<PAGE>
<TABLE>
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN A PROSPECTUS
<CAPTION>
Item of Form N-4 Prospectus Caption
- ---------------- ------------------
<S> <C>
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis or Highlights Fee Table, Questions and Answers About
NYLIAC Variable Annuity
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant, New York Life Insurance and
Depositor and Portfolio Companies Annuity Corporation; The Separate
Account; MainStay VP Series Fund, Inc.;
The Alger American Fund; Acacia Capital
Corporation; Fidelity Variable Insurance
Products Fund and Fidelity Variable
Insurance Products Fund II; Janus Aspen
Series; Morgan Stanley Universal Funds,
Inc.; Voting Rights
6. Deductions & Expenses Charges and Deductions;
Fee Table; Taxes; Distributor of the
Policies
7. General Description of Variable The Policies; Distributions Under
Annuity Contracts the Policy; Voting Rights; Charges and
Deductions; The Fixed Account
8. Annuity Period Income Payments
9. Death Benefit Distributions Under the Policy
10. Purchases & Contract Value Policy Application and Premium Payments;
Accumulation Period
11. Redemptions Surrenders and Withdrawals; Income
Payments; Cancellations
12. Taxes Federal Tax Matters
13. Legal Proceedings Statement of Additional Information - Legal
Proceedings
14. Table of Contents of the Statement of Table of Contents of the Statement of
Additional Information Additional Information
</TABLE>
<PAGE>
INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Statement of Additional
Item of Form N-4 Information Caption
- ---------------- -----------------------
<S> <C>
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information & History General Matters; Federal Tax Matters;
Other Information
18. Services Safekeeping of Separate Account Assets
19. Purchase of Securities Being Offered Distributor of the Policies
20. Underwriters Distributor of The Policies
21. Calculation of Performation Data Investment Performance Calculations
22. Annuity Payments Valuation of Accumulation Units
23. Financial Statements Financial Statements
</TABLE>
<PAGE>
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-I
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-II
PROSPECTUS DATED OCTOBER 1, 1996
FOR THE
NYLIAC VARIABLE ANNUITY
FLEXIBLE PREMIUM MULTI-FUNDED VARIABLE 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 individual flexible premium multi-funded variable
retirement annuity policies offered by New York Life Insurance and Annuity
Corporation ("NYLIAC"). The policies are primarily designed to assist
individuals in their retirement planning, and can be used in connection both
with plans that do and plans that do not qualify for special federal income
tax treatment. Premium payments accumulate on a tax-deferred basis and can be
later distributed under a number of different methods. The policies offer
flexible premium payments, access to cash value through partial withdrawals
(although certain withdrawals may be subject to a surrender charge and/or tax
penalty), a choice of when income payments will commence, and a guaranteed
payment of premiums (or the policy's value, if greater) to the beneficiary if
the owner or annuitant dies before income payments have commenced. The
policies also offer a choice of premium allocation alternatives, including a
guaranteed interest option and the eighteen separate account variable
investment divisions listed below.
.MainStay VP Capital Appreciation .MainStay VP Growth Equity
.MainStay VP Cash Management .MainStay VP Indexed Equity
.MainStay VP Convertible .Alger American Small Capitalization
.MainStay VP Government .Calvert Socially Responsible
.MainStay VP High Yield Corporate Bond .Fidelity VIP Contrafund
.MainStay VP International Equity .Fidelity VIP Equity-Income
.MainStay VP Total Return .Janus Aspen Balanced
.MainStay VP Value .Janus Aspen Worldwide Growth
.MainStay VP Bond .Morgan Stanley Emerging Markets
Equity
We do not guarantee the investment performance of these investment divisions,
which involve varying degrees of risk.
This Prospectus provides information that a prospective investor should know
before investing. Please read it carefully and retain it for future reference.
This Prospectus is not valid unless attached to current prospectuses for the
MainStay VP Series Fund, Inc., The Alger American Fund, the Acacia Capital
Corporation, the Fidelity Variable Insurance Products Fund II, the Fidelity
Variable Insurance Products Fund, the Janus Aspen Series and the Morgan
Stanley Universal Funds, Inc.
Registration statements relating to the policies and the separate accounts
have been filed with the Securities and Exchange Commission. A Statement of
Additional Information, dated October 1, 1996, is incorporated herein by
reference. The Statement of Additional Information is available free by
writing NYLIAC at the address above or by calling (212) 576-7538. The table of
contents for the Statement of Additional Information is included at the end of
this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS............................................................... 4
FEE TABLE................................................................. 7
QUESTIONS AND ANSWERS ABOUT NYLIAC VARIABLE ANNUITY....................... 11
FINANCIAL STATEMENTS...................................................... 16
CONDENSED FINANCIAL INFORMATION........................................... 17
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION AND THE SEPARATE ACCOUNTS. 19
New York Life Insurance and Annuity Corporation.......................... 19
The Separate Accounts.................................................... 19
MAINSTAY VP SERIES FUND, INC. ............................................ 20
THE ALGER AMERICAN FUND................................................... 20
ACACIA CAPITAL CORPORATION................................................ 20
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND FIDELITY VARIABLE INSURANCE
PRODUCTS FUND II......................................................... 21
JANUS ASPEN SERIES........................................................ 21
MORGAN STANLEY UNIVERSAL FUNDS, INC. ..................................... 22
THE PORTFOLIOS............................................................ 22
The MainStay VP Capital Appreciation Portfolio........................... 22
The MainStay VP Cash Management Portfolio................................ 22
The MainStay VP Convertible Portfolio.................................... 23
The MainStay VP Government Portfolio..................................... 23
The MainStay VP High Yield Corporate Bond Portfolio...................... 23
The MainStay VP International Equity Portfolio........................... 23
The MainStay VP Total Return Portfolio................................... 23
The MainStay VP Value Portfolio.......................................... 24
The MainStay VP Bond Portfolio........................................... 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
The MainStay VP Growth Equity Portfolio................................... 24
The MainStay VP Indexed Equity Portfolio.................................. 24
The Alger American Small Capitalization Portfolio......................... 24
The Calvert Socially Responsible Portfolio................................ 25
The Fidelity VIP Contrafund Portfolio..................................... 25
The Fidelity VIP Equity-Income Portfolio.................................. 25
The Janus Aspen Balanced Portfolio........................................ 25
The Janus Aspen Worldwide Growth Portfolio................................ 25
The Morgan Stanley Emerging Markets Equity Portfolio...................... 25
Additions, Deletions or Substitutions of Investments...................... 26
Reinvestment.............................................................. 27
THE POLICIES............................................................... 27
Purpose of Policies....................................................... 27
Types of Policies......................................................... 27
Policy Application and Premium Payments................................... 27
Issue Ages................................................................ 29
Transfers................................................................. 29
Procedures for Telephone Transfers........................................ 29
Dollar Cost Averaging..................................................... 30
Automatic Asset Reallocation.............................................. 31
Interest Sweep............................................................ 31
Accumulation Period....................................................... 32
(a)Crediting of Premium Payments......................................... 32
(b)Valuation of Accumulation Units....................................... 32
Owner Inquiries........................................................... 32
CHARGES AND DEDUCTIONS..................................................... 32
Surrender Charges......................................................... 32
Amount of Surrender Charge................................................ 33
Exceptions to Surrender Charges........................................... 33
Other Charges............................................................. 34
Group and Sponsored Arrangements.......................................... 35
Taxes..................................................................... 35
DISTRIBUTIONS UNDER THE POLICY............................................. 36
Surrenders and Withdrawals................................................ 36
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
(a)Surrenders............................................................ 36
(b)Partial Withdrawals................................................... 36
(c)Periodic Partial Withdrawals.......................................... 37
(d)Hardship Withdrawals.................................................. 37
Required Minimum Distribution Option...................................... 37
Cancellations............................................................. 37
Annuity Commencement Date................................................. 38
Death Before Annuity Commencement......................................... 38
Income Payments........................................................... 39
(a)Election of Income Payment Options.................................... 39
(b)Other Methods of Payment.............................................. 39
(c)Proof of Survivorship................................................. 39
Delay of Payments......................................................... 40
Designation of Beneficiary................................................ 40
Restrictions Under Internal Revenue Code Section 403(b)(11)............... 40
Loans..................................................................... 41
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Riders.................................................................... 42
(a)Living Needs Benefit Rider............................................ 42
(b)Unemployment Benefit Rider............................................ 42
THE FIXED ACCOUNT.......................................................... 42
(a)Interest Crediting.................................................... 42
(b)Bail-Out.............................................................. 43
(c)Transfers to Investment Divisions..................................... 43
FEDERAL TAX MATTERS........................................................ 44
Introduction.............................................................. 44
Taxation of Annuities in General.......................................... 44
Qualified Plans........................................................... 46
(a)Section 403(b) Plans.................................................. 46
(b)Individual Retirement Annuities....................................... 46
(c)Deferred Compensation Plans........................................... 46
DISTRIBUTOR OF THE POLICIES................................................ 46
VOTING RIGHTS.............................................................. 47
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION.............. 48
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NYLIAC DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED
SUPPLEMENT THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY NYLIAC.
3
<PAGE>
DEFINITIONS
ACCUMULATION PERIOD--The period before the Annuity Commencement Date and
during the lifetime of the Annuitant.
ACCUMULATION UNIT--An accounting unit used to calculate the Accumulation Value
prior to the Annuity Commencement Date. Each Investment Division of each
Separate Account has a distinct Accumulation Unit value.
ACCUMULATION VALUE--The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of an account for any Valuation Period.
AGE--Age on the nearest birthday.
ALLOCATION ALTERNATIVES--The Investment Divisions of the applicable Separate
Account and the Fixed Account constitute the Allocation Alternatives.
ANNUITANT--The person named in the application and whose life determines the
annuity payments.
ANNUITY COMMENCEMENT DATE--The date on which the first annuity payment under
the Policy is to be made.
BENEFICIARY--The person or entity having the right to receive the death
benefit set forth in the Policy and who is the "designated beneficiary" for
purposes of Section 72(s) of the Internal Revenue Code in the event of the
Annuitant's or the Owner's death.
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.
CORPORATION ("NYLIAC, WE, US, OUR")--New York Life Insurance and Annuity
Corporation, which is a wholly-owned Delaware subsidiary of New York Life
Insurance Company.
ELIGIBLE PORTFOLIOS ("PORTFOLIOS")--The available mutual fund Portfolios of
the Funds. The MainStay VP Series Fund currently has eleven Portfolios
available for investment by the Investment Divisions of the Separate Accounts:
the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay VP
Convertible, MainStay VP Government, MainStay VP High Yield Corporate Bond,
MainStay VP International Equity, MainStay VP Total Return, MainStay VP Value,
MainStay VP Bond, MainStay VP Growth Equity and MainStay VP Indexed Equity
Portfolios. The Alger American Fund has one Portfolio available to the
Separate Accounts: the Alger American Small Capitalization Portfolio. The
Acacia Fund has one Portfolio available to the Separate Accounts: the Calvert
Responsibly Invested Balanced Portfolio ("Calvert Socially Responsible
Portfolio"). The Fidelity Funds have two Portfolios available to the Separate
Accounts: the Contrafund Portfolio of the Fidelity Variable Insurance Products
Fund II ("Fidelity VIP Contrafund Portfolio") and the Equity-Income Portfolio
of the Fidelity Variable Insurance Products Fund ("Fidelity VIP Equity-Income
Portfolio"). The Janus Fund has two Portfolios available to the Separate
Accounts: the Balanced Portfolio of the Janus Aspen Series ("Janus Aspen
Balanced Portfolio") and Worldwide Growth Portfolio of the Janus Aspen Series
("Janus Aspen Worldwide Growth Portfolios"). The Morgan Stanley Fund has one
Portfolio available to the Separate Accounts: the Emerging Markets Equity
Portfolio of the Morgan Stanley Universal Funds, Inc. ("Morgan Stanley
Emerging Markets Equity Portfolio").
4
<PAGE>
FIXED ACCOUNT--Assets in the Fixed Account are not part of the Separate
Accounts of NYLIAC. The Accumulation Value of the Fixed Account is supported
by assets in the General Account of the Corporation, which are subject to the
claims of its general creditors.
FIXED ACCUMULATION VALUE--The sum of premiums and transfers allocated to the
Fixed Account, plus interest credited, less amounts withdrawn.
FIXED INCOME PAYMENTS--Income Payments having a guaranteed amount.
FUNDS (EACH, INDIVIDUALLY, A "FUND")--The MainStay VP Series Fund, Inc.
("MainStay VP Series Fund" and, formerly, "New York Life MFA Series Fund,
Inc."), The Alger American Fund ("The Alger American Fund"), the Acacia
Capital Corporation ("Acacia Fund"), the Fidelity Variable Insurance Products
Fund and the Fidelity Variable Insurance Products Fund II (collectively, the
"Fidelity Variable Insurance Products Funds" or the "Fidelity Funds"), the
Janus Aspen Series ("Janus Fund") and the Morgan Stanley Universal Funds, Inc.
("Morgan Stanley Fund").
GUARANTEED INTEREST RATE--The rate of interest credited by the Corporation
during any Guarantee Period. This rate is set quarterly.
INCOME PAYMENTS--Periodic payments made by NYLIAC to the Payee.
INVESTMENT DIVISION ("DIVISION")--A division of each of the Separate Accounts.
Each Investment Division invests exclusively in shares of a specified Eligible
Portfolio.
ISSUE DATE--The date the Policy is executed.
NON-QUALIFIED POLICIES--Policies that do not qualify for special federal
income tax treatment.
OWNER ("YOU, YOUR")--The person(s) or entity designated as the owner in the
Policy (or surviving spouse of the Owner who is named as Beneficiary, and who
becomes the new Owner), or as subsequently changed, and upon whose death prior
to the Annuity Commencement Date benefits under the Policy may be paid.
Generally, NYLIAC will not issue a Policy to joint owners, unless there is a
spousal relationship. However, if NYLIAC makes an exception and issues a
jointly owned Policy, ownership rights and privileges under the Policy must be
exercised jointly.
PARTIAL WITHDRAWAL--Any part of the Accumulation Value paid to you, at your
request, in accordance with the terms of the Policy.
PAYEE--A recipient of payments under the Policy.
POLICY--The flexible premium multi-funded variable retirement annuity policy
offered by NYLIAC that is described in this Prospectus.
POLICY ANNIVERSARY--An anniversary of the Policy Date displayed on the Policy
Data Page.
POLICY DATA PAGE--Page 2 of the Policy, containing the Policy specifications.
POLICY DATE--Is shown on the Policy Data Page. Policy Years and Anniversaries
are measured from this date.
5
<PAGE>
POLICY YEAR--A year commencing on the Policy Date. Subsequent Policy Years
begin on each Policy Anniversary, unless otherwise indicated.
PREMIUM PAYMENT--An amount paid to the Corporation as consideration for the
benefits provided by the Policy.
PURCHASE DATE--The Business Day on which a Premium Payment is received by us
and credited under the Policy.
QUALIFIED POLICIES--Policies issued under plans that qualify for special
federal income tax treatment.
REQUIRED MINIMUM DISTRIBUTION--An amount the Internal Revenue Service requires
the Owners of certain Qualified Policies to withdraw each year commencing with
the year the Owner reaches age 70 1/2. For IRA and TSA Owners, NYLIAC offers a
Required Minimum Distribution Option. Under this Option, NYLIAC will calculate
and process the annual Required Minimum Distribution for such Policies
beginning at age 70 1/2.
SEPARATE ACCOUNT--A separate account established by the Corporation into which
assets are placed for the purchasers of a class of Policies.
SEPARATE ACCOUNT I--NYLIAC Variable Annuity Separate Account-I, a segregated
asset account established by NYLIAC to receive and invest Premium Payments
paid under Non-Qualified Policies.
SEPARATE ACCOUNT II--NYLIAC Variable Annuity Separate Account-II, a segregated
asset account established by NYLIAC to receive and invest Premium Payments
paid under Qualified Policies.
SURRENDER CHARGE--An amount charged by the Corporation each time a Partial
Withdrawal of the Accumulation Value is made, or when the Policy is
surrendered for its Accumulation Value, during the first nine (9) years of the
Policy.
VALUATION PERIOD--The period from the close of the immediately preceding
Business Day to the close of the current Business Day.
VARIABLE ACCUMULATION VALUE--The sum of the products of the current
Accumulation Unit value(s) for each of the Investment Divisions multiplied by
the number of Accumulation Units held in the respective Investment Divisions.
6
<PAGE>
FEE TABLE
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNTS
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY RETURN VALUE BOND
------------ ----------- ----------- ----------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNER TRANSACTION
EXPENSES
Maximum
Contingent
Deferred Sales
Load(a) (as a %
of amount
withdrawn)...... 7% 7% 7% 7% 7% 7% 7% 7% 7%
Transfer Fee.... NYLIAC reserves the right to charge up to $30 for each transfer in excess of 12 transfers per Policy Year.
Annual Policy
Fee............. Lesser of $30 per Policy or 2% of the Accumulation Value, for Policies with less than $10,000 of
Accumulation Value.
SEPARATE ACCOUNT ANNUAL
EXPENSES
(as a % of
average account
value)
Mortality and
Expense Risk
Fees............ 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%
Administration
Fees............ 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Total Separate
Account Annual
Expenses........ 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
FUND ANNUAL
EXPENSES AFTER
REIMBURSEMENT
(as a % of
average account
value)
Advisory Fees... 0.36% 0.25% 0.36% 0.30% 0.30% 0.60% 0.32% 0.36% 0.25%
Administration
Fees............ 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses.. 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17% 0.17%
Total Portfolio
Annual
Expenses........ 0.73%(b) 0.62%(b) 0.73%(c) 0.67%(b) 0.67%(b) 0.97%(b) 0.69%(b) 0.73%(b) 0.62%(b)
- ----
</TABLE>
(a) The contingent deferred sales load percentage declines from 7% in the
first three policy years to 1% in the ninth policy year with no charge
thereafter. See "Surrender Charges" on page 32.
(b) Commencing in May, 1996, NYLIAC has agreed to pay certain other expenses
which were previously charged to the MainStay VP Series Fund. These
numbers reflect an expense reimbursement agreement effective through
December 31, 1996, limiting "Other Expenses" to 0.17% annually for the
MainStay VP Series Fund. In addition, NYLIAC has agreed to continue to
limit "Other Expenses" to 0.17% annually for the MainStay VP High Yield
Corporate Bond, MainStay VP International Equity and MainStay VP Value
Portfolios until December 31, 1997. In the absence of the expense
reimbursement arrangement and certain other expenses which will no longer
be charged to the MainStay VP Series Fund, the total annual expenses for
the year ended December 31, 1995 would have been 0.64%, 0.59%, 0.62%,
0.52%, 1.17%, 0.61%, 0.67%, 0.56%, 0.56% and 0.42% for the MainStay VP
Capital Appreciation, MainStay VP Cash Management, MainStay VP Government,
MainStay VP High Yield Corporate Bond, MainStay VP International Equity,
MainStay VP Total Return, MainStay VP Value, MainStay VP Bond, MainStay VP
Growth Equity and MainStay VP Indexed Equity Portfolios, respectively.
Numbers for the MainStay VP High Yield Corporate Bond, MainStay VP
International Equity and MainStay VP Value Portfolios have been annualized
based on the period from May 1, 1995 (the date of inception) to December
31, 1995.
(c) "Other Expenses" for the MainStay VP Convertible Portfolio are estimated
for the current fiscal year. NYLIAC has agreed to limit "Other Expenses"
to 0.17% annually for this Portfolio until December 31, 1997. Absent such
limitation, it is estimated that "Other Expenses" and "Total Portfolio
Annual Expenses" would be .36% and .92%, respectively.
7
<PAGE>
FEE TABLE--(CONTINUED)
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNTS
<TABLE>
<CAPTION>
ALGER JANUS
MAINSTAY VP MAINSTAY VP AMERICAN CALVERT FIDELITY VIP JANUS ASPEN MORGAN STANLEY
GROWTH INDEXED SMALL SOCIALLY FIDELITY VIP EQUITY- ASPEN WORLDWIDE EMERGING
EQUITY EQUITY CAPITALIZATION RESPONSIBLE CONTRAFUND INCOME BALANCED GROWTH MARKETS EQUITY
----------- ----------- -------------- ----------- ------------ ------------ -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum
Contingent
Deferred Sales
Load(a) (as a %
of amount
withdrawn)...... 7% 7% 7% 7% 7% 7% 7% 7% 7%
Transfer Fee.... NYLIAC reserves the right to charge up to $30 for each transfer in excess of 12 transfers per Policy Year.
Annual Policy
Fee............. Lesser of $30 per Policy or 2% of the Accumulation Value, for Policies with less than $10,000 of
Accumulation Value.
SEPARATE ACCOUNT ANNUAL
EXPENSES
(as a % of
average account
value)
Mortality and
Expense Risk
Fees............ 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%
Administration
Fees............ 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Total Separate
Account Annual
Expenses........ 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% 1.30%
FUND ANNUAL
EXPENSES AFTER
REIMBURSEMENT
(as a % of
average account
value)
Advisory Fees... 0.25% 0.10% 0.85% 0.70% 0.61% 0.51% 0.82% 0.68% 0.85%
Administration
Fees............ 0.20% 0.20% -- -- -- -- -- -- 0.25%
Other Expenses.. 0.17% 0.17% 0.07% 0.13% 0.11% 0.10% 0.55% 0.22% 0.65%
Total Portfolio
Annual
Expenses........ 0.62%(b) 0.47%(b) 0.92% 0.83%(d) 0.72% 0.61% 1.37%(e) 0.90%(e) 1.75%(f)
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</TABLE>
(d) The "Advisory Fee" may be reduced or increased by up to 0.15%, depending
on the performance of the Calvert Socially Responsible Portfolio relative
to the Lipper Balanced Funds Index. See "Acacia Capital Corporation" at
page 20 and the prospectus for the Acacia Capital Corporation which is
attached to this Prospectus. Calvert Asset Management Company, Inc. pays,
at its own expense, NCM Capital Management Group, Inc. an annual fee equal
to 0.25% of one-half of the average net assets of the Portfolio. "Other
Expenses" reflects a fee of 0.02% paid pursuant to an expense offset
arrangement between the Calvert Socially Responsible Portfolio and its
custodian bank. Net "Total Portfolio Annual Expenses" are 0.81%.
(e) Janus Capital Corporation ("JCC") has agreed to reduce the advisory fee
for each Portfolio to the extent that such fee exceeds the effective rate
of the Janus retail fund corresponding to such Portfolio. JCC may
terminate this fee reduction at any time upon 90 days' notice to the Board
of Trustees of the Janus Fund. Absent such reductions, "Advisory Fees" and
"Total Portfolio Annual Expenses" for the fiscal year ended December 31,
1995 would have been: 1.00% and 1.55%, respectively, for the Janus Aspen
Balanced Portfolio and 0.87% and 1.09%, respectively, for the Janus Aspen
Worldwide Growth Portfolio.
(f) "Other Expenses" for the Morgan Stanley Emerging Markets Equity Portfolio
are estimated for the current fiscal year. Morgan Stanley Asset Management
Inc. has agreed to a reduction in its management fees and to reimburse the
Portfolio if such fees would cause the "Total Portfolio Annual Expenses"
to exceed 1.75% of average daily net assets. Absent such reductions, it is
estimated that "Advisory Fees" and "Total Portfolio Annual Expenses" would
be 1.25% and 2.15%, respectively.
8
<PAGE>
The purpose of this Table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly.
The Table reflects charges and expenses of the Separate Accounts as well as
the Funds; 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 at page 32 and the Fund Prospectuses which accompany this
Prospectus. NYLIAC may, where premium taxes are imposed by state law, deduct
premium taxes on surrender of the Policy or on the Annuity Commencement Date.
EXAMPLES/1/
An Owner would pay the following expense on a $1,000 investment in one of
the Investment Divisions listed, assuming 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>
MainStay VP Capital Appreciation......... $89.51 $144.52 $181.95 $279.33
MainStay VP Cash Management.............. $88.45 $141.37 $176.62 $268.13
MainStay VP Convertible.................. $89.51 $144.52 $181.95 $279.33
MainStay VP Government................... $88.93 $142.80 $179.05 $273.24
MainStay VP High Yield Corporate Bond.... $88.93 $142.80 $179.05 $273.24
MainStay VP International Equity......... $91.80 $151.37 $193.53 $303.36
MainStay VP Total Return................. $89.12 $143.38 $180.03 $275.28
MainStay VP Value........................ $89.51 $144.52 $181.95 $279.33
MainStay VP Bond......................... $88.45 $141.37 $176.62 $268.13
MainStay VP Growth Equity................ $88.45 $141.37 $176.62 $268.13
MainStay VP Indexed Equity............... $87.01 $137.07 $169.29 $252.64
Alger American Small Capitalization...... $91.33 $149.95 $191.13 $298.40
Calvert Socially Responsible............. $90.46 $147.38 $186.81 $289.43
Fidelity VIP Contrafund.................. $89.41 $144.24 $181.49 $278.33
Fidelity VIP Equity-Income............... $88.36 $141.09 $176.13 $267.10
Janus Aspen Balanced..................... $95.63 $162.70 $212.56 $342.16
Janus Aspen Worldwide Growth............. $91.13 $149.37 $190.17 $296.41
Morgan Stanley Emerging Markets Equity... $99.26 $173.39 $230.35 $377.64
2. If you annuitize your Policy at the end of the applicable time period:
MainStay VP Capital Appreciation......... $89.51 $ 76.66 $131.02 $279.33
MainStay VP Cash Management.............. $88.45 $ 73.29 $125.40 $268.13
MainStay VP Convertible.................. $89.51 $ 76.66 $131.02 $279.33
MainStay VP Government................... $88.93 $ 74.82 $127.96 $273.24
MainStay VP High Yield Corporate Bond.... $88.93 $ 74.82 $127.96 $273.24
MainStay VP International Portfolio...... $91.80 $ 83.99 $143.21 $303.36
</TABLE>
- --------
/1/For purposes of calculating these Examples, the annual policy fee has been
expressed as an annual percentage of assets based on the average size of
Policies having an Accumulation Value of less than $10,000 on December 31,
1995. This calculation method reasonably reflects annual policy fees
applicable to Policies having an Accumulation Value of less than $10,000,
but does not reflect that no annual policy fees are applicable to Policies
having an Accumulation Value of $10,000 or greater. This means that the
fees would be slightly less if your Policy has an Accumulation Value of
$10,000 or greater on the Policy Anniversary or date of surrender.
Conversely, the fees would be slightly more if your Policy has an
Accumulation Value of less than $10,000.
9
<PAGE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
MainStay VP Total Return................. $89.12 $ 75.44 $129.00 $275.28
MainStay VP Value........................ $89.51 $ 76.66 $131.02 $279.33
MainStay VP Bond......................... $88.45 $ 73.29 $125.40 $268.13
MainStay VP Growth Equity................ $88.45 $ 73.29 $125.40 $268.13
MainStay VP Indexed Equity............... $87.01 $ 68.68 $117.69 $252.64
Alger American Small Capitalization...... $91.33 $ 82.47 $140.68 $298.40
Calvert Socially Responsible............. $90.46 $ 79.73 $136.13 $289.43
Fidelity VIP Contrafund.................. $89.41 $ 76.37 $130.53 $278.33
Fidelity VIP Equity-Income............... $88.36 $ 72.98 $124.89 $267.10
Janus Aspen Balanced..................... $95.63 $ 96.13 $163.23 $342.16
Janus Aspen Worldwide Growth............. $91.13 $ 81.86 $139.67 $296.41
Morgan Stanley Emerging Markets Equity... $99.26 $107.57 $181.95 $377.64
3. If you do not surrender your Policy:
---
MainStay VP Capital Appreciation......... $24.93 $ 76.66 $131.02 $279.33
MainStay VP Cash Management.............. $23.50 $ 73.29 $125.40 $268.13
MainStay VP Convertible.................. $24.93 $ 76.66 $131.02 $279.33
MainStay VP Government................... $24.31 $ 74.82 $127.96 $273.24
MainStay VP High Yield Corporate Bond.... $24.31 $ 74.82 $127.96 $273.24
MainStay VP International Equity......... $27.38 $ 83.99 $143.21 $303.36
MainStay VP Total Return................. $24.52 $ 75.44 $129.00 $275.28
MainStay VP Value........................ $24.93 $ 76.66 $131.02 $279.33
MainStay VP Bond......................... $23.80 $ 73.29 $125.40 $268.13
MainStay VP Growth Equity................ $23.80 $ 73.29 $125.40 $268.13
MainStay VP Indexed Equity............... $22.27 $ 68.68 $117.69 $252.64
Alger American Small Capitalization...... $26.87 $ 82.47 $140.68 $298.40
Calvert Socially Responsible............. $25.94 $ 79.73 $136.13 $289.43
Fidelity VIP Contrafund.................. $24.83 $ 76.37 $130.53 $278.33
Fidelity VIP Equity-Income............... $23.70 $ 72.98 $124.89 $267.10
Janus Aspen Balanced..................... $31.46 $ 96.13 $163.23 $342.16
Janus Aspen Worldwide Growth............. $26.66 $ 81.86 $139.67 $296.41
Morgan Stanley Emerging Markets Equity... $35.33 $107.57 $181.95 $377.64
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
PERFORMANCE OR EXPENSES AND THE ACTUAL EXPENSES PAID OR PERFORMANCE ACHIEVED
MAY BE GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
QUESTIONS AND ANSWERS ABOUT NYLIAC VARIABLE ANNUITY
NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT
NYLIAC VARIABLE ANNUITY. REFERENCE SHOULD BE MADE TO THE BODY OF THIS
PROSPECTUS FOR MORE DETAILED INFORMATION. ALSO, "YOU" OR "YOUR" REFERS TO THE
OWNER; "NYLIAC," "WE," "US" OR "OUR" REFERS TO NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION.
1. WHAT IS NYLIAC VARIABLE ANNUITY?
NYLIAC Variable Annuity is the name of the Flexible Premium Multi-Funded
Variable Retirement Annuity Policies offered by NYLIAC. Premium Payments may
be allocated to one or more of the Investment Divisions of each of the
Separate Accounts or to the Fixed Account. The Separate Accounts in turn
invest in shares of the Eligible Portfolios of the Funds. The Accumulation
Value will vary in amount according to the investment results of the
Investment Divisions selected and the interest credited on the Fixed
Accumulation Value.
2. WHAT ARE THE AVAILABLE ALLOCATION ALTERNATIVES?
As selected by the Owner, Premium Payments are allocated to one or more of
the following Allocation Alternatives:
(a) SEPARATE ACCOUNTS
Separate Account I is used for Non-Qualified Policies, and Separate
Account II is used for Qualified Policies. Each of the Separate
Accounts consists of eighteen Investment Divisions.
The Investment Divisions of the Separate Accounts invest exclusively
in shares of the Funds, each an open-end management investment
company. The MainStay VP Series Fund has eleven Eligible Portfolios
available for investment through the Investment Divisions of the
Separate Accounts: the MainStay VP Capital Appreciation Portfolio, the
MainStay VP Cash Management Portfolio, the MainStay VP Convertible
Portfolio, the MainStay VP Government Portfolio, the MainStay VP High
Yield Corporate Bond Portfolio, the MainStay VP International Equity
Portfolio, the MainStay VP Total Return Portfolio, the MainStay VP
Value Portfolio, the MainStay VP Bond Portfolio, the MainStay VP
Growth Equity Portfolio, and the MainStay VP Indexed Equity Portfolio.
The Alger American Fund has one Eligible Portfolio available through
the Investment Divisions of the Separate Accounts: the Alger American
Small Capitalization Portfolio. The Acacia Fund has one Eligible
Portfolio available through the Investment Divisions of the Separate
Accounts: the Calvert Socially Responsible Portfolio. The Fidelity
Funds have two Eligible Portfolios available to the Separate Accounts:
the Fidelity VIP Contrafund and Fidelity VIP Equity-Income Portfolios.
The Janus Fund has two Eligible Portfolios available to the Separate
Accounts: the Janus Aspen Balanced and Janus Aspen Worldwide Growth
Portfolios. The Morgan Stanley Fund has one Eligible Portfolio
available to the Separate Accounts: the Morgan Stanley Emerging
Markets Equity Portfolio. Each Investment Division of the Separate
Accounts will invest exclusively in the corresponding Eligible
Portfolio.
(b) FIXED ACCOUNT
Premium Payments or portions of Premium Payments allocated to the
Fixed Account will reflect a fixed interest rate. (See "The Fixed
Account" at page 42.)
11
<PAGE>
3. CAN AMOUNTS BE TRANSFERRED AMONG THE ALLOCATION ALTERNATIVES?
Prior to 30 days before the Annuity Commencement Date, transfers of the
value of Accumulation Units in one Investment Division to another Investment
Division within the applicable Separate Account, or to the Fixed Account, are
permitted.
The minimum amount which may be transferred generally is $500, unless we
agree otherwise. Unlimited transfers are permitted each Policy Year, although
NYLIAC reserves the right to charge up to $30 per transfer for each transfer
after the first twelve in a given Policy Year. (See "Transfers" at page 29.)
For transfers made from the Fixed Account to the Investment Divisions, see
"The Fixed Account" at page 42. In addition, Owners can request transfers
through the Automatic Asset Reallocation, Dollar Cost Averaging or Interest
Sweep options described at pages 30 and 31 of this Prospectus.
4. WHAT ARE THE CHARGES OR DEDUCTIONS?
During the Accumulation Period for the Policies, a charge for Policy
administration expenses will be made once each year on the Policy Anniversary
or upon Policy surrender if on that date the Accumulation Value does not equal
or exceed $10,000. This charge will be the lesser of $30 or 2% of the
Accumulation Value at the end of the Policy Year or on the date of surrender.
All Policies are subject to a daily charge for policy administration expenses
equal, on an annual basis, to .10% of the daily net asset value of the
applicable Separate Account. (See "Other Charges" at page 34.)
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 1.20% of
the daily net asset value of the applicable Separate Account. (See "Other
Charges" at page 34.)
Although there is no deduction from Premium Payments for sales charges, a
Surrender Charge (sometimes referred to as a contingent deferred sales charge)
may be imposed on certain Partial Withdrawals or surrenders of the Policies.
This charge is imposed, as a percentage of the amount withdrawn, during the
first nine years after the Policy is issued; the applicable percentage
declines from 7% in the first three Policy Years to 1% in the ninth Policy
Year, with no charge thereafter. For all Policies, the Surrender Charge will
only be applied to any amounts withdrawn in any Policy Year which, when
aggregated with any other withdrawals during such Policy Year, exceed 10% of
the Accumulation Value at the time of surrender. For Policies with accumulated
Premium Payments of $100,000 or more, the greater of 10% of the Policy's
Accumulation Value or the Accumulation Value of the Policy less the
accumulated Premium Payments can be withdrawn in any Policy Year without
charge. (See "Surrender Charges" at page 32 and "Exceptions to Surrender
Charges" at page 33.)
Finally, the value of the shares of each Fund reflects advisory fees and
other expenses deducted from the assets of each Fund. (See the Fund
prospectuses which are attached to this Prospectus.)
5. WHAT ARE THE MINIMUM INITIAL AND MAXIMUM ADDITIONAL PREMIUM PAYMENTS?
Unless we permit otherwise, the minimum initial Premium Payment for
Qualified Policies is as follows: (a) $50 per month or a $2,000 single premium
for tax-sheltered annuities;
12
<PAGE>
(b) $1,200 initial Premium Payment plus pre-authorized monthly deductions of
$100 per month, or pre-authorized monthly deductions of $165 per month or a
$2,000 single premium for IRAs; (c) $50 per month for Deferred Compensation
plans; and (d) $600 initial Premium Payment, or $50 per month if part of a
pre-authorized billing arrangement, for Simplified Employee Pension plans. For
Non-Qualified Policies, the minimum initial Premium Payment is a $5,000 single
premium or a $2,500 deposit plus $50 per month as either a pre-authorized
monthly deduction or as part of a pre-authorized monthly billing arrangement.
Premium Payments on any policy (of at least $50 each or such lower amount as
we may permit) can be made at any interval or by any method we make available.
The available methods of payment are direct payments to NYLIAC, and pre-
authorized monthly deductions from bank, credit union or similar accounts and
public or private employee payroll deductions. The maximum aggregate amount of
Premium Payments is $1,000,000, without our prior approval.
For Policies issued for delivery in New York, the following minimum initial
and maximum additional Premium Payment requirements apply:
For Non-Qualified Policies, the minimum single Premium Payment is $2,500
plus $50 per month as either a pre-authorized monthly deduction or as part
of a pre-authorized monthly billing arrangement. The maximum total dollar
amount of Premium Payments in any Policy Year may not exceed $4,999.99.
For Tax-Sheltered Annuity (TSA) Policies, Section 457 Deferred
Compensation Plan Policies, Simplified Employee Pension (SEP) Plan
Policies and any other Qualified Policies, Premium Payments may only be
made through a pre-authorized billing arrangement. The maximum dollar
amount of scheduled Premium Payments may not exceed the applicable annual
Plan Limit as specified in the Internal Revenue Code.
For TSA Transfer Premium Payments made to an existing TSA Policy, the
maximum dollar amount of Transfer Premium Payments in the first Policy
Year may not exceed $1,999.99. For any additional TSA Transfer Premium
Payments made in the second or subsequent Policy Years, the maximum total
dollar amount of annual Transfer Premium Payments may not exceed
$4,999.99.
For Individual Retirement Annuity (IRA) Policies, the minimum Premium
Payment is $1,200 initial and $65 scheduled under a pre-authorized monthly
deduction arrangement, or $165 scheduled under a pre-authorized monthly
deduction arrangement, or $2,000 lump sum. For any additional Premium
Payments made in the second or subsequent Policy Years, the maximum total
dollar amount of annual Premium Payments may not exceed $4,999.99.
Premium Payments under Qualified 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 Premium Payment.
6. HOW ARE PREMIUM PAYMENTS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
Initial Premium Payments allocated to the Investment Divisions of the
Separate Accounts and to the Fixed Account are held in the MainStay VP Cash
Management Investment Division for 15 days after the Policy Issue Date. You
may maintain Accumulation Value in any number of Allocation Alternatives. (See
"Automatic Asset Reallocation" at page 31.) Moreover, you may raise or lower
the percentages of the Premium Payment (which must be in whole number
percentages) allocated to each Allocation Alternative at the time you make a
13
<PAGE>
Premium Payment. The minimum amount which may be allocated to any one
Allocation Alternative is $25, or such lower amount as we may permit. We
reserve the right to limit the amount of a Premium Payment that may be
allocated to any one Allocation Alternative.
7. WHAT HAPPENS IF PREMIUM PAYMENTS ARE NOT MADE?
In the event that no Premium Payment is received for two or more years in a
row and both (a) the total Premium Payments for the Policy, less any Partial
Withdrawals and any Surrender Charges, and (b) the Accumulation 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
Accumulation Value in one sum. We will notify you of our intention to exercise
this right and give you 90 days to make a Premium Payment. Unless the Policy
is terminated, it can be continued until the Annuity Commencement Date.
8. CAN MONEY BE WITHDRAWN FROM THE POLICY PRIOR TO THE ANNUITY COMMENCEMENT
DATE?
Yes, withdrawals ($500 minimum, unless we agree otherwise or as part of a
Periodic Partial Withdrawal or a Required Minimum Distribution) may be made.
We will pay you all or part of the Accumulation Value when we receive your
written request before the Annuity Commencement Date and while the Annuitant
is living. However, a withdrawal or surrender may be subject to a Surrender
Charge if the Policy is surrendered during the first nine years after it is
issued, as explained under Question 4 at page 12, may be a taxable
transaction, and may be subject to a 10% penalty tax if the Owner is under age
59 1/2. (See "Distributions Under the Policy" at page 36 and "Federal Tax
Matters" at page 44.)
9. HOW WILL INCOME PAYMENTS BE DETERMINED ON THE ANNUITY COMMENCEMENT DATE?
Income Payments under Qualified and Non-Qualified Policies will be on a
fixed basis. We do not currently offer a variable income payment option.
Payments under the Life Income Payment Option will always be in the same
specified amount and will be paid over the life of the Annuitant with a
guarantee of 10 years of payments, even if the Annuitant dies sooner. (See
"Income Payments" at page 39.)
10. WHAT IS A LIFE INCOME PAYMENT OPTION?
A retirement annuity provides periodic 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. Income Payments which
remain the same throughout the payment period are referred to in this
Prospectus as "Fixed Income Payments". Fixed Income Payments will always be
the same specified amount. (See "Income Payments" at page 39.)
11. WHAT HAPPENS IF THE OWNER OR ANNUITANT DIES BEFORE THE ANNUITY COMMENCE-
MENT DATE?
In the event the Owner or Annuitant dies before the Annuity Commencement
Date, we will pay the Beneficiary named in the Policy an amount equal to the
greater of (a) the Accumulation Value, less any outstanding loan balance under
the Policy, or (b) the sum of all Premium Payments made less any outstanding
loan balance, less any Partial Withdrawals and Surrender Charges previously
imposed. However, if the Beneficiary is the spouse of the
14
<PAGE>
Annuitant or Owner, see Question 12 at page 15. (Also see "Death Before
Annuity Commencement" at page 38 and "Federal Tax Matters" at page 44.)
12. WHAT HAPPENS IF YOUR SPOUSE IS THE BENEFICIARY?
If your spouse is the Beneficiary and you die before the Annuity
Commencement Date, the Policy may, if the Policy is a Non-Qualified Policy, an
IRA, TSA or SEP, be continued with your spouse as the new Owner and, if you
are also the Annuitant, your spouse will be the new Annuitant. If you are not
the Annuitant and the Annuitant dies, you may continue the Policy with you as
the new Annuitant if you are the Annuitant's spouse and the Beneficiary. If
you or your spouse chooses to continue the Policy, no death benefit proceeds
will be paid as a consequence of your death, or the Annuitant's death.
13. CAN THE POLICY BE RETURNED AFTER IT IS DELIVERED?
The Policy contains a provision which permits cancellation by returning it
to us, or to the registered representative through whom it was purchased,
within 10 days of delivery of the Policy or such longer period as required
under state law. The Owner will then receive from us the greater of (i) the
initial Premium Payment; or (ii) the Accumulation Value on the date the Policy
is returned, without any deduction for Premium Taxes or a Surrender Charge.
14. WHAT ABOUT VOTING RIGHTS?
You may instruct NYLIAC how to vote shares of the Funds held by your
Separate Account. (See "Voting Rights" at page 47.)
15. HOW WILL INVESTMENT PERFORMANCE OF THE SEPARATE ACCOUNTS BE CALCULATED?
YIELDS. The yield of the MainStay VP Cash Management Investment Division
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. For the seven-
day period ending December 31, 1995, the MainStay VP Cash Management
Investment Division's yields for Separate Account-I and Separate Account-II
were both 4.33%, and the effective yields were both 4.42%.
The yield of the MainStay VP Government, MainStay VP High Yield Corporate
Bond or MainStay VP Bond Investment Divisions refers to the annualized income
generated by an investment in that 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. For the 30-day period ended December 31, 1995, the annualized
yields for the MainStay VP Government, MainStay VP High Yield Corporate Bond
and MainStay VP Bond Investment Divisions were 4.58%, 7.93% and 4.65% for
Separate Account-I, respectively, and 4.58%, 7.94% and 4.65% for Separate
Account-II, respectively.
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
15
<PAGE>
particular Policy, the yield of that Policy will be reduced. Past performance
is no indication of future performance. For additional information regarding
the yields described above, please refer to the Statement of Additional
Information.
TOTAL RETURN CALCULATIONS. The table below presents performance data for the
MainStay VP Capital Appreciation, MainStay VP Government, MainStay VP Total
Return, MainStay VP Bond, MainStay VP Growth Equity and MainStay VP Indexed
Equity Investment Divisions for various periods of time. The data reflect all
Separate Account and Fund annual expenses shown in the Fee Table which appears
on pages 7 and 8. The annual policy fee, which is charged to Policies with
less than $10,000 of Accumulation Value, is not reflected. This fee, if
applicable, would effectively reduce the rates of return credited to a
particular Policy. All rates of return presented include the reinvestment of
investment income, including interest and dividends. The results shown are not
an estimate or guarantee of future investment performance.
The average annual total return data in the following table are calculated
by two methods. The first method is prescribed by the SEC for use when we
advertise the performance of the Separate Account and assumes the surrender of
the Policy at the end of each period shown. The second method assumes that the
Policy is not surrendered and, therefore, does not reflect the deduction of
any applicable surrender charges.
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
CAPITAL MAINSTAY VP TOTAL MAINSTAY VP GROWTH INDEXED
APPRECIATION GOVERNMENT RETURN BOND EQUITY EQUITY
INCEPTION DATE 1/29/93 1/29/93 1/29/93 12/15/93 12/15/93 1/29/93
- -------------- ------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
SEC AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/95-
12/31/95).............. 25.58% 7.95% 18.69% 9.42% 19.46% 26.62%
Since inception......... 12.82% 3.06% 8.82% 1.99% 10.71% 11.00%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/95-
12/31/95).............. 34.03% 15.21% 26.67% 16.78% 27.49% 35.12%
Since inception......... 15.09% 5.38% 11.24% 5.36% 14.37% 13.34%
</TABLE>
For additional information regarding the total return calculations described
above, please refer to the Statement of Additional Information.
16. ARE POLICY LOANS AVAILABLE?
If you have purchased your Policy in connection with a tax-sheltered annuity
"TSA" (Section 403(b)) Plan, you may be able to borrow some of your
Accumulation Value subject to certain conditions. (See "Loans" at page 41.)
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report
thereon) for the fiscal years ended December 31, 1995, 1994 and 1993, and of
the Separate Accounts (including the auditor's report thereon) for the years
ended December 31, 1995 and 1994 are included in the Statement of Additional
Information. The financial statements for the Separate Accounts do not contain
information on the MainStay VP Convertible, Alger American Small
Capitalization, Fidelity VIP Contrafund, Fidelity VIP Equity-Income, Janus
Aspen Balanced, Janus Aspen Worldwide Growth or Morgan Stanley Emerging
Markets Equity Investment Divisions, as these Investment Divisions are first
being offered under the Separate Accounts as of the date of this Prospectus.
16
<PAGE>
CONDENSED FINANCIAL INFORMATION
The following accumulation unit values and the number of accumulation units
outstanding for the Investment Divisions of each Separate Account have been
audited by Price Waterhouse LLP, independent accountants, whose report on the
related financial statements appears in the Statement of Additional
Information. The accumulation unit value for each of the MainStay VP
Convertible, Alger American Small Capitalization, Fidelity VIP Contrafund,
Fidelity VIP Equity-Income, Janus Aspen Balanced, Janus Aspen Worldwide Growth
and Morgan Stanley Emerging Market Equity Investment Divisions as of October
1, 1996 (the date on which these Investment Divisions are first being offered
under the Separate Accounts) is $10.00. Values and units shown are for full
year periods, except where indicated. This information should be read in
conjunction with the Separate Accounts financial statements and notes thereto
which appear in the Statement of Additional Information.
SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP CORPORATE INTERNATIONAL
APPRECIATION MANAGEMENT GOVERNMENT BOND EQUITY
--------------------- --------------------- --------------------- ----------- -------------
1995 1994 1993(A) 1995 1994 1993(A) 1995 1994 1993(A) 1995(C) 1995(C)
------ ------ ------- ------ ------ ------- ------ ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value
(beginning of period)... $11.24 $11.91 $10.00 $ 1.04 $ 1.01 $ 1.00 $10.11 $10.44 $10.00 $10.00 $10.00
Accumulation unit value
(end of period)......... $15.07 $11.24 $11.91 $ 1.08 $ 1.04 $ 1.01 $11.65 $10.11 $10.44 $10.91 $10.53
Number of units
outstanding
(in 000s) (end of
period)................. 7,852 5,702 2,239 19,554 19,630 15,549 3,281 3,686 2,843 1,446 165
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP CALVERT
TOTAL MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIALLY
RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
--------------------- ----------- -------------------- --------------------- --------------------- -----------
1995 1994 1993(A) 1995(C) 1995 1994 1993(B) 1995 1994 1993(B) 1995 1994 1993(A) 1995(C)
------ ------ ------- ----------- ------ ----- ------- ------ ------ ------- ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation
unit value
(beginning of
period)......... $10.77 $11.37 $10.00 $10.00 $ 9.51 $9.97 -- $10.26 $10.27 $10.00 $10.66 $10.72 $10.00 $10.00
Accumulation
unit value
(end of period). $13.65 $10.77 $11.37 $11.50 $11.10 $9.51 -- $13.08 $10.26 $10.27 $14.41 $10.66 $10.72 $11.58
Number of units
outstanding
(in 000s) (end
of period)...... 7,579 6,584 3,067 658 1,733 961 -- 1,831 881 2 3,677 3,236 2,187 24
</TABLE>
- ----
(a)For the period January 29, 1993 (commencement of operations) through
December 31, 1993.
(b)For the period December 15, 1993 (commencement of operations) through
December 31, 1993.
(c)For the period May 1, 1995 (commencement of operations) through December
31, 1995.
17
<PAGE>
SEPARATE ACCOUNT II
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP CORPORATE INTERNATIONAL
APPRECIATION MANAGEMENT GOVERNMENT BOND EQUITY
--------------------- --------------------- --------------------- ----------- -------------
1995 1994 1993(A) 1995 1994 1993(A) 1995 1994 1993(A) 1995(C) 1995(C)
------ ------ ------- ------ ------ ------- ------ ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value
(beginning of period).. $11.24 $11.91 $10.00 $ 1.04 $ 1.01 $ 1.00 $10.11 $10.44 $10.00 $10.00 $10.00
Accumulation unit value
(end of period)........ $15.07 $11.24 $11.91 $ 1.08 $ 1.04 $ 1.01 $11.65 $10.11 $10.44 $10.89 $10.53
Number of units
outstanding
(in 000s) (end of
period)................ 5,852 3,787 1,402 15,539 15,647 10,677 2,020 2,351 1,623 778 112
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP CALVERT
TOTAL MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIALLY
RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
--------------------- ----------- -------------------- --------------------- --------------------- -----------
1995 1994 1993(A) 1995(C) 1995 1994 1993(B) 1995 1994 1993(B) 1995 1994 1993(A) 1995(C)
------ ------ ------- ----------- ------ ----- ------- ------ ------ ------- ------ ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation
unit value
(beginning of
period)........ $10.77 $11.37 $10.00 $10.00 $ 9.51 $9.97 $10.00 $10.26 $10.27 $10.00 $10.66 $10.72 $10.00 $10.00
Accumulation
unit value
(end of
period)........ $13.65 $10.77 $11.37 $11.53 $11.10 $9.51 $9.97 $13.08 $10.26 $10.27 $14.41 $10.66 $10.72 $11.59
Number of units
outstanding
(in 000s) (end
of period)..... 5,450 4,441 1,805 435 1,314 641 3 1,403 514 3 2,983 2,567 1,819 12
</TABLE>
- ------
(a) For the period January 29, 1993 (commencement of operations) through
December 31, 1993.
(b) For the period December 15, 1993 (commencement of operations) through
December 31, 1993.
(c) For the period May 1, 1995 (commencement of operations) through December
31, 1995.
18
<PAGE>
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
AND THE SEPARATE 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, in order to maintain capital and surplus in accordance with
state requirements, occasionally make additional contributions to NYLIAC.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts was established as of October 5, 1992,
pursuant to resolutions of the NYLIAC Board of Directors. The Separate
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
Separate Accounts. The Separate Accounts meet the definition of "separate
account" under the federal securities laws.
Although the assets of each of the Separate 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 Separate Accounts exceed the
reserves and other liabilities of that Account). The income, capital gains and
capital losses incurred on the assets of the Separate Accounts are credited to
or are charged against the assets of those 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 Separate
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 Separate Accounts currently has eighteen Investment Divisions
which invest Premium Payments solely in the corresponding Eligible Portfolios
of the relevant Fund. The Eligible Portfolios are: the MainStay VP Capital
Appreciation Portfolio, the MainStay VP Cash Management Portfolio, the
MainStay VP Convertible Portfolio, the MainStay VP Government Portfolio, the
MainStay VP High Yield Corporate Bond Portfolio, the MainStay VP International
Equity Portfolio, the MainStay VP Total Return Portfolio, the MainStay VP
Value Portfolio, the MainStay VP Bond Portfolio, the MainStay VP Growth Equity
Portfolio, the MainStay VP Indexed Equity Portfolio, the Alger American Small
Capitalization Portfolio, the Calvert Socially Responsible Portfolio, the
Fidelity VIP Contrafund Portfolio, the Fidelity VIP Equity-Income Portfolio,
the Janus Aspen Balanced Portfolio, the Janus Aspen Worldwide Growth Portfolio
and the Morgan Stanley Emerging Markets Equity Portfolio.
Additional Investment Divisions may be added at the discretion of NYLIAC.
19
<PAGE>
MAINSTAY VP SERIES FUND, INC.
The Separate Accounts currently invest in eleven Eligible Portfolios of the
MainStay VP Series Fund, a diversified open-end management investment company.
MacKay-Shields Financial Corporation ("MacKay-Shields") is the investment
adviser to the MainStay VP Capital Appreciation, MainStay VP Cash Management,
MainStay VP Convertible, MainStay VP Government, MainStay VP High Yield
Corporate Bond, MainStay VP International Equity, MainStay VP Total Return and
MainStay VP Value Portfolios, Monitor Capital Advisors, Inc. ("Monitor") is
the investment adviser to the MainStay VP Indexed Equity Portfolio, and New
York Life is the investment adviser to the MainStay VP Bond and MainStay VP
Growth Equity Portfolios. MacKay-Shields, Monitor and New York Life provide
investment advisory services to these Portfolios in accordance with the
policies, programs and guidelines established by the Board of Directors of
MainStay VP Series Fund. As compensation for such services, MainStay VP Series
Fund pays MacKay-Shields a fee in the form of a daily charge at an annual rate
of .36%, .25%, .36%, .30%, .30%, .60%, .32% and .36% of the aggregate average
daily net assets of the MainStay VP Capital Appreciation Portfolio, the
MainStay VP Cash Management Portfolio, MainStay VP Convertible, the MainStay
VP Government Portfolio, the MainStay VP High Yield Corporate Bond Portfolio,
the MainStay VP International Equity Portfolio, the MainStay VP Total Return
Portfolio, and the MainStay VP Value Portfolio, respectively. MainStay VP
Series Fund pays Monitor a fee in the form of a daily charge at an annual rate
of .10% of the average daily net assets of the MainStay VP Indexed Equity
Portfolio. MainStay VP Series Fund pays New York Life a fee in the form of a
daily charge at an annual rate of .25% of the aggregate average daily net
assets of each of the MainStay VP Bond and MainStay VP Growth Equity
Portfolios. See the prospectus for the MainStay VP Series Fund which is
attached to this Prospectus.
THE ALGER AMERICAN FUND
The Separate Accounts currently invest in the Alger American Small
Capitalization Portfolio of The Alger American Fund. Currently, the Alger
American Small Capitalization Portfolio is the only Eligible Portfolio
available through The Alger American Fund for investment by the Separate
Accounts.
Fred Alger Management, Inc. ("FAM") provides investment advisory services to
the Alger American Small Capitalization Portfolio in accordance with the
policies, programs and guidelines established by the Board of Trustees of The
Alger American Fund. As compensation for such services, The Alger American
Fund pays FAM a fee in the form of a daily charge at an annual rate of .85% of
the average daily net assets of the Portfolio. See the prospectus for The
Alger American Fund which is attached to this Prospectus.
ACACIA CAPITAL CORPORATION
The Separate Accounts currently invest in the Calvert Socially Responsible
Portfolio of Acacia Capital Corporation. Currently, the Calvert Socially
Responsible Portfolio is the only Eligible Portfolio available through the
Acacia Fund for investment by the Separate Accounts.
20
<PAGE>
Calvert Asset Management Company, Inc. ("CAM") provides investment advisory
services to the Calvert Socially Responsible Portfolio in accordance with the
policies, programs and guidelines established by the Board of Directors of the
Acacia Fund. As compensation for such services, the Acacia Fund pays CAM a fee
in the form of a daily charge at an annual rate of 0.70% of the first $500
million of the average daily net assets of the Calvert Socially Responsible
Portfolio, 0.65% of the next $500 million of average daily net assets of the
Portfolio, and 0.60% of the average daily net assets of the Portfolio in
excess of $1 billion. This fee may be reduced or increased by up to 0.15%,
depending on the performance of the Calvert Socially Responsible Portfolio
relative to the Lipper Balanced Funds Index. See the prospectus for the Acacia
Capital Corporation which is attached to this Prospectus.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Separate Accounts currently invest in the Fidelity VIP Contrafund and
Fidelity VIP Equity-Income Portfolios of the Fidelity Variable Insurance
Products Funds. Currently, the Fidelity VIP Contrafund and Fidelity VIP
Equity-Income Portfolios are the only Eligible Portfolios available through
the Fidelity Funds for investment by the Separate Accounts.
Fidelity Management and Research Company ("FMR") provides investment
advisory services to the Fidelity VIP Contrafund and Fidelity VIP Equity-
Income Portfolios in accordance with the policies, programs and guidelines
established by the Boards of Trustees of the Fidelity Variable Insurance
Products Funds. As compensation for such services, the Fidelity Funds pay FMR
a monthly fee in the form of a charge, calculated on a monthly basis by adding
a group fee rate to an individual Portfolio fee rate, and multiplying the
result by the Portfolios' average net assets. The group fee rate is based on
the average net assets of all the mutual fund assets advised by FMR, and
cannot rise above .52%. FMR pays, at its own expense, FMR U.K. and FMR Far
East an annual fee equal to 50% of its management fee rate with respect to the
Fidelity VIP Contrafund Portfolio's investments that each sub-advisor manages
on a discretionary basis. See the prospectus for the Fidelity Variable
Insurance Products Funds which is attached to this Prospectus.
JANUS ASPEN SERIES
The Separate Accounts currently invest in the Janus Aspen Balanced and Janus
Aspen Worldwide Growth Portfolios of the Janus Aspen Series. Currently, the
Janus Aspen Balanced and Janus Aspen Worldwide Growth Portfolios are the only
Eligible Portfolios available through the Janus Fund for investment by the
Separate Accounts.
Janus Capital Corporation ("JCC") provides investment advisory services to
the Janus Aspen Balanced and Janus Aspen Worldwide Growth Portfolios in
accordance with the policies, programs and guidelines established by the Board
of Trustees of the Janus Fund. As compensation for such services, the Janus
Fund pays JCC a management fee in the form of a daily charge at an annual rate
of 1.00% for the first $30 million of the average daily net assets of each
Portfolio, .75% of the next $270 million of the average daily net assets of
each Portfolio, .70% of the next $200 million of the average daily net assets
of each Portfolio, and .65% of an amount over $500 million of the average
daily net assets of each Portfolio. JCC
21
<PAGE>
has agreed to reduce the advisory fee for each Portfolio to the extent that
such fee exceeds the effective rate of the Janus retail fund corresponding to
such Portfolio. JCC may terminate this fee reduction at any time upon 90 days'
notice to the Board of Directors of the Janus Fund. See the prospectus for the
Janus Aspen Series which is attached to this Prospectus.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
The Separate Accounts currently invest in the Morgan Stanley Emerging
Markets Equity Portfolio of the Morgan Stanley Universal Funds, Inc.
Currently, the Morgan Stanley Emerging Markets Equity Portfolio is the only
Eligible Portfolio available through the Morgan Stanley Fund for investment by
the Separate Accounts.
Morgan Stanley Asset Management Inc. ("MSAM") provides investment advisory
services to the Morgan Stanley Emerging Markets Equity Portfolio in accordance
with the policies, programs and guidelines established by the Board of
Directors of the Morgan Stanley Fund. As compensation for such services, the
Morgan Stanley Fund pays MSAM a quarterly management fee in the form of a
daily charge at an annual rate of 1.25% for the first $500 million of the
average daily net assets of the Portfolio, 1.20% of the next $500 million of
the average daily net assets of the Portfolio, and 1.15% of the average daily
net assets of the Portfolio in excess of $1 billion. MSAM has agreed to a
reduction in their management fees and to reimburse the Portfolio if such fees
would cause the total annual operating expenses of the Portfolio to exceed
1.75% of average daily net assets. See the prospectus for the Morgan Stanley
Universal Funds, Inc. which is attached to this Prospectus.
THE PORTFOLIOS
The assets of each Eligible Portfolio are separate from the others and each
such 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 MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO
The MainStay VP Capital Appreciation Portfolio seeks long-term growth of
capital. It seeks to achieve its primary investment objective by maintaining a
flexible approach towards investing in various types of companies as well as
types of securities depending upon the economic environment and the relative
attractiveness of the various securities markets. Generally, the Portfolio
will seek to invest in securities issued by companies with investment
characteristics such as participation in expanding markets, increasing unit
sales volume, growth in revenues and earnings per share superior to that of
the average common stocks comprising indices such as the Standard & Poor's 500
Composite Price Index ("S&P 500") and increasing return on investment.
Dividend income, if any, is a consideration incidental to the Portfolio's
objective of growth of capital.
THE MAINSTAY VP CASH MANAGEMENT PORTFOLIO
The MainStay VP Cash Management Portfolio seeks as high a level of current
income as is consistent with preservation of capital and maintenance of
liquidity. It invests primarily in short-term U.S. Government Securities,
obligations of banks, commercial paper, short-term
22
<PAGE>
corporate obligations and obligations of U.S. and non-U.S. issuers denominated
in U.S. dollars. An investment in the MainStay VP Cash Management Portfolio is
neither insured nor guaranteed by the U.S. Government, and there can be no
assurance that the Portfolio will be able to maintain a stable net asset value
of $1.00 per share.
THE MAINSTAY VP CONVERTIBLE PORTFOLIO
The MainStay VP Convertible Portfolio seeks capital appreciation together
with current income. The Portfolio will invest primarily in convertible
securities consisting of bonds, debentures, corporate notes, preferred stocks
or other securities which are convertible into common stocks. Certain of the
Portfolio's investments have speculative characteristics, as further discussed
in the MainStay VP Series Fund prospectus.
THE MAINSTAY VP GOVERNMENT PORTFOLIO
The MainStay VP Government Portfolio seeks a high level of current income,
consistent with safety of principal. It will invest primarily in U.S.
Government Securities which include U.S. Treasury obligations and obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
THE MAINSTAY VP HIGH YIELD CORPORATE BOND PORTFOLIO
The MainStay VP High Yield Corporate Bond Portfolio seeks maximum current
income through investment in a diversified portfolio of high yield, high risk
debt securities. This Portfolio seeks to achieve its primary objective by
investment in a diversified portfolio of high yield debt securities which are
ordinarily in the lower rating categories of recognized rating agencies that
is, rated Baa to B by Moody's Investors Services, Inc. ("Moody's") or BBB to B
by Standard & Poor's ("S&P"). Securities rated lower than Baa by Moody's or
BBB by S&P, or, if not rated, of equivalent quality, are sometimes referred to
as "high yield" securities or "junk bonds." The potential for high yield is
accompanied by higher risk. Certain of the Portfolio's investments have
speculative characteristics, as further discussed in the MainStay VP Series
Fund Prospectus. Capital appreciation is a secondary objective which will be
sought only when consistent with this Portfolio's primary objective.
THE MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO
The MainStay VP International Equity Portfolio seeks long-term growth of
capital by investing in a portfolio consisting primarily of non-U.S. equity
securities. Current income is a secondary objective. In pursuing its
investment objective, the Portfolio will seek to invest in securities that
provide the potential for strong return but that do not, in MacKay-Shields'
judgment, present undue or imprudent risk. The Portfolio pursues its
objectives by investing its assets in a diversified portfolio of common
stocks, preferred stocks, warrants and comparable equity securities. Foreign
investing involves certain risks which are discussed in greater detail in the
MainStay VP Series Fund prospectus.
THE MAINSTAY VP TOTAL RETURN PORTFOLIO
The MainStay VP Total Return Portfolio seeks to realize current income
consistent with reasonable opportunity for future growth of capital and
income. The Portfolio maintains a flexible approach by investing in a broad
range of securities, which may be diversified by
23
<PAGE>
company, by industry and by type. The Portfolio may invest in common stocks,
convertible securities, warrants and fixed-income securities, such as bonds,
preferred stocks and other debt obligations, including money market
instruments.
THE MAINSTAY VP VALUE PORTFOLIO
The MainStay VP Value Portfolio seeks maximum long-term total return from a
combination of capital growth and income. It seeks to achieve this objective
by following flexible investment policies emphasizing investment in common
stocks which are, in the opinion of MacKay-Shields, undervalued at the time of
purchase. This Portfolio will normally invest in dividend-paying common stocks
that are listed on a national securities exchange or traded in the over-the-
counter market, but may also invest in non-dividend paying stocks in
accordance with MacKay-Shields' judgment.
THE MAINSTAY VP BOND PORTFOLIO
The MainStay VP Bond Portfolio seeks the highest income over the long-term
consistent with preservation of principal. It will invest primarily in fixed-
income debt securities of an investment grade, but may also invest in lower-
rated securities, convertible debt, and preferred and convertible preferred
stock.
THE MAINSTAY VP GROWTH EQUITY PORTFOLIO
The MainStay VP Growth Equity Portfolio seeks long-term growth of capital,
with income as a secondary consideration. It will invest principally in common
stock (and securities convertible into, or with rights to purchase, common
stock) of well-established, well-managed companies which appear to have better
than average growth potential.
THE MAINSTAY VP INDEXED EQUITY PORTFOLIO
The MainStay VP Indexed Equity Portfolio seeks to provide investment results
that correspond to the total return performance (reflecting reinvestment of
dividends) of common stocks in the aggregate, as represented by the S&P 500.
Using a full replication method, the Portfolio invests in all 500 stocks in
the S&P 500 in the same proportion as their representation in the S&P 500. The
S&P 500 is an unmanaged index considered representative of the U.S. stock
market. The MainStay VP Indexed Equity Portfolio is neither sponsored by nor
affiliated with the S&P 500.
THE ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The Alger American Small Capitalization Portfolio seeks long-term capital
appreciation. Except during temporary defensive periods, the Portfolio invests
at least 65% of its total assets in equity securities of companies that, at
the time of purchase of the securities, have total market capitalization
within the range of companies included in the Russell 2000 Growth Index,
updated quarterly. The Russell 2000 Growth Index is designed to track the
performance of small capitalization companies. The Portfolio may invest up to
35% of its total assets in equity securities of companies that, at the time of
purchase, have total market capitalization outside the range of companies
included in the Russell 2000 Growth Index and in excess of that amount (up to
100% of its assets) during temporary defensive periods.
24
<PAGE>
THE CALVERT SOCIALLY RESPONSIBLE PORTFOLIO
The Calvert Socially Responsible Portfolio seeks to achieve a total return
above the rate of inflation through an actively managed portfolio of common
and preferred stocks, bonds and money market instruments which offer income
and capital growth opportunity and that satisfy the social concern criteria
established for this Portfolio.
THE FIDELITY VIP CONTRAFUND PORTFOLIO
The Fidelity VIP Contrafund Portfolio seeks long term capital appreciation.
The Portfolio will normally invest in common stock or securities convertible
into common stock of companies believed to be undervalued due to an overly
pessimistic appraisal by the public. This Portfolio also has the flexibility
to invest in any type of security that may produce capital appreciation.
THE FIDELITY VIP EQUITY-INCOME PORTFOLIO
The Fidelity VIP Equity-Income Portfolio seeks reasonable income by
investing primarily in income producing equity securities. Its goal is to
achieve a yield in excess of the composite yield of the S&P 500. At least 65%
of this Portfolio will be invested in income producing common or preferred
stock. The remainder will normally be invested in convertible and non-
convertible debt obligations.
THE JANUS ASPEN BALANCED PORTFOLIO
The Janus Balanced Portfolio seeks long-term capital growth, consistent with
preservation of capital and balanced by current income. It is a diversified
Portfolio that, under normal circumstances, pursues its objective by investing
40 to 60% of its assets in securities selected primarily for their growth
potential and 40 to 60% of its assets in securities selected primarily for
their income potential. The Portfolio normally invests at least 25% of its
assets in fixed-income senior securities, which include debt securities and
preferred stock.
THE JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
The Janus Worldwide Growth Portfolio seeks long-term growth of capital in a
manner consistent with the preservation of capital. It invests in a
diversified portfolio of common stocks of foreign and domestic issuers. The
Portfolio has the flexibility to invest on a worldwide basis in companies and
organizations of any size, regardless of country of organization or place of
principal business activity. The Portfolio normally invests in issuers from at
least five different countries, including the United States. The Portfolio may
at times invest in fewer than five countries or even in a single country.
THE MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
The Morgan Stanley Emerging Markets Equity Portfolio seeks long-term capital
appreciation by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks,
sponsored and unsponsored ADR's and other equity securities of emerging market
country issuers. Under normal circumstances, at least 65% of the Portfolio's
total assets will be invested in emerging market countries in which the
Portfolio's investment adviser believes the economies are developing strongly
and in which the markets are becoming more sophisticated.
25
<PAGE>
THERE IS NO ASSURANCE THAT ANY OF THE ELIGIBLE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES
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 relevant Fund, each of which is
attached to this Prospectus. The Funds' prospectuses should be read carefully
before any decision is made concerning the allocation of Premium Payments to
an Investment Division corresponding to a particular Eligible Portfolio.
The Funds' shares may also be available to certain separate accounts funding
variable life insurance policies offered by NYLIAC. This is called "mixed
funding." Shares of The Alger American Fund, the Acacia Fund, the Fidelity
Funds, the Janus Fund and the Morgan Stanley Fund may also be available to
separate accounts of insurance companies unaffiliated with NYLIAC and, in
certain instances, to qualified plans. This is called "shared funding."
Although we do not anticipate any inherent difficulties arising from mixed and
shared funding, it is theoretically possible that, due to differences in tax
treatment or other considerations, the interests of owners of various
contracts participating in the Funds might at some time be in conflict. The
Board of Directors/Trustees of each Fund, each Fund's investment advisers, and
NYLIAC are required to monitor events to identify any material conflicts that
arise from the use of the Funds for mixed and shared funding. For more
information about the risks of mixed and shared funding please refer to the
relevant Fund prospectus.
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 a 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 Separate Accounts.
To the extent required by the Investment Company Act of 1940, substitutions of
shares attributable to an Owner's interest in an Investment Division will not
be made until the Owner has been notified of the change. Nothing contained
herein shall prevent the Separate 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 Owners.
Each of the Separate Accounts currently has eighteen Investment Divisions
which invest Premium Payments solely in the corresponding Eligible Portfolios
of the Funds. NYLIAC may also establish additional Investment Divisions for
each of the Separate Accounts. Each additional Investment Division will
purchase shares in a new portfolio of a 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 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 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
26
<PAGE>
reflect such substitution or change. If deemed to be in the best interests of
persons having voting rights under the Policies, the Separate 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.
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) annuity plans
qualified under Section 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 relevant requirements of Section 408 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 44.)
The second type of purchaser is one, other than those described above, who
purchases a Policy to provide supplemental retirement income. Policies
purchased by these individuals are referred to as "Non-Qualified Policies."
The Accumulation Value will fluctuate based on the investment experience of
the Investment Divisions selected by the Owner and the interest credited on
the Fixed Accumulation Value. NYLIAC does not guarantee the investment
performance of the Separate Accounts or of the Funds, and the Owner bears the
entire investment risk with respect to amounts allocated to the Investment
Divisions of the Separate Accounts. There is no assurance that the investment
objectives will be achieved. Accordingly, amounts allocated to the Investment
Divisions of the Separate Accounts are subject to the risks inherent in the
securities markets and, specifically, to price fluctuations of the shares of
the Funds.
TYPES OF POLICIES
The Policies are only offered on the lives of individual Annuitants. Only
Flexible Premium Policies are available (for which additional Premium Payments
can be made). They may be either Qualified Policies or Non-Qualified Policies.
POLICY APPLICATION AND PREMIUM PAYMENTS
Individuals wishing to purchase a Policy must complete an application and
provide an initial Premium Payment which will be sent to NYLIAC. For salary
reduction plans, the
27
<PAGE>
application is sent to NYLIAC and the Policy becomes part of a pre-authorized
billing arrangement. If the application can be accepted in the form received,
the initial Premium Payment will be credited within two Business Days after
receipt. If the initial Premium Payment cannot be credited within five
Business Days after receipt by NYLIAC because the application is incomplete,
NYLIAC will contact the applicant and explain the reason for the delay and
will offer to refund the initial Premium Payment immediately, unless the
applicant consents to NYLIAC's retaining the initial Premium Payment and
crediting it as soon as the necessary requirements are fulfilled. Acceptance
is subject to NYLIAC's rules and NYLIAC reserves the right to reject any
application or initial Premium Payment. NYLIAC's rules generally require that
only one Owner be named. However, there are exceptions to these rules, such as
when the application is related to certain exchanges of in-force annuities in
accordance with Section 1035 of the Internal Revenue Code.
Initial Premium Payments allocated to the Fixed Account or to Investment
Divisions of the Separate Accounts will be allocated to the MainStay VP Cash
Management Investment Division until 15 days after the Policy Issue Date.
Thereafter, Premium Payments will be allocated in accordance with the Owner's
instructions. Subsequent Premium Payments are credited to the Policy at the
close of the Business Day on which they are received at NYLIAC, P.O. Box
19289, Newark, New Jersey 07195-0289.
Unless we provide otherwise, the minimum initial Premium Payment for
Qualified Policies is as follows: (a) $50 per month or a $2,000 single premium
for tax-sheltered annuities; (b) $1,200 initial Premium Payment plus pre-
authorized monthly deductions of $100 per month, or pre-authorized monthly
deductions of $165 per month or a $2,000 single premium for IRAs; (c) $50 per
month for Deferred Compensation plans; and (d) $600 initial Premium Payment,
or $50 per month if part of a pre-authorized billing arrangement, for
Simplified Employee Pension plans. For Non-Qualified Policies, the minimum
initial Premium Payment is a $5,000 single premium or a $2,500 deposit plus
$50 per month as either pre-authorized monthly deduction or as part of a pre-
authorized monthly billing arrangement. Premium Payments (of at least $50 each
or such lower amount as we may permit) 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,
credit union or similar accounts and public or private employee payroll
deductions. Premium Payments may be made at any time before the Annuity
Commencement Date and while the Annuitant and the Owner are living provided
that the aggregate amount of Premium Payments may not be more than $1,000,000,
without our prior approval.
For Qualified Policies, the Premium 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 Premium Payment. NYLIAC also reserves the right in its
discretion to accept Premium Payments less than $50, provided such discretion
is exercised in a non-discriminatory manner.
If no Premium Payments are made under a Policy for two or more Policy Years
in a row, and both (a) the total Premium Payments made, less any Partial
Withdrawals and any Surrender Charges, and (b) the Accumulation 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
Owner the Accumulation Value. (See "Cancellations" at page 37.)
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ISSUE AGES
Non-Qualified Policies can be issued if both the Owner and the Annuitant are
not older than age 85 (age 78 in Pennsylvania and age 80 in New York) and we
will accept additional Premium Payments until either the Owner or the
Annuitant reaches the age of 85, unless we agree otherwise. For IRA, TSA and
SEP plans, the Owner and Annuitant must be the same. Qualified Policies can be
issued if the Owner/Annuitant is between the ages of 18-75 (ages 21-75 for SEP
arrangements) and we will accept additional Premium Payments until the
Owner/Annuitant reaches the age of 75, unless otherwise limited by the terms
of a particular plan or unless we agree otherwise.
TRANSFERS
Prior to 30 days before the Annuity Commencement Date, amounts may be
transferred between Investment Divisions of the same Separate Account or to
the Fixed Account. Except in connection with transfers made pursuant to the
Dollar Cost Averaging, Automatic Asset Reallocation or Interest Sweep options,
the minimum value of Accumulation Units that may be transferred from one
Investment Division to another Investment Division within the Separate
Accounts, or to the Fixed Account, is the lesser of (i) $500 or (ii) the total
value of the Accumulation Units in the Investment Division. Except in
connection with the Dollar Cost Averaging, Automatic Asset Reallocation or
Interest Sweep options, if, after an ordered transfer, the value of the
remaining Accumulation Units in an Investment Division or Fixed Account would
be less than $500, the entire value will be transferred unless NYLIAC in its
discretion determines otherwise. There is no charge for the first twelve
transfers in any one Policy Year. NYLIAC reserves the right to charge up to
$30 for each transfer in excess of twelve, subject to any applicable state
insurance law requirements. In addition to transfers made in connection with
the Interest Sweep option, transfers may be made from the Fixed Account to the
Investment Divisions in certain other situations. (See "The Fixed Account" at
page 42.)
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. (See "Procedures for
Telephone Transfers" below.) 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 40.)
PROCEDURES FOR TELEPHONE TRANSFERS
Owners may effect telephone transfers in two ways. All Owners may directly
contact a service representative. Owners may also request access to an
electronic service known as a Voice Response Unit (VRU). The VRU permits the
unassisted transfer of monies among the Investment Divisions and/or the Fixed
Account and change of the allocation of future Premium Payments. All Owners
intending to conduct telephone transfers through the VRU will be asked to
complete a Telephone Authorization Form.
NYLIAC will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Before a service representative accepts
any request, the caller will be asked for his or her social security number
and address. All calls will also be recorded. A Personal Identification Number
(PIN) will be assigned to all Owners who request VRU access. The PIN is
selected by and known only to the Owner. Proper entry of the PIN is required
before any transactions will be allowed through the VRU. Furthermore, all
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<PAGE>
transactions performed over the VRU, as well as with a service representative,
will be confirmed by NYLIAC through a written letter. Moreover, all VRU
transactions will be assigned a unique confirmation number which will become
part of the Policy's history. NYLIAC is not liable for any loss, cost or
expense for action on telephone instructions which are believed to be genuine
in accordance with these procedures. Telephone transfer requests must be
received no later than 4:00 p.m. Eastern time in order to assure same-day
processing. Requests received after 4:00 p.m. will be processed on the next
Business Day.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a systematic method of investing in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities is averaged over time and over various market
cycles. The Owner may specify, prior to the Annuity Commencement Date, a
specific dollar amount to be transferred from any Investment Divisions to any
combination of Investment Divisions and/or the Fixed Account. The Owner will
specify the Investment Divisions to transfer money from, the Investment
Divisions and/or Fixed Account to transfer money to, the amounts to be
transferred, the date on which transfers will be made, subject to our rules,
and the frequency of the transfers, either monthly, quarterly, semi-annually
or annually. This process is called Dollar Cost Averaging. Dollar Cost
Averaging transfers are not available from the Fixed Account, but these
transfers may be made into the Fixed Account. NYLIAC reserves the right to
charge up to $30 for each transfer in excess of twelve, subject to any
applicable state insurance law requirements. All Dollar Cost Averaging
transfers to or from an Investment Division or to the Fixed Account made on
the same date will count as one transfer for purposes of determining whether
the transfer is free or may be subject to a charge. A minimum of $100 must
change Investment Divisions (for each Investment Division and the Fixed
Account) with each transfer. The minimum Accumulation Value required to elect
this option is $5,000. The minimum transfer amount and minimum Accumulation
Value may be reduced at NYLIAC's discretion.
The main objective of Dollar Cost Averaging is to achieve an average cost
per share that is lower than the average price per share in a fluctuating
market. Since the same dollar amount is transferred to an Investment Division
with each transfer, more units are purchased in an Investment Division if the
value per unit is low and fewer units are purchased if the value per unit is
high. Therefore, a lower than average cost per unit will be achieved if prices
fluctuate over the long term. Similarly, for each transfer out of an
Investment Division, more units are sold in an Investment Division if the
value per unit is low and fewer units are sold if the value per unit is high.
Dollar Cost Averaging does not assure a profit or protect against a loss in
declining markets.
NYLIAC will make all Dollar Cost Averaging transfers on the day of each
calendar month specified by the Owner, or on the next Business Day. The Owner
may specify any day of the month with the exception of the 29th, 30th or 31st
of a month. In order to process a Dollar Cost Averaging transfer, NYLIAC must
have received a request in writing no later than one week prior to the date
Dollar Cost Averaging transfers are to commence.
The Dollar Cost Averaging option may be canceled at any time by the Owner in
a written request or by NYLIAC if the Accumulation Value is less than $5,000,
or such lower amount as we may determine. The Dollar Cost Averaging option may
not be elected if you have selected the Automatic Asset Reallocation option.
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AUTOMATIC ASSET REALLOCATION
Selection of this option allows an Owner to maintain the percentage of the
Owner's Variable Accumulation Value allocated to each Separate Account
Investment Division at a pre-set level. For example, an Owner might specify
that 50% of the Variable Accumulation Value of a Policy be allocated to the
MainStay VP Growth Equity Investment Division and 50% of the Variable
Accumulation Value be allocated to the MainStay VP Bond Investment Division.
Over time, the variations in each such Investment Division's investment
results will shift this balance. If you elect this reallocation option, NYLIAC
will automatically transfer your Variable Accumulation Value back to the
percentages you specify. You may choose to have reallocations made quarterly,
semi-annually or annually. NYLIAC will process Automatic Asset Reallocations
of less than $500. Each time that NYLIAC automatically reallocates your
Variable Accumulation Value among the Investment Divisions under this option
will be counted as one transfer for purposes of determining whether the
transfer is free or may be subject to a charge. NYLIAC reserves the right to
charge up to $30 for each transfer in excess of twelve, subject to any
applicable state insurance law requirements. The minimum Variable Accumulation
Value required to elect this option is $5,000. There is no minimum amount
which you must allocate among the Investment Divisions pursuant to this
option.
The Automatic Asset Reallocation option may be canceled at any time by the
Owner in a written request or by NYLIAC if the Accumulation Value is less than
$5,000, or such a lower amount as we may determine. The Automatic Asset
Reallocation option may not be elected if you have selected the Dollar Cost
Averaging option.
INTEREST SWEEP
The Owner may request, prior to the Annuity Commencement Date, for the
interest earned on monies allocated to the Fixed Account to be transferred
from the Fixed Account to any combination of Investment Divisions. The Owner
will specify the Investment Divisions to transfer money to, the frequency of
the transfers (either monthly, quarterly, semi-annually or annually), and the
day of each calendar month to make the transfers (any day except the 29th,
30th or 31st of a month). This process is called Interest Sweep. Each Interest
Sweep transfer will count as one transfer for purposes of determining whether
the transfer is free or may be subject to a charge. The minimum Fixed
Accumulation Value required to elect this option is $5,000, but may be reduced
at NYLIAC's discretion.
The Interest Sweep may be requested in addition to either the Dollar Cost
Averaging or Automatic Asset Reallocation options. If an Interest Sweep
transfer is scheduled for the same day as a Dollar Cost Averaging or Automatic
Asset Reallocation transfer, the Interest Sweep transfer will be processed
first.
An amount NOT GREATER THAN 20% of the Fixed Accumulation Value at the
beginning of the Policy Year may be transferred from the Fixed Account to the
Investment Divisions during a Policy Year. (See "The Fixed Account--Transfers
to Investment Divisions" at page 43.) If an Interest Sweep would cause more
than 20% of the Fixed Accumulation Value at the beginning of the Policy Year
to be transferred from the Fixed Account, the transfer will not be processed
and the Interest Sweep will be canceled. The Interest Sweep option may be
canceled at any time by written request, or if the Fixed Accumulation Value is
less than $5,000, or such a lower amount as we may determine.
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ACCUMULATION PERIOD
(a) Crediting of Premium Payments
The Owner may allocate a portion of each Premium Payment to one or more
Investment Divisions or the Fixed Account. The minimum amount that may be
allocated to any one Investment Division or the Fixed Account is $25 (or such
lower amount as we may permit). The initial Premium Payment will be placed in
the MainStay VP Cash Management Investment Division until 15 days after the
Policy Issue Date. Subsequently, the allocation percentages for the first and
any later premiums will be as requested in the application, unless
subsequently changed by the Owner.
That portion of each Premium Payment allocated to a designated Investment
Division of a Separate Account 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 Premium Payment and documentation is received at NYLIAC at
P.O. Box 19289, Newark, New Jersey 07195-0289. 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 42 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.
OWNER INQUIRIES
Owner inquiries should be addressed to NYLIAC, Variable Product Service
Center, P.O. Box 354, Haddam, Connecticut 06438-0354, or made by calling (800)
598-2019.
CHARGES AND DEDUCTIONS
SURRENDER CHARGES
Since no deduction for a sales charge is made from Premium Payments, a
Surrender Charge (sometimes referred to as a contingent deferred sales charge)
is imposed on certain partial withdrawals and surrenders of the Policies, 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 Owner. In the case of a Partial Withdrawal, the Owner directs
NYLIAC to take Surrender Charges either from the remaining value of the
Allocation Alternatives from which the Owner
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directs NYLIAC to make Partial Withdrawals, or from the amount paid to the
Owner. 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.
The Surrender Charge is 7% of the amounts withdrawn or surrendered during
the first three Policy Years. The amount of the charge declines 1% for each
additional Policy Year, until the ninth 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>
1-3............................................................... 7%
4............................................................... 6%
5............................................................... 5%
6............................................................... 4%
7............................................................... 3%
8............................................................... 2%
9............................................................... 1%
10 and later..................................................... 0
</TABLE>
The duration of the Surrender Charge schedule is based solely on the Policy
Date. Additional Premium Payments do not begin their own unique Surrender
Charge schedules.
EXCEPTIONS TO SURRENDER CHARGES
There are a number of exceptions to the imposition of a Surrender Charge.
First, for all Policies, the Surrender Charge will only be applied to any
amounts withdrawn in any Policy Year which, when aggregated with any other
withdrawals during such Policy Year, exceed 10% of the Accumulation Value at
the time of surrender. Second, for Policies with accumulated Premium Payments
of $100,000 or more, no Surrender Charge will be applied if either (1) the
total amount withdrawn in any Policy Year is 10% or less of the Accumulation
Value at the time of surrender or (2) the amount withdrawn is less than or
equal to the gain in the Policy which is measured as the Accumulation Value of
the Policy less accumulated Premium Payments. Third, no Surrender Charge will
be applied if NYLIAC cancels the Policy. (See "Cancellations" at page 37.)
Fourth, no Surrender Charge will be applied when proceeds are paid on the
death of the Owner or the Annuitant. Fifth, no Surrender Charge will be
applied when an Income Payment Option is selected in any Policy Year after the
first Policy Year. Sixth, no Surrender Charge will be applied when the
Policy's Required Minimum Distribution Option is selected. However, amounts
withdrawn under the Required Minimum Distribution option will count against
the first exception described above. (See "Periodic Partial Withdrawals" at
page 37.) Seventh, no Surrender Charge will be applied for any withdrawals at
age 59 1/2 or older if the Policy is tax-qualified and if the Policy was
acquired as the result of a transfer or rollover of a NYLIAC tax-deferred
annuity policy. Eighth, no Surrender Charge will be imposed in connection with
withdrawals made in accordance with the terms of the Living Needs Benefit
Rider or Unemployment Benefit Rider (See "Riders" at page 42 of this
Prospectus for additional information). Finally, in no event may the aggregate
Surrender Charges under a Policy exceed 8.5% of the total Premium Payments.
(See "The Fixed Account" at page 42 for additional exceptions to the
imposition of a Surrender Charge.)
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<PAGE>
OTHER CHARGES
During the Accumulation Period, NYLIAC imposes certain charges which have
been set at a level to recover no more than the cost for providing Policy
administration services. All Policies are subject to a daily charge equal, on
an annual basis, to .10% of the daily net asset value of the applicable
Separate Account. A charge for Policy administration expenses will be made
once each Policy Year on the Policy Anniversary or upon Policy surrender if on
that date the Accumulation Value does not equal or exceed $10,000. This Policy
administration expense charge will be the lesser of $30 or 2% of the
Accumulation Value or lower if required by state law at the end of the Policy
Year or on the date of surrender, whichever is applicable. It will be deducted
from each Allocation Alternative in proportion to its percentage of the
Accumulation Value on the Policy Anniversary. These charges are intended to
offset the administrative expenses associated with the Policies, e.g., the
costs of collecting, processing, and confirming Premium Payments. They are
also intended to offset the cost of establishing and maintaining the available
methods of payment.
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 Annuity
Commencement Date, an amount will be paid to the Beneficiary which will be
equal to the greater of (a) the Accumulation Value less any outstanding loan
balance under the Policy as of the date due proof of death and all
requirements necessary to make payments are received; or (b) the sum of all
Premium Payments made, less any outstanding loan balance, less any Partial
Withdrawals and Surrender Charges previously imposed. (See "Death Before
Annuity Commencement" at page 38). 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 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
Separate Accounts. This charge is equal, on an annual basis, to 1.20% (of
which .70% is attributable to mortality risks and .50% to expense risks) of
the daily net asset values. 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 Separate Accounts will reflect the value of
Fund shares and therefore the fees and expenses paid by the Funds, which are
described in the relevant Fund's prospectus.
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<PAGE>
GROUP AND SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the Surrender
Charge and the administrative charge or change the minimum initial Premium
Payment, and the minimum additional Premium Payment requirements. Group
arrangements include those in which a trustee or an employer, for example,
purchases Policies covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows us to sell Policies to
its employees or retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our
requirements for size and number of years in existence. Group or sponsored
arrangements that have been set up solely to buy Policies or that have been in
existence less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Policy is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or
administrative charge will reflect differences in costs or services and will
not be unfairly discriminatory.
TAXES
NYLIAC may, where such taxes are imposed by state law, deduct premium taxes
relative to the Policy either (i) when a surrender or cancellation occurs, or
(ii) at the Annuity Commencement Date. Applicable premium tax rates depend
upon such factors as the 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.
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 44.) Based
upon these expectations, no charge is being made currently to the Separate
Accounts for corporate federal income taxes which may be attributable to the
Separate Accounts.
NYLIAC will review the question of a charge to the Separate 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 Accumulation Value of
the Policies would be correspondingly adjusted by any provision or charge for
such taxes.
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<PAGE>
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS AND WITHDRAWALS
The Owner may make a Partial Withdrawal, Periodic Partial Withdrawal,
Hardship Withdrawal or surrender the Policy to receive part or all of the
Accumulation Value at any time before the Annuity Commencement Date and while
the Annuitant is living, by sending a written request to NYLIAC. The amount
available for withdrawal is the Accumulation Value at the end of the Valuation
Period during which the surrender or withdrawal request is received at NYLIAC,
P.O. Box 354, Haddam, Connecticut 06438-0354, less any outstanding loan
balance, any Surrender Charges and any premium taxes which we may deduct, less
the charge for Policy administration expenses, if applicable. The Policy
administration expense charge will be the lesser of $30 or 2% of the
Accumulation Value at the end of the Policy Year or on the date of surrender,
whichever is applicable. If at the time the 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), subject to postponement in certain
circumstances. (See "Delay of Payments" at page 40.)
Since the Owner assumes the investment risk with respect to amounts
allocated to the Separate 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 Premium 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 44.)
(a) Surrenders
A Surrender Charge and any premium tax, if applicable, less any outstanding
loan balance, and less the charge for Policy administration expenses, if
applicable, may be deducted from the amount paid. The Policy administration
expense charge will be the lesser of $30 or 2% of the Accumulation Value at
the end of the Policy Year or on the date of surrender, whichever is
applicable. The proceeds will be paid in a lump sum to the Owner unless the
Owner elects a different Income Payment method. (See "Income Payments" at page
39.) Surrenders may be taxable transactions and the 10% penalty tax provisions
may be applicable. (See "Federal Tax Matters--Taxation of Annuities in
General" at page 44.)
(b) Partial Withdrawals
The minimum amount that can be withdrawn is $500, unless we agree otherwise.
The amount will be withdrawn from the Allocation Alternatives in accordance
with the Owner's request. If the Owner does not specify how to allocate a
Partial Withdrawal among the Allocation Alternatives, NYLIAC will allocate the
Partial Withdrawal on a pro-rata basis. Partial Withdrawals may be taxable
transactions and the 10% penalty tax provisions may be applicable. (See
"Federal Tax Matters--Taxation of Annuities in General" at page 44.)
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<PAGE>
If the value in any of the Allocation Alternatives from which the Partial
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
Owner.
(c) Periodic Partial Withdrawals
The Owner may elect to receive regularly scheduled withdrawals from the
Policy. These withdrawals may be paid on a monthly, quarterly, semi-annual, or
annual basis. The Owner elects the frequency of the withdrawals, and the day
of the month for the withdrawals to be made (may not be the 29th, 30th, or
31st of a month). The Owner specifies which Investment Divisions and/or Fixed
Account to make the withdrawals from. The minimum withdrawal under this
program is $100, or such lower amount as we may permit. Periodic Partial
Withdrawals may be taxable transactions and the 10% penalty tax provisions may
be applicable. (See "Federal Tax Matters--Taxation of Annuities in General" at
page 44.) If the Owner does not specify otherwise, NYLIAC will withdraw money
on a pro rata basis from each Investment Division and/or the Fixed Account.
The Owner may elect to receive "Interest Only" Periodic Partial Withdrawals
for the interest earned on monies allocated to the Fixed Account. If this
option is chosen, the $100 minimum for Periodic Partial Withdrawals will be
waived. However, there must be at least $5,000 in the Fixed Account at the
time of each Periodic Partial Withdrawal, unless we agree otherwise.
(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 all Policies, the
Surrender Charge will only be applied to any amounts withdrawn in any Policy
Year which, when aggregated with any other withdrawals during such Policy
Year, exceed 10% of the Accumulation Value at the time of Surrender. For
Policies with accumulated Premium Payments of $100,000 or more, the Surrender
Charge will not apply if the amount of the Hardship Withdrawal is less than or
equal to the gain in the Policy which is measured as the Accumulation Value of
the Policy less accumulated Premium Payments.
REQUIRED MINIMUM DISTRIBUTION OPTION
For IRAs, TSAs and SEPs, NYLIAC will provide an automatic withdrawal option
for calculating and processing the annual Required Minimum Distribution for
this Policy beginning at age 70 1/2. No Surrender Charge will be applied. For
IRAs, the Owner is generally not required to elect the Required Minimum
Distribution Option until April 1st of the year following the calendar year he
or she attains age 70 1/2 or until April 1st of the year following the
calendar year he or she retires, whichever occurs last. The Owner may elect to
receive distributions pursuant to the Required Minimum Distribution Option as
a Periodic Partial Withdrawal. NYLIAC will process Required Minimum
Distributions of less than $500.
CANCELLATIONS
NYLIAC may, in its sole discretion, subject to any applicable state
insurance law or regulation, cancel a Policy if no Premium Payments are made
for two or more Policy Years in a row, and both (a) the total Premium Payments
made, less any Partial Withdrawals and
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<PAGE>
any Surrender Charges, and (b) the Accumulation Value, are less than $2,000.
If such a cancellation occurs, NYLIAC will pay the Owner the Accumulation
Value. We will notify you of our intention to exercise this right and give you
90 days to make a Premium Payment.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date specified on the Policy Data Page.
The Annuity Commencement 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 Owner may change the Annuity Commencement Date to an earlier date by
providing written notice to NYLIAC. The Owner may defer the Annuity
Commencement Date 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 Annuity Commencement Date. The Annuity Commencement Date and Income
Payment method for Qualified Policies may also be controlled by endorsements,
the plan, or applicable law. The Surrender Charge will be waived if the Life
Income Payment Option is selected after the first policy anniversary.
DEATH BEFORE ANNUITY COMMENCEMENT
If an Owner or Annuitant dies prior to the Annuity Commencement 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 Accumulation Value,
less any outstanding loan balance, and (b) the sum of all Premium Payments
made less any outstanding loan balance, less any Partial Withdrawals and
Surrender Charges on those withdrawals. The formula guarantees that the amount
paid will at least equal the sum of all Premium Payments (less any outstanding
loan balance, Partial Withdrawals and Surrender Charges on such Partial
Withdrawals), independent of the investment experience of the Separate
Accounts. The Beneficiary may receive the amount payable in a lump sum or
under any Life Income Payment Option which is then available.
If an Owner or Annuitant dies before the Annuity Commencement 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 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 the Life Income Payment Option to provide an immediate
annuity for the Beneficiary who will be the Owner and Annuitant; or
(ii) applied under another Income Payment option we may offer at the
time. 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 Owner's death (as determined for federal tax purposes), and
must begin within one year after the Owner's death. (See "Income Payments"
at page 39.)
If the Owner's spouse is the Beneficiary, the proceeds can be paid to the
surviving spouse if the Owner dies before the Annuity Commencement Date or the
Policy can continue with the Owner's surviving spouse as the new Owner, and,
if the Owner was the Annuitant,
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as the Annuitant. 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 44.)
If the Annuitant and, where applicable under another Income Payment option,
the Joint Annuitant, if any, die after the Annuity Commencement 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 40.)
INCOME PAYMENTS
(a) Election of Income Payment Options
Income Payments will be made under the Life Income Payment Option or under
such other option we may offer at that time. We will require that a single sum
payment be made if the Accumulation Value is less than $2,000. At any time
before the Annuity Commencement Date, the Owner may change the Income Payment
option or request any other method of payment agreeable to NYLIAC. If the Life
Income Payment Option is chosen, proof of birth date may be required before
Income Payments begin. For Income Payment options involving life income, the
actual age of the 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. Payments under the Life Income Payment
Option will always be in the same specified amount and will be paid over the
life of the Annuitant with a guarantee of 10 years of payments, even if the
Annuitant dies sooner. NYLIAC does not currently offer variable Income Payment
Options.
Under Income Payment options involving life income, the Payee may not
receive Income Payments equal to the total Premium Payments if the Annuitant
dies before the actuarially predicted date of death. Income Payment options
involving life income are based on annuity tables that vary on the basis of
gender, unless the Policy was issued under an employer sponsored plan or in a
state which requires unisex rates.
(b) Other Methods of Payment
If NYLIAC agrees, the Owner (or the Beneficiary upon the death of the
Annuitant, or the Owner prior to the Annuity Commencement Date) may choose to
have Income Payments made under some other method of payment or in a single
sum.
(c) Proof of Survivorship
Satisfactory proof of survival may also 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.
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DELAY OF PAYMENTS
Payment of any amounts due from the Separate 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;
3. The Securities and Exchange Commission permits a delay for the
protection of security holders; or
4. The check used to pay the premium has not cleared through the banking
system. This may take up to 15 days.
For the same reasons, transfers from the Separate Accounts to the Fixed
Account may be delayed.
Payments of any amount due from the Fixed Account may also be delayed. When
permitted by law, we may defer payment of any partial or full surrender
request for up to six months from the date of surrender from the Fixed
Account. Interest of at least 3.5% per year will be paid on any amount
deferred for 30 days or more.
DESIGNATION OF BENEFICIARY
The Owner may select one or more Beneficiaries and name them in the
application. Thereafter, before the Annuity Commencement Date and while the
Annuitant is living, the Owner may change the Beneficiary by written notice to
NYLIAC. If before the Annuity Commencement Date, the Annuitant dies before the
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 Owner. If the Owner is the Annuitant, the proceeds pass to the Owner's
estate. However, if the Owner who is not the Annuitant dies before the Annuity
Commencement 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
passes to the Owner's estate.
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 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.
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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.
LOANS
Under your 403(b) Policy, you may borrow against your Policy's Accumulation
Value after the first Policy Year and prior to the Annuity Commencement Date.
Unless we agree otherwise, only one loan may be outstanding at a time. A
minimum Accumulation Value of $5,000 must remain in the Policy. The minimum
loan amount is $500. The maximum loan that may be taken is the lesser of: (a)
50% of the Policy's Accumulation Value on the date of the loan or (b) $50,000.
A loan processing fee of $25 will be withdrawn from the Accumulation Value on
a pro rata basis, unless prohibited by applicable state law or regulation. If
on the date of the loan you do not have a Fixed Accumulation Value equal to at
least 125% of the loan amount, sufficient Accumulation Value will be
transferred from the Investment Divisions on a pro rata basis so that the
Fixed Accumulation Value equals 125% of the loan amount. While a loan is
outstanding no partial withdrawals or transfers may be made which would reduce
the Fixed Accumulation Value to an amount less than 125% of the outstanding
loan balance.
For plans not subject to the Employee Retirement Income Security Act of 1974
("ERISA"), the interest rate paid by the Owner of the loan will equal 5%. The
assets being held in the Fixed Account to secure the loan will be credited
with the minimum guaranteed interest rate of 3%. For plans subject to ERISA,
the interest charged on the loan will be applied annually at the Prime Rate at
the beginning of the calendar year, plus 1%. The money being held in the Fixed
Account to secure the loan will be credited with a rate of interest that is
the Prime Rate less 1%, but will always be at least equal to the minimum
guaranteed interest rate of 3%. For all plans, interest will be assessed in
arrears as part of the periodic loan repayments.
The loan must be repaid on a periodic basis at a frequency not less
frequently than quarterly and over a period no greater than five years from
the date it is taken. Depending upon applicable state law, if a loan repayment
is in default we will withdraw the amount in default from the Fixed
Accumulation Value to the extent permitted by Federal Income Tax rules. Such a
repayment will be taken first from the Fixed Accumulation Value as of the most
recent Policy Anniversary and then on a first in, first out basis from amounts
allocated to the Fixed Account since the most recent Policy Anniversary.
Loans to acquire a principal residence are permitted under the same terms
described above, except that:
(a) the minimum loan amount is $5,000; and
(b) repayment of the loan amount may be extended to a maximum of twenty-
five years.
Any outstanding loan balance will be deducted from the Fixed Accumulation
Value prior to payment of a surrender or the commencement of the annuity
benefits. On death of the Owner or Annuitant, any outstanding loan balance
will be deducted from the Fixed Accumulation Value as a Partial Withdrawal as
of the date the notice of death is received.
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Loans are subject to the terms of the Policy, your 403(b) Plan and the Code,
which may impose restrictions upon them. We reserve the right to suspend,
modify, or terminate the availability of loans under this Policy at any time.
However, any action taken by us will not affect already outstanding loans.
RIDERS
For no additional Premium Payment, two riders are included: an Unemployment
Benefit Rider and a Living Needs Benefit Rider, both of which provide for an
increase in the amount that can be withdrawn from your Policy which will not
be subject to the imposition of a surrender charge upon the occurrence of
certain qualifying events. The riders are only available in those states where
they have been approved.
(a) Living Needs Benefit Rider
If the Annuitant enters a nursing home, becomes terminally ill or disabled
you, as Owner, may be eligible to receive all or a portion of the accumulated
value without paying a Surrender Charge. There is no additional charge for
this, and as the Owner you are automatically entitled to this benefit if it is
approved by your state. The Policy must have been inforce for at least one
year and have a minimum cash value of $5,000. Withdrawals will be taxable to
the extent of gain and, prior to age 59 1/2, may be subject to a 10% IRS
penalty. This rider is in effect in all states where approved.
(b) Unemployment Benefit Rider
For all Non-Qualified Policies and IRAs, if you as Owner of the Policy
become unemployed, you may be eligible to increase the amount that can be
withdrawn from your Policy up to 50% without paying contract Surrender
Charges. There is no additional charge for this, and as Owner you are
automatically entitled to this benefit if it is approved by your state. This
rider can only be used once. The Policy must have been inforce for at least
one year and have a minimum cash value of $5,000. Withdrawals may be taxable
transactions and, prior to age 59 1/2, may be subject to a 10% IRS penalty.
This rider is in effect in all states where approved.
THE FIXED ACCOUNT
The Fixed Account is supported by the assets in NYLIAC's general account,
which includes all of NYLIAC's assets except those assets specifically
allocated to NYLIAC's 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.
These disclosures regarding the Fixed Account may, however, be subject to
certain applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
(a) Interest Crediting
NYLIAC guarantees that it will credit interest at an effective rate of at
least 3% to amounts allocated or transferred to the Fixed Account under the
Policies. NYLIAC may, AT
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ITS SOLE DISCRETION, credit a higher rate of interest to amounts allocated or
transferred to the Fixed Account. The interest rate will be set quarterly on
the first day of each new calendar quarter. All Premium Payments and
additional payments (including transfers from other Investment Divisions)
received during a calendar quarter receive the interest rate declared for that
quarter until the end of that Policy Year. All other amounts in the Fixed
Account are credited with the rate set for the quarter in which the last
Policy Anniversary occurred, guaranteed for the current Policy Year.
(b) Bail-Out
Surrender Charges may be applied to withdrawals from the Fixed Account. (See
"Surrender Charges" at page 32.) In addition to the "Exceptions to Surrender
Charges" described at page 33, 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 2.5 percentage points below the rate
which was set for the immediately preceding Policy Year, or below the minimum
rate specified on your Policy's Data Page, and the Owner, within 60 days after
that Policy Anniversary, withdraws part or all of that amount allocated to the
Fixed Account. 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.
(c) Transfers to Investment Divisions
Amounts may be transferred from the Fixed Account to the Investment
Divisions up to 30 days prior to the Annuity Commencement 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 2.5 percentage points below the rate which was set
for the immediately preceding Policy Year, or below the minimum rate
specified on your Policy Data Page, and the Owner, within 60 days after
that Policy Anniversary, makes a request for such transfer. There is no
minimum transfer requirement and no charges will be imposed under this
condition.
2. An amount NOT GREATER THAN 20% of the Fixed Accumulation Value at the
beginning of the Policy Year may be transferred during that Policy Year
from the Fixed Account to the Investment Divisions.
3. Transfers of at least the minimum amount are permitted. The minimum
amount that may be transferred from the Fixed Account to the Investment
Divisions is the lesser of (i) $500 or (ii) the Fixed Accumulation Value,
unless we agree otherwise. (Additionally, the remaining values in the Fixed
Account must be at least $500. If, after a contemplated transfer, the
remaining values in the Fixed Account would be less than $500, that amount
must be included in the transfer, unless NYLIAC in its discretion
determines otherwise.)
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. For a more detailed
discussion of procedures that may be used for requesting transfers by
telephone, please see "Procedures for Telephone Transfers" at page 29 of this
Prospectus.
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Unlimited transfers are permitted each Policy Year, although we reserve the
right to impose a charge of $30 per transfer for each transfer in excess of
twelve transfers in any Policy Year. Partial Withdrawals will be deducted and
any Surrender Charges will be applied to the Fixed Account in the following
sequence: first, from any value in the Fixed Account as of the last Policy
Anniversary, then from any value in the Fixed Account attributed to additional
Premium Payments or transfers from Investment Divisions in the same order in
which they were allocated to the Fixed Account during the current Policy Year.
See the Policy itself for details and a description of the Fixed Account.
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. The
Qualified Policies are designed for use by individuals in retirement plans
which are intended to qualify as plans qualified for special income tax
treatment under Sections 219, 403, 408 or 457 of the Code. The ultimate effect
of federal income taxes on the Accumulation Value, on Income Payments and on
the economic benefit to the 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. 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 Premium 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 Accumulation Value (i.e.,
surrenders or Partial 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 Policy who is not a natural person must include in
income any increase in the excess of the Owner's Accumulation Value over the
Owner's investment in the contract during the taxable year. 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
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this purpose, the assignment, pledge, or agreement to assign or pledge any
portion of the Accumulation 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 Premium Payments paid
by or on behalf 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.
Generally, in the case of a withdrawal under a Non-Qualified Policy before
the Annuity Commencement Date, amounts received are first treated as taxable
income to the extent that the Accumulation 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 Accumulation 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 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 any 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 Owner's or Annuitant's death or
disability, or (3) received in substantially equal installments paid at least
annually as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Policy.
All non-qualified, deferred annuity contracts issued by NYLIAC (or its
affiliates) to the same 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 Owner. Accordingly, an Owner should consult a
competent tax adviser before purchasing more than one Policy or other annuity
contract.
A transfer of ownership of a Policy may result in certain income or gift tax
consequences to the Owner that are beyond the scope of this discussion. An
Owner contemplating any transfer or assignment of a Policy should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.
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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 to individuals who attained
the age of 50 by January 1, 1986). 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. 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 excludible 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 Annuities 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 Individual Retirement Annuities on a tax-deferred
basis.
(c) 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.
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 4 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.
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VOTING RIGHTS
The Funds are not required to hold routine annual stockholder meetings. Each
Fund's Board of Directors/Trustees 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 Owners having a
lesser role in governing the business of the Funds.
To the extent required by law, the Eligible Portfolio shares held in the
Investment Divisions of the Separate Accounts will be voted by NYLIAC at
special shareholder meetings of the Funds 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.
The number of votes which are available to an Owner will be calculated
separately for each Investment Division of the Separate 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 Annuity Commencement Date, the Owner
holds a voting interest in each Investment Division to which Policy Value is
allocated. The number of votes which are available to an Owner will be
determined by dividing the Accumulation Value attributable to an Investment
Division by the net asset value per share of the applicable Eligible
Portfolios.
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
relevant Fund. Voting instructions will be solicited by written communication
prior to such meeting in accordance with procedures established by the
relevant Fund.
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.
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TABLE OF CONTENTS FOR THE 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>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES............................................................... 2
INVESTMENT PERFORMANCE CALCULATIONS........................................ 2
GENERAL MATTERS............................................................ 5
FEDERAL TAX MATTERS........................................................ 6
DISTRIBUTOR OF THE POLICIES................................................ 7
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS..................................... 8
STATE REGULATION........................................................... 8
RECORDS AND REPORTS........................................................ 8
LEGAL PROCEEDINGS.......................................................... 8
INDEPENDENT ACCOUNTANTS.................................................... 9
OTHER INFORMATION.......................................................... 9
FINANCIAL STATEMENTS....................................................... F-1
</TABLE>
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NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-I
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-II
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1996
FOR THE
NYLIAC VARIABLE ANNUITY
FLEXIBLE PREMIUM MULTI-FUNDED VARIABLE RETIREMENT ANNUITY POLICIES
OFFERED BY
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
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 NYLIAC Variable Annuity Prospectus. Accord-
ingly this Statement should be read in conjunction with the current NYLIAC
Variable Annuity Prospectus dated October 1, 1996, which may be obtained by
calling New York Life Insurance and Annuity Corporation ("NYLIAC") at (212)
576-7538 or writing to NYLIAC at 51 Madison Avenue, New York, New York 10010.
Terms used in the current NYLIAC Variable Annuity Prospectus are incorporated
in this Statement.
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES (27)......................................................... 2
Valuation of Accumulation Units......................................... 2
INVESTMENT PERFORMANCE CALCULATIONS....................................... 2
MainStay VP Cash Management Investment Division......................... 2
MainStay VP Government, MainStay VP High Yield Corporate Bond and
MainStay VP Bond Investment Division Yields............................ 3
Total Return Calculations............................................... 4
GENERAL MATTERS........................................................... 5
FEDERAL TAX MATTERS (44).................................................. 6
Taxation of New York Life Insurance and Annuity Corporation............. 6
Tax Status of the Policies.............................................. 6
DISTRIBUTOR OF THE POLICIES (46).......................................... 7
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS.................................... 8
STATE REGULATION.......................................................... 8
RECORDS AND REPORTS....................................................... 8
LEGAL PROCEEDINGS......................................................... 8
INDEPENDENT ACCOUNTANTS................................................... 9
OTHER INFORMATION......................................................... 9
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
- --------
* (Numbers in parentheses refer to page numbers of corresponding sections of
the current NYLIAC Variable Annuity Prospectus.)
<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 Own-
ers.
VALUATION OF ACCUMULATION UNITS
Accumulation Units are valued separately for each Investment Division of
each Separate 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.
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;
(b) is the net result of the net asset value per share of the Eligible
Portfolio shares held in the Investment Division determined as of the end
of the immediately preceding Valuation Period; and
(c) is a factor representing the charges deducted from the applicable In-
vestment Division on a daily basis. Such factor is equal, on an annual ba-
sis, to 1.30% of the daily net asset value of Separate Accounts I and II,
respectively, and represents the 1.20% charge for mortality and expense
risks (of which .70% is attributable to mortality risks and .50% to expense
risks), and the .10% charge for Policy administration expenses. (See "Other
Charges" at page 34 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.
INVESTMENT PERFORMANCE CALCULATIONS
MAINSTAY VP CASH MANAGEMENT INVESTMENT DIVISION
In accordance with regulations adopted by the Securities and Exchange Com-
mission, if NYLIAC discloses a MainStay VP Cash Management Investment Divi-
sion's current annualized yield for a seven-day period, it is required to do
so in a manner which does not take into consideration any realized or
unrealized gains or losses on shares of the MainStay VP Cash Management Port-
folio or on its portfolio securities. This current annualized yield is com-
puted by determining the net change (exclusive of realized gains and losses on
the sale of securities and unrealized appreciation and depreciation) in the
value of
2
<PAGE>
a hypothetical account having a balance of one unit of a MainStay VP Cash Man-
agement Investment Division at the beginning of such seven-day period, divid-
ing such net change in account value by the value of the account at the begin-
ning of the period to determine the base period return and annualizing this
quotient on a 365-day basis. The net change in account value reflects the de-
ductions for administrative services and the mortality and expense risk charge
and income and expenses accrued during the period. Because of these deduc-
tions, the yield for a MainStay VP Cash Management Division of a Separate Ac-
count will be lower than the yield for the MainStay VP Cash Management Portfo-
lio.
The Securities and Exchange Commission also permits NYLIAC to disclose the
effective yield of the MainStay VP Cash Management 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 period return, raising the sum to a power equal to 365 divided by
7, and subtracting one from the result.
The yield on amounts held in a MainStay VP Cash Management Investment Divi-
sion 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 MainStay VP Cash Management Investment Divi-
sion's actual yield is affected by changes in interest rates on money market
securities, average portfolio maturity of the MainStay VP Cash Management
Portfolio, the types and quality of portfolio securities held by the
MainStay VP Cash Management Portfolio, and its operating expenses.
For the seven-day period ending December 31, 1995, the MainStay VP Cash
Management Portfolio yields for Separate Account-I and Separate Account-II
were both 4.33%, and the effective yields were both 4.42%.
MAINSTAY VP GOVERNMENT, MAINSTAY VP HIGH YIELD CORPORATE BOND AND
MAINSTAY VP BOND INVESTMENT DIVISION YIELDS
The current annualized yield of the MainStay VP Government, MainStay VP High
Yield Corporate Bond and MainStay VP Bond Investment Divisions refers to the
income generated by these Investment Divisions 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 investment 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 MainStay VP Government, MainStay
VP High-Yield Corporate Bond or MainStay VP Bond Investment Divi-
sion.
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.
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
3
<PAGE>
are charged to all 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 Accumulation Value
withdrawn depending on the elapsed time since the Policy was issued.
Because of the charges and deductions imposed by the Separate 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 MainStay VP Government, MainStay VP High Yield
Corporate Bond or MainStay VP Bond Investment Division's actual yield will be
affected by the types and quality of portfolio securities held by such Portfo-
lio and its operating expenses.
For the 30-day period ended December 31, 1995, the annualized yields for the
MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay VP
Bond Investment Divisions were 4.58%, 7.93% and 4.65% for Separate Account-I,
respectively, and 4.58%, 7.94% and 4.65% for Separate Account-II, respective-
ly.
TOTAL RETURN CALCULATIONS
This section presents performance data for the MainStay VP Capital Apprecia-
tion, MainStay VP Government, MainStay VP Total Return, MainStay VP Bond,
MainStay VP Growth Equity and MainStay VP Indexed Equity Investment Divisions
for various periods of time.
The data reflect all Separate Account and Fund annual expenses shown in the
"Fee Table" which appears on page 7 of the Prospectus. The annual policy fee,
which is charged to Policies with less than $10,000 of Accumulation Value, is
not reflected. This fee, if applicable, would effectively reduce the rates of
return credited to a particular Policy. All rates of return presented include
the reinvestment of investment income, including interest and dividends. The
results shown are not an estimate or guarantee of future investment perfor-
mance.
AVERAGE ANNUAL TOTAL RETURN. The average annual total return data in the
following table are calculated by two methods. The first method is prescribed
by the SEC for use when we advertise the performance of the Separate Account
and assumes the surrender of the Policy at the end of each period shown. The
second method assumes that the Policy is not surrendered and, therefore, does
not reflect the deduction of any applicable surrender charges.
Average annual total return quotations under both calculation methods are
computed by finding the average annual compounded rates of return over the pe-
riods shown that would equate the initial amount invested to the ending re-
deemable 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 or the inception
date, at the end of the one, five or ten-year period (or fractional
portion thereof).
4
<PAGE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
CAPITAL MAINSTAY VP TOTAL MAINSTAY VP GROWTH INDEXED
APPRECIATION GOVERNMENT RETURN BOND EQUITY EQUITY
------------ ----------- ----------- ----------- ----------- -----------
INCEPTION DATE
- -------------- 01/29/93 01/29/93 01/29/93 12/15/93 12/15/93 01/29/93
<S> <C> <C> <C> <C> <C> <C>
SEC AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/95-
12/31/95).............. 25.58% 7.95% 18.69% 9.42% 19.46% 26.62%
Since Inception......... 12.82% 3.06% 8.82% 1.99% 10.71% 11.00%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/95-
12/31/95).............. 34.03% 15.21% 26.67% 16.78% 27.49% 35.12%
Since Inception......... 15.09% 5.38% 11.24% 5.36% 14.37% 13.34%
</TABLE>
Performance data for the Investment Divisions may be compared, in advertise-
ments, sales literature and reports to shareholders, to: (i) the investment
returns on various mutual funds, stocks, bonds, certificates of deposit, tax
free bonds, or common stock and bond indexes; and (ii) other groups of vari-
able annuity separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mu-
tual funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria.
Reports and promotional literature may also contain the ratings New York
Life and NYLIAC have received from independent rating agencies. New York Life
and NYLIAC are among only a few companies that have consistently received
among the highest possible ratings from the four major independent rating com-
panies: A.M. Best and Moody's (for financial strength and stability) and Stan-
dard and Poor's and Duff & Phelps (for claims paying ability). However, nei-
ther New York Life nor NYLIAC guarantees the investment performance of the In-
vestment Divisions.
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 Premium 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--Election of Income Payment Options" at
page 39 of the Prospectus.) If payments were made based on incorrect age or
sex, we will increase or reduce a later payment or payments to adjust for the
error. Any adjustment will include interest, at 3.5% per year, from the date
of the wrong payment to the date the adjustment is made.
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 Owner prior to the Annuity Commencement 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 44 of the Prospectus.)
5
<PAGE>
MODIFICATION. NYLIAC may not modify the Policy without the consent of the
Owner except to make the Policy meet the requirements of the Investment Com-
pany Act of 1940, or to make the Policy comply with any changes in the Inter-
nal 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. We rely on statements made in the application. They are
representations, not warranties. The Policy will not be contested after it has
been in force during the lifetime of the annuitant for two years from the Pol-
icy Date.
FEDERAL TAX MATTERS
TAXATION OF NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIAC is taxed as a life insurance company. Since the Separate 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
Subchapter M of the Code. Investment income and realized net capital gains on
the assets of the Separate Accounts are reinvested and are taken into account
in determining the Accumulation Value. As a result, such investment income and
realized net capital gains are automatically retained as part of the reserves
under the Policy. Under existing federal income tax law, NYLIAC believes that
Separate 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 Separate Ac-
counts must be "adequately diversified" in accordance with Treasury regula-
tions in order for the Policies to qualify as annuity contracts under Section
72 of the Code. The Separate Accounts intend to comply with the diversifica-
tion requirements prescribed by the Treasury under Treasury Regulation Section
1.817-5.
To comply with regulations under Section 817(h) of the Code, the Separate
Account is required to diversify its investments, so that on the last day of
each quarter of a calendar year, no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments, and
no more than 90% is represented by any four investments. For this purpose, se-
curities of a single issuer are treated as one investment and each U.S.
Government agency or instrumentality is treated as a separate issuer. Any se-
curity issued, guaranteed, or insured (to the extent so guaranteed or insured)
by the U.S. Government or an agency or instrumentality of the U.S. Government
is treated as a security issued by the U.S. Government or its agency or in-
strumentality, whichever is applicable.
Although the Treasury Department has issued regulations on the diversifica-
tion requirements, such regulations do not provide guidance concerning the ex-
tent to which Owners may direct their investments to particular subaccounts of
a separate 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
6
<PAGE>
right to modify the Policy as necessary to attempt to prevent the Owner from
being considered the owner of the assets of the Separate Account or otherwise
to qualify the Policy for favorable tax treatment.
The Code also requires that non-qualified annuity contracts contain specific
provisions for distribution of the policy proceeds upon the death of any Own-
er. In order to be treated as an annuity contract for federal income tax pur-
poses, the Code requires that such Policies provide that (a) if any Owner dies
on or after the Annuity Commencement 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 Owner's death; and (b)
if any Owner dies before the Annuity Commencement Date, the entire interest in
the Policy must generally be distributed within 5 years after the Owner's date
of death. These requirements will be considered satisfied if the entire inter-
est of the Policy is used to purchase an immediate annuity under which pay-
ments will begin within one year of the Owner's death and will be made for the
life of the Beneficiary or for a period not extending beyond the life expec-
tancy of the Beneficiary. The Owner's Beneficiary is the person to whom owner-
ship of the Policy passes by reason of death. If the Beneficiary is the Own-
er's surviving spouse, the Policy may be continued with the surviving spouse
as the new Owner. Non-Qualified Policies contain provisions intended to comply
with these requirements of the Code. No regulations interpreting these re-
quirements of the Code have yet been issued and thus no assurance can be given
that the provisions contained in these Policies satisfy all such Code require-
ments. The provisions contained in these Policies will be reviewed and modi-
fied if necessary to assure that they comply with the Code requirements 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. NYLIFE Distributors is an indirect wholly-
owned subsidiary of New York Life. 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.
7
<PAGE>
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to assets of the Separate 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 Separate
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 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 Separate 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 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
In 1995, New York Life and NYLIAC settled a class action filed in the New
York State Supreme Court related to the sale of non-variable whole life and
universal life insurance policies from 1982 through 1994. In connection with
this settlement and other litigation, after-tax provisions of $30 million and
$45 million were recorded by New York Life in 1994 and 1995, respectively. The
settlement was approved by the trial judge. An appeal was taken to the inter-
mediate appellate court and the settlement judgment affirmed. On August 5,
1996, a motion was filed for reargument or, alternatively, for leave to appeal
to the New York Court of Appeals.
There are also approximately 125 individual actions in various jurisdictions
(approximately 15 of which name NYLIAC as a defendant) and two putative class
actions (one filed in Louisiana and one in New York) brought by Policyowners
who excluded themselves from the settlement of the nationwide class action.
Most of these actions seek substantial or unspecified compensatory and puni-
tive damages.
8
<PAGE>
The ultimate liability that could result from such litigation and proceed-
ings should not have a material adverse effect on NYLIAC's financial position;
however, it is possible that settlements or adverse determinations in one or
more lawsuits or other proceedings could have a material adverse effect on
NYLIAC's operating results in one or more years in the future.
INDEPENDENT ACCOUNTANTS
The annual financial statements of the Separate Accounts and NYLIAC will be
audited by Price Waterhouse LLP, independent accountants, 1177 Avenue of the
Americas, New York, New York. The financial statements included in this State-
ment of Additional Information have been included in reliance on the reports
of Price Waterhouse, given on the authority of said firm as experts in audit-
ing 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.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
-----------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost: $93,980,648; $21,204,317;
$38,873,435; $15,792,066; $1,727,829;
$88,918,226; $7,223,600; $18,764,641;
$22,831,196; $43,774,531; $289,782,
respectively)......................................... $118,675,810 $ 21,204,187 $ 38,351,941 $ 15,815,959
LIABILITIES:
Liability for mortality and
expense risk charges.................................. 375,195 58,831 124,838 40,163
------------ ------------ ------------ ------------
Total equity.......................................... $118,300,615 $ 21,145,356 $ 38,227,103 $ 15,775,796
============ ============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
7,851,887; 19,553,952; 3,280,863; 1,446,432;
165,297; 7,579,044; 658,044; 1,732,850;
1,831,068; 2,959,704; 23,961, respectively............ $118,300,615 $ 21,145,356 $ 38,227,103 $ 15,775,796
Equity of New York Life Insurance and Annuity
Corporation:
Variable accumulation units outstanding for
the Indexed Equity Investment Division: 717,735....... -- -- -- --
------------ ------------ ------------ ------------
Total equity.......................................... $118,300,615 $ 21,145,356 $ 38,227,103 $ 15,775,796
============ ============ ============ ============
Variable accumulation
unit value............................................ $ 15.07 $ 1.08 $ 11.65 $ 10.91
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-1
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,744,578 $103,749,586 $ 7,584,568 $ 19,300,692 $ 24,023,981 $ 53,159,952 $ 278,162
4,693 333,105 18,322 64,078 73,839 171,856 673
----------- ------------ ------------ ------------ ------------ ------------ ------------
$ 1,739,885 $103,416,481 $ 7,566,246 $ 19,236,614 $ 23,950,142 $ 52,988,096 $ 277,489
=========== ============ ============ ============ ============ ============ ============
$ 1,739,885 $103,416,481 $ 7,566,246 $ 19,236,614 $ 23,950,142 $ 42,646,284 $ 277,489
-- -- -- -- -- 10,341,812 --
----------- ------------ ------------ ------------ ------------ ------------ ------------
$ 1,739,885 $103,416,481 $ 7,566,246 $ 19,236,614 $ 23,950,142 $ 52,988,096 $ 277,489
=========== ============ ============ ============ ============ ============ ============
$ 10.53 $ 13.65 $ 11.50 $ 11.10 $ 13.08 $ 14.41 $ 11.58
=========== ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-2
<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND(a)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income........... $ 470,031 $ 908,003 $ 2,647,408 $ 542,065
Mortality and expense risk
charges.................. (1,145,389) (216,863) (457,270) (58,375)
------------ ------------ ------------ ------------
Net investment income
(loss).................. (675,358) 691,140 2,190,138 483,690
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of
investments.............. 6,778,016 45,419,161 9,779,907 89,498
Cost of investments sold.. (5,443,034) (45,419,263) (10,436,647) (84,537)
------------ ------------ ------------ ------------
Net realized gain (loss)
on investments.......... 1,334,982 (102) (656,740) 4,961
Realized gain distribution
received................. -- -- -- 91,394
Change in unrealized
appreciation/depreciation
on investments........... 24,141,960 (115) 3,470,494 23,893
------------ ------------ ------------ ------------
Net gain (loss) on
investments............. 25,476,942 (217) 2,813,754 120,248
------------ ------------ ------------ ------------
Decrease attributable to
funds of New York Life
Insurance and Annuity
Corporation retained by
Separate Account......... (48,766) (2,176) (10,809) (1,120)
------------ ------------ ------------ ------------
Net increase in total
equity resulting from
operations.............. $ 24,752,818 $ 688,747 $ 4,993,083 $ 602,818
============ ============ ============ ============
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-3
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY(a) RETURN VALUE(a) BOND EQUITY EQUITY RESPONSIBLE(a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 79,114 $ 2,434,681 $ 60,053 $ 1,188,147 $ 272,993 $ 1,036,069 $ 16,017
(6,868) (1,095,489) (24,585) (191,281) (209,531) (548,682) (936)
----------- ----------- ----------- ----------- ----------- ----------- -----------
72,246 1,339,192 35,468 996,866 63,462 487,387 15,081
----------- ----------- ----------- ----------- ----------- ----------- -----------
209,507 8,785,595 70,476 1,582,334 761,491 7,997,165 11,511
(199,889) (7,851,530) (65,595) (1,548,081) (732,329) (6,781,854) (10,602)
----------- ----------- ----------- ----------- ----------- ----------- -----------
9,618 934,065 4,881 34,253 29,162 1,215,311 909
-- -- -- -- 1,927,474 1,468,797 7,749
16,749 17,125,651 360,968 1,182,941 1,738,814 9,291,138 (11,620)
----------- ----------- ----------- ----------- ----------- ----------- -----------
26,367 18,059,716 365,849 1,217,194 3,695,450 11,975,246 (2,962)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(196) (38,993) (712) (4,468) (8,165) (28,916) (22)
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 98,417 $19,359,915 $ 400,605 $ 2,209,592 $ 3,750,747 $12,433,717 $ 12,097
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE>
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1995
and December 31, 1994
<TABLE>
<CAPTION>
CAPITAL APPRECIATION
--------------------------
1995 1994
--------------------------
<S> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)....................... $ (675,358) $ (320,126)
Net realized gain (loss) on investments............ 1,334,982 26,876
Realized gain distribution received................ -- --
Change in unrealized appreciation/depreciation
on investments.................................... 24,141,960 (1,447,414)
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (48,766) 6,311
------------ ------------
Net increase (decrease) in total equity resulting
from operations.................................. 24,752,818 (1,734,353)
------------ ------------
Contributions and withdrawals:
Policyowners' premium payments..................... 6,213,240 4,805,748
Policyowners' surrenders........................... (1,743,733) (855,257)
Policyowners' annuity and death benefits........... (391,001) (56,016)
Net transfers from (to) Fixed Account.............. (226,638) (262,649)
Transfers between Investment Divisions............. 28,526,782 35,531,997
Transfer of New York Life Insurance and Annuity
Corporation seed money............................ (2,931,892) --
------------ ------------
Total contributions and withdrawals (net)......... 29,446,758 39,163,823
------------ ------------
Increase in total equity......................... 54,199,576 37,429,470
TOTAL EQUITY:
Beginning of period................................ 64,101,039 26,671,569
------------ ------------
End of period...................................... $118,300,615 $ 64,101,039
============ ============
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-5
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
HIGH YIELD
CASH MANAGEMENT GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
- ---------------------------- ---------------------------- ---------------------------- ----------------------------
1995 1994 1995 1994 1995(a) 1994 1995(a) 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 691,140 $ 444,919 $ 2,190,138 $ 2,343,931 $ 483,690 $ -- $ 72,246 $ --
(102) (60) (656,740) (28,907) 4,961 9,618
-- -- -- -- 91,394 -- -- --
(115) 4 3,470,494 (3,391,641) 23,893 -- 16,749 --
(2,176) (1,561) (10,809) 1,311 (1,120) -- (196) --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
688,747 443,302 4,993,083 (1,075,306) 602,818 -- 98,417 --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
140,652,546 149,922,321 1,425,712 1,900,665 1,945,091 -- 364,382 --
(505,701) (877,674) (1,129,712) (927,629) (72,881) -- (944) --
(126,537) (9,239) (534,624) (330,340) -- -- -- --
(34,343,307) (30,618,411) (1,846,691) (3,227,668) 103,610 -- 20,025 --
(100,371,010) (114,232,472) 3,233,660 11,264,088 13,197,158 -- 1,258,005 --
(5,216,605) -- (5,190,114) -- -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
89,386 4,184,525 (4,041,769) 8,679,116 15,172,978 -- 1,641,468 --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
778,133 4,627,827 951,314 7,603,810 15,775,796 -- 1,739,885 --
20,367,223 15,739,396 37,275,789 29,671,979 -- -- -- --
- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 21,145,356 $ 20,367,223 $ 38,227,103 $ 37,275,789 $ 15,775,796 $ -- $ 1,739,885 $ --
============= ============= ============= ============= ============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-6
<PAGE>
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1995
and December 31, 1994
<TABLE>
<CAPTION>
TOTAL RETURN VALUE
-------------------------- --------------------------
1995 1994 1995(a) 1994
------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income..... $ 1,339,192 $ 1,136,252 $ 35,468 $ --
Net realized gain (loss)
on investments........... 934,065 107,686 4,881 --
Realized gain distribution
received................. -- -- -- --
Change in unrealized
appreciation/depreciation
on investments........... 17,125,651 (3,661,441) 360,968 --
Increase (decrease)
attributable to funds of
New York Life Insurance
and Annuity Corporation
retained by Separate
Account.................. (38,993) 6,410 (712) --
------------ ------------ ------------ ------------
Net increase (decrease)
in total equity
resulting from
operations.............. 19,359,915 (2,411,093) 400,605 --
------------ ------------ ------------ ------------
Contributions and
withdrawals:
Policyowners' premium
payments................. 4,834,385 3,867,205 775,632 --
Policyowners' surrenders.. (1,875,367) (961,431) (6,417) --
Policyowners' annuity and
death benefits........... (697,770) (263,028) -- --
Net transfers from (to)
Fixed Account............ (2,797,019) (2,819,753) 31,146 --
Transfers between
Investment Divisions..... 19,254,405 38,646,218 6,365,280 --
Transfer of New York Life
Insurance and Annuity
Corporation seed money... (5,584,239) -- -- --
------------ ------------ ------------ ------------
Total contributions and
withdrawals (net)....... 13,134,395 38,469,211 7,165,641 --
------------ ------------ ------------ ------------
Increase in total
equity................. 32,494,310 36,058,118 7,566,246 --
TOTAL EQUITY:
Beginning of period....... 70,922,171 34,864,053 -- --
------------ ------------ ------------ ------------
End of period............. $103,416,481 $ 70,922,171 $ 7,566,246 $ --
============ ============ ============ ============
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-7
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT I
NON-QUALIFIED POLICIES
<TABLE>
<CAPTION>
BOND GROWTH EQUITY INDEXED EQUITY SOCIALLY RESPONSIBLE
- -------------------------- -------------------------- -------------------------- --------------------------
1995 1994 1995 1994 1995 1994 1995(a) 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 996,866 $ 559,129 $ 63,462 $ 78,688 $ 487,387 $ 380,045 $ 15,081 $ --
34,253 (67,296) 29,162 (1,338) 1,215,311 37,240 909 --
-- -- 1,927,474 520,819 1,468,797 150,632 7,749 --
1,182,941 (646,891) 1,738,814 (544,177) 9,291,138 (650,982) (11,620) --
(4,468) 91 (8,165) (323) (28,916) 95 (22) --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,209,592 (154,967) 3,750,747 53,669 12,433,717 (82,970) 12,097 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,429,794 660,144 1,679,421 764,890 2,057,459 1,254,455 61,054 --
(225,186) (49,671) (151,017) (43,405) (556,051) (233,929) (817) --
(458,798) (6,705) (73,389) -- (134,310) (49,451) -- --
(101,144) (1,183,715) (95,380) (240,002) (193,866) (425,482) 949 --
7,251,639 9,865,631 9,799,458 8,487,202 11,273,452 10,597,930 204,206 --
-- -- -- -- (6,400,000) -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
7,896,305 9,285,684 11,159,093 8,968,685 6,046,684 11,143,523 265,392 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,105,897 9,130,717 14,909,840 9,022,354 18,480,401 11,060,553 277,489 --
9,130,717 -- 9,040,302 17,948 34,507,695 23,447,142 -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 19,236,614 $ 9,130,717 $ 23,950,142 $ 9,040,302 $ 52,988,096 $ 34,507,695 $ 277,489 $ --
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost: $70,375,242; $16,852,765;
$23,769,475; $8,511,954; $1,169,343;
$63,957,210; $4,811,443; $14,244,691;
$17,517,625; $35,335,280; $145,433,
respectively)............................................ $88,438,732 $16,852,666 $23,613,243 $ 8,493,406
LIABILITIES:
Liability for mortality and
expense risk charges..................................... 275,849 49,541 77,193 21,316
----------- ----------- ----------- -----------
Total equity............................................. $88,162,883 $16,803,125 $23,536,050 $ 8,472,090
=========== =========== =========== ===========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
5,851,569; 15,538,547; 2,019,993; 777,640;
111,686; 5,450,261; 434,890; 1,313,961;
1,403,168; 2,265,761; 12,119, respectively............... $88,162,883 $16,803,125 $23,536,050 $ 8,472,090
Equity of New York Life Insurance and Annuity
Corporation:
Variable accumulation units outstanding for the
Indexed Equity Investment Division: 717,735.............. -- -- -- --
----------- ----------- ----------- -----------
Total equity............................................. $88,162,883 $16,803,125 $23,536,050 $ 8,472,090
=========== =========== =========== ===========
Variable accumulation
unit value............................................... $ 15.07 $ 1.08 $ 11.65 $ 10.89
=========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-9
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
NTERNATIONALI TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,178,774 $74,607,884 $ 5,025,872 $14,632,413 $18,410,236 $43,128,030 $ 140,900
2,686 238,724 11,415 45,952 56,990 138,924 387
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1,176,088 $74,369,160 $ 5,014,457 $14,586,461 $18,353,246 $42,989,106 $ 140,513
=========== =========== =========== =========== =========== =========== ===========
$ 1,176,088 $74,369,160 $ 5,014,457 $14,586,461 $18,353,246 $32,647,285 $ 140,513
-- -- -- -- -- 10,341,821 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 1,176,088 $74,369,160 $ 5,014,457 $14,586,461 $18,353,246 $42,989,106 $ 140,513
=========== =========== =========== =========== =========== =========== ===========
$ 10.53 $ 13.65 $ 11.53 $ 11.10 $ 13.08 $ 14.41 $ 11.59
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-10
<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND(a)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income........... $ 350,012 $ 710,768 $ 1,638,138 $ 298,624
Mortality and expense risk
charges.................. (824,085) (169,968) (280,343) (29,153)
------------ ------------ ------------ ------------
Net investment income
(loss).................. (474,073) 540,800 1,357,795 269,471
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of
investments.............. 3,707,831 43,511,097 7,784,971 145,110
Cost of investments sold.. (3,041,754) (43,511,188) (8,346,198) (141,436)
------------ ------------ ------------ ------------
Net realized gain (loss)
on investments.......... 666,077 (91) (561,227) 3,674
Realized gain distribution
received................. -- -- -- 50,349
Change in unrealized
appreciation/depreciation
on investments........... 17,571,295 (75) 2,265,252 (18,548)
------------ ------------ ------------ ------------
Net gain (loss) on
investments............. 18,237,372 (166) 1,704,025 35,475
------------ ------------ ------------ ------------
Decrease attributable to
funds of New York Life
Insurance and Annuity
Corporation retained by
Separate Account......... (34,748) (1,696) (6,687) (552)
------------ ------------ ------------ ------------
Net increase in total
equity resulting from
operations.............. $ 17,728,551 $ 538,938 $ 3,055,133 $ 304,394
============ ============ ============ ============
</TABLE>
(a)For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-11
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY(a) RETURN VALUE(a) BOND EQUITY EQUITY RESPONSIBLE(a)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 53,349 $ 1,750,624 $ 40,655 $ 900,472 $ 209,902 $ 841,127 $ 8,483
(3,804) (767,986) (14,843) (134,513) (155,235) (445,540) (561)
------------ ------------ ------------ ------------ ------------ ------------ ------------
49,545 982,638 25,812 765,959 54,667 395,587 7,922
------------ ------------ ------------ ------------ ------------ ------------ ------------
112,865 6,739,083 40,737 1,007,875 581,918 6,603,257 1,876
(107,477) (6,108,604) (37,488) (999,890) (529,532) (5,625,502) (1,712)
------------ ------------ ------------ ------------ ------------ ------------ ------------
5,388 630,479 3,249 7,985 52,386 977,755 164
-- -- -- -- 1,482,658 1,192,391 4,104
9,430 11,915,138 214,429 771,258 1,174,195 7,560,089 (4,534)
------------ ------------ ------------ ------------ ------------ ------------ ------------
14,818 12,545,617 217,678 779,243 2,709,239 9,730,235 (266)
------------ ------------ ------------ ------------ ------------ ------------ ------------
(101) (27,083) (419) (3,114) (5,837) (23,484) (14)
------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 64,262 $ 13,501,172 $ 243,071 $ 1,542,088 $ 2,758,069 $ 10,102,338 $ 7,642
============ ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-12
<PAGE>
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1995
and December 31, 1994
<TABLE>
<CAPTION>
CAPITAL APPRECIATION
--------------------------
1995 1994
--------------------------
<S> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income (loss)....................... $ (474,073) $ (208,711)
Net realized gain (loss) on investments............ 666,077 64,960
Realized gain distribution received................ -- --
Change in unrealized appreciation/depreciation
on investments.................................... 17,571,295 (950,114)
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (34,748) 3,855
------------ ------------
Net increase (decrease) in total equity resulting
from operations.................................. 17,728,551 (1,090,010)
------------ ------------
Contributions and withdrawals:
Policyowners' premium payments..................... 9,041,072 5,063,769
Policyowners' surrenders........................... (2,118,856) (681,896)
Policyowners' annuity and death benefits........... (388,356) (31,233)
Net transfers from (to) Fixed Account.............. (396,334) (408,618)
Transfers between Investment Divisions............. 24,663,153 23,012,929
Transfer of New York Life Insurance and Annuity
Corporation seed money............................ (2,931,895) --
------------ ------------
Total contributions and withdrawals (net)......... 27,868,784 26,954,951
------------ ------------
Increase (decrease) in total equity.............. 45,597,335 25,864,941
TOTAL EQUITY:
Beginning of period................................ 42,565,548 16,700,607
------------ ------------
End of period...................................... $ 88,162,883 $ 42,565,548
============ ============
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-13
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
HIGH YIELD
CASH MANAGEMENT GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
- -------------------------- -------------------------- -------------------------- --------------------------
1995 1994 1995 1994 1995(a) 1994 1995(a) 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 540,800 $ 332,211 $ 1,357,795 $ 1,498,197 $ 269,471 $ -- $ 49,545 $ --
(91) (45) (561,227) (18,907) 3,674 -- 5,388 --
-- -- -- -- 50,349 -- -- --
(75) (10) 2,265,252 (2,150,203) (18,548) -- 9,430 --
(1,696) (1,160) (6,687) 782 (552) -- (101) --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
538,938 330,996 3,055,133 (670,131) 304,394 -- 64,262 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
118,322,060 100,906,887 1,292,848 2,164,293 751,710 -- 142,598 --
(350,660) (249,100) (972,188) (605,734) (49,784) -- (5,915) --
-- -- (152,495) (11,075) -- -- -- --
(31,563,574) (21,429,306) (666,597) (1,429,362) 34,416 -- 32,137 --
(81,161,746) (74,132,839) 2,394,522 7,382,495 7,431,354 -- 943,006 --
(5,216,590) -- (5,190,120) -- -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
29,490 5,095,642 (3,294,030) 7,500,617 8,167,696 -- 1,111,826 --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
568,428 5,426,638 (238,897) 6,830,486 8,472,090 -- 1,176,088 --
16,234,697 10,808,059 23,774,947 16,944,461 -- -- -- --
- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 16,803,125 $ 16,234,697 $ 23,536,050 $ 23,774,947 $ 8,472,090 $ -- $ 1,176,088 $ --
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-14
<PAGE>
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1995
and December 31, 1994
<TABLE>
<CAPTION>
TOTAL RETURN VALUE
------------------------ ------------------------
1995 1994 1995(a) 1994
--------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income....... $ 982,638 $ 788,411 $ 25,812 $ --
Net realized gain (loss) on
investments................ 630,479 92,404 3,249 --
Realized gain distribution
received................... -- -- -- --
Change in unrealized
appreciation/depreciation
on investments............. 11,915,138 (2,319,640) 214,429 --
Increase (decrease)
attributable to funds of
New York Life Insurance
and Annuity Corporation
retained by
Separate Account........... (27,083) 3,625 (419) --
----------- ----------- ----------- -----------
Net increase (decrease) in
total equity resulting
from operations........... 13,501,172 (1,435,200) 243,071 --
----------- ----------- ----------- -----------
Contributions and
withdrawals:
Policyowners' premium
payments................... 6,712,945 5,191,061 409,544 --
Policyowners' surrenders.... (1,963,004) (1,011,672) (10,846) --
Policyowners' annuity and
death benefits............. (181,627) (75,075) -- --
Net transfers from (to)
Fixed Account.............. (1,606,909) (1,235,888) 38,904 --
Transfers between
Investment Divisions....... 15,653,176 25,885,557 4,333,784 --
Transfer of New York Life
Insurance and Annuity
Corporation seed money..... (5,584,244) -- -- --
----------- ----------- ----------- -----------
Total contributions and
withdrawals (net)......... 13,030,337 28,753,983 4,771,386 --
----------- ----------- ----------- -----------
Increase in total equity.. 26,531,509 27,318,783 5,014,457 --
TOTAL EQUITY:
Beginning of period......... 47,837,651 20,518,868 -- --
----------- ----------- ----------- -----------
End of period............... $74,369,160 $47,837,651 $ 5,014,457 $ --
=========== =========== =========== ===========
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-15
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNT II
TAX-QUALIFIED POLICIES
<TABLE>
<CAPTION>
BOND GROWTH EQUITY INDEXED EQUITY SOCIALLY RESPONSIBLE
- ------------------------ ------------------------ ------------------------ ------------------------
1995 1994 1995 1994 1995 1994 1995(a) 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 765,959 $ 368,752 $ 54,667 $ 44,166 $ 395,587 $ 297,540 $ 7,922 $ --
7,985 (27,079) 52,386 (27,530) 977,755 40,298 164 --
-- -- 1,482,658 308,532 1,192,391 120,185 4,104 --
771,258 (382,196) 1,174,195 (278,614) 7,560,089 (524,320) (4,534) --
(3,114) 10 (5,837) (229) (23,484) 67 (14) --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,542,088 (40,513) 2,758,069 46,325 10,102,338 (66,230) 7,642 --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,274,206 497,251 1,819,999 472,415 2,907,138 1,521,567 8,840 --
(374,611) (39,073) (331,235) (47,863) (787,628) (312,145) -- --
(27,887) (12,132) (5,124) -- (20,221) (51,204) -- --
(466,453) (122,184) (380,607) (164,333) (113,915) (384,070) 2,739 --
6,541,419 5,781,101 9,219,035 4,933,444 9,933,516 7,159,039 121,292 --
-- -- -- -- (6,400,000) -- -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
6,946,674 6,104,963 10,322,068 5,193,663 5,518,890 7,933,187 132,871 --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
8,488,762 6,064,450 13,080,137 5,239,988 15,621,228 7,866,957 140,513 --
6,097,699 33,249 5,273,109 33,121 27,367,878 19,500,921 -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$14,586,461 $ 6,097,699 $18,353,246 $ 5,273,109 $42,989,106 $27,367,878 $ 140,513 $ --
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Organization and Accounting Policies:
- -------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation Variable Annuity Separate
Account I ("Separate Account I") and New York Life Insurance and Annuity
Corporation Variable Annuity Separate Account II ("Separate Account II") were
established on October 5, 1992, 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 premium
payments under Non-Qualified Flexible Premium Multi-Funded Variable Retirement
Annuity Policies (Separate Account I) and Qualified Flexible Premium Multi-
Funded Variable Retirement Annuity Policies (Separate Account II) issued by
New York Life Insurance and Annuity Corporation. Separate Account I policies
are designed to establish retirement benefits to provide individuals with
supplemental retirement income. Separate Account II policies are designed to
establish retirement benefits for individuals who participate in qualified
pension, profit sharing or annuity plans. The policies are offered by NYLIFE
Distributors Inc. and sold by registered representatives of NYLIFE Securities
Inc., both of which are wholly-owned subsidiaries of NYLIFE Inc. and are
indirect wholly-owned subsidiaries of New York Life Insurance Company.
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 in the shares of the
New York Life MFA Series Fund, Inc. (the "MFA Fund"), a diversified open-end
management investment company, and the Acacia Capital Corporation (the "Acacia
Fund"). These assets are clearly identified and distinguished from the other
assets and liabilities of New York Life Insurance and Annuity Corporation.
On May 1, 1995 New York Life Insurance and Annuity Corporation created four
new Investment Divisions within Separate Account I and Separate Account II,
the High Yield Corporate Bond, International Equity, Value and Socially
Responsible Investment Divisions. These Investment Divisions were established
for the purpose of investing premium payments in the MFA Fund's newly
established High Yield Corporate Bond, International Equity and Value
Portfolios and the Acacia Fund's Responsibly Invested Balanced Portfolio.
There are ten Investment Divisions within Separate Account I and Separate
Account II which invest in the corresponding Portfolios of the MFA Fund: the
Capital Appreciation, Cash Management, Government, High Yield Corporate Bond,
International Equity, Total Return, Value, Bond, Growth Equity and Indexed
Equity Portfolios. There is one Investment Division within Separate Account I
and Separate Account II which invests solely in the Acacia Fund's Responsibly
Invested Balanced Portfolio. Premium payments received are allocated to the
Cash Management Investment Division until 15 days after the policy issue date.
Thereafter, premium payments will be allocated to the Investment Divisions of
Separate Account I or Separate Account II in accordance with the Policyowner's
instructions. In addition, the Policyowner has the option to transfer amounts
between the Investment Divisions of Separate Account I or 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 investments in the MFA Fund and Acacia Fund are
valued at the net asset value of shares of the respective fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding
portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
F-17
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1995, the investment in the MFA Fund and Acacia Fund by the re-
spective Investment Divisions of Separate Account I and Separate Account II is
as follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Number of Shares................................... 7,660 21,205 3,833 1,499
Identified Cost*................................... $93,981 $21,204 $38,873 $15,792
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Number of Shares................................... 5,708 16,853 2,360 805
Identified Cost*................................... $70,375 $16,853 $23,769 $ 8,512
* The cost stated also represents the aggregate cost for Federal income tax purposes.
Transactions in MFA Fund and Acacia Fund shares for the year ended December 31, 1995, were as follows:
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(A)
-------------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED POLICIES)
Purchases.......................................... $35,679 $46,192 $7,919 $15,877
Proceeds from Sales................................ 6,778 45,419 9,780 89
SEPARATE ACCOUNT II (TAX-QUALIFIED POLICIES)
Purchases.......................................... $31,214 $44,082 $5,841 $ 8,653
Proceeds from Sales................................ 3,708 43,511 7,785 145
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
F-19
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
171 7,825 655 1,438 1,395 3,930 163
$1,728 $88,918 $7,224 $18,765 $22,831 $43,775 $290
116 5,627 434 1,090 1,069 3,189 83
$1,169 $63,957 $4,811 $14,245 $17,518 $35,335 $145
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
PORTFOLIO(A) PORTFOLIO PORTFOLIO(A) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(A)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1,928 $23,329 $7,289 $10,510 $13,954 $16,033 $300
210 8,786 70 1,582 761 7,997 12
$1,276 $20,815 $4,849 $ 8,746 $12,479 $13,739 $147
113 6,739 41 1,008 582 6,603 2
</TABLE>
During the period New York Life Insurance and Annuity Corporation withdrew
$25,322,850 and $25,322,849 from Separate Account I and Separate Account II,
respectively. These amounts represented a portion of New York Life Insurance
and Annuity Corporation's January 29, 1993 initial investment in the Separate
Accounts. These amounts include accumulated appreciation of $2,500,195 in Sep-
arate Account I and $2,500,198 in Separate Account II.
F-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- -------------------------------------------------------------------------------
Separate Account I and Separate Account II are charged for administrative
services provided and the mortality and expense risks assumed by New York Life
Insurance and Annuity Corporation. These charges are made at an annual rate of
1.30% of the daily net asset value 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 premium payments.
F-21
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Cost to Policyowners and New York Life Insurance and
Annuity Corporation (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1995, the cost to Policyowners and New York Life Insurance and
Annuity Corporation for accumulation units outstanding, with adjustments for
net investment income, market appreciation/depreciation and deduction for ex-
penses is as follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
-------------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-
QUALIFIED POLICIES)
Cost to Policyowners and New
York Life Insurance and
Annuity Corporation (net of
withdrawals)................ $ 93,364 $ 19,890 $ 33,908 $ 15,173
Accumulated net investment
income (loss)............... (1,074) 1,259 5,507 484
Accumulated net realized gain
(loss) on investments and
realized gain distributions
received.................... 1,364 -- (656) 96
Unrealized appreciation/
depreciation on
investments................. 24,695 -- (521) 24
Decrease attributable to
funds of New York Life
Insurance and Annuity
Corporation retained by
Separate Account............ (48) (4) (11) (1)
-------- -------- -------- --------
Net amount applicable to
Policyowners and New York
Life Insurance and Annuity
Corporation................. $118,301 $ 21,145 $ 38,227 $ 15,776
======== ======== ======== ========
</TABLE>
F-23
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,641 $ 84,727 $ 7,166 $ 17,182 $ 20,145 $ 39,486 $ 265
72 2,790 35 1,556 142 1,075 15
10 1,105 5 (33) 2,478 3,073 9
17 14,831 361 536 1,193 9,386 (12)
-- (37) (1) (4) (8) (32) --
-------- -------- -------- -------- -------- -------- --------
$ 1,740 $103,416 $ 7,566 $ 19,237 $ 23,950 $ 52,988 $ 277
======== ======== ======== ======== ======== ======== ========
</TABLE>
F-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Cost to Policyowners and New York Life Insurance and
Annuity Corporation (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
-------------------------------------------------
<S> <C> <C> <C> <C>
SEPARATE ACCOUNT II (TAX-
QUALIFIED POLICIES)
Cost to Policyowners and New
York Life Insurance and
Annuity Corporation (net of
withdrawals)................ $70,139 $15,832 $20,870 $ 8,169
Accumulated net investment
income (loss)............... (743) 974 3,398 269
Accumulated net realized gain
(loss) on investments and
realized gain distributions
received.................... 739 -- (569) 54
Unrealized appreciation/
depreciation on
investments................. 18,063 -- (156) (19)
Decrease attributable to
funds of New York Life
Insurance and Annuity
Corporation retained by
Separate Account............ (35) (3) (7) (1)
------- ------- ------- -------
Net amount applicable to
Policyowners and New York
Life Insurance and Annuity
Corporation................. $88,163 $16,803 $23,536 $ 8,472
======= ======= ======= =======
</TABLE>
F-25
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,112 $61,054 $ 4,771 $13,084 $15,548 $31,888 $ 134
50 1,927 26 1,136 99 847 8
5 764 3 (19) 1,819 2,487 4
9 10,651 214 388 893 7,793 (5)
-- (27) -- (3) (6) (26) --
------- ------- ------- ------- ------- ------- -------
$ 1,176 $74,369 $ 5,014 $14,586 $18,353 $42,989 $ 141
======= ======= ======= ======= ======= ======= =======
</TABLE>
F-26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the years ended December 31, 1995 and
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION CASH MANAGEMENT GOVERNMENT
---------------------- ------------------ ------------------
1995 1994 1995 1994 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-
QUALIFIED POLICIES)
Units redeemed on
withdrawal by New York
Life Insurance and
Annuity Corporation.... (250) -- (5,000) -- (500) --
Units issued on premium
payments............... 456 427 132,513 146,594 131 185
Units redeemed on
surrenders............. (132) (76) (479) (857) (103) (91)
Units redeemed on
annuity and death
benefits............... (30) (5) (119) (9) (49) (32)
Units issued (redeemed)
on net transfers to
Fixed Account.......... (19) (23) (32,549) (29,805) (176) (319)
Units issued (redeemed)
on transfers between
Investment Divisions... 2,125 3,140 (94,442) (111,842) 292 1,100
---------- ---------- -------- -------- -------- --------
Net increase
(decrease)............ 2,150 3,463 (76) 4,081 (405) 843
Units outstanding,
beginning of period.... 5,702 2,239 19,630 15,549 3,686 2,843
---------- ---------- -------- -------- -------- --------
Units outstanding, end
of period.............. 7,852 5,702 19,554 19,630 3,281 3,686
========== ========== ======== ======== ======== ========
SEPARATE ACCOUNT II
(TAX-QUALIFIED POLI-
CIES)
Units redeemed on
withdrawal by New York
Life Insurance and
Annuity Corporation.... (250) -- (5,000) -- (500) --
Units issued on premium
payments............... 684 449 111,587 98,711 118 211
Units redeemed on
surrenders............. (158) (60) (331) (243) (89) (59)
Units redeemed on
annuity and death
benefits............... (32) (3) -- -- (14) (1)
Units issued (redeemed)
on net transfers to
Fixed Account.......... (31) (36) (29,924) (20,909) (63) (141)
Units issued (redeemed)
on transfers between
Investment Divisions... 1,852 2,035 (76,440) (72,589) 217 718
---------- ---------- -------- -------- -------- --------
Net increase
(decrease)............ 2,065 2,385 (108) 4,970 (331) 728
Units outstanding,
beginning of period.... 3,787 1,402 15,647 10,677 2,351 1,623
---------- ---------- -------- -------- -------- --------
Units outstanding, end
of period.............. 5,852 3,787 15,539 15,647 2,020 2,351
========== ========== ======== ======== ======== ========
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
F-27
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL
CORPORATE BOND EQUITY TOTAL RETURN VALUE BOND
------------------------------------- ------------------ ----------------- ------------------
1995(a) 1994 1995(a) 1994 1995 1994 1995(a) 1994 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- -- -- -- (500) -- -- -- -- --
185 -- 36 -- 386 355 71 -- 137 69
(7) -- -- -- (153) (89) -- -- (22) (5)
-- -- -- -- (55) (24) -- -- (42) (1)
10 -- 2 -- (245) (261) 3 -- (10) (125)
1,258 -- 127 -- 1,562 3,536 584 -- 709 1,023
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
1,446 -- 165 -- 995 3,517 658 -- 772 961
-- -- -- -- 6,584 3,067 -- -- 961 --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
1,446 -- 165 -- 7,579 6,584 658 -- 1,733 961
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
-- -- -- -- (500) -- -- -- -- --
71 -- 14 -- 549 477 37 -- 122 52
(4) -- -- -- (158) (93) -- -- (35) (4)
-- -- -- -- (15) (7) -- -- (3) (1)
3 -- 3 -- (138) (116) 3 -- (47) (13)
708 -- 95 -- 1,271 2,375 395 -- 636 604
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
778 -- 112 -- 1,009 2,636 435 -- 673 638
-- -- -- -- 4,441 1,805 -- -- 641 3
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
778 -- 112 -- 5,450 4,441 435 -- 1,314 641
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH INDEXED SOCIALLY
EQUITY EQUITY RESPONSIBLE
------------ ------------ -------------
1995 1994 1995 1994 1995(A) 1994
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALIFIED
POLICIES)
Units redeemed on withdrawal by New
York Life
Insurance and Annuity Corporation... -- -- (532) -- -- --
Units issued on premium payments..... 138 75 157 118 6 --
Units redeemed on surrenders......... (13) (4) (45) (22) -- --
Units redeemed on annuity and death
benefits............................ (6) -- (9) (5) -- --
Units redeemed on net transfers to
Fixed Account....................... (10) (24) (17) (41) -- --
Units issued on transfers between
Investment Divisions................ 841 832 887 999 18 --
----- ----- ----- ----- ----- -----
Net increase........................ 950 879 441 1,049 24 --
Units outstanding, beginning of
period.............................. 881 2 3,236 2,187 -- --
----- ----- ----- ----- ----- -----
Units outstanding, end of period..... 1,831 881 3,677 3,236 24 --
===== ===== ===== ===== ===== =====
SEPARATE ACCOUNT II (TAX-QUALIFIED
POLICIES)
Units redeemed on withdrawal by New
York Life
Insurance and Annuity Corporation... -- -- (532) -- -- --
Units issued on premium payments..... 154 47 235 143 1 --
Units redeemed on surrenders......... (28) (5) (64) (29) -- --
Units redeemed on annuity and death
benefits............................ -- -- (2) (5) -- --
Units redeemed on net transfers to
Fixed Account....................... (33) (16) (9) (37) -- --
Units issued on transfers between
Investment Divisions................ 796 485 788 676 11 --
----- ----- ----- ----- ----- -----
Net increase........................ 889 511 416 748 12 --
Units outstanding, beginning of
period.............................. 514 3 2,567 1,819 -- --
----- ----- ----- ----- ----- -----
Units outstanding, end of period..... 1,403 514 2,983 2,567 12 --
===== ===== ===== ===== ===== =====
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
F-29
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and capital
changes (for an accumulation unit outstanding throughout each period) with
respect to each Investment Division of Separate Account I and Separate Account
II:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION CASH MANAGEMENT
----------------------- ----------------------
1995+ 1994+ 1993+(a) 1995+ 1994+ 1993+(a)
----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALI-
FIED POLICIES)
Unit value, beginning of period. $11.24 $11.91 $10.00 $ 1.04 $ 1.01 $ 1.00
Net investment income (loss).... (0.10) (0.08) (0.08) 0.04 0.03 0.01
Net realized and unrealized
gains (losses) on security
transactions and realized
capital gain distributions
received (includes the effect
of capital share transactions). 3.93 (0.59) 1.99 -- -- --
------ ------ ------ ------ ------ ------
Unit value, end of period....... $15.07 $11.24 $11.91 $ 1.08 $ 1.04 $ 1.01
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT II (TAX-QUALI-
FIED POLICIES)
Unit value, beginning of period. $11.24 $11.91 $10.00 $ 1.04 $ 1.01 $ 1.00
Net investment income (loss).... (0.10) (0.08) (0.09) 0.04 0.03 0.01
Net realized and unrealized
gains (losses) on security
transactions and realized
capital gain distributions
received (includes the effect
of capital share transactions). 3.93 (0.59) 2.00 -- -- --
------ ------ ------ ------ ------ ------
Unit value, end of period....... $15.07 $11.24 $11.91 $ 1.08 $ 1.04 $ 1.01
====== ====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the period.
++ Per unit data based on average daily units outstanding during the period.
(a) For the period January 29, 1993 (Commencement of Operations) through Decem-
ber 31, 1993.
(b) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
(c) For the period December 15, 1993 (Commencement of Operations) through De-
cember 31, 1993.
F-31
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY TOTAL RETURN
----------------------------------------------- ---------------------- -----------------------
1995+ 1994+ 1993+(a) 1995+(b) 1994 1993 1995+(b) 1994 1993 1995+ 1994+ 1993+(a)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.11 $10.44 $10.00 $10.00 $ -- $ -- $10.00 $ -- $ -- $10.77 $11.37 $10.00
0.68 0.68 0.70 0.76 -- -- 0.91 -- -- 0.20 0.22 0.24
0.86 (1.01) (0.26) 0.15 -- -- (0.38) -- -- 2.68 (0.82) 1.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.65 $10.11 $10.44 $10.91 $ -- $ -- $10.53 $ -- $ -- $13.65 $10.77 $11.37
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
$10.11 $10.44 $10.00 $10.00 $ -- $ -- $10.00 $ -- $ -- $10.77 $11.37 $10.00
0.68 0.70 0.60 0.84 -- -- 1.11 -- -- 0.21 0.24 0.17
0.86 (1.03) (0.16) 0.05 -- -- (0.58) -- -- 2.67 (0.84) 1.20
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$11.65 $10.11 $10.44 $10.89 $ -- $ -- $10.53 $ -- $ -- $13.65 $10.77 $11.37
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE BOND
---------------------- ------------------------
1995+(b) 1994 1993 1995+ 1994+ 1993++(c)
-----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT I (NON-QUALI-
FIED POLICIES)
Unit value, beginning of
period........................ $10.00 $ -- $ -- $ 9.51 $ 9.97 $ --
Net investment income ......... 0.13 -- -- 0.71 1.18 --
Net realized and unrealized
gains (losses) on security
transactions and realized
capital gain distributions
received (includes the effect
of
capital share transactions)... 1.37 -- -- 0.88 (1.64) --
------ ------ ------ ------ ------ ------
Unit value, end of period...... $11.50 $ -- $ -- $11.10 $ 9.51 $ --
====== ====== ====== ====== ====== ======
SEPARATE ACCOUNT II (TAX-QUALI-
FIED POLICIES)
Unit value, beginning of
period........................ $10.00 $ -- $ -- $ 9.51 $ 9.97 $10.00
Net investment income ......... 0.16 -- -- 0.77 1.17 0.56
Net realized and unrealized
gains (losses) on security
transactions and realized
capital gain distributions
received (includes the effect
of
capital share transactions)... 1.37 -- -- 0.82 (1.63) (0.59)
------ ------ ------ ------ ------ ------
Unit value, end of period...... $11.53 $ -- $ -- $11.10 $ 9.51 $ 9.97
====== ====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the period.
++ Per unit data based on average daily units outstanding during the period.
(a) For the period January 29, 1993 (Commencement of Operations) through Decem-
ber 31, 1993.
(b) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
(c) For the period December 15, 1993 (Commencement of Operations) through De-
cember 31, 1993.
F-33
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VARIABLE ANNUITY
SEPARATE ACCOUNTS I AND II
NON-QUALIFIED AND
TAX-QUALIFIED POLICIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH EQUITY INDEXED EQUITY SOCIALLY RESPONSIBLE
------------------------------------------------- ----------------------
1995+ 1994+ 1993++(c) 1995+ 1994+ 1993+(a) 1995+(b) 1994 1993
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$10.26 $10.27 $10.00 $10.66 $10.72 $10.00 $10.00 $ -- $ --
0.05 0.23 0.14 0.15 0.14 0.13 1.54 -- --
2.77 (0.24) 0.13 3.60 (0.20) 0.59 0.04 -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
$13.08 $10.26 $10.27 $14.41 $10.66 $10.72 $11.58 $ -- $ --
====== ====== ====== ====== ====== ====== ====== ====== ======
$10.26 $10.27 $10.00 $10.66 $10.72 $10.00 $10.00 $ -- $ --
0.06 0.20 0.15 0.15 0.13 0.10 1.34 -- --
2.76 (0.21) 0.12 3.60 (0.19) 0.62 0.25 -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
$13.08 $10.26 $10.27 $14.41 $10.66 $10.72 $11.59 $ -- $ --
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--Event Subsequent to date of Auditor's Report (unaudited):
- --------------------------------------------------------------------------------
At December 31, 1995 the General Account of New York Life Insurance and Annuity
Corporation had $21 million in seed capital invested in its Separate Accounts (I
and II). During February 1996, all of the remaining seed capital was returned to
the General Account of New York Life Insurance and Annuity Corporation. The
return of this seed capital reduced Separate Account assets and equity in the
Investment Divisions as follows (in 000's):
<TABLE>
<CAPTION>
INDEXED
EQUITY
PORTFOLIO
---------
<S> <C>
Separate Account I.................................................... $10,765
Separate Account II................................................... $10,765
</TABLE>
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance
and Annuity Corporation and the Variable Annuity 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 se-
lected per unit data present fairly, in all material respects, the financial
position of the New York Life Insurance and Annuity Corporation Variable Annu-
ity Separate Account I and New York Life Insurance and Annuity Corporation
Variable Annuity Separate Account II (which are comprised of the Capital Ap-
preciation Investment Division, the Cash Management Investment Division, the
Government Investment Division, the High Yield Corporate Bond Investment Divi-
sion, the International Equity Investment Division, the Total Return Invest-
ment Division, the Value Investment Division, the Bond Investment Division,
the Growth Equity Investment Division, the Indexed Equity Division and the So-
cially Responsible Investment Division) at December 31, 1995, the results of
each of their operations for the year then ended (for the High Yield Corporate
Bond Investment Division, the International Equity Investment Division, the
Value Investment Division and the Socially Responsible Investment Division for
the period May 1, 1995 (commencement of operations) through December 31, 1995)
and the changes in each of their total equity and the selected per unit data
for each of the periods presented, in conformity with generally accepted ac-
counting 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 re-
quire 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 dis-
closures in the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall fi-
nancial statement presentation. We believe that our audits, which included
confirmation of investments at December 31, 1995 with New York Life MFA Series
Fund, Inc. and Acacia Capital Corporation, 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-36
<PAGE>
STATEMENT OF FINANCIAL POSITION
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------------
(IN MILLIONS)
<S> <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>
See accompanying notes to financial statements.
F-37
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF
STATEMENT OF OPERATIONS NEW YORK LIFE INSURANCE COMPANY)
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
<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>
See accompanying notes to financial statements.
F-38
<PAGE>
STATEMENT OF CHANGES IN SURPLUS
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
<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>
See accompanying notes to financial statements.
F-39
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF
STATEMENT OF CASH FLOWS NEW YORK LIFE INSURANCE COMPANY)
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
<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>
See accompanying notes to financial statements.
F-40
<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
F-41
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF
NEW YORK LIFE INSURANCE COMPANY)
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.
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.
F-42
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 di-
rectly 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.
F-43
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF
NEW YORK LIFE INSURANCE COMPANY)
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. In addition, the amortization of market discount and accretion of
market premium for mortgage backed securities is based on historical experi-
ence and estimates of future payment speeds on the underlying mortgage loans.
Actual prepayment speeds will differ from original estimates and may result in
material adjustments to amortization or accretion recorded in future periods.
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-44
<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-45
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY 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-46
<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-47
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY 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.
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
F-48
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 peri-
odic 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-49
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY 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-50
<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.
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-51
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY 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-52
<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-53
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY 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-54
<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-55
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY 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-56
<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-57
<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
related statements of operations, of changes in surplus and of cash flows
present fairly, in all material respects, the financial position of New York
Life Insurance and Annuity Corporation at December 31, 1995 and 1994, and the
results 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
accounting principles (practices prescribed or permitted by insurance
regulatory authorities, 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 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 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-58
