest of owners of various Contracts
participating in the Fund might at some time be in conflict. The Board of
Directors of the Fund, the Fund's investment advisers, and NYLIAC are required
to monitor events to identify any material conflicts that arise from the use
of the Fund for mixed funding. For more information about the risks of mixed
funding, please refer to the Fund prospectus.
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
NYLIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Eligible Portfolio shares held
by any Investment Division. NYLIAC reserves the right to eliminate the shares
of any of the Eligible Portfolios and to substitute shares of another
portfolio of the Fund, or of another registered open-end management investment
company, if the shares of the Eligible Portfolios are no longer available for
investment, or, if in NYLIAC's judgment, investment in any Eligible Portfolio
would become inappropriate in view of the purposes of the Variable Accounts.
To the extent required by the Investment Company Act of 1940, substitutions of
shares attributable to a Policy Owner's interest in an Investment Division
will not be made until the Policy Owner has been notified of the change.
Nothing contained herein shall prevent the Variable Accounts from purchasing
other securities for other series or classes of policies, or from effecting a
conversion between series or classes of policies on the basis of requests made
by Policy Owners.
Each of the Variable Accounts currently has six Investment Divisions, three
of which invest Flexible Premium Policy Net Purchase Payments and three of
which invest Single Premium Policy Net Purchase Payments solely in the
corresponding Eligible Portfolios of the Fund. NYLIAC may also establish
additional Investment Divisions for each of the Variable Accounts. Each
additional Investment Division will purchase shares in a new portfolio of the
Fund or in another mutual fund. New Investment Divisions may be established
when, in the sole discretion of NYLIAC, marketing, tax, investment or other
conditions so warrant. Any new Investment Divisions will be made available to
existing Policy Owners on a basis to be determined by NYLIAC. NYLIAC may also
eliminate one or more Investment Divisions, if, in its sole discretion,
marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, NYLIAC may, by appropriate
endorsement, make such changes in the Policies as may be necessary or
appropriate to reflect such substitution or change. If deemed to be in the
best interests of persons having voting rights under the Policies, the
Variable Accounts may be operated as management companies under the Investment
Company Act of 1940, may be deregistered under such Act in the event such
registration is no longer required, or may be combined with one or more other
separate accounts.
20
<PAGE>
REINVESTMENT
All dividends and capital gain distributions from Eligible Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset values on the payable date.
THE POLICIES
PURPOSE OF POLICIES
The Policies described in this prospectus are designed to establish
retirement benefits for two types of purchasers.
The first type of purchaser is one who is eligible to participate in, and
purchases a Policy for use with, any one of the following: (1) pension, profit
sharing, or annuity plans qualified under Sections 401 and 403(a) of the
Internal Revenue Code (the Code): (2) annuity purchase plans adopted by
certain private tax-exempt organizations and certain state-supported
educational institutions under certain circumstances under Section 403(b) of
the Code; (3) individual retirement annuities (IRAs) meeting the requirements
of Section 408(b) or 408(k) of the Code; or (4) deferred compensation plans
with respect to service for state and local governments (and certain other
entities) under Section 457 of the Code. Policies purchased by these
individuals for use with these plans are referred to as "Qualified Policies."
(See "Federal Tax Matters" at page 36.)
The second type of purchaser is one who purchases a Policy other than those
described above. Policies purchased by these individuals are referred to as
Non-Qualified Policies.
To the extent amounts under the Policies are allocated to the Investment
Divisions of the Variable Accounts, the Policies are intended to provide a sum
at retirement which will tend to have reflected changes in the cost of living
before retirement, without the necessity of paying supplementary premiums to
match any increase in living costs which might occur during those years. The
Policy Value will fluctuate based on the investment experience of the
Investment Divisions selected by the Policy Owner. NYLIAC does not guarantee
the investment performance of the Variable Accounts or of the Fund, and the
Policy Owner bears the entire investment risk with respect to amounts
allocated to the Investment Divisions of the Variable Accounts. There is no
assurance that the investment objectives will be achieved. Accordingly,
amounts allocated to the Investment Divisions of the Variable Accounts are
subject to the risks inherent in the securities markets and, specifically, to
price fluctuations of the shares of the Fund.
PURCHASE PAYMENTS
In all cases, up to four additional Purchase Payments may be made to Single
Premium Policies in any Policy Year. Each additional Purchase Payment must be
at least $2,000.
For Flexible Premium Policies, Purchase Payments (of at least $40 each) may
be made at any interval, or by any method NYLIAC makes available. The
currently available methods of payment are direct payments to NYLIAC, and pre-
authorized monthly deductions from bank checking accounts and public or
private employee payroll deductions. Although the Policy Owner plans a
schedule of Purchase Payments for Non-Qualified Flexible Premium Policies,
Purchase Payments may be made at any time before the Retirement Date and while
21
<PAGE>
the Annuitant and the Policy Owner are living, and may be increased or
decreased at any time, provided that the aggregate amount of Purchase Payments
for any Policy Year (excluding any premium amounts for riders) may not be more
than the greater of (a) twice the Purchase Payments scheduled to be paid in
the first Policy Year or (b) $7,500. However, Purchase Payments scheduled for
the first Policy Year may not exceed $4,999.
For Qualified Policies, the Purchase Payments made in any Policy Year may
not be more than the amount permitted by the plan or by law for the plan
indicated in the application for the Policy. NYLIAC reserves the right to
limit the dollar amount of any Purchase Payment.
If no Purchase Payments are made under a Flexible Premium Policy for two or
more Policy Years in a row, and both (a) the total Purchase Payments made,
less any partial withdrawals and any surrender charges, and (b) the Policy
Value, are less than $2,000, then NYLIAC may, in its sole discretion, subject
to any applicable state insurance law or regulation, cancel the Policy and pay
the Policy Owner the Policy Value. (See "Cancellations" at page 28.)
The Purchase Date (the date the Purchase Payment is credited to the Policy)
for a subsequent Purchase Payment is the Business Day on which it is received
at NYLIAC's Executive Office or at a Service Office.
TOTAL DISABILITY BENEFIT RIDER
NYLIAC will credit a benefit amount as a Net Purchase Payment for the Policy
when proof is furnished that the Annuitant has been totally disabled for at
least 6 consecutive months if the rider is in force. No benefit amounts will
be credited to the Policy after the Retirement Date or, if earlier, after the
Policy Anniversary on which the Annuitant is Age 65. Currently, this Rider is
not being offered and the information here and in the Statement of Additional
Information relates only to existing Riders.
TRANSFERS
Prior to 30 days before the Retirement Date, amounts may be transferred
between Investment Divisions of the same Variable Account or to the Fixed
Account, without charge. The minimum value of Accumulation Units that may be
transferred from one Investment Division to another Investment Division within
the Variable Accounts, or to the Fixed Account, is the lesser of (i) $1,000
for Single Premium Policies or $500 for Flexible Premium Policies or (ii) the
total value of the Accumulation Units in the Investment Division. The
remaining Accumulation Units in the Investment Division must have a value of
at least $100. If, after an ordered transfer, the value of the remaining
Accumulation Units in an Investment Division would be less than $100, it will
be included in the transfer. NYLIAC reserves the right to limit the number of
transfers to no more than four in any one Policy Year.
Depending on state filing and review processes, transfers may also be made
from the Fixed Account to the Investment Divisions in certain situations. (See
"The Fixed Account" at page 34.)
Transfer requests must be in writing on a form provided by NYLIAC. Transfers
from Investment Divisions will be made based on the Accumulation Unit values
at the end of the Valuation Period during which NYLIAC receives the transfer
request. (See "Delay of Payments" at page 33.)
22
<PAGE>
ACCUMULATION PERIOD
(a) Crediting of Net Purchase Payments
The Policy Owner may allocate a portion of each Net Purchase Payment to one
or more Allocation Alternatives as long as such portions are in whole number
percentages, except in New York where the Common Stock Investment Division is
not available for Non-Qualified Policies. The minimum amount that may be
allocated to any one Allocation Alternative is $1,000 for a Single Premium
Policy and $10 for a Flexible Premium Policy.
That portion of each Net Purchase Payment allocated to a designated
Investment Division of a Variable Account under both Single Premium and
Flexible Premium Policies is credited to the Policy in the form of
Accumulation Units. The number of Accumulation Units credited to a Policy is
determined by dividing the amount allocated to each Investment Division by the
Accumulation Unit value for that Investment Division for the Valuation Period
during which the Purchase Payment is received at NYLIAC's Executive Office or
at a Service Office. The value of an Accumulation Unit will vary in accordance
with the investment experience of the Portfolio in which the Investment
Division invests. The number of Accumulation Units credited to a Policy will
not, however, change as a result of any fluctuations in the value of an
Accumulation Unit. (See "The Fixed Account" at page 34 for a description of
interest credited thereto.)
(b) Valuation of Accumulation Units
The value of Accumulation Units is expected to increase or decrease from
Valuation Period to Valuation Period. The value of Accumulation Units in each
Investment Division will change daily to reflect the investment experience of
the corresponding Portfolio as well as the daily deduction of the risk charges
(and any charges or credits for taxes). The Statement of Additional
Information contains a detailed description of how the Accumulation Units are
valued.
POLICY OWNER INQUIRIES
Policy Owner inquiries should be addressed to New York Life Insurance and
Annuity Corporation, 51 Madison Avenue, N.Y., N.Y. 10010, or made by calling
(212) 576-7243.
CHARGES AND DEDUCTIONS
SURRENDER CHARGES
Since no deduction for a sales charge is made from Purchase Payments, a
surrender charge (sometimes referred to as a contingent deferred sales charge)
is imposed on certain partial withdrawals and surrenders to cover certain
expenses relating to the sale of the Policies, including commissions to
registered representatives and other promotional expenses. The surrender
charge is measured as a percentage of the amount withdrawn or surrendered. The
surrender charge may apply to amounts applied under certain Income Payment
options.
In the case of a surrender, the surrender charge is deducted from the amount
paid to the Policy Owner. In the case of a partial withdrawal, surrender
charges are deducted from
23
<PAGE>
the remaining value of the Allocation Alternatives from which Policy Owners
direct NYLIAC to make partial withdrawals. If the remaining value in an
Allocation Alternative is less than the necessary surrender charge, the
remainder of the charge will be deducted from the amount withdrawn from that
Allocation Alternative.
For Single Premium Policies, the surrender charge is 7% of the amounts
withdrawn during the first Policy Year after the initial Purchase Payment is
made. The amount of the charge declines 1% for each additional Policy Year so
there is no charge after the seventh Policy Year, as shown in the following
chart. A surrender charge will be made for amounts withdrawn from an
additional Purchase Payment during the first seven Policy Years following that
payment. For each additional Purchase Payment, the second Policy Year begins
on the first anniversary of such additional Purchase Payment, and so on.
AMOUNT OF SURRENDER CHARGE
<TABLE>
<CAPTION>
POLICY YEAR CHARGE
----------- ------
<S> <C>
1.................................................................. 7%
2.................................................................. 6%
3.................................................................. 5%
4.................................................................. 4%
5.................................................................. 3%
6.................................................................. 2%
7.................................................................. 1%
8 and later........................................................ 0%
</TABLE>
Under a Single Premium Policy, a partial withdrawal will be made from the
Allocation Alternatives from which Policy Owners direct NYLIAC to make partial
withdrawals, from the value attributable to the earliest Purchase Payment(s),
in the order in which they were made. Surrender charges are deducted in the
same manner.
For Flexible Premium Policies, the surrender charge is 7% of the amounts
withdrawn or surrendered during the first four Policy Years. The amount of the
charge declines 1% for each additional Policy Year, until the tenth Policy
Year, after which no charge is made, as shown in the following chart:
AMOUNT OF SURRENDER CHARGE
<TABLE>
<CAPTION>
POLICY YEAR CHARGE
----------- ------
<S> <C>
1-4................................................................ 7%
5................................................................ 6%
6................................................................ 5%
7................................................................ 4%
8................................................................ 3%
9................................................................ 2%
10................................................................ 1%
11 and later...................................................... 0%
</TABLE>
EXCEPTIONS TO SURRENDER CHARGES
There are a number of exceptions to the imposition of a surrender charge.
First, under a Single Premium Policy, no surrender charge will be applied if
the total amount withdrawn in any Policy Year is 10% or less of the Policy
Value at the beginning of that Policy Year (the
24
<PAGE>
surrender charge will be applied to amounts withdrawn in a Policy Year that
are in excess of 10% of the Policy Value at the beginning of that Policy
Year). The amount that may be withdrawn under this exception may be limited by
prior transfers from the Fixed Account to the Variable Accounts. (See "The
Fixed Account" at page 34.) Second, no surrender charge will be applied if a
withdrawal or surrender of at least $2,000 is made and the entire amount is
applied under certain Income Payment options in the Policy. However, if within
7 years for Single Premium Policies or 10 years for Flexible Premium Policies,
as measured from the Policy Date, any unpaid amount applied under such Income
Payment options is withdrawn, a surrender charge will be applied to the amount
withdrawn. Third, no surrender charge will be applied if NYLIAC cancels the
Policy. (See "Cancellations" at page 28.) Fourth, no surrender charge will be
applied when proceeds are paid on the death of the Policy Owner or the
Annuitant. Finally, in no event may the aggregate surrender charges under a
Policy exceed 8.5% of the total Net Purchase Payments. (See "The Fixed
Account" at page 34 for additional exceptions to the imposition of a surrender
charge.)
OTHER CHARGES
During the Accumulation Period for Flexible Premium Policies, NYLIAC imposes
certain charges which have been set at a level to recover no more than the
cost for providing policy administration services in connection with the
processing of periodic Purchase Payments. A charge for policy administration
expenses will be made once each Policy Year on the Policy Anniversary if on
that date the total cash value does not equal or exceed $10,000. This charge
will be the lesser of $30 or 1% of the Policy Value at the end of the Policy
Year. This charge is intended to offset the additional administrative expenses
of billing, collecting, processing, and confirming Purchase Payments for
Flexible Premium Policies. It is also intended to offset the cost of
establishing and maintaining the available methods of payment. (See "Purchase
Payments" at page 21.) It will be deducted from each Allocation Alternative in
proportion to its percentage of the Policy Value on the Policy Anniversary.
In addition, during the Accumulation Period, Flexible Premium Policies will
be subject to a daily charge for administrative services equal to .50%, on an
annual basis, of the daily net asset value of the applicable Variable Account.
This charge is intended to offset the additional administrative service
expenses of Flexible Premium Policies including: (i) processing changes in
future Purchase Payment allocations, (ii) providing Net Purchase Payment
histories and the appropriate unit valuations associated with those Purchase
Payments, and (iii) providing Policy Owners with the more extensive annual
notices and other notices required for many Flexible Premium Policies.
Larger Flexible Premium Policies may bear a portion of the cost of
administering smaller Flexible Premium Policies because the charge deducted
for administrative services expenses is a percentage of net asset value.
For Single Premium Policies, there is no anniversary charge for policy
administration expenses or daily charge for administrative services.
Administrative costs are lower for Single Premium Policies. However, in all
cases, a $2,000 minimum additional Purchase Payment as compared with a $480
minimum scheduled yearly Purchase Payment, $40 minimum payable at any time for
Flexible Premium Policies is required. Therefore, administrative expenses for
Single Premium Policies as a percentage of the Purchase Payment remitted are
relatively insignificant when compared to Flexible Premium Policy expenses.
25
<PAGE>
For Flexible Premium and Single Premium Policies, NYLIAC also imposes risk
charges to compensate it for bearing certain mortality and expense risks under
the Policies. The Policies contain guaranteed minimum monthly fixed Income
Payment amount tables. NYLIAC promises to continue to make Income Payments to
each Annuitant, determined according to those tables and other provisions
contained in the Policy, regardless of how long the Annuitant lives and
regardless of how long all Annuitants as a group live. Thus, neither an
Annuitant's own longevity nor a greater improvement in life expectancy than
that anticipated in those tables will have an adverse effect on the Income
Payments received under the Policy. Therefore, the Annuitant is relieved of
the risk of outliving the fund accumulated for retirement. That risk is
NYLIAC's. A risk also arises from NYLIAC's guarantee that if the Annuitant or
the Policy Owner dies prior to the Retirement Date, an amount will be paid to
the Beneficiary which will be equal to the greater of (a) the sum of all
Purchase Payments less any partial withdrawals and surrender charges made
before notification of death, and less premium amounts for any riders; or (b)
the Policy Value. (See "Death Before Retirement" at page 29.) These risks are
termed the mortality risk. In addition, NYLIAC assumes the risk that the
annual charges may be insufficient to cover the actual costs incurred by
NYLIAC for providing policy administration services to Policy Owners and
Annuitants. Moreover, NYLIAC does not anticipate that the surrender charges on
withdrawals and surrenders will generate sufficient funds to pay the
distribution expenses. If these charges are insufficient to cover the
expenses, the deficiency will be met from NYLIAC's general corporate funds,
including the amount derived from the risk charge. For assuming these risks,
NYLIAC makes a daily charge equal to a percentage of the value of the net
assets in the Variable Accounts. This charge is equal, on an annual basis, to
1.25% (of which .75% is attributable to mortality risks and .50% to expense
risks) of the daily net asset values in the case of Single Premium Policies,
and 1.75% (of which .75% is attributable to mortality risks, .50% to expense
risks, and .50% for the administrative services described above) in the case
of Flexible Premium Policies. If these charges are insufficient to cover
actual costs and assumed risks, the loss will fall on NYLIAC. Conversely, if
the charge proves more than sufficient, any excess will be added to the NYLIAC
surplus.
NYLIAC guarantees that these charges will not be increased.
The value of the assets in the Variable Accounts will reflect the value of
Fund shares and therefore the fees and expenses paid by the Fund, which are
described in the Fund's prospectus.
TAXES
NYLIAC will, where such taxes are imposed by state law, deduct premium taxes
relative to the Policy either (i) when a Purchase Payment is received, (ii)
when a surrender or cancellation occurs, or (iii) at the Retirement Date.
Applicable premium tax rates depend upon such factors as the Policy Owner's
current state of residency, and the insurance laws and the status of NYLIAC in
states where premium taxes are incurred. Current premium tax rates range from
0 to 3.5%. Applicable premium tax rates are subject to change by legislation,
administrative interpretations or judicial acts.
Under present laws, NYLIAC will incur state and local taxes (in addition to
the premium taxes described above) in several states. At present, these taxes
are not significant. If they increase, however, NYLIAC may make charges for
such taxes.
26
<PAGE>
NYLIAC does not expect to incur any federal income tax liability
attributable to investment income or capital gains retained as part of the
reserves under the Policies. (See "Federal Tax Matters" at page 36.) Based
upon these expectations, no charge is being made currently to the Variable
Accounts for corporate federal income taxes which may be attributable to the
Variable Accounts.
NYLIAC will review the question of a charge to the Variable Accounts for
corporate federal income taxes periodically. Such a charge may be made in
future years for any federal income taxes incurred by NYLIAC. This might
become necessary if the tax treatment of NYLIAC is ultimately determined to be
other than what NYLIAC currently believes it to be, if there are changes made
in the federal income tax treatment of annuities at the corporate level, or if
there is a change in NYLIAC's tax status. In the event that NYLIAC should
incur federal income taxes attributable to investment income or capital gains
retained as part of the reserves under the Policies, the Policy Value of the
Policies would be correspondingly adjusted by any provision or charge for such
taxes.
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS AND WITHDRAWALS
The Policy Owner may make partial withdrawals, periodic partial withdrawals,
hardship withdrawals or surrender the Policy to receive part or all of the
Policy Value under both Flexible and Single Premium Policies, at any time
before the Retirement Date and while the Annuitant is living, by sending a
written request to NYLIAC. The amount available for withdrawal is the Policy
Value at the end of the Valuation Period during which the surrender or
withdrawal request is received (established periodic partial withdrawal
request date for periodic partial withdrawals) at NYLIAC's Executive Office,
or at a Service Office, less any surrender charges, any applicable policy fee
and any premium taxes required by law to be deducted. If at the time the
Policy Owner makes a withdrawal or surrender request, he or she has not
provided NYLIAC with a written election not to have federal income taxes
withheld, NYLIAC must by law withhold such taxes from the taxable portion of
any surrender or withdrawal, and remit that amount to the federal government.
In addition, some states have enacted legislation requiring withholding. All
surrenders or withdrawals will be paid within seven days of receipt of all
documents (including documents necessary to comply with federal and state tax
law) in connection with a request or of the periodic partial withdrawal
request date, subject to postponement in certain circumstances. (See "Delay of
Payments" at page 33.)
Since the Policy Owner assumes the investment risk with respect to amounts
allocated to the Variable Accounts and because certain surrenders or
withdrawals are subject to a surrender charge and premium tax deduction, the
total amount paid upon surrender of the Policy (taking into account any prior
withdrawals) may be more or less than the total Purchase Payments made.
Surrenders and withdrawals may be taxable transactions, and the Internal
Revenue Code provides that a 10% penalty tax may be imposed on certain early
surrenders or withdrawals. (See "Federal Tax Matters--Taxation of Annuities in
General" at page 36.)
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(a) Surrenders
A surrender charge and any premium tax required by law, if applicable, will
be deducted from the amount paid. The proceeds will be paid in a lump sum to
the Policy Owner unless the Policy Owner elects a different Income Payment
method. (See "Income Payments" at page 30).
(b) Partial Withdrawals
The minimum amount that can be withdrawn is $100. The amount will be
withdrawn from the Allocation Alternatives in accordance with the Policy
Owner's request.
If the value in any of the Allocation Alternatives from which the withdrawal
is being made is less than or equal to the amount requested from that
Allocation Alternative, NYLIAC will pay the entire value of that Allocation
Alternative, less any surrender charge that may apply, to the Policy Owner.
The Policy Owner must tell NYLIAC how a partial withdrawal is to be allocated
among the Allocation Alternatives.
(c) Periodic Partial Withdrawals
Policy Owners may arrange for periodic partial withdrawals on a monthly,
quarterly or semi-annual basis. The surrender charge, 10% penalty tax and
provisions applicable to partial withdrawals apply to periodic partial
withdrawals. (See above).
A confirmation notice will indicate when a withdrawal has resulted in the
near or actual exhaustion of funds in one or more of the Allocation
Alternatives. In that connection, when a periodic partial withdrawal amount
exceeds the amount remaining in one or more of the Allocation Alternatives and
there is no indication of an alternate Allocation Alternative, a check will be
sent out for less than the scheduled amount and future payments will cease
until new Policy Owner instructions have been received designating new
periodic partial withdrawal Allocation Alternatives.
(d) Hardship Withdrawals
Under certain Qualified Policies, the Plan Administrator may allow, in its
sole discretion, certain withdrawals it determines to be "hardship
withdrawals." The surrender charge, 10% penalty tax and provisions applicable
to partial withdrawals apply to hardship withdrawals. For Single Premium
Policies the surrender charge will only be applied to any amounts withdrawn in
any Policy Year which, when added to all other surrender charge free
withdrawals in that Policy Year, exceed 10% of the Policy Value.
CANCELLATIONS
NYLIAC may, in its sole discretion, subject to any applicable state
insurance law or regulation, cancel a Flexible Premium Policy if no Purchase
Payments are made for 2 or more Policy Years in a row, and both (a) the total
Purchase Payments made, less any partial withdrawals and any surrender
charges, and (b) the Policy Value, are less than $2,000. If such a
cancellation occurs, NYLIAC will pay the Policy Owner the Policy Value.
Similarly, NYLIAC may, in its sole discretion, subject to any applicable
state insurance law or regulation, cancel Single Premium Policies that have a
Policy Value of less than $2,000, and pay the Policy Owner the Policy Value.
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We will notify the Policy Owner in the annual report of our intention to
exercise these rights on the 90th day following that Policy Anniversary,
unless a Flexible Premium Policy Purchase Payment or Single Premium Policy
additional Purchase Payment is received before the end of that 90-day period.
RETIREMENT DATE
The Policy Owner specifies a Retirement Date. The Retirement Date is the day
that Income Payments are scheduled to commence under the Policy unless the
Policy has been surrendered or an amount has been paid as proceeds to the
designated Beneficiary prior to that date. The Policy Owner may defer the
Retirement Date to any Policy Anniversary before the Annuitant will be Age 75
or to a later date agreed to by NYLIAC, provided that written notice of the
request is received by NYLIAC at least one month before the last selected
Retirement Date. The Retirement Date and Income Payment method for Qualified
Policies may also be controlled by endorsements, the plan, or applicable law.
DEATH BEFORE RETIREMENT
If the Annuitant (which, for Non-Qualified Policies, includes any named
Contingent Annuitant who is alive at the death of the Primary Annuitant before
the Retirement Date) dies prior to the Retirement Date, an amount will be
paid, as of the date proof of death and all requirements necessary to make the
payment are received, as proceeds to the designated Beneficiary. That amount
will be the greater of: (a) the sum of all Purchase Payments less any partial
withdrawals, and surrender charges made before notification of death, and less
premium amounts for any riders; or (b) the Policy Value. This formula
guarantees that the amount paid will at least equal the sum of all Purchase
Payments (less any partial withdrawals and surrender charges on such partial
withdrawals and premium amounts for riders), independent of the investment
experience of the Variable Accounts. The Beneficiary may receive the amount
payable in a lump sum or under one of the Income Payment options.
If a Policy Owner of a Policy issued after January 18, 1985, dies before the
Retirement Date, the Policy will no longer be in force and we will pay as
proceeds to the Beneficiary an amount which is the greater of "(a)" or "(b)"
as they are described in the preceding paragraph. Payment will be made in a
lump sum to the Beneficiary unless the Policy Owner has elected or the
Beneficiary elects otherwise in a signed written notice which gives us the
facts that we need. If such an election is properly made, all or part of these
proceeds will be:
(i) applied under options 1A or 1B. (See "Income Payments" at page 30.)
However, any unpaid amount remaining under options 1A or 1B at the end of
the five-year period following the Owner's death will be paid in one lump
sum to the Beneficiary; or
(ii) used to purchase an immediate annuity for the Beneficiary who will
be the owner and annuitant. Payments under the annuity or under any other
method of payment we make available must be for the life of the
Beneficiary, or for a number of years that is not more than the life
expectancy of the Beneficiary at the time of the Policy Owner's death (as
determined for federal tax purposes), and must begin within one year after
the Policy Owner's death.
The value of the proceeds will be determined at the end of the Valuation
Period during which death occurs.
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For Policies issued after January 18, 1985, if the Policy Owner and the
Annuitant are not the same person and the Policy Owner's spouse is the
Beneficiary, or if the Policy Owner and the Annuitant are the same individual
and the Policy Owner's spouse is the Beneficiary and the Contingent Annuitant,
the proceeds can be paid to the surviving spouse if the Policy Owner dies
before the Retirement Date or the Policy can continue with the Policy Owner's
surviving spouse as the new Policy Owner. Generally, NYLIAC will not issue a
Policy to joint owners. However, if NYLIAC makes an exception and issues a
jointly owned Policy, ownership rights and privileges under the Policy must be
exercised jointly and benefits under the Policy will be paid upon the death of
any joint owner. (See "Federal Tax Matters--Taxation of Annuities in General"
at page 36.)
If the Annuitant and Joint Annuitant, if any, die after the Retirement Date,
NYLIAC will pay the sum required by the Income Payment option in effect.
Any distribution or application of Policy proceeds will be made within 7
days after NYLIAC receives all documents (including documents necessary to
comply with federal and state tax law) in connection with the event or
election that causes the distribution to take place, subject to postponement
in certain circumstances. (See "Delay of Payments" at page 33.)
INCOME PAYMENTS
(a) Election of Income Payment Options
Income Payments can be either variable, fixed or a combination of both. At
any time before the Retirement Date, the Policy Owner may change the Income
Payment option or request any other method of payment agreeable to NYLIAC. If
an Income Payment option is chosen which depends on the continuation of the
life of the Annuitant or of a Joint Annuitant, proof of birth date may be
required before Income Payments begin. For Income Payment options involving
life income, the actual age of the Annuitant or of a Joint Annuitant will
affect the amount of each payment. Since payments to older annuitants are
expected to be fewer in number, the amount of each annuity payment shall be
greater.
In the event that an Income Payment option is not selected, NYLIAC will make
monthly Income Payments which will go on for as long as the Annuitant lives
(10 years guaranteed) in accordance with Income Payment option 3A and the
Annuity Benefit section of the Policy.
Under Income Payment options involving life income, the Payee may not
receive Income Payments equal to the total Purchase Payments if the Annuitant
dies before the actuarially predicted date of death.
For Income Payment options not involving life contingencies (options 1A, 1B,
2A, 2A-V or 2B below), NYLIAC bears no mortality risk notwithstanding the
mortality risk charge collected by NYLIAC. (See "Other Charges" at page 25.)
(b) Fixed Income Payments
The Policy Owner (or the Beneficiary upon the death of the Annuitant, or the
Policy Owner prior to the Retirement Date) may choose to have Income Payments
made under any of the Fixed Income Payment options described below:
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1A. Interest Accumulation. NYLIAC credits interest (at least 3 1/2% per
year) on the funds remaining under this Income Payment option. This amount
can be withdrawn at any time in sums of $100 or more. Interest is paid to
the date of withdrawal on sums withdrawn.
1B. Interest Payment. NYLIAC pays interest once each month (at an
effective rate of at least 3% per year), every 3 months or 6 months, or
once each year, as chosen, based on the funds remaining under this Income
Payment option.
2A. Income for Elected Period. NYLIAC makes monthly Income Payments for
the number of years elected. When asked, NYLIAC will state in writing what
each Income Payment would be, if made every 3 months or 6 months, or once
each year.
2B. Income of Elected Amount. NYLIAC makes Income Payments of the elected
amount monthly, every 3 months or 6 months, or once each year, as chosen,
until all proceeds and interests have been paid. The total Income Payments
made each year must be at least 5% of the proceeds placed under this Income
Payment option. Each year NYLIAC credits interest of at least 3 1/2% on the
funds remaining under the Income Payment option.
3A. Life Income-Guaranteed Period. NYLIAC makes an Income Payment each
month during the lifetime of the Payee. Income Payments do not change, and
are guaranteed for 5, 10, 15, or 20 years, as chosen, even if the Payee
dies sooner.
3B. Life Income-Guaranteed Total Amount. NYLIAC makes an Income Payment
each month during the lifetime of the Payee. Income Payments do not change,
and are guaranteed until the total amount paid equals the amount placed
under this Income Payment option, even if the Payee dies sooner.
3C. Life Income-Joint and Survivor. NYLIAC makes an Income Payment each
month while one or both of the two Payees are living. Income Payments do
not change, and are guaranteed for 10 years, even if both Payees die
sooner.
(c) Variable Income Payments
For Qualified Policies and, depending on state filing and review processes,
for Non-Qualified Policies, the Policy Owner (or the Beneficiary upon the
death of the Annuitant or the Policy Owner prior to the Retirement Date) may
also elect to have a portion or all of the Policy Value used to provide Income
Payments under one of the Variable Income Payment options described below:
2A-V. Income for Elected Period. NYLIAC makes monthly Income Payments for
the number of years elected. The current value of any remaining Income
Payments may be withdrawn in whole or in part at any time before the
expiration of the number of years elected.
3A-V. Life Income-Guaranteed Period. NYLIAC will make an Income Payment
each month during the lifetime of the Payee. Income Payments will be made
for a guaranteed period of 5, 10, 15, or 20 years, as elected, even if the
Payee dies sooner.
3C-V. Life Income-Joint and Survivor. NYLIAC will make an Income Payment
each month during the joint lifetime of two Payees, and continuing for the
remaining lifetime of the survivor. Income Payments will be made for a
guaranteed period of 10 years, even if both Payees die sooner.
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(d) Value of Variable Income Payments
The value of Variable Income Payments will reflect the investment experience
of the Common Stock Investment Division. The Policy Value you tell us to apply
to provide Variable Income Payments under either Single or Flexible Premium
Policies will be used to purchase Annuity Units in the Common Stock Investment
Division for Single Premium Policies. The amount of Variable Income Payments
will increase or decrease according to the value of the Annuity Units which
reflects the investment experience of that Common Stock Investment Division.
The annuity tables in the Policy, which are used to calculate the value of
Variable Income Payments, are based on an "assumed investment result" of 4% (3
1/2% if the Policy is issued for delivery in Florida or Texas). If the actual
net investment experience exactly equals the "assumed investment result," then
the Variable Income Payments will remain the same (equal to the first Income
Payment). However, if actual investment experience exceeds the "assumed
investment result," then the Income Payments will increase; conversely, if
actual experience is worse, the Income Payments will decrease.
If a higher "assumed investment result" were used, the first Income Payment
would be larger, but subsequent payments would increase more slowly or
decrease more quickly.
The value of all payments (both fixed and variable) will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
The method of computation of Variable Income Payments is described in more
detail in the Statement of Additional Information.
(e) Other Methods of Payment
If NYLIAC agrees, the Policy Owner (or the Beneficiary upon the death of the
Annuitant, or the Policy Owner prior to the Retirement Date) may choose to
have Income Payments made under some other method of payment.
A Payee receiving payments under Income Payment options 1A, 1B, 2A, 2A-V or
2B may later elect (with NYLIAC's permission) to have any unpaid amount placed
under another method of payment.
If a Payee dies on or after the Retirement Date, any unpaid Policy proceeds
must be paid under the method of payment being used as of the date of the
Payee's death. (For certain restrictions on methods of payment, see "Federal
Tax Matters" at page 36.)
(f) Legal Developments Regarding Income Payments
Income Payment options involving life income are based on annuity tables
that provide the same benefit payments to men and women of the same age. In
some states, however, the use of such tables is restricted to Policies
affected by the 1983 Supreme Court decision in Arizona Governing Committee v.
Norris. In those states, Income Payment options involving life income will be
based on annuity tables that provide different benefit payments to men and
women of the same age, unless NYLIAC is requested to endorse the policy to use
unisex actuarial tables in order to comply with the intent of the Norris
decision. If a Policy is to be used in connection with an employment-related
retirement or benefit plan, consideration should be given, in consultation
with legal counsel, to whether the Policy should be endorsed to use unisex
actuarial tables.
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In addition, legislation was introduced in Congress which, had it been
enacted, would have required the use of tables that do not vary on the basis
of sex for some or all annuities. Currently, several states have enacted such
laws.
(g) Proof of Survivorship
Satisfactory proof of survival may be required, from time to time, before
any Income Payments or other benefits will be paid. The proof will be
requested at least 30 days prior to the next scheduled benefit payment date.
DELAY OF PAYMENTS
Payment of any amounts due from the Variable Accounts under the Policy will
occur within seven days of the date NYLIAC receives all documents (including
documents necessary to comply with federal and state tax law) in connection
with a request unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange
Commission; or
3. The Securities and Exchange Commission permits a delay for the
protection of security holders.
For the same reasons, transfers from the Variable Accounts to the Fixed
Account may be delayed.
DESIGNATION OF BENEFICIARY
The Policy Owner may select one or more Policy Beneficiaries and name them
in the application. Thereafter, before the Retirement Date and while the
Annuitant is living, the Policy Owner may change the Beneficiary by written
notice to NYLIAC. If before the Retirement Date, the Annuitant dies before the
Policy Owner and no Beneficiary for the proceeds or for a stated share of the
proceeds survives, the right to the proceeds or shares of the proceeds passes
to the Policy Owner. If the Policy Owner is the Annuitant, the proceeds pass
to the Policy Owner's estate.
However, if the Policy Owner who is not the Annuitant dies before the
Retirement Date, and no Beneficiary for the proceeds or for a stated share of
the proceeds survives, the right to the proceeds or shares of the proceeds
pass to the Policy Owner's estate.
RESTRICTIONS UNDER THE TEXAS OPTIONAL RETIREMENT PROGRAM
Section 36.105 of the Texas Educational Code permits participants in the
Texas Optional Retirement Program (ORP) to withdraw or surrender their
interest in a variable annuity contract issued under the ORP only upon (1)
termination of employment in the Texas public institutions of higher
education, (2) retirement or (3) death. Accordingly, a participant in the ORP
(or the participant's estate if the participant has died) will be required to
obtain a certificate of termination from the employer before the account can
be redeemed.
RESTRICTIONS UNDER INTERNAL REVENUE CODE SECTION 403(B)(11)
Distributions attributable to salary reduction contributions made in years
beginning after December 31, 1988 (including the earnings on these
contributions), as well as to earnings in
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such years on salary reduction accumulations held as of the end of the last
year beginning before January 1, 1989, may not begin before the employee
attains age 59 1/2, separates from service, dies or becomes disabled. The plan
may also provide for distribution in the case of hardship. However, hardship
distributions are limited to amounts contributed by salary reduction; the
earnings on such amounts may not be withdrawn. Even though a distribution may
be permitted under these rules (e.g. for hardship or after separation from
service), it may nonetheless be subject to a 10% additional income tax as a
premature distribution. To the extent that these limitations on distributions
conflict with the redeemability provisions of the Investment Company Act,
NYLIAC relies upon the November 28, 1988 SEC "No-Action" letter for exemptive
relief.
Under the terms of your plan you may have the option to invest in other
403(b) funding vehicles, including 403(b)(7) custodial accounts. You should
consult your plan document to make this determination.
THE FIXED ACCOUNT
The Fixed Account includes all of NYLIAC's assets except those assets
allocated to separate accounts. NYLIAC has sole discretion to invest the
assets of the Fixed Account subject to applicable law. An interest in the
Fixed Account is not registered under the Securities Act of 1933, and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940. Accordingly neither the Fixed Account nor any interests
therein are generally subject to the provisions of these statutes, and NYLIAC
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this Prospectus relating to the Fixed Account.
(a) Interest Crediting
NYLIAC guarantees that it will credit interest at an effective rate of at
least 4% to Net Purchase Payments or portions of Net Purchase Payments
allocated or transferred to the Fixed Account under the Policies. NYLIAC may,
AT ITS SOLE DISCRETION, credit a higher rate of interest to the Fixed Account,
or to amounts allocated or transferred to the Fixed Account.
(b) Surrender Charges
Surrender charges may be applied to withdrawals from the Fixed Account. (See
"Surrender Charges" at page 23.) In addition to the "Exceptions to Surrender
Charges" described at page 24, subject to any applicable state insurance law
or regulation, a surrender charge will not be imposed on any amount which is
withdrawn from the Fixed Account if on any Policy Anniversary the interest
rate set for that amount falls more than three percentage points below the
rate which was set for the immediately preceding Policy Year, and the Policy
Owner, within 60 days after that Policy Anniversary, withdraws part or all of
that amount allocated to the Fixed Account. (For Single Premium Policies, this
determination is made independently, for each additional Purchase Payment or
portion of each additional Purchase Payment transferred to the Fixed Account,
on the anniversary of each such Purchase Payment; for Flexible Premium
Policies, NYLIAC reserves the right to set a separate yearly interest rate and
period for which this rate is guaranteed for amounts transferred to the Fixed
Account.)
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(c) Transfers to Investment Divisions
Depending on state filing and review processes, amounts may be transferred
from the Fixed Account to the Variable Account Investment Divisions up to 30
days prior to the Retirement Date, subject to the following conditions.
1. An amount may be transferred from the Fixed Account to the Investment
Divisions if, on any Policy Anniversary, the interest rate set for that
amount falls more than three percentage points below the rate which was set
for the immediately preceding Policy Year, and the Policy Owner, within 60
days after that Policy Anniversary, makes a request for such transfer.
There is no minimum transfer requirements under this condition.
2. For Single Premium Policies, during the first seven Policy Years
following the Purchase Payment to which an amount to be transferred is
attributed, an amount equal to 10% or less of the Policy Value at the
beginning of the Policy Year may be transferred during that Policy Year
from the Fixed Account to the Investment Divisions. However, any amount so
transferred will reduce, by an equivalent amount, the total amount that may
be withdrawn during that Policy Year from the Policy Value under the first
exception to the imposition of surrender charges described at "Exceptions
to Surrender Charges" at page 24. In addition, any amount withdrawn during
a Policy Year under that first exception to the imposition of a surrender
charge will limit subsequent amounts that may be transferred under this
condition in that same Policy Year. For each Purchase Payment, the second
Policy Year begins on the first anniversary of that Purchase Payment, and
so on.
3. For Flexible Premium Policies, except as stated in (c)1 above,
transfers are not permitted from the Fixed Account during the first ten
Policy Years.
4. Transfers of at least the minimum amount are permitted, for Single
Premium Policies, after the first seven Policy Years following the Purchase
Payment to which an amount to be transferred is attributed, or, for
Flexible Premium Policies, after the first ten Policy Years. The minimum
amount that may be transferred from the Fixed Account to the Investment
Divisions is the lesser of (i) $1,000 for Single Premium Policies or $500
for Flexible Premium Policies or (ii) the cash value (accumulation value)
of the Fixed Account attributed to that Purchase Payment for Single Premium
Policies or the total value of the Fixed Account for Flexible Premium
Policies. (Additionally, for Flexible Premium Policies, the remaining
values in the Fixed Account must be at least $100. If, after a contemplated
transfer, the remaining values in the Flexible Premium Policy Fixed Account
would be less than $100, that amount may be included in the transfer.)
For both Single and Flexible Premium Policies, NYLIAC reserves the right to
limit the total number of transfers to no more than four in any one Policy
Year. NYLIAC also reserves the right to limit the dollar amount of any such
transfers. (See "Transfers" at page 22.)
Transfer requests must be in writing on a form provided by NYLIAC.
(d) General Matters
Payments of any amount due from the Fixed Account may be delayed.
See the Policy itself for details and a description of the Fixed Account.
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FEDERAL TAX MATTERS
INTRODUCTION
The Qualified Policies were designed for use by individuals in retirement
plans which are intended to qualify as plans qualified for special income tax
treatment under Sections 219, 401, 403, 408 or 457 of the Internal Revenue
Code of 1986 (the "Code"). The ultimate effect of federal income taxes on the
Policy Value, on Income Payments and on the economic benefit to the Policy
Owner, the Annuitant or the Beneficiary depends on the type of retirement plan
for which the Qualified Policy is purchased, on the tax and employment status
of the individual concerned and on NYLIAC's tax status. The following
discussion assumes that Qualified Policies are used in retirement plans that
qualify for the special federal income tax treatment described above. THE
FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. This
discussion is not intended to address the tax consequences resulting from all
of the situations in which a person may be entitled to or may receive a
distribution under a Policy. Any person concerned about these tax implications
should consult a competent tax adviser before making a Purchase Payment. This
discussion is based upon NYLIAC's understanding of the present federal income
tax laws as they are currently interpreted by the Internal Revenue Service. No
representation is made as to the likelihood of continuation of the present
federal income tax laws or of the current interpretations by the Internal
Revenue Service. Moreover, no attempt has been made to consider any applicable
state or other tax laws except with respect to the imposition of any state
premium taxes.
TAXATION OF ANNUITIES IN GENERAL
The following discussion assumes that the Policies will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional
Information discusses such qualifications.
Section 72 of the Code governs taxation of annuities in general. NYLIAC
believes that an annuity contract owner generally is not taxed on increases in
the value of a policy until distribution occurs either in the form of a lump
sum received by withdrawing all or part of the cash value (accumulation value)
(i.e., "withdrawals") or as Income Payments under the Income Payment option
elected. The exception to this rule is that generally, an owner of any
deferred annuity contract who is not a natural person must include in income
any increase in the excess of the Policy Owner's Policy Value over the Policy
Owner's investment in the contract during the taxable year with respect to
Purchase Payments made after February 28, 1986. However, there are some
exceptions to this exception and you may wish to discuss these with your tax
counsel. The taxable portion of a distribution (in the form of an annuity or
lump sum payment) is generally taxed as ordinary income. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the Policy
Value generally will be treated as a distribution.
In the case of a withdrawal or surrender distributed to a participant or
beneficiary under a Qualified Policy (other than a Qualified Policy used in a
retirement plan that qualifies for special federal income tax treatment under
Section 457 of the Code as to which there are special rules), a ratable
portion of the amount received is taxable, generally based on the ratio of the
investment in the contract to the total Policy Value. The "investment in the
contract" generally equals the portion, if any, of any Purchase Payments paid
by or on behalf
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of an individual under a Policy which is not excluded from the individual's
gross income. For Policies issued in connection with qualified plans, the
"investment in the contract" can be zero. A special rule may apply to such
surrenders or withdrawals from Qualified Policies with respect to investment
in the contract as of December 31, 1986.
Withdrawal and annuity payments generally are subject to federal income tax
withholding. However, recipients generally may elect not to have tax withheld
from distributions, except that withholding is mandatory with respect to
certain distributions from section 401(a), 403(a) and 403(b) plans.
Generally, in the case of a withdrawal under a Non-Qualified Policy before
the annuity starting date, amounts received are first treated as taxable
income to the extent that the Policy Value immediately before the withdrawal
exceeds the "investment in the contract" at that time. Any additional amount
withdrawn is not taxable.
Although the tax consequences may vary depending on the Income Payment
option elected under the Policy, in general, only the portion of the Income
Payment that represents the amount by which the Policy Value exceeds the
"investment in the contract" will be taxed; after the investment in the Policy
is recovered, the full amount of any additional Income Payments is taxable.
For Variable Income Payments, in general the taxable portion (prior to
recovery of the investment in the contract) is determined by a formula which
establishes a specific dollar amount of each Income Payment that is not taxed.
The dollar amount is determined by dividing the "investment in the contract"
by the total number of expected periodic payments. For Fixed Income Payments,
in general, there is no tax on the portion of each payment which represents
the same ratio that the "investment in the contract" bears to the total
expected value of the Income Payments for the term of the payments; however,
the remainder of each Income Payment is taxable until the recovery of the
investment in the contract, and thereafter the full amount of each annuity
payment is taxable. If death occurs before full recovery of the investment in
the contract, the unrecovered amount may be deducted on the annuitant's final
tax return.
In the case of a distribution pursuant to a Qualified or Non-Qualified
Policy, there may be imposed a penalty tax equal to 10% of the amount treated
as taxable income. The Penalty tax is not imposed in certain circumstances,
including, generally, distributions: (1) made on or after the date on which
the taxpayer is actual age 59 1/2, (2) made as a result of the Policy Owner's
death or disability, or (3) received in substantially equal installments as a
life annuity.
All non-qualified, deferred annuity contracts entered into after October 21,
1988 issued by NYLIAC (or its affiliates) to the same Policy Owner during any
calendar year are to be treated as one annuity contract for purposes of
determining the amount includible in an individual's gross income. In
addition, there may be other situations in which the Treasury Department may
conclude (under its authority to issue regulations) that it would be
appropriate to aggregate two or more annuity contracts purchased by the same
Policy Owner. Accordingly, a Policy Owner should consult a competent tax
advisor before purchasing more than one Policy or other annuity contract.
A transfer of ownership of a Policy, or designation of an annuitant or other
beneficiary who is not also the Policy Owner, may result in certain income or
gift tax consequences to the Policy Owner that are beyond the scope of this
discussion. A Policy Owner contemplating
37
<PAGE>
any transfer or assignment of a Policy should contact a competent tax adviser
with respect to the potential tax effects of such a transaction.
QUALIFIED PLANS
The Qualified Policy is designed for use with several types of qualified
plans. The tax rules applicable to participants and beneficiaries in such
qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be
available for certain types of contributions and distributions (including
special rules for certain lump sum distributions). Adverse tax consequences
may result from contributions in excess of specified limits, distributions
prior to age 59 1/2 (subject to certain exceptions), distributions that do not
conform to specified minimum distribution rules, aggregate distributions in
excess of a specified annual amount, and in certain other circumstances.
Therefore, NYLIAC makes no attempt to provide more than general information
about use of the Policies with the various types of qualified plans. Policy
Owners and participants under qualified plans as well as Annuitants and
Beneficiaries are cautioned that the rights of any person to any benefits
under qualified plans may be subject to the terms and conditions of the plans
themselves, regardless of the terms and conditions of the Policy issued in
connection therewith. Purchasers of Policies for use with any qualified plan
should seek competent legal and tax advice regarding the suitability of the
Policy therefor.
(a) Section 403(b) Plans. Under Section 403(b) of the Code, payments made
by public school systems and certain tax exempt organizations to purchase
annuity policies for their employees are excludable from the gross income
of the employee, subject to certain limitations. However, such payments may
be subject to FICA (Social Security) taxes.
(b) Individual Retirement Annuities. Sections 219 and 408 of the Code
permit individuals or their employers to contribute to an individual
retirement program known as an "Individual Retirement Annuity" or "IRA",
including an employer-sponsored Simplified Employee Pension or "SEP".
Individual Retirement Accounts are subject to limitations on the amount
which may be contributed and deducted and the time when distributions may
commence. In addition, distributions from certain other types of qualified
plans may be placed into an Individual Retirement Accounts on a tax-
deferred basis.
(c) Corporate Pension and Profit-Sharing Plans and H.R. 10
Plans. Sections 401(a) and 403(a) of the Code permit corporate employers to
establish various types of retirement plans for employees, and self-
employed individuals to establish qualified plans for themselves and their
employees. Such retirement plans may permit the purchase of the Policies to
provide benefits under the plans.
(d) Deferred Compensation Plans. Section 457 of the Code, while not
actually providing for a qualified plan as that term is normally used,
provides for certain deferred compensation plans with respect to service
for state governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Policies can be used with
such plans. Under such plans, a participant may specify the form of
investment in which his or her participation will be made. All such
investments, however, are owned by, and are subject to, the claims of the
general creditors of the sponsoring employer.
38
<PAGE>
DISTRIBUTOR OF THE POLICIES
NYLIFE Distributors Inc. ("NYLIFE Distributors"), 51 Madison Avenue, New
York, New York 10010, is the principal underwriter and the distributor of the
Policies and is an indirect wholly-owned subsidiary of New York Life. The
maximum commission paid to registered representatives of broker-dealers who
have entered into dealer agreements with NYLIFE Distributors is 3 1/2%. From
time to time, NYLIFE Distributors may enter into a special arrangement with a
broker-dealer, which provides for the payment of higher commissions to such
broker-dealer in connection with sales of the Policies. Purchasers of Policies
will be informed prior to purchase of any applicable special arrangement.
VOTING RIGHTS
To the extent required by law, the Eligible Portfolio shares held in the
Variable Accounts will be voted by NYLIAC at special shareholder meetings of
the Fund in accordance with instructions received from persons having voting
interests in the corresponding Investment Division. If, however, the
Investment Company Act of 1940 or any regulation thereunder should be amended,
or if the present interpretation thereof should change, and as a result,
NYLIAC determines that it is allowed to vote the Eligible Portfolio shares in
its own right, NYLIAC may elect to do so.
As a result of a change in Maryland law, the Fund is no longer required to
hold routine annual stockholder meetings. The Fund's Board of Directors has
decided not to hold routine annual stockholder meetings. Special stockholder
meetings will be called when necessary. Not holding routine annual meetings
will result in Policy Owners having a lesser role in governing the business of
the Fund.
The number of votes which are available to a Policy Owner will be calculated
separately for each Investment Division of the Variable Accounts. That number
will be determined by applying his or her percentage interest, if any, in a
particular Investment Division to the total number of votes attributable to
the Investment Division.
Prior to the Retirement Date, the Policy Owner holds a voting interest in
each Investment Division to which Policy Value is allocated. The number of
votes which are available to a Policy Owner will be determined by dividing the
Policy Value attributable to an Investment Division by the net asset value per
share of the applicable Eligible Portfolios.
After the Retirement Date, the person receiving Variable Income Payments has
the voting interest. The number of votes after the Retirement Date will be
determined by dividing the reserve for such Policy allocated to a Common Stock
Investment Division by the net asset value per share of the Growth Equity
Portfolio. After the Retirement Date, the votes attributable to a Policy
decrease as the reserves allocated to a Common Stock Investment Division
decrease. In determining the number of votes, fractional shares will be
recognized.
The number of votes of the Eligible Portfolio which are available will be
determined as of the date coincident with the date established by that
Portfolio for determining shareholders eligible to vote at the meeting of the
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by the Fund.
39
<PAGE>
Fund shares as to which no timely instructions are received will be voted in
proportion to the voting instructions which are received with respect to all
Policies participating in that Investment Division. Voting instructions to
abstain on any item to be voted upon will be applied on a pro rata basis to
reduce the votes eligible to be cast.
Each person having a voting interest in an Investment Division will receive
proxy material, reports and other materials relating to the appropriate
Eligible Portfolio.
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is
the Table of Contents for that Statement:
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES............................................................... 2
INVESTMENT PERFORMANCE CALCULATIONS........................................ 4
NEW YORK LIFE MFA SERIES FUND, INC. ....................................... 8
GENERAL MATTERS............................................................ 8
FEDERAL TAX MATTERS........................................................ 9
DISTRIBUTOR OF THE POLICIES................................................ 10
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS..................................... 10
STATE REGULATION........................................................... 10
RECORDS AND REPORTS........................................................ 11
LEGAL PROCEEDINGS.......................................................... 11
INDEPENDENT ACCOUNTANTS.................................................... 11
OTHER INFORMATION.......................................................... 11
FINANCIAL STATEMENTS....................................................... F-1
</TABLE>
40
<PAGE>
NYLIAC MFA SEPARATE ACCOUNT I
NYLIAC MFA SEPARATE ACCOUNT II
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
FACILITATOR(R)*
MULTI-FUNDED RETIREMENT ANNUITY POLICIES
OFFERED BY
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
MAY 1, 1996
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the current Facilitator Prospectus. Accordingly, this
Statement should be read in conjunction with the current Facilitator Prospec-
tus, dated May 1, 1996, which may be obtained by calling NYLIAC at (212) 576-
7243, or writing to New York Life Insurance and Annuity Corporation at 51 Mad-
ison Avenue, New York, New York 10010. Terms used in the current Facilitator
Prospectus are incorporated in this Statement.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES............................................................... 2
Total Disability Benefit Rider........................................... 2
Valuation of Accumulation Units.......................................... 2
Computation of Variable Income Payments.................................. 3
Contingent Annuitant..................................................... 4
INVESTMENT PERFORMANCE CALCULATIONS........................................ 4
Money Market Investment Division......................................... 4
Bond Investment Division Yields.......................................... 5
Bond and Common Stock Standard Total Return Calculations................. 6
Other Performance Data................................................... 7
NEW YORK LIFE MFA SERIES FUND, INC......................................... 8
GENERAL MATTERS............................................................ 8
FEDERAL TAX MATTERS........................................................ 9
Taxation of New York Life Insurance and Annuity Corporation.............. 9
Tax Status of the Policies............................................... 9
DISTRIBUTOR OF THE POLICIES................................................ 10
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS..................................... 10
STATE REGULATION........................................................... 10
RECORDS AND REPORTS........................................................ 11
LEGAL PROCEEDINGS.......................................................... 11
INDEPENDENT ACCOUNTANTS.................................................... 11
OTHER INFORMATION.......................................................... 11
FINANCIAL STATEMENTS....................................................... F-1
</TABLE>
* Facilitator(R) is NYLIAC's registered service mark for the Policies and is
not meant to connote performance.
<PAGE>
THE POLICIES
The following provides additional information about the Policies, to supple-
ment the description in the Prospectus, which may be of interest to some Pol-
icy Owners.
TOTAL DISABILITY BENEFIT RIDER
As described in the Prospectus, the Total Disability Benefit Rider credits
benefit amounts as Net Purchase Payments if the Annuitant is totally disabled
for at least six consecutive months. No benefit amounts will be credited to
the Policy after either the Retirement Date or, if earlier, the Policy Anni-
versary on which the Annuitant is Age 65. The Annuitant is considered to be
totally disabled if unable to perform his or her own occupation. The total
disability must be caused by an injury or sickness that first occurs after the
rider was issued. However, after total disability has lasted for two years,
the Annuitant will be deemed to be totally disabled only if unable to perform
any occupation for which he or she is reasonably suited based on education,
training and work experience. NYLIAC will not credit any benefit amounts in
connection with the following disabilities; (i) those that start prior to the
Annuitant's fifth birthday; (ii) those that are caused by an intentionally
self-inflicted injury; or (iii) those that are caused by act of war.
The benefit amount for each month during a period of total disability will
be determined as follows: (a) if total disability began 60 or more months af-
ter the rider is issued, the amount is one-sixtieth of the Basic Plan Premiums
(Purchase Payments less premium amounts paid for riders) paid or credited
within the 60 months before the disability began; (b) if total disability
starts more than 12 but within 60 months after the rider is issued, the amount
is the total of the Basis Plan Premiums paid or credited while the rider was
in effect divided by the number of full and partial months that the rider was
in effect; (c) if total disability began within 12 months after the rider was
issued, the amount will be the smaller of the total scheduled Basic Plan Pre-
miums for the first Policy Year divided by 12 or the total Basic Plan Premiums
paid while the rider was in effect divided by the number of full and partial
months that the rider was in effect. However, for a Flexible Premium Non-Qual-
ified Policy, the benefit amount will never be more than $1,250 in any policy
month. For a Flexible Premium Qualified Policy, the benefit amount will never
be more than the greater of $2,500 in any policy month or the pro rata monthly
amount permitted by law for the applicable tax qualified plan. (See "Federal
Tax Matters-Qualified Plans" at page 38 of the Prospectus.)
For Non-Qualified Policies, only total disabilities of the Primary Annuitant
(the person named as the Annuitant in the application for a Policy) are cov-
ered. However, previously, if the Contingent Annuitant became the Annuitant,
the Policy Owner could apply to NYLIAC to have a new rider included in the
Policy to cover the Contingent Annuitant. New sales of the Total Disability
Rider have been discontinued.
VALUATION OF ACCUMULATION UNITS
Accumulation Units are valued separately for each Investment Division of
each Variable Account. The method used for valuing Accumulation Units in each
Investment Division is the same. The value of each Accumulation Unit was arbi-
trarily set as of the date operations began for the Investment Division.
Thereafter, the value of an Accumulation Unit of an Investment Division for
any Valuation Period equals the value of an Accumulation Unit in that Invest-
ment Division as of the immediately preceding Valuation Period multiplied by
the "Net Investment Factor" for that Investment Division for the current Valu-
ation Period.
2
<PAGE>
The Net Investment Factor for each Investment Division for any Valuation Pe-
riod is determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is the result of:
(1) the net asset value per share of the Eligible Portfolio shares
held in the Investment Division determined at the end of the current
Valuation Period, plus
(2) the per share amount of any dividend or capital gain distribution
made by the Eligible Portfolio for shares held in the Investment Divi-
sion if the "ex-dividend" date occurs during the current Valuation Pe-
riod, plus or minus (only in the case of Variable Account II Investment
Divisions),
(3) a charge or credit, if any, for taxes; and
(b) is the net result of:
(1) the net asset value per share of the Eligible Portfolio shares
held in the Investment Division determined as of the end of the immedi-
ately preceding Valuation Period, plus or minus (only in the case of
Variable Account II Investment Divisions),
(2) a charge or credit, if any, for taxes; and
(c) is a factor representing the charges deducted from the applicable In-
vestment Division on a daily basis. For Flexible Premium Policies the fac-
tor is equal, on an annual basis, to 1.75% of the daily net asset value of
Variable Accounts I and II, respectively. This factor represents a charge
of 1.25% for mortality and expense risks (of which .75% is attributable to
mortality risks and .50% to expense risks) and a charge of .50% for admin-
istrative services. For Single Premium Policies, such factor is equal, on
an annual basis, to 1.25% of the daily net asset value of Variable Accounts
I and II, respectively, and represents the charge for mortality and expense
risks (of which .75% is attributable to mortality risks and .50% to expense
risks). (See "Other Charges" at page 25 of the Prospectus.)
The Net Investment Factor may be greater or less than one. Therefore, the
value of an Accumulation Unit in an Investment Division may increase or de-
crease from Valuation Period to Valuation Period.
COMPUTATION OF VARIABLE INCOME PAYMENTS
Monthly Income Payments paid by NYLIAC on a variable basis are computed as
follows. The Policy Value (or portion of the Policy Value used to provide
Variable Income Payments) is applied under the table contained in the Policy
corresponding to the payment method elected by the Policy Owner. This will
produce a dollar amount which is the first monthly payment.
In order to determine subsequent monthly payments, the Policy is credited
with Variable Annuity Units in the Investment Divisions of the Variable Ac-
counts corresponding to the Growth Equity Portfolio. The Policy Value you tell
us to apply to provide Variable Income Payments under either Single or Flexi-
ble Premium Policies will be used to purchase Annuity Units in the Common
Stock Investment Division for Single Premium Policies. The amount of Variable
Income Payments will increase or decrease according to the value of the Annu-
ity Units which reflects the investment experience of that Common Stock In-
vestment Division. The number of Annuity Units credited is determined by di-
viding the first monthly payment by
3
<PAGE>
the value of one Annuity Unit on the Retirement Date. Thereafter, each monthly
payment is calculated by multiplying the number of Annuity Units so credited
by the value of an Annuity Unit on the last Business Day that is at least 10
calendar days prior to the date of that monthly payment.
For Variable Income Payment options, the value of Annuity Units in the Com-
mon Stock Investment Division is determined each Business Day by multiplying
the Annuity Unit Value for the immediately preceding Business Day by the prod-
uct of:
(i) the Net Investment Factor for the Common Stock Investment Division
adjusted to reflect a factor of 1.25% for the mortality and expense risk
charges deducted from the Variable Account on a daily basis, and
(ii) a discount factor of .99989255 (.99990575 if the Policy is issued
for delivery in Florida or Texas) to recognize the assumed investment re-
sult. Under these Policies, the assumed investment result is 4% (3 1/2% if
the Policy is issued for delivery in Florida or Texas). If the Net Invest-
ment Factor of the Common Stock Investment Division exceeds the assumed in-
vestment result on an annual basis, monthly payments will be increased. If
the Net Investment Factor is less, monthly payments will decrease.
CONTINGENT ANNUITANT
As described in the Prospectus, the Contingent Annuitant, who generally must
be the spouse of the Annuitant, is the person who becomes the Annuitant at the
death of the "Primary Annuitant" before the Retirement Date if the Policy
Owner is still living. The Primary Annuitant is the person named as the Annui-
tant in the application for a Non-Qualified Policy.
If prior to the Retirement Date, while the Policy Owner is still living, a
Contingent Annuitant is alive at the death of the Primary Annuitant, the pro-
ceeds of a Non-Qualified Policy will not become payable to the Beneficiary at
the death of the Primary Annuitant; instead, the Policy will continue in force
and the proceeds will become payable upon the death of the Contingent Annui-
tant, before the Retirement Date, or upon the death of the Policy Owner if
earlier. All Policy Owner rights and the benefits provided under the Policy
will continue in effect during the lifetime of the Contingent Annuitant, as
provided in the Policy, as if the Contingent Annuitant were the Annuitant, ex-
cept for the Total Disability Benefit Rider. (See "Total Disability Benefit
Rider" at page 22 of the Prospectus and at page 2 of this Statement of Addi-
tional Information.) After the Policy is issued, the Contingent Annuitant may
be deleted but not changed.
The named Contingent Annuitant will be considered deleted if a Policy would
not be treated as an annuity for federal income tax purposes should the Con-
tingent Annuitant become the Annuitant. Currently, the Policies do not provide
for the naming of Contingent Annuitants. (See "Federal Tax Matters" at page 36
of the Prospectus.)
INVESTMENT PERFORMANCE CALCULATIONS
MONEY MARKET INVESTMENT DIVISION
In accordance with regulations adopted by the Securities and Exchange Com-
mission, if NYLIAC discloses the Money Market Investment Division's current
annualized yield for a seven-day period, it is required to do so in a manner
which does not take into consideration
4
<PAGE>
any realized or unrealized gains or losses on shares of the Cash Management
Portfolio of the Fund or on its portfolio securities. This current annualized
yield is computed by determining the net change (exclusive of realized gains
or losses on the sale of securities and unrealized appreciation and deprecia-
tion) in the value of a hypothetical account having a balance of one unit of
the Money Market Investment Division at the beginning of such seven-day peri-
od, dividing such net change in account value by the value of the account at
the beginning of the period to determine the base period return and annu-
alizing this quotient on a 365-day basis. The net change in account value re-
flects the deductions for administrative services (for Flexible Premium Poli-
cies) and the mortality and expense risk charge and income and expenses ac-
crued during the period. Because of these deductions, the yield for the Money
Market Investment Division of a Variable Account will be lower than the yield
for the Cash Management Portfolio of the Fund.
The Securities and Exchange Commission also permits NYLIAC to disclose the
effective yield of the Money Market Investment Division for the same seven-day
period, determined on a compounded basis. The effective yield is calculated by
compounding the unannualized base period return by adding one to the base pe-
riod return, raising the sum to a power equal to 365 divided by 7, and sub-
tracting one from the result.
The yield on amounts held in a Money Market Investment Division normally
will fluctuate on a daily basis. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates
of return. The Money Market Investment Division's actual yield is affected by
changes in interest rates on money market securities, average portfolio matu-
rity of the Cash Management Portfolio, the types and quality of portfolio se-
curities held by the Cash Management Portfolio, and its operating expenses.
For the seven-day period ending December 31, 1995, the Money Market Invest-
ment Divisions' annualized yields were 4.39% and 3.82% respectively, for Sin-
gle Premium and Flexible Premium Policies (both Variable Account I and Vari-
able Account II). For the same period, the effective yields were 4.48% and
3.90% respectively, for Single Premium and Flexible Premium Policies (both
Variable Account I and Variable Account II).
BOND INVESTMENT DIVISION YIELDS
NYLIAC may from time to time disclose the current annualized yield of the
Bond Investment Division for 30-day periods. The annualized yield of a Bond
Investment Division refers to the income generated by the Investment Division
over a specified 30-day period. Because the yield is annualized, the yield
generated by an Investment Division during the 30-day period is assumed to be
generated each 30-day period. The yield is computed by dividing the net in-
vestment income per accumulation unit earned during the period by the price
per unit on the last day of the period, according to the following formula:
YIELD = 2[(a-b+1)/6/-1]
---
cd
Where: a = net investment income earned during the period by the Portfolio at-
tributable to shares owned by the Bond Investment Division.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of accumulation units outstanding during
the period.
d = the maximum offering price per accumulation unit on the last day of
the period.
5
<PAGE>
Net Investment Income will be determined in accordance with rules estab-
lished by the Securities and Exchange Commission. Accrued expenses will in-
clude all recurring fees that are charged to all Policy Owner accounts. The
yield calculations do not reflect the effect of any surrender charges that may
be applicable to a particular Policy. Surrender charges range from 7% to 0% of
the amount of Policy Value withdrawn depending on the elapsed time since the
Policy was issued.
Because of the charges and deductions imposed by the Variable Account the
yield for the Investment Divisions will be lower than the yield for the corre-
sponding Portfolio of the Fund. The yield on amounts held in the Investment
Divisions normally will fluctuate over time. Therefore, the disclosed yield
for any given past period is not an indication or representation of future
yields or rates of return. The Bond Investment Division's actual yield will be
affected by the types and quality of portfolio securities held by the Bond
Portfolio of the Fund, and its operating expenses.
For the 30-day period ended December 31, 1995, the annualized yields for the
Bond Investment Divisions were 4.70% and 4.19% respectively, for Single Pre-
mium Policies and Flexible Premium Policies (both Variable Account I and Vari-
able Account II).
BOND AND COMMON STOCK STANDARD TOTAL RETURN CALCULATIONS
NYLIAC may from time to time also disclose average annual total returns for
one or more of the Bond or Common Stock Investment Divisions for various peri-
ods of time. Average annual total return quotations are computed by finding
the average annual compounded rates of return over one, five and ten year pe-
riods that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or ten-year period, at the end of the
one, five, or ten-year period (or fractional portion thereof).
All recurring fees that are charged to all Policy Owner accounts are recog-
nized in the ending redeemable value. The average annual total return calcula-
tions will reflect the effect of surrender charges that may be applicable to a
particular period.
For the one, five, and ten year periods ending December 31, 1995, and the
period from January 23, 1984 to December 31, 1995, respectively, the average
annual total returns for the Single Premium Policies for the Bond Investment
Division were 8.88%, 7.88%, 7.80%, and 8.92%, respectively, for Variable Ac-
count I, and 8.88%, 7.88%, 7.80%, and 8.97%, respectively, for Variable Ac-
count II. For the same periods, the average annual total returns for Flexible
Premium Policies for the Bond Investment Division were 8.34%, 6.67%, 7.15%,
and 8.38%, respectively, for Variable Account I, and 8.34%, 6.67%, 7.15%, and
8.40%, respectively, for Variable Account II.
6
<PAGE>
For the one, five, and ten year periods ending December 31, 1995, and the
period from January 23, 1984 to December 31, 1995, respectively, the average
annual total returns for the Single Premium Policies for the Common Stock In-
vestment Division were 19.08%, 15.41%, 10.77%, and 10.65%, respectively, for
Variable Account I. For the same periods, the average annual total returns for
Flexible Premium Policies for the Common Stock Investment Division were
18.29%, 14.12%, 10.11%, and 10.10%, respectively, for Variable Account I.
For the one, five, and ten year periods ending December 31, 1995, and the
period from January 18, 1985 to December 31, 1995, respectively, the average
annual total returns for the Single Premium Policies for the Common Stock In-
vestment Division were 19.08%, 15.41%, 10.77%, and 10.60%, respectively, for
Variable Account II. For the same periods, the average annual total returns
for Flexible Premium Policies for the Common Stock Investment Division were
18.29%, 14.12%, 10.11%, and 9.96%, respectively, for Variable Account II.
OTHER PERFORMANCE DATA
NYLIAC may from time to time also disclose average annual total returns in a
non-standard format in conjunction with the standard format described above.
The nonstandard format will be identical to the standard format except that
the surrender charge percentage will be assumed to be 0%.
Using the nonstandard format, for the one, five, and ten year periods ending
December 31, 1995, and the period from January 23, 1984 to December 31, 1995,
respectively, the average annual total returns for the Single Premium Policies
for the Bond Investment Division were 17.07%, 8.54%, 7.80%, and 8.92%, respec-
tively, for Variable Account I, and 17.07%, 8.54%, 7.80%, and 8.97%, respec-
tively, for Variable Account II. For the same periods, the average annual to-
tal returns for Flexible Premium Policies for the Bond Investment Division
were 16.50%, 8.00%, 7.26%, and 8.38%, respectively, for Variable Account I,
and 16.50%, 8.00%, 7.26%, and 8.40%, respectively, for Variable Account II.
For the one, five, and ten year periods ending December 31, 1995, and the
period from January 23, 1984 to December 31, 1995, respectively, the average
annual total returns for the Single Premium Policies for the Common Stock In-
vestment Division were 28.04%, 16.12%, 10.77%, and 10.65%, respectively, for
Variable Account I. For the same periods, the average annual total returns for
Flexible Premium Policies for the Common Stock Investment Division were
27.41%, 15.54%, 10.22%, and 10.10%, respectively, for Variable Account I.
For the one, five, and ten year periods ending December 31, 1995, and the
period from January 18, 1985 to December 31, 1995, respectively, the average
annual total returns for the Single Premium Policies for the Common Stock In-
vestment Division were 28.04%, 16.12%, 10.77%, and 10.60%, respectively, for
Variable Account II. For the same periods, the average annual total returns
for Flexible Premium Policies for the Common Stock Investment Division were
27.41%, 15.54%, 10.22%, and 10.05%, respectively, for Variable Account II.
NYLIAC may from time to time also disclose cumulative total returns in con-
junction with the standard format described above. The cumulative returns will
be calculated using the following formula assuming that the surrender charge
percentage will be 0%.
7
<PAGE>
CTR = ERV/P-1
Where: CTR = the cumulative total return net of an Investment Division recur-
ring charges for the period
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten-year period, at the end of
the one, five or ten-year period (or fractional portion thereof)
P = a hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard per-
formance data for the same period, as well as for the required periods, is
also disclosed.
NEW YORK LIFE MFA SERIES FUND, INC.
The New York Life MFA Series Fund, Inc. (the Fund) is registered with the
Securities and Exchange Commission as a diversified open-end management in-
vestment company, but such registration does not signify that the Commission
supervises the management, or the investment practices or policies, of the
Fund.
The Fund currently issues its shares only to the Separate Accounts of
NYLIAC. Shares are sold and redeemed at the net asset value of the respective
Portfolio of the Fund.
GENERAL MATTERS
NON-PARTICIPATING. The Policies are non-participating; no dividends are pay-
able.
MISSTATEMENT OF AGE OR SEX. If the Annuitant's stated age, sex or both in
the Policy are incorrect, NYLIAC will change the benefits payable to those
which the Purchase Payments would have purchased for the correct age and sex.
Sex is not a factor when annuity benefits are based on unisex annuity payment
rate tables. (See "Income Payments--Legal Developments Regarding Income Pay-
ments" at page 32 of the Prospectus.)
ASSIGNMENTS. If permitted by the plan or by law for the plan indicated in
the application for the Policy, a Non-Qualified Policy or any interest in it,
may be assigned by the Policy Owner prior to the Retirement Date and during
the Annuitant's lifetime. NYLIAC will not be deemed to know of an assignment
unless it receives a copy of a duly executed instrument evidencing such as-
signment. Further, NYLIAC assumes no responsibility for the validity of any
assignment. (See "Federal Tax Matters--Taxation of Annuities in General" at
page 36 of the Prospectus.)
MODIFICATION. NYLIAC may not modify the Policy without the consent of the
Policy Owner except to make the Policy meet the requirements of the Investment
Company Act of 1940, or to make the Policy comply with any changes in the In-
ternal Revenue Code or as required by the Code or by any other applicable law
in order to continue treatment of the Policy as an annuity.
INCONTESTABILITY. The Policy will not be contested after it has been in
force during the lifetime of the Annuitant for 2 years from the Policy Date.
8
<PAGE>
FEDERAL TAX MATTERS
TAXATION OF NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIAC is taxed as a life insurance company under Part I of Subchapter L of
the Internal Revenue Code of 1986 (the "Code"). Since the Variable Accounts
are not entities separate from NYLIAC, and their operations form a part of
NYLIAC, they will not be taxed separately as "regulated investment companies"
under Sub-chapter M of the Code. Investment income and realized net capital
gains on the assets of the Variable Accounts are reinvested and are taken into
account in determining the Policy Value. As a result, such investment income
and realized net capital gains are automatically retained as part of the re-
serves under the Policy. Under existing federal income tax law, NYLIAC be-
lieves that Variable Account investment income and realized net capital gains
should not be taxed to the extent that such income and gains are retained as
part of the reserves under the policy.
TAX STATUS OF THE POLICIES
Section 817(h) of the Code requires that the investments of the Fund must be
"adequately diversified" in accordance with Treasury regulations in order for
the policies to qualify as annuity contracts under Section 72 of the Code. The
Variable Accounts, through the Fund, intend to comply with the diversification
requirements prescribed by the Treasury under Treasury Regulation Section
1.817-5, which affect how the Fund's assets may be invested. Although NYLIAC
is affiliated with the Fund's investment advisers, it does not control the
Fund or the Portfolios' investments.
Although the Treasury Department has issued regulations on the diversifica-
tion requirements such regulations do not provide guidance concerning the ex-
tent to which Policy Owners may direct their investments to particular sub-
accounts of a Variable Account, or the permitted number of such subaccounts.
It is unclear whether additional guidance in this regard will be issued in the
future. It is possible that if such guidance is issued, the Policy may need to
be modified to comply with such additional guidance. For these reasons, NYLIAC
reserves the right to modify the Policy as necessary to attempt to prevent the
Policy Owner from being considered the owner of the assets of the Variable Ac-
counts or otherwise to qualify the Policy for favorable tax treatment.
The Code also requires that non-qualified annuity contracts issued after
January 18, 1985, contain specific provisions for distribution of the policy
proceeds upon the death of any Policy Owner. In order to be treated as an an-
nuity contract for federal income tax purposes, the Code requires that such
Policies provide that (a) if any Policy Owner dies on or after the Retirement
Date and before the entire interest in the Policy has been distributed, the
remaining portion must be distributed at least as rapidly as under the method
in effect on the Policy Owner's death; and (b) if any Policy Owner dies before
the Retirement Date, the entire interest in the Policy must generally be dis-
tributed within 5 years after the Policy Owner's date of death. These require-
ments will be considered satisfied if the entire interest of the Policy is
used to purchase an immediate annuity under which payments will begin within
one year of the Policy Owner's death and will be made for the life of the Ben-
eficiary or for a period not extending beyond the life expectancy of the Bene-
ficiary. The Owner's Beneficiary is the person to whom ownership of the Policy
passes by reason of death and must be a natural person. If the Beneficiary is
the Policy Owner's surviving spouse, the Policy may be continued with the sur-
viving spouse as the new Policy Owner. Non-qualified Policies issued after
January 18, 1985, contain provisions intended to comply with these require-
ments of the Code. No regulations interpreting these requirements of the Code
have yet been issued and thus no
9
<PAGE>
assurance can be given that the provisions contained in such Policies issued
after January 18, 1985, satisfy all such Code requirements. The provisions
contained in non-qualified Policies issued after January 18, 1985, will be re-
viewed and modified if necessary to assure that they comply with the Code re-
quirements when clarified by regulation or otherwise.
Withholding of federal income taxes on the taxable portion of all distribu-
tions may be required unless the recipient elects not to have any such amounts
withheld and properly notifies NYLIAC of that election. Different rules may
apply to United States citizens or expatriates living abroad. In addition,
some states have enacted legislation requiring withholding.
Even if a recipient elects no withholding, special withholding rules may re-
quire NYLIAC to disregard the recipient's election if the recipient fails to
supply NYLIAC with a "TIN" or taxpayer identification number (social security
number for individuals) or if the Internal Revenue Service notifies NYLIAC
that the TIN provided by the recipient is incorrect.
DISTRIBUTOR OF THE POLICIES
NYLIFE Distributors Inc. ("NYLIFE Distributors"), the distributor of the
Policies, will offer the Policies on a continuous basis. NYLIFE Distributors
is registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National Asso-
ciation of Securities Dealers, Inc. The maximum commission payable to regis-
tered representatives of broker-dealers who have entered into dealer agree-
ments with NYLIFE Distributors is set forth in the prospectus. From time to
time, NYLIFE Distributors may enter into a special arrangement with a broker-
dealer, which provides for the payment of higher commissions to such broker-
dealer in connection with sales of the Policies. Purchasers of Policies will
be informed prior to purchase of any applicable special arrangement.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
Title to assets of the Variable Accounts is held by NYLIAC. The assets are
kept physically segregated and held separate and apart from NYLIAC's general
corporate assets. Records are maintained of all purchases and redemptions of
Eligible Portfolio shares held by each of the Investment Divisions.
STATE REGULATION
NYLIAC is a stock life insurance company organized under the laws of Dela-
ware, and is subject to regulation by the Delaware State Insurance Department.
An annual statement is filed with the Delaware Commissioner of insurance on or
before March 1 of each year covering the operations and reporting on the fi-
nancial condition of NYLIAC as of December 31 of the preceding calendar year.
Periodically, the Delaware Commissioner of Insurance examines the financial
condition of NYLIAC, including the liabilities and reserves of the Variable
Accounts.
In addition NYLIAC is subject to the insurance laws and regulations of all
the states where it is licensed to operate. The availability of certain policy
rights and provisions depends
10
<PAGE>
on state approval and/or filing and review processes. Where required by state
law or regulation, the Policies will be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Variable Accounts will be main-
tained by NYLIAC. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, NYLIAC will mail to all Policy Owners
at their last known address of record, at least semi-annually after the first
Policy Year, reports containing such information as may be required under that
Act or by any other applicable law or regulation.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Accounts are parties or
to which the assets of the Variable Accounts are subject. No litigation is
pending against NYLIAC which is likely to have a material adverse effect in
relation to its total assets.
INDEPENDENT ACCOUNTANTS
The annual financial statements of the Variable Accounts and NYLIAC are au-
dited by Price Waterhouse LLP, independent accountants, whose reports appear
herein. The financial statements included in this Statement of Additional In-
formation have been included in reliance on the reports of Price Waterhouse,
given on the authority of said firm as experts in auditing and accounting.
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Policies discussed in this Statement of Additional Information. Not all of the
information set forth in the registration statement, amendments and exhibits
thereto has been included in this Statement of Additional Information. State-
ments contained in this Statement of Additional Information concerning the
content of the Policies and other legal instruments are intended to be summa-
ries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange Com-
mission.
11
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
------------------------- ------------------------- -------------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
ASSETS: ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment in New York
Life MFA Series Fund,
Inc., at net asset
value (Identified
Cost: $79,132,373;
$133,779,764;
$43,152,432;
$70,428,380;
$8,266,224;
$11,192,743,
respectively)......... $ 88,039,139 $156,788,619 $ 44,793,075 $ 74,615,599 $ 8,265,840 $ 11,192,133
LIABILITIES:
Liability for mortality
and expense risk
charges............... 280,389 698,557 146,292 338,134 27,206 50,908
------------ ------------ ------------ ------------ ------------ ------------
Total equity.......... $ 87,758,750 $156,090,062 $ 44,646,783 $ 74,277,465 $ 8,238,634 $ 11,141,225
============ ============ ============ ============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation
units outstanding:
2,674,820; 5,051,929;
1,570,132; 2,773,811;
443,723; 637,190,
respectively.......... $ 87,758,750 $156,090,062 $ 44,646,783 $ 74,277,465 $ 8,238,634 $ 11,141,225
============ ============ ============ ============ ============ ============
Variable accumulation
unit value............ $ 32.81 $ 30.90 $ 28.44 $ 26.78 $ 18.57 $ 17.48
============ ============ ============ ============ ============ ============
</TABLE>
F-1
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF OPERATIONS ANNUITY CORPORATION
For the year ended December 31, 1995 MFA SEPARATE ACCOUNT I
TAX-QUALIFIED POLICIES
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
------------------------ ------------------------ ------------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income............ $ 1,009,157 $ 1,798,671 $ 2,764,187 $ 4,602,511 $ 471,058 $ 631,218
Mortality and expense risk
charges................... (1,012,449) (2,532,056) (560,679) (1,259,827) (107,929) (202,284)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income
(loss)................... (3,292) (733,385) 2,203,508 3,342,684 363,129 428,934
----------- ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of
investments............... 8,403,878 11,690,374 8,713,546 7,009,430 2,975,378 2,264,632
Cost of investments sold... (6,854,105) (8,536,012) (8,129,168) (7,282,062) (2,975,544) (2,264,759)
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain (loss)
on investments........... 1,549,773 3,154,362 584,378 (272,632) (166) (127)
Realized gain distribution
received.................. 7,100,263 12,654,150 -- -- -- --
Change in unrealized
appreciation/
depreciation on
investments............... 10,947,712 19,256,110 4,226,104 7,776,856 43 (32)
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments.............. 19,597,748 35,064,622 4,810,482 7,504,224 (123) (159)
----------- ----------- ----------- ----------- ----------- -----------
Decrease attributable to
funds of New York Life
Insurance and Annuity
Corporation retained by
Separate Account.......... (44,474) (111,339) (14,183) (31,512) (1,080) (2,021)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in total
equity
resulting from operations. $19,549,982 $34,219,898 $ 6,999,807 $10,815,396 $ 361,926 $ 426,754
=========== =========== =========== =========== =========== ===========
</TABLE>
F-2
<PAGE>
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1995 and December 31, 1994
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENT DIVISIONS
------------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
TOTAL EQUITY:
Operations:
Net investment income
(loss)................... $ (3,292) $ 92,864 $ (733,385) $ (474,146)
Net realized gain (loss)
on investments........... 1,549,773 817,779 3,154,362 1,020,935
Realized gain distribution
received................. 7,100,263 4,264,931 12,654,150 7,576,411
Change in unrealized
appreciation/depreciation
on investments........... 10,947,712 (5,189,696) 19,256,110 (8,829,255)
Increase (decrease)
attributable to funds of
New York
Life Insurance and
Annuity Corporation
retained by
Separate Account......... (44,474) 283 (111,339) 842
------------ ------------ ------------ ------------
Net increase (decrease)
in total equity
resulting
from operations......... 19,549,982 (13,839) 34,219,898 (705,213)
------------ ------------ ------------ ------------
Contributions and
withdrawals:
Policyowners' premium
payments................. 1,213,447 2,023,353 5,234,054 6,029,109
Policyowners' surrenders.. (6,756,440) (6,738,897) (12,469,978) (8,081,231)
Policyowners' annuity and
death benefits........... (534,923) (546,529) (678,373) (386,348)
Net transfers from (to)
Fixed Account............ 21,551 638,626 (615,468) (287,661)
Transfers between
Investment Divisions..... 887,552 3,048,639 117,970 2,187,478
------------ ------------ ------------ ------------
Total contributions and
withdrawals (net)....... (5,168,813) (1,574,808) (8,411,795) (538,653)
------------ ------------ ------------ ------------
Increase (decrease) in
total equity........... 14,381,169 (1,588,647) 25,808,103 (1,243,866)
TOTAL EQUITY:
Beginning of year......... 73,377,581 74,966,228 130,281,959 131,525,825
------------ ------------ ------------ ------------
End of year............... $ 87,758,750 $ 73,377,581 $156,090,062 $130,281,959
============ ============ ============ ============
</TABLE>
F-3
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNT I
TAX-QUALIFIED POLICIES
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS
- ------------------------------------------------------ ------------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES POLICIES POLICIES
- -------------------------- -------------------------- -------------------------- --------------------------
1995 1994 1995 1994 1995 1994 1995 1994
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2,203,508 $ 2,462,660 $ 3,342,684 $ 3,442,645 $ 363,129 $ 248,621 $ 428,934 $ 255,039
584,378 306,618 (272,632) (35,527) (166) (281) (127) (228)
-- -- -- -- -- -- -- --
4,226,104 (5,232,040) 7,776,856 (7,293,567) 43 (422) (32) (571)
(14,183) 3,301 (31,512) 6,561 (1,080) (1,177) (2,021) (2,053)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
6,999,807 (2,459,461) 10,815,396 (3,879,888) 361,926 246,741 426,754 252,187
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
312,128 960,269 2,608,819 3,234,303 19,436 253,250 557,513 529,860
(4,577,494) (5,150,646) (6,561,741) (5,727,805) (1,151,937) (1,550,036) (1,650,793) (1,596,124)
(694,688) (785,608) (475,571) (238,326) (231,786) (162,855) (95,856) (80,717)
(823,395) (907,422) (437,499) (797,068) (103,637) (747,048) (151,317) (328,009)
(1,619,254) (1,869,279) (527,103) (1,383,708) 623,707 (1,200,268) 409,133 (803,770)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(7,402,703) (7,752,686) (5,393,095) (4,912,604) (844,217) (3,406,957) (931,320) (2,278,760)
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(402,896) (10,212,147) 5,422,301 (8,792,492) (482,291) (3,160,216) (504,566) (2,026,573)
45,049,679 55,261,826 68,855,164 77,647,656 8,720,925 11,881,141 11,645,791 13,672,364
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 44,646,783 $ 45,049,679 $ 74,277,465 $ 68,855,164 $ 8,238,634 $ 8,720,925 $ 11,141,225 $ 11,645,791
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
F-4
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
----------------------- ----------------------- -----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investment in New York
Life MFA
Series Fund, Inc., at
net asset value
(Identified Cost:
$88,915,711;
$11,542,470;
$60,491,946;
$6,992,343;
$11,899,264;
$1,169,023,
respectively)......... $97,591,808 $13,297,085 $62,331,090 $ 7,440,363 $11,898,969 $ 1,168,965
LIABILITIES:
Liability for mortality
and expense risk
charges............... 308,936 58,776 202,242 33,863 38,996 5,501
----------- ----------- ----------- ----------- ----------- -----------
Total equity.......... $97,282,872 $13,238,309 $62,128,848 $ 7,406,500 $11,859,973 $ 1,163,464
=========== =========== =========== =========== =========== ===========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation
units
outstanding:
2,964,118; 428,464;
2,176,703; 276,158;
638,761; 66,541,
respectively.......... $97,250,575 $13,238,309 $62,128,848 $ 7,406,500 $11,859,973 $ 1,163,464
Annuity reserve........ 32,297 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Total equity.......... $97,282,872 $13,238,309 $62,128,848 $ 7,406,500 $11,859,973 $ 1,163,464
=========== =========== =========== =========== =========== ===========
Variable accumulation
unit value............ $ 32.81 $ 30.90 $ 28.54 $ 26.82 $ 18.57 $ 17.48
=========== =========== =========== =========== =========== ===========
</TABLE>
F-5
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF OPERATIONS ANNUITY CORPORATION
For the year ended December 31, 1995 MFA SEPARATE ACCOUNT II
NON-QUALIFIED POLICIES
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT INVESTMENT INVESTMENT
DIVISIONS DIVISIONS DIVISIONS
------------------------ ------------------------ ------------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income........ $ 1,119,132 $ 152,436 $ 3,845,453 $ 458,997 $ 564,081 $ 67,382
Mortality and expense
risk charges.......... (1,129,181) (211,384) (776,337) (126,514) (129,469) (21,589)
----------- ----------- ----------- ----------- ----------- -----------
Net investment income
(loss)............... (10,049) (58,948) 3,069,116 332,483 434,612 45,793
----------- ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of
investments........... 10,151,090 1,001,073 11,389,924 938,419 4,965,420 357,864
Cost of investments
sold.................. (7,661,467) (862,645) (10,620,846) (885,515) (4,965,664) (357,884)
----------- ----------- ----------- ----------- ----------- -----------
Net realized gain
(loss)
on investments....... 2,489,623 138,428 769,078 52,904 (244) (20)
Realized gain
distribution received. 7,872,933 1,072,648 -- -- -- --
Change in unrealized
appreciation/
depreciation on
investments........... 11,564,609 1,711,806 5,816,926 703,884 90 3
----------- ----------- ----------- ----------- ----------- -----------
Net gain (loss) on
investments.......... 21,927,165 2,922,882 6,586,004 756,788 (154) (17)
----------- ----------- ----------- ----------- ----------- -----------
Decrease attributable
to funds of New York
Life Insurance and
Annuity Corporation
retained by Separate
Account............... (49,713) (9,270) (19,557) (3,167) (1,281) (217)
----------- ----------- ----------- ----------- ----------- -----------
Net increase in total
equity
resulting from
operations........... $21,867,403 $ 2,854,664 $ 9,635,563 $ 1,086,104 $ 433,177 $ 45,559
=========== =========== =========== =========== =========== ===========
</TABLE>
F-6
<PAGE>
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1995 and December 31, 1994
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
COMMON STOCK
INVESTMENT DIVISIONS
--------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL
EQUITY:
Operations:
Net investment income
(loss).................... $ (10,049) $ 103,708 $ (58,948) $ (40,978)
Net realized gain (loss)
on investments............ 2,489,623 749,142 138,428 91,321
Realized gain distribution
received.................. 7,872,933 4,761,829 1,072,648 628,248
Change in unrealized
appreciation/depreciation
on investments............ 11,564,609 (5,732,400) 1,711,806 (741,013)
Increase (decrease)
attributable to funds of
New York
Life Insurance and
Annuity Corporation
retained by
Separate Account.......... (49,713) 357 (9,270) 77
----------- ----------- ----------- -----------
Net increase (decrease)
in total equity
resulting
from operations.......... 21,867,403 (117,364) 2,854,664 (62,345)
----------- ----------- ----------- -----------
Contributions and
withdrawals:
Policyowners' premium
payments.................. 345,599 1,073,571 371,025 409,415
Policyowners' surrenders... (5,331,579) (6,124,267) (690,221) (674,167)
Policyowners' annuity and
death benefits............ (1,295,150) (612,290) (117,738) (68,288)
Net transfers from (to)
Fixed Account............. 311,136 1,140,643 (34,766) 1,457
Transfers between
Investment Divisions...... (568,982) 3,932,462 58,486 131,967
----------- ----------- ----------- -----------
Total contributions and
withdrawals (net)........ (6,538,976) (589,881) (413,214) (199,616)
----------- ----------- ----------- -----------
Increase (decrease) in
total equity............ 15,328,427 (707,245) 2,441,450 (261,961)
TOTAL EQUITY:
Beginning of year.......... 81,954,445 82,661,690 10,796,859 11,058,820
----------- ----------- ----------- -----------
End of year................ $97,282,872 $81,954,445 $13,238,309 $10,796,859
=========== =========== =========== ===========
</TABLE>
F-7
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNT II
NON-QUALIFIED POLICIES
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
<TABLE>
<CAPTION>
BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS
- -------------------------------------------------- --------------------------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES POLICIES POLICIES
- ------------------------ ------------------------ ------------------------ ------------------------
1995 1994 1995 1994 1995 1994 1995 1994
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 3,069,116 $ 3,367,352 $ 332,483 $ 348,088 $ 434,612 $ 291,453 $ 45,793 $ 27,125
769,078 23,325 52,904 (36,349) (244) (302) (20) (18)
-- -- -- -- -- -- -- --
5,816,926 (6,935,305) 703,884 (712,093) 90 (387) 3 (61)
(19,557) 4,808 (3,167) 675 (1,281) (1,328) (217) (217)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
9,635,563 (3,539,820) 1,086,104 (399,679) 433,177 289,436 45,559 26,829
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
132,616 341,504 179,154 241,581 (56,872) 146,899 40,406 26,244
(5,471,413) (6,533,331) (596,836) (637,948) (1,529,749) (1,671,840) (175,538) (167,754)
(1,043,226) (606,580) (162,820) (52,313) (772,632) (72,668) (15,216) (9,099)
(114,572) (2,217,595) (34,305) (73,888) (427,125) (696,713) (9,527) (29,838)
(2,887,818) (4,570,224) (53,558) (96,250) 3,467,375 654,200 (4,928) (35,762)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(9,384,413) (13,586,226) (668,365) (618,818) 680,997 (1,640,122) (164,803) (216,209)
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
251,150 (17,126,046) 417,739 (1,018,497) 1,114,174 (1,350,686) (119,244) (189,380)
61,877,698 79,003,744 6,988,761 8,007,258 10,745,799 12,096,485 1,282,708 1,472,088
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$62,128,848 $61,877,698 $ 7,406,500 $ 6,988,761 $11,859,973 $10,745,799 $ 1,163,464 $ 1,282,708
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
F-9
NOTE 1--Organization and Accounting Policies:
- -------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation MFA Separate Account I
("Separate Account I") and New York Life Insurance and Annuity Corporation MFA
Separate Account II ("Separate Account II") were established on May 27, 1983,
under Delaware law by New York Life Insurance and Annuity Corporation, a
wholly-owned subsidiary of New York Life Insurance Company. These accounts
were established to receive and invest net purchase payments under Qualified
Multi-Funded Retirement Annuity Policies ("Separate Account I") and Non-
Qualified Multi-Funded Retirement Annuity Policies ("Separate Account II")
issued by New York Life Insurance and Annuity Corporation. Separate Account I
and Separate Account II are registered under the Investment Company Act of
1940, as amended, as unit investment trusts. The assets of Separate Account I
and Separate Account II are invested exclusively in shares of the New York
Life MFA Series Fund, Inc. (the "MFA Fund"), a diversified open-end management
investment company, and are clearly identified and distinguished from the
other assets and liabilities of New York Life Insurance and Annuity
Corporation. Effective December 19, 1994, sales of all such Policies were
discontinued.
There are six Investment Divisions within both Separate Account I and
Separate Account II, three of which invest Single Premium Policy net purchase
payments and three of which invest Flexible Premium Policy net purchase
payments. The Common Stock Investment Divisions invest in the Growth Equity
Portfolio, the Bond Investment Divisions invest in the Bond Portfolio, and the
Money Market Investment Divisions invest in the Cash Management Portfolio. Net
purchase payments received are allocated to the Investment Divisions of
Separate Account I or Separate Account II according to Policyowner
instructions. In addition, the Policyowner has the option to transfer amounts
between the Investment Divisions of Separate Account I and Separate Account II
and the Fixed Account of New York Life Insurance and Annuity Corporation.
No Federal income tax is payable on investment income or capital gains of
Separate Account I or Separate Account II under current Federal income tax
law.
Security Valuation--The investment in the MFA Fund is valued at the net asset
value of shares of the respective fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding
portfolio.
Annuity Reserves--The reserves are computed for currently payable contracts
in accordance with rates taken from approved valuation mortality tables. The
assumed interest rate is 4%, unless issued in Florida or Texas where the rate
is 3 1/2%. Separate Account II Common Stock Investment Division for Single
Premium Policies had variable annuity unit values as of December 31, 1995 and
December 31, 1994 of $2.04 and $1.66, respectively.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNTS I AND II
TAX-QUALIFIED AND
NON-QUALIFIED POLICIES
F-10
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1995, the investment in the MFA Fund by the respective Invest-
ment Divisions of Separate Account I and Separate Account II is as follows:
<TABLE>
<CAPTION>
GROWTH EQUITY CASH MANAGEMENT
PORTFOLIO BOND PORTFOLIO PORTFOLIO
--------------------- ---------------------- ----------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (TAX-QUALIFIED
POLICIES)
Number of Shares........ 5,112 9,104 3,338 5,560 8,266 11,192
Identified Cost*........ $79,132 $133,780 $43,152 $70,428 $ 8,266 $11,193
SEPARATE ACCOUNT II (NON-QUALIFIED
POLICIES)
Number of Shares........ 5,667 772 4,645 554 11,899 1,169
Identified Cost*........ $ 88,916 $ 11,542 $ 60,492 $ 6,992 $ 11,899 $ 1,169
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Transactions in MFA Fund shares for the year ended December 31, 1995, were as
follows:
<CAPTION>
GROWTH EQUITY CASH MANAGEMENT
PORTFOLIO BOND PORTFOLIO PORTFOLIO
--------------------- ---------------------- ----------------------
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
--------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (TAX-QUALIFIED
POLICIES)
Purchases............... $ 10,336 $ 15,208 $ 3,501 $ 4,958 $ 2,491 $ 1,758
Proceeds from Sales..... 8,404 11,690 8,714 7,009 2,975 2,265
SEPARATE ACCOUNT II (NON-QUALIFIED
POLICIES)
Purchases............... $ 11,473 $ 1,603 $ 5,057 $ 602 $ 6,084 $ 238
Proceeds from Sales..... 10,151 1,001 11,390 938 4,965 358
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F-11
NOTE 3--Mortality and Expense Risk Charges:
- -------------------------------------------------------------------------------
Separate Account I and Separate Account II are charged for administrative
services provided for Flexible Premium Policies, and Single and Flexible
Premium Policies are charged for the mortality and expense risks assumed by
New York Life Insurance and Annuity Corporation. These charges are made daily
at an annual rate of 1.25% of the daily net asset value for Single Premium
Policies and 1.75% of the daily net asset value for Flexible Premium Policies
of each Investment Division. The amounts of these charges retained in the
Investment Divisions represent funds of New York Life Insurance and Annuity
Corporation. Accordingly, New York Life Insurance and Annuity Corporation
participates in the results of each Investment Division ratably with the
Policyowners.
- -------------------------------------------------------------------------------
NOTE 4--Distribution of Net Income:
- -------------------------------------------------------------------------------
Separate Account I and Separate Account II do not expect to declare dividends
to Policyowners from accumulated net investment income and realized gains. The
income and gains are distributed to Policyowners as part of withdrawals of
amounts (in the form of surrenders, death benefits, transfers, or annuity
payments) in excess of the net purchase payments.
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNTS I AND II
TAX-QUALIFIED AND
NON-QUALIFIED POLICIES
F-12
NOTE 5--Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1995, the cost to Policyowners for accumulation units outstand-
ing, with adjustments for net investment income, market
appreciation/depreciation and deduction for expenses is as follows:
<TABLE>
<CAPTION>
COMMON STOCK BOND MONEY MARKET
INVESTMENT DIVISIONS INVESTMENT DIVISIONS INVESTMENT DIVISIONS
---------------------- ---------------------- ----------------------
SINGLE FLEXIBLE SINGLE FLEXIBLE SINGLE FLEXIBLE
PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM PREMIUM
POLICIES POLICIES POLICIES POLICIES POLICIES POLICIES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (TAX-QUALIFIED
POLICIES)
Cost to Policyowners (net
of withdrawals).......... $ 36,783 $ 60,207 $ 18,977 $ 34,858 $ 3,775 $ 5,930
Accumulated net investment
income................... 3,275 1,977 23,136 35,076 4,491 5,260
Accumulated net realized
gain on
investments and realized
gain distributions
received................. 38,965 71,336 1,045 459 -- --
Unrealized
appreciation/depreciation
on investments........... 8,907 23,009 1,641 4,187 -- (1)
Decrease attributable to
funds of New York
Life Insurance and
Annuity Corporation
retained by Separate
Account.................. (171) (439) (152) (303) (27) (48)
---------- ---------- ---------- ---------- ---------- ----------
Net amount applicable to
Policyowners............. $ 87,759 $ 156,090 $ 44,647 $ 74,277 $ 8,239 $ 11,141
========== ========== ========== ========== ========== ==========
SEPARATE ACCOUNT II (NON-QUALIFIED
POLICIES)
Cost to Policyowners (net
of withdrawals).......... $ 43,636 $ 4,912 $ 26,200 $ 2,711 $ 6,582 $ 498
Accumulated net investment
income................... 3,387 190 32,714 4,099 5,315 674
Accumulated net realized
gain (loss) on
investments and realized
gain
distributions received... 41,771 6,419 1,633 193 (1) --
Unrealized
appreciation/depreciation
on investments........... 8,676 1,755 1,839 448 -- --
Decrease attributable to
funds of New York
Life Insurance and
Annuity Corporation
retained by Separate
Account.................. (187) (38) (257) (44) (36) (9)
---------- ---------- ---------- ---------- ---------- ----------
Net amount applicable to
Policyowners............. $ 97,283 $ 13,238 $ 62,129 $ 7,407 $ 11,860 $ 1,163
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F-13
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units were as follows:
<TABLE>
<CAPTION>
COMMON STOCK INVESTMENT DIVISIONS
-----------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES
----------------- -----------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT I (TAX-QUALIFIED POLI-
CIES)
Units issued on premium payments.......... 42 80 191 250
Units redeemed on surrenders.............. (246) (276) (464) (343)
Units redeemed on annuity and death
benefits................................. (4) (8) (9) (7)
Units issued (redeemed) on net transfers
to Fixed Account......................... -- 25 (22) (12)
Units issued (redeemed) on transfers
between
Investment Divisions..................... 30 119 4 91
----- ----- ----- -----
Net decrease............................. (178) (60) (300) (21)
Units outstanding, beginning of year...... 2,853 2,913 5,352 5,373
----- ----- ----- -----
Units outstanding, end of year............ 2,675 2,853 5,052 5,352
===== ===== ===== =====
SEPARATE ACCOUNT II (NON-QUALIFIED POLI-
CIES)
Units issued on premium payments.......... 12 42 14 17
Units redeemed on surrenders.............. (201) (241) (28) (28)
Units redeemed on annuity and death
benefits................................. (26) (23) (2) (3)
Units issued (redeemed) on net transfers
to Fixed Account......................... 9 45 (1) --
Units issued (redeemed) on transfers
between
Investment Divisions..................... (15) 151 1 6
----- ----- ----- -----
Net increase (decrease).................. (221) (26) (16) (8)
Units outstanding, beginning of year...... 3,186 3,212 444 452
----- ----- ----- -----
Units outstanding, end of year............ 2,965 3,186 428 444
===== ===== ===== =====
</TABLE>
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNTS I AND II
TAX-QUALIFIED AND
NON-QUALIFIED POLICIES
F-14
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND INVESTMENT DIVISIONS MONEY MARKET INVESTMENT DIVISIONS
- ------------------------------------ -----------------------------------
SINGLE PREMIUM FLEXIBLE PREMIUM SINGLE PREMIUM FLEXIBLE PREMIUM
POLICIES POLICIES POLICIES POLICIES
- ------------------ ----------------- ----------------- -----------------
YEAR YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1995 1994 1995 1994 1995 1994 1995 1994
- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
4 39 105 138 (5) 15 33 32
(192) (236) (274) (253) (69) (96) (100) (99)
(7) (5) (7) (3) (6) (2) (1) (2)
(25) (37) (18) (34) (6) (42) (9) (20)
(61) (76) (21) (59) 40 (69) 23 (48)
----- ----- ----- ----- ---- ---- ---- ----
(281) (315) (215) (211) (46) (194) (54) (137)
1,851 2,166 2,989 3,200 490 684 691 828
----- ----- ----- ----- ---- ---- ---- ----
1,570 1,851 2,774 2,989 444 490 637 691
===== ===== ===== ===== ==== ==== ==== ====
6 18 7 10 (3) 8 2 2
(224) (272) (28) (28) (110) (95) (11) (10)
(23) (22) (3) (2) (17) (4) -- (1)
(6) (92) (1) (3) (24) (39) -- (2)
(109) (185) (2) (4) 189 37 -- (2)
----- ----- ----- ----- ---- ---- ---- ----
(356) (553) (27) (27) 35 (93) (9) (13)
2,533 3,086 303 330 604 697 76 89
----- ----- ----- ----- ---- ---- ---- ----
2,177 2,533 276 303 639 604 67 76
===== ===== ===== ===== ==== ==== ==== ====
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F-15
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and capital
changes (for an accumulation unit outstanding throughout each year) with
respect to each Investment Division of Separate Account I and Separate Account
II:
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
-----------------------------------
YEAR ENDED DECEMBER 31,
COMMON STOCK INVESTMENT DIVISIONS -----------------------------------
1995 1994 1993 1992 1991
-------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year.............. $25.72 $25.73 $22.90 $20.61 $15.54
Net investment income (loss)............... -- 0.03 0.06 0.05 0.12
Net realized and unrealized gains (losses)
on security
transactions and realized capital gain
distributions
received (includes the effect of capital
share transactions)....................... 7.09 (0.04) 2.77 2.24 4.95
------ ------ ------ ------ ------
Unit value, end of year.................... $32.81 $25.72 $25.73 $22.90 $20.61
====== ====== ====== ====== ======
SEPARATE ACCOUNT II (NON-QUALIFIED POLI-
CIES)
Unit value, beginning of year.............. $25.72 $25.73 $22.90 $20.61 $15.54
Net investment income (loss)............... -- 0.03 0.07 0.06 0.12
Net realized and unrealized gains (losses)
on security
transactions and realized capital gain
distributions
received (includes the effect of capital
share transactions)....................... 7.09 (0.04) 2.76 2.23 4.95
------ ------ ------ ------ ------
Unit value, end of year.................... $32.81 $25.72 $25.73 $22.90 $20.61
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each year.
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNTS I AND II
TAX-QUALIFIED AND
NON-QUALIFIED POLICIES
F-16
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
- -----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------
<S> <C> <C> <C> <C>
$24.34 $24.48 $21.90 $19.80 $15.01
(0.14) (0.09) (0.06) (0.08) 0.02
6.70 (0.05) 2.64 2.18 4.77
- ------ ------ ------ ------ ------
$30.90 $24.34 $24.48 $21.90 $19.80
====== ====== ====== ====== ======
$24.34 $24.48 $21.90 $19.80 $15.01
(0.14) (0.09) (0.06) (0.08) 0.02
6.70 (0.05) 2.64 2.18 4.77
- ------ ------ ------ ------ ------
$30.90 $24.34 $24.48 $21.90 $19.80
====== ====== ====== ====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F-17
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
-----------------------------------
YEAR ENDED DECEMBER 31,
BOND INVESTMENT DIVISIONS -----------------------------------
1995 1994 1993 1992 1991
-------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year.............. $24.34 $25.51 $23.19 $21.69 $18.87
Net investment income ..................... 1.30 1.22 1.39 1.40 1.42
Net realized and unrealized gains (losses)
on security
transactions and realized capital gain
distributions
received (includes the effect of capital
share transactions)....................... 2.80 (2.39) 0.93 0.10 1.40
------ ------ ------ ------ ------
Unit value, end of year.................... $28.44 $24.34 $25.51 $23.19 $21.69
====== ====== ====== ====== ======
SEPARATE ACCOUNT II (NON-QUALIFIED POLI-
CIES)
Unit value, beginning of year.............. $24.43 $25.60 $23.28 $21.77 $18.94
Net investment income ..................... 1.31 1.19 1.44 1.43 1.44
Net realized and unrealized gains (losses)
on security
transactions and realized capital gain
distributions
received (includes the effect of capital
share transactions)....................... 2.80 (2.36) 0.88 0.08 1.39
------ ------ ------ ------ ------
Unit value, end of year.................... $28.54 $24.43 $25.60 $23.28 $21.77
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each year.
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNTS I AND II
TAX-QUALIFIED AND
NON-QUALIFIED POLICIES
F-18
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- ----------------------------------------------------
<S> <C> <C> <C> <C>
$23.03 $24.26 $22.17 $20.84 $18.22
1.16 1.11 1.20 1.10 1.21
2.59 (2.34) 0.89 0.23 1.41
- ------ ------ ------ ------ ------
$26.78 $23.03 $24.26 $22.17 $20.84
====== ====== ====== ====== ======
$23.07 $24.30 $22.20 $20.87 $18.25
1.15 1.10 1.13 1.09 1.20
2.60 (2.33) 0.97 0.24 1.42
- ------ ------ ------ ------ ------
$26.82 $23.07 $24.30 $22.20 $20.87
====== ====== ====== ====== ======
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
F-19
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINGLE PREMIUM POLICIES
----------------------------------
YEAR ENDED DECEMBER 31,
MONEY MARKET INVESTMENT DIVISIONS ----------------------------------
1995 1994 1993 1992 1991
------------------------------
<S> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (TAX-QUALIFIED POLICIES)
Unit value, beginning of year.............. $17.81 $17.36 $17.07 $16.70 $15.96
Net investment income...................... 0.76 0.45 0.29 0.37 0.74
------ ------ ------ ------ ------
Unit value, end of year.................... $18.57 $17.81 $17.36 $17.07 $16.70
====== ====== ====== ====== ======
SEPARATE ACCOUNT II (NON-QUALIFIED POLI-
CIES)
Unit value, beginning of year.............. $17.81 $17.36 $17.07 $16.70 $15.96
Net investment income...................... 0.76 0.45 0.29 0.37 0.74
------ ------ ------ ------ ------
Unit value, end of year.................... $18.57 $17.81 $17.36 $17.07 $16.70
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during each year.
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
MFA SEPARATE ACCOUNTS I AND II
TAX-QUALIFIED AND
NON-QUALIFIED POLICIES
F-20
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM POLICIES
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------
<S> <C> <C> <C> <C>
$16.85 $16.51 $16.32 $16.04 $15.41
0.63 0.34 0.19 0.28 0.63
- ------ ------ ------ ------ ------
$17.48 $16.85 $16.51 $16.32 $16.04
====== ====== ====== ====== ======
$16.85 $16.51 $16.32 $16.04 $15.41
0.63 0.34 0.19 0.28 0.63
- ------ ------ ------ ------ ------
$17.48 $16.85 $16.51 $16.32 $16.04
====== ====== ====== ====== ======
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance
and Annuity Corporation and the MFA Policyowners:
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in total equity and the
selected per unit data present fairly, in all material respects, the financial
position of the New York Life Insurance and Annuity Corporation MFA Separate
Account I and New York Life Insurance and Annuity Corporation MFA Separate
Account II (which are comprised of the Single and Flexible Premium Policies
Common Stock Investment Divisions, the Single and Flexible Premium Policies
Bond Investment Divisions, and the Single and Flexible Premium Policies Money
Market Investment Divisions) at December 31, 1995, the results of each of
their operations for the year then ended, the changes in each of their total
equity for each of the two years in the period then ended and the selected per
unit data for each of the five years in the period then ended in conformity
with generally accepted accounting principles. These financial statements and
selected per unit data (hereafter referred to as "financial statements") are
the responsibility of management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments at December 31, 1995
with New York Life MFA Series Fund, Inc., provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 15, 1996
F-21
<PAGE>
STATEMENT OF FINANCIAL POSITION
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
------------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS:
Bonds..................................................... $12,262 $11,141
Mortgage loans............................................ 1,062 969
Preferred and common stocks............................... 64 69
Real estate............................................... 141 119
Policy loans.............................................. 445 420
Cash and short-term investments........................... 343 580
Investment income due and accrued......................... 181 175
Separate account assets................................... 1,444 971
Other assets.............................................. 35 55
------- -------
Total assets............................................. $15,977 $14,499
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY:
LIABILITIES:
Policy reserves........................................... $12,821 $12,100
Deposit funds............................................. 7 --
Policy proceeds deposited with the Company................ 88 70
Policy claims............................................. 79 67
Payable to parent......................................... 202 41
Securities sold under agreements to repurchase............ 86 254
Separate account liabilities.............................. 1,396 905
Other liabilities......................................... 256 92
Interest maintenance reserve.............................. 26 20
Asset valuation reserve................................... 138 105
------- -------
Total liabilities....................................... 15,099 13,654
------- -------
STOCKHOLDER'S EQUITY:
Capital stock--par value $10,000 (20,000 shares autho-
rized, 2,500 issued and outstanding)..................... 25 25
Additional paid-in capital................................ 480 480
Surplus................................................... 373 340
------- -------
Total stockholder's equity............................... 878 845
------- -------
Total liabilities and stockholder's equity.............. $15,977 $14,499
======= =======
</TABLE>
F-22
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF OPERATIONS ANNUITY CORPORATION
(Prepared from the Annual Statement filed (A WHOLLY OWNED
with the Delaware Insurance Department) SUBSIDIARY OF
NEW YORK LIFE INSURANCE
COMPANY)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
-------------------
(IN MILLIONS)
<S> <C> <C> <C>
INCOME:
Premiums............................................. $ 1,348 $ 1,203 $ 1,321
Net investment income................................ 1,037 1,020 1,025
Policy proceeds deposited with the Company........... 121 118 97
Other income......................................... 41 39 16
------- ------- -------
Total income........................................ 2,547 2,380 2,459
------- ------- -------
BENEFITS AND EXPENSES:
Benefit payments:
Death benefits....................................... 117 117 88
Annuity benefits..................................... 324 276 194
Health and disability insurance benefits............. 23 20 18
Surrender benefits................................... 650 718 802
Payments of amounts previously deposited with the
Company............................................. 111 107 72
------- ------- -------
1,225 1,238 1,174
Additions to policy reserves......................... 522 442 603
Additions to other insurance reserves................ 369 183 172
Operating expenses................................... 276 250 215
------- ------- -------
Total benefits and expenses......................... 2,392 2,113 2,164
------- ------- -------
Gain from operations before federal income taxes...... 155 267 295
Federal income taxes.................................. 60 105 129
------- ------- -------
Net gain from operations.............................. 95 162 166
Net realized capital gains (losses), after transfer-
ring $23 million, ($25) million and $44 million of
net realized capital gains (losses) to the interest
maintenance reserve for 1995, 1994 and 1993,
respectively......................................... -- 4 (61)
------- ------- -------
Net income............................................ $ 95 $ 166 $ 105
======= ======= =======
</TABLE>
F-23
<PAGE>
STATEMENT OF CHANGES IN SURPLUS
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
-----------------
(IN MILLIONS)
<S> <C> <C> <C>
Surplus, beginning of year........................... $ 340 $ 275 $ 206
Net income........................................... 95 166 105
Net unrealized (losses) gains on investments......... (1) (1) 41
(Increase) decrease in asset valuation reserve....... (33) (27) 3
Dividend to stockholder.............................. -- (70) (71)
Other adjustments, net............................... (28) (3) (9)
------- ------- -------
Surplus, end of year................................. $ 373 $ 340 $ 275
======= ======= =======
</TABLE>
F-24
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF CASH FLOWS ANNUITY CORPORATION
(Prepared from the Annual Statement filed (A WHOLLY OWNED SUBSIDI-
with the Delaware Insurance Department) ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
1995 1994 1993
-------------------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATIONS:
Premiums received..................................... $1,339 $1,195 $1,338
Net investment income received........................ 978 959 950
Other................................................. 347 350 113
------ ------ ------
Total received....................................... 2,664 2,504 2,401
------ ------ ------
Benefits and other payments........................... 1,207 1,228 1,173
Operating expenses.................................... 279 249 206
Other................................................. 323 315 285
------ ------ ------
Total paid........................................... 1,809 1,792 1,664
------ ------ ------
Net cash provided from operations...................... 855 712 737
------ ------ ------
Proceeds from investments sold......................... 2,415 3,137 2,839
Proceeds from investments matured or repaid............ 1,307 1,579 2,669
Securities sold under agreements to repurchase......... 3,029 1,938 1,632
Securities repurchased................................. (3,196) (1,833) (1,483)
Cost of investments acquired........................... (4,846) (4,925) (6,320)
------ ------ ------
Net cash used for investments.......................... (1,291) (104) (663)
------ ------ ------
Dividend paid to stockholder........................... -- (70) (71)
------ ------ ------
Other, net............................................. 199 (151) (85)
------ ------ ------
Net change in cash and short-term investments.......... (237) 387 (82)
Cash and short-term investments, beginning of year..... 580 193 275
------ ------ ------
Cash and short-term investments, end of year........... $ 343 $ 580 $ 193
====== ====== ======
</TABLE>
F-25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE 1--Nature of Operations:
- -------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation ("NYLIAC"), a direct, wholly
owned subsidiary of New York Life Insurance Company ("New York Life"), is a
stock life insurance company. NYLIAC offers a wide variety of interest sensi-
tive insurance and annuity products to a large cross section of the total in-
surance market. NYLIAC markets its products in all 50 of the United States,
the District of Columbia and Taiwan, primarily through its agency force. In
addition, NYLIAC markets Corporate Owned Life Insurance through independent
brokers and brokerage general agents.
The following companies are also direct, wholly owned subsidiaries of New
York Life: New York Life and Health Insurance Company, NYLIFE Insurance Com-
pany of Arizona and NYLIFE Inc.
- -------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- -------------------------------------------------------------------------------
Basis of Presentation--The accompanying financial statements have been prepared
on the basis of accounting practices prescribed or permitted by the Delaware
Insurance Department ("statutory accounting practices"). Statutory accounting
practices are currently considered generally accepted accounting principles
for mutual life insurance companies and their stock life subsidiaries, such as
NYLIAC. The Financial Accounting Standards Board has issued an Interpretation
which establishes a different definition of generally accepted accounting
principles for mutual life insurance companies. Under that Interpretation, fi-
nancial statements of mutual life insurance companies for periods beginning
after December 15, 1995 which are prepared on the basis of statutory account-
ing practices will no longer be characterized as in conformity with generally
accepted accounting principles. Financial statements prepared in conformity
with statutory accounting practices will continue to be required by insurance
regulatory authorities.
Management of NYLIAC has not yet determined the effect on its December 31,
1995 financial statements of applying the new Interpretation nor whether it
will continue to present its general purpose financial statements in confor-
mity with the statutory basis of accounting or adopt the accounting changes
required in order to continue to present its financial statements in confor-
mity with generally accepted accounting principles. If NYLIAC chooses to adopt
the accounting changes required, the effect of the changes would be reported
retroactively through restatement of all previously issued financial state-
ments presented for comparative purposes. The cumulative effect of adopting
these changes would be included in the earliest year restated.
Investments--Investments are carried in accordance with methods and values
prescribed by the National Association of Insurance Commissioners ("NAIC").
Bonds are generally stated at amortized cost. Preferred stocks are generally
stated at cost. Common stocks are stated at market value. Mortgage loans on
real estate are stated at cost or amortized cost, but at no time stated at
more than the appraised value of the underlying collateral. Real estate is
stated at the lower of cost less accumulated depreciation and encumbrances or
market value, except for real estate joint ventures which are stated on an eq-
uity basis. Depreciation of real estate (excluding foreclosed properties which
are not depreciated) is calculated using the straight-line method over the es-
timated lives of the assets (generally 30 years). Policy loans are stated at
the aggregate balance due (which approximates fair value). Limited partnership
investments (included in other assets) are stated on the equity basis. The
value of invested assets has been adjusted for impairments that are other than
temporary. Investment income is recorded on the accrual basis, except where
collection is 90 days past due or is considered uncertain.
F-26
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
Prepayment assumptions for loan-backed bonds were developed internally using
a proprietary model; outside services were used for structured securities. The
prospective adjustment method is used to adjust the amortization of premiums
and discounts on such securities.
Derivative financial instruments used by NYLIAC to hedge exposure to inter-
est rate and foreign currency fluctuations are accounted for on an accrual ba-
sis. Gains and losses related to contracts that are effective hedges on spe-
cific assets are deferred and recognized in income in the same period as gains
and losses on the hedged asset.
The Asset Valuation Reserve ("AVR") is required by insurance regulators to
stabilize surplus from fluctuations in the market value of bonds, stocks,
mortgage loans, real estate and other invested assets. Changes in the reserve
are accounted for as direct increases or decreases in surplus. The Interest
Maintenance Reserve ("IMR"), also required by insurance regulators, captures
interest related realized gains and losses (net of taxes) on fixed income in-
vestments (bonds, preferred stocks and mortgage loans) which are amortized
into net investment income over the expected years to maturity of the invest-
ments sold using the seriatim method for bonds and the grouped method for
mortgage loans and preferred stock.
Amounts payable or receivable under interest rate swap, commodity swap and
interest rate floor agreements are recognized as investment income or expense
when earned. Premiums paid for interest rate floor agreements are amortized
into interest expense over the life of the agreement. Unamortized premiums are
included in other assets in the Statement of Financial Position.
Unrealized gains and losses on foreign exchange forward contracts are re-
ported as other assets or liabilities, as appropriate. Realized gains and
losses are recognized in net income upon termination of the contracts.
Premiums and Related Expenses--Premiums are taken into income over the pre-
mium-paying period of the policies. Commissions and other costs associated
with acquiring new business are charged to operations as incurred.
Policy Reserves--Policy reserves are based on mortality tables and valuation
interest rates which are consistent with statutory requirements and are de-
signed to be sufficient to provide for contractual benefits.
Federal Income Taxes--Provision is made for federal income taxes estimated
to be payable to New York Life under a tax allocation agreement, including an
allocation of the equity base tax. Adjustments to such estimates, including
those related to the true-up or true-down of the equity base tax, are recorded
in gain from operations when known. Realized gains and losses are reported af-
ter adjustment for the associated federal income tax.
Change in Accounting Policy for the Equity Base Tax--Each year, an estimated
Differential Earnings Rate (DER) is used to determine the equity base tax re-
ported in the annual statement as part of gain from operations for that year.
When the final DER is known, NYLIAC records a true-up or true-down adjustment
for the difference between the estimated and final DER.
Based on recent NAIC discussions of this item, NYLIAC changed that policy to
accelerate the recognition of the DER adjustment by one year and to record DER
adjustments through net gain. Previously, NYLIAC recorded such adjustments
F-27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
directly to surplus. The effect of this change, including $18,000,000 for the
effect of adjusting for prior years, was an increase to net gain of
$12,000,000, and a decrease to surplus of $15,000,000.
Separate Accounts--NYLIAC has established separate accounts with varying in-
vestment objectives which are segregated from NYLIAC's general account and are
maintained for the benefit of separate account contractholders and NYLIAC.
Separate account assets are generally stated at market value. The liability
for separate accounts represents contractholders' interests in the separate
account assets, including accumulated net investment income and realized and
unrealized gains and losses on those assets. Separate account liabilities gen-
erally reflect market value.
Nonadmitted Assets--Under statutory accounting practices, certain assets are
designated as "nonadmitted assets" and are not included in the Statement of
Financial Position.
Fair Values of Financial Instruments--Fair values of various assets and lia-
bilities are included throughout the notes to financial statements. Specifi-
cally, fair value disclosure of bonds, mortgage loans, and cash and short-term
investments is reported in Note 3. Fair values for insurance liabilities (pol-
icy reserves) are reported in Note 7. Fair values for derivative financial in-
struments are included in Note 12.
Permitted Statutory Accounting Practices--NYLIAC prepares its statutory fi-
nancial statements in accordance with accounting principles and practices pre-
scribed or permitted by the Delaware Insurance Department. Prescribed statu-
tory accounting practices include state laws and regulations along with NAIC
regulations. Permitted statutory accounting practices encompass accounting
practices that are not prescribed; such practices differ from state to state,
may differ from company to company within a state, and may change in the fu-
ture. Furthermore, the NAIC has started a project to codify statutory account-
ing practices, the result of which is expected to constitute the only source
of "prescribed" statutory accounting practices. Accordingly, that project,
which is expected to be completed in 1997, will likely change the definition
of what comprises prescribed versus permitted statutory accounting practices,
and may result in changes to the accounting policies that insurance enter-
prises use to prepare their statutory financial statements. NYLIAC has no ma-
terial permitted statutory accounting practices.
Business Risks and Uncertainties--The preparation of financial statements of
life insurance enterprises requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities at the date
of the financial statements. As a provider of life insurance and annuity prod-
ucts, NYLIAC's operating results in any given period depend on estimates of
policy reserves required to provide for future policyowner benefits.
The development of policy reserves for NYLIAC's products requires management
to make estimates and assumptions regarding mortality, morbidity, lapse, ex-
pense and investment experience. Such estimates are primarily based on histor-
ical experience and, in many cases, state insurance laws require specific mor-
tality, morbidity and investment assumptions to be used by NYLIAC. Actual re-
sults could differ materially from those estimates. Management monitors actual
experience, and where circumstances warrant, revises its assumptions and the
related reserve estimates.
NYLIAC regularly invests in mortgage backed securities and other securities
subject to prepayment and call risk. Significant changes in prevailing inter-
est rates may adversely affect the timing and amount of cash flows on such se-
curities.
F-28
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
In addition, the amortization of market discount and accretion of market pre-
mium for mortgage backed securities is based on historical experience and es-
timates of future payment speeds on the underlying mortgage loans. Actual pre-
payment speeds will differ from original estimates and may result in material
adjustments to amortization or accretion recorded in future periods.
NYLIAC distributes a Corporate Owned Life Insurance product to targeted cor-
porate customers, primarily banks, through individual brokers and brokerage
general agents. Sales of this product by one broker generated $270,000,000 of
premium income in 1995, which represents 20% of NYLIAC's total premium income.
As a subsidiary of a mutual insurance company, NYLIAC is subject to a tax on
its equity base. The rates applied to NYLIAC's equity base are determined an-
nually by the Internal Revenue Service after comparison of mutual life insur-
ance company earnings for the year to the average earnings of the 50 largest
stock life insurance companies for the prior three years. Due to the timing of
earnings information, estimates of the current year's tax must be made by man-
agement. The ultimate amounts of equity base tax incurred may vary consider-
ably from the original estimates. (See Note 2--Federal Income Taxes and Change
in Accounting Policy for the Equity Base Tax).
- -------------------------------------------------------------------------------
NOTE 3--Investments
- -------------------------------------------------------------------------------
Bonds--Fair values of bonds as shown below are based on published market val-
ues, if available. For investments without readily ascertainable market val-
ues, fair value has been determined using one of the following sources: market
dealer quotations, a discounted cash flow approach, or a proprietary matrix
pricing model. Fair values do not necessarily represent the values for which
these securities could have been sold at December 31, 1995 or 1994; therefore,
care should be exercised in drawing any conclusions from these fair values.
The method for determining statement values is described in Note 2.
At December 31, 1995 and 1994, the maturity distribution of bonds was as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
ESTIMATED ESTIMATED
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less... $ 756 $ 763 $ 218 $ 218
Due after one year through
five years............... 3,012 3,082 3,267 3,179
Due after five years
through ten years........ 1,853 1,957 1,901 1,801
Due after ten years....... 1,863 2,042 1,916 1,795
Asset-backed securities:
Government or government
agency.................. 4,089 4,233 3,310 3,128
Other.................... 689 720 529 523
------- ------- ------- -------
Total................... $12,262 $12,797 $11,141 $10,644
======= ======= ======= =======
</TABLE>
F-29
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1995 and 1994, the distribution of unrealized gains and
losses on bonds was as follows (in millions):
<TABLE>
<CAPTION>
1995
--------------------------------
ESTIMATED
STATEMENT FAIR
VALUE GAINS LOSSES VALUE
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government corporations
and agencies................................. $ 1,840 $ 82 $ 2 $ 1,920
U.S. agencies, state and municipal............ 3,563 150 8 3,705
Foreign governments........................... 324 20 1 343
Corporate..................................... 5,846 274 11 6,109
Other......................................... 689 32 1 720
------- ---- ---- -------
Total....................................... $12,262 $558 $ 23 $12,797
======= ==== ==== =======
<CAPTION>
1994
--------------------------------
ESTIMATED
STATEMENT FAIR
VALUE GAINS LOSSES VALUE
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government corporations
and agencies................................. $ 1,679 $ 10 $ 96 $ 1,593
U.S. agencies, state and municipal............ 2,965 14 193 2,786
Foreign governments........................... 298 4 21 281
Corporate..................................... 5,670 60 269 5,461
Other......................................... 529 10 16 523
------- ---- ---- -------
Total....................................... $11,141 $ 98 $595 $10,644
======= ==== ==== =======
</TABLE>
Mortgage Loans--NYLIAC attempts to minimize the risk of investing in mort-
gage loans by diversification of geographic locations and types of properties,
collateralization of mortgage loans based on management's credit assessment of
the borrower, and by traditionally requiring loan-to-value ratios of 75% or
less on new loans. The maximum and minimum lending rates for mortgage loans
during 1995 were: commercial loans, 9.50% and 7.25% (9.50% and 6.80% for
1994); residential loans, 7.24% and 7.19% (no residential loans for 1994).
F-30
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
At December 31, 1995 and 1994, the distribution of the mortgage loan portfo-
lio by geographic location and property type was as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
STATEMENT % OF STATEMENT % OF
VALUE TOTAL VALUE TOTAL
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Geographic Distribution:
Middle Atlantic.............................. $ 421 39.7% $432 44.6%
South Atlantic............................... 275 25.9 202 20.8
Pacific...................................... 132 12.4 140 14.4
East North Central........................... 132 12.4 130 13.4
West South Central........................... 52 4.9 15 1.6
East South Central........................... 22 2.1 29 3.0
Mountain..................................... 15 1.4 13 1.4
New England.................................. 12 1.1 7 .7
West North Central........................... 1 .1 1 .1
------ ----- ---- -----
Total....................................... $1,062 100.0% $969 100.0%
====== ===== ==== =====
Property Type:
Office Building.............................. $ 696 65.5% $649 67.0%
Retail....................................... 185 17.4 166 17.1
Apartments................................... 152 14.3 125 12.9
Industrial................................... 21 2.0 29 3.0
Residential.................................. 8 .8 -- --
------ ----- ---- -----
Total....................................... $1,062 100.0% $969 100.0%
====== ===== ==== =====
</TABLE>
At December 31, 1995 and 1994, anticipated maturities in NYLIAC's mortgage
loan portfolio were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------ ----
<S> <C> <C>
Due in one year or less..................................... $ 84 $142
Due after one year through five years....................... 398 345
Due after five years through ten years...................... 460 408
Due after ten years......................................... 120 74
------ ----
Total..................................................... $1,062 $969
====== ====
</TABLE>
Fair values for the mortgage loan portfolio at December 31, 1995 and 1994
were estimated to be $1,103,000,000 and $946,000,000, respectively, and were
determined by discounting the projected cash flow for each individual loan to
determine the current net present value. The discount rate used approximates
the current rate for new mortgages with comparable
F-31
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
characteristics and similar remaining maturities. As mortgage loans are gener-
ally intended to be held to maturity and fair values do not necessarily repre-
sent the values for which these loans could have been sold at December 31,
1995 or 1994, care should be exercised in drawing any conclusions from these
fair values. The method of determining statement values is described in Note
2.
Real Estate--At December 31, 1995 and 1994, NYLIAC's real estate portfolio,
at statement value, consisted of the following (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial:
Investment................................................... $101 $ 90
Acquired through foreclosure................................. 40 29
---- ----
Total real estate........................................... $141 $119
==== ====
</TABLE>
Accumulated depreciation on real estate at December 31, 1995 amounted to
$5,033,000 ($2,379,000 for 1994). Depreciation expense for 1995 was $2,654,000
($1,729,000 for 1994 and $699,000 for 1993), and was recorded as an investment
expense.
Cash and Short-Term Investments--Short-term investments consist of securi-
ties that have maturities of one year or less at acquisition. The carrying
amount reported in the Statement of Financial Position for cash and short-term
investments approximates fair value.
- -------------------------------------------------------------------------------
NOTE 4--Investment Income and Capital Gains and Losses
- -------------------------------------------------------------------------------
The components of net investment income for the years ended December 31, 1995,
1994 and 1993 were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Bonds.............................................. $ 887 $ 877 $ 881
Mortgage loans..................................... 83 86 98
Preferred and common stocks........................ 3 5 7
Real estate........................................ 19 15 11
Policy loans....................................... 34 31 29
Short-term investments............................. 25 13 8
Amortization of IMR................................ 16 10 3
Other.............................................. 5 9 9
------ ------ ------
Gross investment income.......................... 1,072 1,046 1,046
Investment expenses................................ 35 26 21
------ ------ ------
Net investment income............................ $1,037 $1,020 $1,025
====== ====== ======
</TABLE>
F-32
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
For the years ended December 31, 1995, 1994 and 1993 realized capital gains
and losses were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- ------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Bonds................................... $ 62 $ (31) $ 94 $(132) $ 99 $(115)
Mortgage loans.......................... 4 (8) 1 -- 2 --
Preferred and common stocks............. 16 (6) 6 (1) 7 --
Real estate............................. -- (1) -- (3) -- (3)
Derivative instruments.................. 102 (103) 4 (14) -- --
Other assets............................ 10 (3) 5 -- 3 (13)
---- ----- ---- ----- ---- -----
$194 $(152) $110 $(150) $111 $(131)
==== ===== ==== ===== ==== =====
Net realized capital gains (losses)
before capital gains tax and transfers
to the IMR............................. 42 (40) (20)
Less:
Capital gains tax (benefit)............ 19 (19) (3)
Gains (losses) transferred to the IMR.. 23 (25) 44
---- ---- -----
Net realized capital gains (losses)
after capital gains tax and transfers
to the IMR............................. $ 0 $ 4 $ (61)
==== ==== =====
</TABLE>
Proceeds from investments in bonds sold, matured or repaid were
$3,395,000,000, $4,520,000,000 and $5,197,000,000 for the years ended December
31, 1995, 1994 and 1993, respectively.
- -------------------------------------------------------------------------------
NOTE 5--Dividends to Stockholder
- -------------------------------------------------------------------------------
No dividends were declared or paid to New York Life in 1995. In 1994 and 1993,
NYLIAC declared and paid dividends of $70,000,000 and $71,000,000, respective-
ly, to New York Life. These dividends were paid from current year earnings, as
permitted by the Delaware Insurance Department.
- -------------------------------------------------------------------------------
NOTE 6--Service Agreement with New York Life
- -------------------------------------------------------------------------------
New York Life provides NYLIAC with services and facilities for the sale of in-
surance and other activities related to the business of insurance. NYLIAC re-
imburses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life
and NYLIAC. Such costs, amounting to $166,000,000 for the year ended December
31, 1995 ($147,000,000 for 1994 and $124,000,000 for 1993) are reflected in
operating expenses and net investment income in the accompanying Statement of
Operations.
F-33
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In 1993, the NAIC approved a new accounting treatment for postretirement
benefits other than pensions which requires the reporting of expected future
benefit costs (primarily life and health benefits) for retirees and fully eli-
gible active employees. The liabilities for postretirement benefits are held
by New York Life. However, NYLIAC was allocated $5,000,000 for its share of
the net periodic postretirement benefits expense in 1995 ($5,000,000 and
$6,000,000 in 1994 and 1993, respectively) under the provisions of the service
agreement.
- -------------------------------------------------------------------------------
NOTE 7--Insurance Liabilities
- -------------------------------------------------------------------------------
Policy Reserves and Deposit Funds--Reserves for life insurance policies are
maintained principally using the 1958 and 1980 Commissioners' Standard Ordi-
nary (CSO) Mortality Tables under the Commissioners' Reserve Valuation Method
(CRVM) with valuation interest rates ranging from 4% to 6.5%. Reserves for an-
nuities are based principally on 1971 Individual Annuity and 1983-a Mortality
Tables and the Commissioners' Annuity Reserve Valuation Method (CARVM), with
valuation interest rates ranging from 4% to 10%. Generally, owners of NYLIAC
deferred annuities are able, at their discretion, to withdraw funds from their
policies.
The following table reflects the withdrawal characteristics of annuity re-
serves and deposit funds (in millions):
<TABLE>
<CAPTION>
1995 1994
------------ ------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment......................... $ -- --% $ -- --%
At book value less surrender charge of 5% or more.... 1,730 19 1,289 16
Market value......................................... 1,303 14 862 10
------ --- ------ ---
Total with adjustment or at market value.............. 3,033 33 2,151 26
At book value without adjustment (minimal or no
charge or adjustment)............................... 5,875 65 6,064 72
Not subject to discretionary withdrawal provisions... 189 2 184 2
------ --- ------ ---
Total annuity reserves and deposit fund liabilities. $9,097 100% $8,399 100%
====== === ====== ===
</TABLE>
NYLIAC's liabilities under investment-type contracts, primarily deferred an-
nuities, of $7,614,000,000 and $7,343,000,000 at December 31, 1995 and 1994,
respectively, are included in policy reserves on the Statement of Financial
Position. Fair value of these liabilities at December 31, 1995 is approxi-
mately $7,619,000,000 (statement value at December 31, 1994 generally reflects
fair value).
F-34
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
Liability for Unpaid Accident and Health Claims and Claim Adjustment Ex-
penses--Activity in the liability for unpaid accident and health claims and
claim adjustment expenses is summarized as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Balance at January 1.............................................. $20 $18
Incurred related to:
Current Year......................................................... 22 20
Prior Year........................................................... -- --
--- ---
Total Incurred....................................................... 22 20
--- ---
Paid related to:
Current Year......................................................... -- --
Prior Year........................................................... 20 18
--- ---
Total Paid........................................................... 20 18
--- ---
Net Balance at December 31............................................ $22 $20
</TABLE>
- -------------------------------------------------------------------------------
NOTE 8--Separate Accounts
- -------------------------------------------------------------------------------
NYLIAC maintains seven nonguaranteed separate accounts for its variable de-
ferred annuity and variable universal life products. The assets of the sepa-
rate accounts represent shares of New York Life sponsored MFA Series Fund and
Acacia Capital Corporation Calvert Socially Responsible Portfolio as follows
(in millions):
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
NO. OF STATEMENT NO. OF STATEMENT
PORTFOLIO SHARES VALUE SHARES VALUE
--------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Growth Equity............................... 24.823 $ 428 22.479 $330
Bond........................................ 17.514 235 17.099 207
Capital Appreciation........................ 15.784 244 9.952 114
Indexed Equity.............................. 7.776 105 6.088 63
Total Return................................ 14.699 195 11.562 122
Government.................................. 6.477 65 6.691 62
Cash Management............................. 88.930 89 72.526 73
International Equity........................ 1.435 15 -- --
High Yield Corporate Bond................... 4.105 43 -- --
Value....................................... 2.109 24 -- --
Socially Responsible........................ .356 1 -- --
------- ------ ------- ----
Total..................................... 184.008 $1,444 146.397 $971
======= ====== ======= ====
</TABLE>
F-35
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the second quarter of 1996, NYLIAC is expected to offer for sale a
new variable product, Corporate Owned Life Insurance Variable Universal Life,
for the purpose of investing payments received under new variable universal
life contracts issued by NYLIAC.
<TABLE>
<S> <C> <C>
=== ===
</TABLE>
NYLIAC's total investment in the separate accounts was $48,000,000 and
$64,000,000 at December 31, 1995 and 1994, respectively.
Variable separate accounts held by NYLIAC for Individual Life and Annuity
policies represent nonguaranteed funds. The assets of these accounts are car-
ried at market value.
The following is a reconciliation of net transfers from NYLIAC to the Sepa-
rate Accounts (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Transfers as reported in Summary of Operations of
the Separate Accounts Statement:
Transfers to Separate Accounts................... $ 404 $ 312 $215
Transfers from Separate Accounts................. (174) (143) (69)
----- ----- ----
Net transfers to Separate Accounts................ $ 230 $ 169 $146
===== ===== ====
Transfers as reported in "additions to other
insurance reserves" on the Statement of Operations
of NYLIAC......................................... $ 230 $ 169 $146
===== ===== ====
</TABLE>
- -------------------------------------------------------------------------------
NOTE 9--Federal Income Taxes
- -------------------------------------------------------------------------------
NYLIAC is a member of an affiliated group which joins in the filing of a con-
solidated federal income tax return with New York Life. The consolidated in-
come tax liability is allocated among the members of the group in accordance
with a tax allocation agreement. The tax allocation agreement provides that
NYLIAC is allocated its share of the consolidated tax provision or benefit,
including the equity base tax, determined generally on a separate return ba-
sis, but may, where applicable, recognize the tax benefits of net operating
losses or capital losses utilizable in the consolidated group. Estimated pay-
ments for taxes are made between the members of the consolidated group during
the year.
At December 31, 1995 and 1994, federal income taxes payable to New York Life
were $62,000,000 and $19,000,000, respectively.
F-36
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
Set forth below is a reconciliation of the statutory federal income tax rate
to the effective tax rate for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate...................... 35.0% 35.0% 35.0%
Exempt interest........................................ (1.7) (2.8) (1.0)
Allocable share of equity base tax imposed on New York
Life:
Current year estimate................................. 5.0 2.7 2.3
Change in accounting policy........................... (8.0) -- --
Deferred acquisition costs............................. 8.3 6.0 5.6
Increase (decrease) in statutory reserves in excess of
increase in tax reserves.............................. 1.6 (1.5) 2.1
Other.................................................. (1.4) (.1) (.2)
---- ---- ----
Effective tax rate................................... 38.8% 39.3% 43.8%
==== ==== ====
</TABLE>
- -------------------------------------------------------------------------------
NOTE 10--Reinsurance
- -------------------------------------------------------------------------------
NYLIAC enters into reinsurance agreements in the normal course of its insurance
business to reduce overall risks. NYLIAC remains liable for reinsurance ceded
if the reinsurer fails to meet its obligations on the business it has assumed.
Life insurance reinsured was 11% and 9% of total life insurance in-force at
December 31, 1995 and 1994, respectively.
In 1994, NYLIAC entered into a coinsurance/modified coinsurance reinsurance
agreement, covering a specific block of NYLIAC's Single Premium Multi-Life
Corporate Owned Life Insurance business. In 1995, this treaty was amended to
cover 1995 and future years' business. In 1995, NYLIAC ceded $216,000,000 in
premiums ($220,000,000 in 1994) reduced by an experience refund of $8,000,000
($4,000,000 in 1994). In addition, in 1995 NYLIAC recorded a commission and
expense allowance of $22,000,000 ($22,000,000 in 1994), a modco reserve ad-
justment of $185,000,000 ($194,000,000 in 1994), and a reserve credit of
$43,000,000 ($22,000,000 in 1994), related to the coinsurance portion of the
agreement.
A group reinsurance agreement between NYLIAC and New York Life was approved
by the New York State Insurance Department in 1981 and was terminated effec-
tive December 31, 1995. Under the terms of the agreement, NYLIAC assumed the
liabilities for group health long-term disability policies issued by New York
Life. NYLIAC assumed premiums of $29,000,000, $26,000,000 and $25,000,000 for
the years 1995, 1994 and 1993, respectively. A settlement is made between the
companies in the subsequent year. In 1995, NYLIAC received $4,000,000 from New
York Life (NYLIAC paid $1,000,000 and received $24,000,000 from New York Life
in 1994 and 1993, respectively), consisting of premiums due to NYLIAC of
$32,000,000 ($33,000,000 in 1994 and $41,000,000 in 1993), reduced by a bene-
fit reimbursement of $20,000,000 ($18,000,000 in 1994 and $15,000,000 in 1993)
and an experience refund of $8,000,000 ($16,000,000 in 1994 and $2,000,000 in
1993).
F-37
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As a result of the termination, NYLIAC will transfer an amount to New York
Life equal to the reserves held to support the claims of those disabled lives.
At December 31, 1995 NYLIAC established a liability to New York Life of
$119,000,000 for the transfer of such reserves.
- -------------------------------------------------------------------------------
NOTE 11--Other Adjustments to Surplus
- -------------------------------------------------------------------------------
Other adjustments in the Statement of Changes in Surplus include principally
the effects of the following:
For 1995: (1) $18,000,000 decrease due to a change in accounting policy for
the equity base tax (see Note 2); (2) $14,000,000 decrease due to a change in
valuation basis; (3) $10,000,000 increase due to the change in separate ac-
count surplus; (4) $3,000,000 decrease due to an increase in nonadmitted as-
sets; and (5) $3,000,000 decrease resulting from an increase in the liability
for federal income taxes of prior years.
For 1994: (1) $6,000,000 decrease due to an increase in nonadmitted assets;
(2) $5,000,000 increase resulting from a decrease in the liability for federal
income taxes of prior years; and (3) $2,000,000 decrease due to the change in
separate account surplus.
For 1993: (1) $18,000,000 decrease due to an adjustment to the Agents' Pro-
gress Sharing Plan liability; (2) $6,000,000 increase due to the change in
separate account surplus; (3) $5,000,000 increase resulting from a decrease in
the liability for federal income taxes of prior years; and (4) $1,000,000 de-
crease due to the funding of the New York Life Foundation.
- -------------------------------------------------------------------------------
NOTE 12--Derivative Financial Instruments and Risk Management
- -------------------------------------------------------------------------------
NYLIAC uses derivative financial instruments to manage interest rate, currency
and market risk. These derivative financial instruments include foreign ex-
change forward contracts, interest rate floors, and interest rate and commod-
ity swaps. NYLIAC does not engage in derivative financial instrument transac-
tions for the purpose of trading.
Notional or contractual amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not repre-
sent the amounts exchanged between the parties engaged in the transaction. The
amounts exchanged are determined by reference to the notional amounts and
other terms of the derivative financial instruments which relate to interest
rates, exchange rates, or other financial indices.
Interest Rate Risk Management--NYLIAC enters into various types of interest
rate contracts primarily to minimize exposure of specific assets held by
NYLIAC to fluctuations in interest rates.
F-38
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
The following table summarizes the notional amounts and credit exposures of
interest rate related derivative transactions (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps......................... $ 50,000 -- $ 80,000 $2,636
Floors Purchased............................ $150,000 -- $150,000 $ 15
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at speci-
fied intervals, the difference between fixed- rate and floating-rate interest
amounts calculated by reference to an agreed notional amount. Swap contracts
outstanding at December 31, 1995 are between ten months and eight years, seven
months in maturity. At December 31, 1994 such contracts are between seven
months and eight years, seven months in maturity. NYLIAC does not act as an
intermediary or broker in interest rate swaps.
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows.
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Receive--fixed swaps--
Notional amount (in
thousands)................. $15,000 $45,000
Average receive rate.... 7.93% 8.30%
Average pay rate........ 7.39% 5.85%
Pay--fixed swaps--Notional
amount (in thousands)...... $35,000 $35,000
Average pay rate........ 7.46% 7.46%
Average receive rate.... 6.02% 5.74%
</TABLE>
During the term of the swap, net settlement amounts are recorded as invest-
ment income or expense when earned. Fair values of interest rate swaps at De-
cember 31, 1995 and 1994 were $(2,298,000) and $1,760,000 respectively, based
on quoted market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest
rates on a portfolio of assets.
Premiums paid for interest rate floor agreements purchased are included in
other assets in the Statement of Financial Position and are amortized into in-
terest expense over the terms of the agreements. At December 31, 1995 and
1994, unamortized premiums amounted to $597,000 and $672,000, respectively.
Amounts received during the term of interest rate floor agreements are re-
corded as investment income. Fair values of interest rate floors at December
31, 1995 and 1994 were $395,000 and $15,000, respectively, based on quoted
market prices.
F-39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NYLIAC is exposed to credit-related losses in the event that a counterparty
fails to perform its obligations under contractual terms. The credit exposure
of derivative financial instruments is represented by the sum of the fair val-
ues of contracts with each counterparty, if the net value is positive, at the
reporting date.
NYLIAC deals with highly rated counterparties and does not expect the
counterparties to fail to meet their obligations. NYLIAC has controls in place
to monitor credit exposures by limiting transactions with specific
counterparties within specified dollar limits and assessing the future credit-
worthiness of counterparties. NYLIAC uses master netting agreements and ad-
justs transaction levels, when appropriate, to minimize risk.
Foreign Exchange Risk Management--NYLIAC enters into foreign exchange for-
ward contracts primarily as a portfolio hedge against foreign currency fluctu-
ations. The purpose of NYLIAC's foreign currency hedging activities is to pro-
tect it from the risk that eventual dollar net cash inflows from investment
income, or the eventual sale, of a foreign currency denominated investment,
will be adversely affected by changes in exchange rates.
NYLIAC's foreign exchange forward contracts involve the exchange of two cur-
rencies at a specified future date and at a specified price. The average term
of the contracts is three to six months.
The table below summarizes, by major currency, the contractual amounts of
NYLIAC's foreign exchange forward contracts. The amounts represent the U.S.
dollar equivalent of commitments to sell foreign currencies, translated at De-
cember 31, 1995 and 1994 exchange rates (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Japanese Yen............................................... $ 49,000 $ 29,000
French Francs.............................................. 24,000 27,000
Italian Lire............................................... 21,000 14,000
Other...................................................... 107,000 92,000
-------- --------
Total.................................................... $201,000 $162,000
======== ========
</TABLE>
The fair value of foreign exchange forward contracts at December 31, 1995
and 1994 was $(2,746,000) and $(1,046,000), respectively, and was based on
current market rates.
NYLIAC is exposed to credit-related losses in the event of non-performance
by counterparties, which could result in an unhedged position. NYLIAC deals
with highly rated, investment grade counterparties and does not expect the
counterparties to fail to meet their obligations under the contracts. For con-
tracts with counterparties where no master netting arrangement exists in the
event of default on the part of the counterparty, credit exposure is defined
as the fair value of contracts in a gain position at the reporting date.
Credit exposure to counterparties where a master netting arrangement is in
place in the event of default is defined as the net fair value, if positive,
of all outstanding contracts with each specific counterparty. The credit expo-
sure of NYLIAC's foreign exchange forward contracts at December 31, 1995 and
1994 was $137,000 and $26,000, respectively.
F-40
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
Commodity Management--In 1994, NYLIAC entered into a $10,145,000 notional
gold swap in order to hedge variable interest payments on a gold denominated
Eurobond. The bond pays interest in U.S. dollars based upon the prevailing
price of gold. Under the terms of the agreement, NYLIAC pays to the
counterparty the variable interest payments on the bond in exchange for a
fixed payment in U.S. dollars at 8.46%. The counter party is highly rated and
NYLIAC does not expect the counterparty to fail to meet its obligation. The
fair value of the swap at December 31, 1995 and 1994 was $1,244,000 and
$51,000, respectively, based on current market quotes.
- -------------------------------------------------------------------------------
NOTE 13--Commitments and Contingencies
- -------------------------------------------------------------------------------
Litigation--The New York State Supreme Court on January 31, 1996 approved the
settlement of a consolidated nationwide class action lawsuit alleging certain
sales practice claims against NYLIAC and New York Life. In entering into the
settlement, NYLIAC specifically denied any wrongdoing. The class consists of
approximately three million policyowners who purchased whole life or universal
life policies from January 1, 1982 through December 31, 1994. Appeals from the
order may be filed within the prescribed statutory period. Under the terms of
the settlement, the class members receive benefits intended to address the is-
sues presented in the case or an opportunity to redress individual claims in
an alternative dispute resolution process. The settlement (including awards
made in an alternative dispute resolution process) will not have a material
adverse effect upon NYLIAC's financial position, and NYLIAC believes that, af-
ter consideration of provisions made, the settlement will not have a material
adverse effect on operating results. NYLIAC, its affiliates and its agents
have been released from liability to class members for transactions during the
class period relating to the sales practice claims in the lawsuits.
There are also actions in various jurisdictions by individual policyowners,
many of whom excluded themselves from the settlement of the nationwide class
action. Most of the these actions seek substantial or unspecified compensatory
and punitive damages.
NYLIAC is also a defendant in other actions arising from its insurance and
investment 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 var-
ious governmental, administrative and investigative proceedings and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the out-
come of the above and other actions pending against NYLIAC cannot be predict-
ed. NYLIAC nevertheless believes that the ultimate outcome of all pending lit-
igation should not have a material adverse effect on NYLIAC's financial posi-
tion; however, it is possible that settlements or adverse determinations in
one or more actions or other proceedings in the future could have a material
adverse effect on NYLIAC's operating results for a given year.
Loaned Securities and Repurchase Agreements--NYLIAC participates in a secu-
rities lending program for the purpose of enhancing income on securities held.
At December 31, 1995, $1,222,000,000 ($1,143,000,000 at December 31, 1994) of
NYLIAC's bonds were on loan to others, but were fully collateralized in an ac-
count held in trust for NYLIAC. Such assets reflect the extent of NYLIAC's in-
volvement in securities lending, not its risk of loss.
F-41
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NYLIAC has entered into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The lia-
bility reported in the Statement of Financial Position at December 31, 1995 of
$86,000,000 ($254,000,000 at December 31, 1994) is considered to be fair val-
ue. The investments acquired with the funds received from the securities sold
are generally included in short-term investments.
F-42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors and Stockholder of
New York Life Insurance and Annuity Corporation
In our opinion, the accompanying statement of financial position and the re-
lated statements of operations, of changes in surplus and of cash flows pres-
ent fairly, in all material respects, the financial position of New York Life
Insurance and Annuity Corporation at December 31, 1995 and 1994, and the re-
sults of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted account-
ing principles (practices prescribed or permitted by insurance regulatory au-
thorities, see Note 2). These financial statements are the responsibility of
the Corporation's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assur-
ance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting princi-
ples used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 2, in 1995 the Corporation changed its accounting policy
for reporting the effect of changes in the Differential Earnings Rate on its
equity base tax.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
February 16, 1996
F-43
