<PAGE>
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN A PROSPECTUS
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
1 Cover Page; Basic Questions and Answers
About Us and Our Policy
2 Cover Page
3 Not Applicable
4 Sales and Other Agreements
5 The Separate Accounts
6 The Separate Accounts
9 Legal Proceedings
10 General Provisions of the Policy; Death
Benefit Under the Policy; Free Look
Provision; Exchange Privilege; Cash Value
and Cash Surrender Value; Policy Loan
Privilege; The Separate Accounts; The
Fixed Account; Charges Under the Policy;
Sales and Other Agreements; When We Pay
Proceeds; Payment Options; Our Rights;
Your Voting Rights; Basic Questions and
Answers About Us and Our Policy
11 The Separate Accounts; MainStay VP Series
Fund, Inc.; The Alger American Fund;
Acacia Capital Corporation; Fidelity
Variable Insurance Products Fund and
Fidelity Variable Insurance Products Fund
II; Janus Aspen Series; Morgan Stanley
Universal Funds, Inc.
12 The Separate Accounts; Sales and Other
Agreements
13 The Separate Accounts; Charges Under the
Policy; MainStay VP Series Fund, Inc.; The
Alger American Fund; Acacia Capital
Corporation; Fidelity Variable Insurance
Products Fund and Fidelity Variable
Insurance Products Fund II; Janus Aspen
Series; Morgan Stanley Universal Funds,
Inc.
14 Basic Questions and Answers About Us and
Our Policy; The Separate Accounts; Sales
and Other Agreements
15 Basic Questions and Answers About Us and
Our Policy; General Provisions of the
Policy
16 The Separate Accounts; Investment Return;
Basic Questions and Answers About Us and
Our Policy; MainStay VP Series Fund, Inc.;
The Alger American Fund; Acacia Capital
Corporation; Fidelity Variable Insurance
Products Fund and Fidelity Variable
Insurance Products Fund II; Janus Aspen
<PAGE>
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
Series; Morgan Stanley Universal Funds,
Inc.
17 Cash Surrender Value; Policy Surrenders
and Partial Withdrawals; General
Provisions of the Policy
18 The Separate Accounts; MainStay VP Series
Fund, Inc.; The Alger American Fund;
Acacia Capital Corporation; Fidelity
Variable Insurance Products Fund and
Fidelity Variable Insurance Products Fund
II; Janus Aspen Series; Morgan Stanley
Universal Funds, Inc.; Investment Return
19 Records and Reports
20 Not Applicable
21 Policy Loan Privilege
22 Not Applicable
23 Not Applicable
24 Additional Provisions of the Policy
25 What are NYLIAC and New York Life?
26 Not Applicable
27 What are NYLIAC and New York Life?
28 Directors and Principal Officers of NYLIAC
29 What are NYLIAC and New York Life?
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Not Applicable
37 Not Applicable
38 Sales and Other Agreements
<PAGE>
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
39 Sales and Other Agreements
40 Not Applicable
41 Sales and Other Agreements
42 Not Applicable
43 Not Applicable
44 The Separate Accounts: Investment Return;
General Provisions of the Policy
45 Not Applicable
46 The Separate Accounts; Investment Return
47 The Separate Accounts; MainStay VP Series
Fund, Inc.; The Alger American Fund;
Acacia Capital Corporation; Fidelity
Variable Insurance Products Fund and
Fidelity Variable Insurance Products Fund
II; Janus Aspen Series; Morgan Stanley
Universal Funds, Inc.
48 Not Applicable
49 Not Applicable
50 The Separate Accounts
51 Cover Page; Basic Questions and Answers
About Us and Our Policy
52 The Separate Accounts; Our Rights
53 Federal Income Tax Considerations
54 Not Applicable
55 Not Applicable
59 Financial Statements
<PAGE>
NYLIAC VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
NYLIAC VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-II
PROSPECTUS DATED OCTOBER 1, 1996
FOR
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
OFFERED BY
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
This Prospectus describes a flexible premium variable universal life
insurance policy offered by New York Life Insurance and Annuity Corporation
("NYLIAC"). The Policy provides lifetime insurance protection for individuals.
The policy offers flexible premium payments, a choice of two death benefit
options, loan privileges, increases and decreases to the policy's face amount
of insurance and a choice of premium allocation alternatives, including a
guaranteed interest option and the eighteen variable investment divisions
listed below.
.MainStay VP Capital .MainStay VP Growth Equity
Appreciation .MainStay VP Indexed Equity
.MainStay VP Cash Management .Alger American Small Capitalization
.MainStay VP Convertible .Calvert Socially Responsible
.MainStay VP Government .Fidelity VIP Contrafund
.MainStay VP High Yield .Fidelity VIP Equity-Income
Corporate Bond .Janus Aspen Balanced
.MainStay VP International .Janus Aspen Worldwide Growth
Equity .Morgan Stanley Emerging Markets
.MainStay VP Total Return Equity
.MainStay VP Value
.MainStay VP Bond
We do not guarantee the investment performance of these investment divisions,
which involve varying degrees of risk.
The death benefit may, and the cash surrender value of a policy will, vary
up or down depending on the performance of the investment divisions. There is
no guaranteed minimum cash surrender value for a policy. However, a policy's
death benefit will never be less than its face amount, less outstanding policy
debt. Although premiums are flexible, additional premiums may be required to
keep the policy in effect. The policy may terminate if its cash surrender
value is too small to pay the policy's monthly charges.
You can borrow against or withdraw money from the policy, within limits.
Loans and withdrawals will reduce the policy's death benefit and cash
surrender value. You can also surrender the policy. A surrender charge will
apply if you surrender the policy during the first fifteen policy years. This
charge may also apply if you request a reduction of the face amount or if the
policy terminates.
You may examine the policy for a limited period and cancel it for a full
refund of the greater of cash value or premiums paid. Replacing existing
insurance with this policy may not be to your advantage.
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.
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
----
<S> <C>
DEFINITION OF TERMS....................................................... 4
BASIC QUESTIONS AND ANSWERS ABOUT US AND OUR POLICY....................... 8
What are NYLIAC and New York Life?....................................... 8
What Variable Life Insurance Policy are we offering?..................... 8
How is the Policy available?............................................. 8
What is the Cash Value of the Policy?.................................... 9
How is the value of an Accumulation Unit determined?..................... 9
What are the Investment Divisions of the Separate Accounts?.............. 9
What is the Fixed Account?............................................... 10
How long will the Policy remain in force?................................ 10
Is the level of the Death Benefit guaranteed?............................ 10
Is the Death Benefit subject to income taxes?............................ 10
Does the Policy have a Cash Surrender Value?............................. 10
What is a Modified Endowment Contract?................................... 10
Can the Policy become a Modified Endowment Contract?..................... 11
What about Premiums?..................................................... 11
What are Unscheduled Premiums?........................................... 11
When are Premiums put into the Fixed Account or the Separate Accounts?... 11
How are Premiums allocated
among the Allocation Alternatives?...................................... 12
Are there charges against the Policy?.................................... 12
What is the loan privilege?.............................................. 13
Do I have a right to cancel?............................................. 13
Can the Policy be exchanged or all amounts allocated to the Fixed
Account?................................................................ 13
CHARGES UNDER THE POLICY.................................................. 13
Deductions from Premiums................................................. 14
Sales Expense Charge.................................................... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Premium Tax Charge...................................................... 14
Federal Tax Charge...................................................... 14
Cash Value Charges....................................................... 14
Monthly Contract Charge................................................. 14
Charge for Cost of Insurance Protection................................. 15
Separate Account Charges................................................. 15
Mortality and Expense Risk Charge....................................... 15
Administrative Charge................................................... 16
Other Charges for Federal Income Taxes.................................. 16
Surrender Charges........................................................ 19
Exceptions to Surrender Charge.......................................... 20
THE SEPARATE ACCOUNTS..................................................... 20
MAINSTAY VP SERIES FUND, INC. ............................................ 21
THE ALGER AMERICAN FUND................................................... 22
ACACIA CAPITAL CORPORATION................................................ 22
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND FIDELITY VARIABLE INSURANCE
PRODUCTS FUND II......................................................... 23
JANUS ASPEN SERIES........................................................ 23
MORGAN STANLEY UNIVERSAL FUNDS, INC....................................... 23
PORTFOLIOS................................................................ 24
Additions, Deletions or Substitutions of Investments..................... 28
Reinvestment............................................................. 28
GENERAL PROVISIONS OF THE POLICY.......................................... 29
Premiums................................................................. 29
Scheduled Premiums....................................................... 29
Unscheduled Premiums..................................................... 29
Minimum and Maximum Premium Payments..................................... 29
Termination.............................................................. 29
Late Period.............................................................. 30
Maturity Date............................................................ 30
DOLLAR COST AVERAGING..................................................... 30
AUTOMATIC ASSET REALLOCATION.............................................. 31
DEATH BENEFIT UNDER THE POLICY............................................ 32
Face Amount Changes...................................................... 32
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CASH VALUE AND CASH SURRENDER VALUE........................................ 33
Cash Value................................................................ 33
Investment Return......................................................... 34
Cash Surrender Value...................................................... 35
Partial Withdrawals....................................................... 35
POLICY LOAN PRIVILEGE...................................................... 36
Source of Loan............................................................ 36
Loan Interest............................................................. 36
Repayment................................................................. 37
Interest on Loaned Value.................................................. 37
FREE LOOK PROVISION........................................................ 37
EXCHANGE PRIVILEGE......................................................... 38
Special New York Requirements ............................................ 38
YOUR VOTING RIGHTS......................................................... 38
OUR RIGHTS................................................................. 39
DIRECTORS AND PRINCIPAL OFFICERS OF NYLIAC................................. 40
THE FIXED ACCOUNT.......................................................... 41
Interest Crediting........................................................ 42
Transfers to Investment Divisions......................................... 42
FEDERAL INCOME TAX CONSIDERATIONS.......................................... 42
Tax Status of NYLIAC and the Separate Accounts............................ 43
Charges for Taxes......................................................... 43
Diversification Standards and Control Issues.............................. 44
Life Insurance Status of Policy........................................... 44
Modified Endowment Contract Status........................................ 45
Policy Surrenders and Partial
Withdrawals.............................................................. 46
Policy Loans and Interest Deductions...................................... 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Corporate Alternative Minimum Tax........................................ 47
Exchanges or Assignments of Policies..................................... 47
Other Tax Issues......................................................... 47
Qualified Plans.......................................................... 47
Withholding.............................................................. 48
ADDITIONAL PROVISIONS OF THE POLICY....................................... 48
Reinstatement Option..................................................... 48
Additional Benefits You Can Get By Rider................................. 48
Payment Options.......................................................... 49
Payees................................................................... 50
Proceeds at Interest Options
(Options 1A and 1B)..................................................... 50
Life Income Option (Option 2)............................................ 50
Beneficiary.............................................................. 51
Assignment............................................................... 51
Limits on Our Rights to Challenge the Policy............................. 51
Misstatement of Age or Sex............................................... 51
Suicide.................................................................. 51
When We Pay Proceeds..................................................... 52
RECORDS AND REPORTS....................................................... 52
SALES AND OTHER AGREEMENTS................................................ 52
LEGAL PROCEEDINGS......................................................... 53
INDEPENDENT ACCOUNTANTS................................................... 53
EXPERTS................................................................... 53
FINANCIAL STATEMENTS...................................................... 54
FINANCIAL STATEMENTS...................................................... F-1
APPENDIX A. Illustrations of Death Benefits, Cash Surrender Values and
Accumulated Premiums..................................................... A-1
</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>
DEFINITION OF TERMS
ACCUMULATION UNITS: Accumulation units are the accounting units used to
calculate the values under the Policy held in a Separate Account.
ACCUMULATION VALUE: The value of Accumulation Units in the Investment
Divisions of the Separate Accounts. 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.
ALLOCATION ALTERNATIVES: The Investment Divisions of the applicable Separate
Account and the Fixed Account constitute the Allocation Alternatives.
BENEFICIARY: The person or entity specified by the Policyowner to receive
insurance proceeds after the Insured dies.
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.
CASH SURRENDER VALUE: The amount payable to a Policyowner upon surrender of
the Policy. It is equal to the Cash Value less any surrender charges, any
deferred contract charges and any Policy Debt. However, for purposes of
determining whether the Policy lapses, any deferred contract charge will not
be considered during the deferral period.
CASH VALUE: The sum of the Accumulation Value of the Separate Account and the
Fixed Account Value of the Policy.
DEATH BENEFIT: The amount payable to the named Beneficiary when the Insured
dies. The Death Benefit is equal to the amount calculated under the applicable
Life Insurance Benefit Option plus any Death Benefit payable under a Policy
rider less any Policy Debt.
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 the Worldwide Growth Portfolio of the Janus Aspen
Series ("Janus Aspen Worldwide Growth Portfolio"). 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").
FIXED ACCOUNT: Assets in the Fixed Account are not part of the Separate
Accounts of NYLIAC. The value of the Fixed Account is supported by assets in
the General Account of NYLIAC, which are subject to the claims of its general
creditors.
FIXED ACCOUNT VALUE: The sum of the Net Premiums and transfers allocated to
the Fixed Account, plus interest credited, less any amounts withdrawn,
deducted for charges and/or transferred from the Fixed Account.
4
<PAGE>
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").
GUIDELINE ANNUAL PREMIUM: Same as "guideline level premium" as defined in
Section 7702 of the Internal Revenue Code ("IRC"). On the date of issue, it is
the annual Premium for the benefits provided, based on guaranteed mortality
and expense risk charges and an interest rate of 4% (for surrender charge
purposes only, an interest rate of 5% is used).
INSURED: Person whose life the Policy insures.
INVESTMENT DIVISION: A division of each of the Separate Accounts. Each
Investment Division invests exclusively in shares of a specified Eligible
Portfolio.
ISSUE DATE: The same date as the Policy Date.
LIFE INSURANCE BENEFIT OPTIONS: There are two Life Insurance Benefit Options:
OPTION 1--Provides a life insurance benefit equal to the greater of the face
amount of the Policy or a percentage of the Cash Value equal to the minimum
necessary for the Policy to qualify as life insurance under Section 7702 of
the IRC. (See the following table for these percentages.)
OPTION 2--Provides a life insurance benefit equal to the greater of the face
amount of the Policy plus the Cash Value or a percentage of the Cash Value
equal to the minimum necessary for the Policy to qualify as life insurance
under Section 7702 of the IRC. (See the following table for these
percentages.)
<TABLE>
<CAPTION>
INSURED'S AGE INSURED'S AGE
ON POLICY IRC SECTION 7702 ON POLICY IRC SECTION 7702
ANNIVERSARY LIFE INSURANCE % ANNIVERSARY LIFE INSURANCE %
------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
0-40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75-90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 101
59 134 95 & Over 100
60 130
</TABLE>
5
<PAGE>
MINIMUM FACE AMOUNT: $50,000.
MONTHLY DEDUCTION DAY: The date on which the monthly deductions under the
Policy are deducted from the Cash Value. The first Monthly Deduction Day will
be the Policy Date, and subsequent monthly deductions will be on the same date
of each succeeding calendar month.
NET PREMIUM: Premium paid less the Sales Expense, Premium Tax and Federal Tax
Charges.
NON-QUALIFIED POLICIES: Policies that do not qualify for special federal
income tax treatment.
PARTIAL WITHDRAWAL: A withdrawal of a portion of the Cash Value by the
Policyowner.
POLICY: The Flexible Premium Variable Universal Life Insurance Policy offered
by NYLIAC that is described in this Prospectus.
POLICY ANNIVERSARY: The anniversary of the Policy Date.
POLICYOWNER: The person(s) and/or entity(ies) who owns the Policy.
POLICY DATA PAGE: Page 2 of the Policy, containing the Policy specifications.
POLICY DATE: The date shown in the Policy which is the starting point for
determining Policy Anniversary dates, Policy Years and Monthly Deduction Days.
POLICY DEBT: The amount of the obligation from a Policyowner to NYLIAC from
outstanding loans in the Fixed Account to the Policyowner under the Policy.
This amount includes any loan interest accrued to date.
POLICY YEAR: The twelve month period commencing with the Policy Date, and each
twelve month period thereafter.
PREMIUMS: The total dollar amount paid for the Policy.
PREMIUM TAX CHARGE: A charge based on the expected average amount of premium
tax to be paid by NYLIAC to state or other governmental authorities.
PRINCIPAL OFFICE: The administrative office and home office of NYLIAC, which
is located at 51 Madison Avenue, New York, New York 10010. All Policies are
serviced through the Principal Office.
QUALIFIED POLICIES: Policies acquired by plans that qualify for special
federal income tax treatment.
SEC GUIDELINE ANNUAL PREMIUM: Same as Guideline Annual Premium, except that it
uses 5% interest rate, Death Benefit Option 1, and assumes that there are no
riders. It is used for purposes of calculating surrender charges.
SEPARATE ACCOUNT: A separate account we establish into which assets are placed
for the purchasers of a class of Policies.
6
<PAGE>
SEPARATE ACCOUNT I: NYLIAC Variable Universal Life Separate Account-I, a
segregated asset account established by NYLIAC to receive and invest Net
Premiums paid under Non-Qualified Policies.
SEPARATE ACCOUNT II: NYLIAC Variable Universal Life Separate Account-II, a
segregated asset account established by NYLIAC to receive and invest Net
Premiums paid under Qualified Policies. Separate Account II may be available
in the future.
SURRENDER: A surrender by the Policyowner of all rights under the Policy in
exchange for the entire Cash Surrender Value under the Policy.
VALUATION PERIOD: The period, consisting of one or more days, from one
Valuation Time to the next succeeding Valuation Time.
VALUATION TIME: The time of the close of the New York Stock Exchange
(currently 4:00 p.m. New York time) on a Valuation Date. All actions which are
to be performed on a valuation date will be performed as of the Valuation
Time.
WE OR US: NYLIAC.
7
<PAGE>
BASIC QUESTIONS AND ANSWERS ABOUT US AND OUR POLICY
1. WHAT ARE NYLIAC AND NEW YORK LIFE?
New York Life Insurance and Annuity Corporation ("NYLIAC") is a stock life
insurance company incorporated in Delaware in 1980. NYLIAC is licensed to sell
life, accident and health insurance and annuities in 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 included herein.
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 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.
2. WHAT VARIABLE LIFE INSURANCE POLICY ARE WE OFFERING?
In this Prospectus we are offering a Flexible Premium Variable Universal
Life Insurance Policy. We issue the Policy to provide for a Death Benefit,
Cash Surrender Value, loan privileges and flexible Premiums. It is called
"flexible" because the Policyowner may select the timing and amount of
Premiums and adjust the Death Benefit by increasing or decreasing the face
amount (subject to certain restrictions). It is called "variable" because,
unlike the fixed benefits of a traditional whole life policy, the Death
Benefits and duration of the Policy may, and Cash Surrender Values will, vary
to the extent that Cash Value under the Policy is allocated to the Investment
Division(s) of the Separate Accounts.
The Policy is a legal contract between the Policyowner and NYLIAC. The
entire contract consists of the application for the Policy (the "Application")
and the Policy, which includes any riders the Policy has.
3. HOW IS THE POLICY AVAILABLE?
The Policy is available as a Non-Qualified Policy and may in the future be
available as a Qualified Policy. The Minimum Face Amount of a Policy is
$50,000. Increases must be for at least $5,000 and, in some states, are
subject to NYLIAC's maximum retention limits. In New Jersey and New York,
increases are allowed once each Policy Year. The Insured may not be older than
age 80 as of the Policy Date. Before issuing any Policy we will require
satisfactory evidence of insurability. For certain eligible groups under
employer-sponsored plans, the Policy and face amount increases may be issued
based on simplified underwriting rules and procedures defined by us.
In some states, Policies may also be purchased in connection with the
Severance Trust Executive Program ("STEP"), a non-qualified employee benefit
plan. STEP Policies are issued on a unisex basis and any reference in this
Prospectus which makes a distinction based on the sex of the Insured, as may
be applicable to such Policies, shall be disregarded.
In Massachusetts and Montana, the Policy is issued only on a unisex basis,
and any reference in this Prospectus which makes a distinction based on the
sex of the Insured shall be disregarded.
8
<PAGE>
4. WHAT IS THE CASH VALUE OF THE POLICY?
The Cash Value is determined by the amount and frequency of Premiums, the
investment experience of the Investment Divisions chosen by the Policyowner,
the interest earned on the Fixed Account Value, and any Partial Withdrawals or
charges imposed in connection with the Policy. The Policyowner bears the
investment risk of any depreciation in value of the underlying assets of the
Investment Divisions but he or she also reaps the benefit of any appreciation
in their value.
5. HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED?
The value of an Accumulation Unit on any business day is determined by
multiplying the value of that unit on the immediately preceding business day
by the net investment factor for the Valuation Period. The Valuation Period is
the period from the close of the immediately preceding business day to the
close of the current business day. The net investment factor for the Policy
used to calculate the value of an Accumulation Unit in any Investment Division
of the Separate Accounts for the Valuation Period is determined by dividing
(a) by (b) and subtracting (c) from the result, where:
(a) is the sum of:
(1) the net asset value of a fund share held in the Separate Accounts
for that Investment Division determined at the end of the current
Valuation Period, plus
(2) the per share amount of any dividends or capital gain
distributions made by the fund for shares held in the Separate Accounts
for that Investment Division if the ex-dividend date occurs during the
Valuation Period.
(b) is the net asset value of a fund share held in the Separate Accounts
for that Investment Division determined as of the end of the immediately
preceding Valuation Period.
(c) is a factor representing the mortality and expense risk fee and
administrative charges. This factor accrues daily and is currently equal,
on an annual basis, to .70% of the daily net asset value of a fund share in
the Separate Accounts for that Investment Division.
The net investment factor may be greater or less than one; therefore, the
value of an Accumulation Unit may increase or decrease.
6. WHAT ARE THE INVESTMENT DIVISIONS OF THE SEPARATE ACCOUNTS?
Each Separate Account has eighteen Investment Divisions--MainStay VP Capital
Appreciation, MainStay VP Cash Management, MainStay VP Convertible, MainStay
VP Government, MainStay VP High Yield Corporate Bond, MainStay VP
International Equity, MainStay VP Total Return, MainStay VP Value, MainStay VP
Bond, MainStay VP Growth Equity, MainStay VP Indexed Equity, Alger American
Small Capitalization, Calvert Socially Responsible, Fidelity VIP Contrafund,
Fidelity VIP Equity-Income, Janus Aspen Balanced, Janus Aspen Worldwide Growth
and Morgan Stanley Emerging Markets Equity. Each Investment Division of the
Separate Accounts invests only in the shares of a single corresponding
Eligible Portfolio. The Investment Divisions are designed to provide money to
pay benefits under the Policy but they do not guarantee a minimum interest
rate nor guarantee against asset depreciation.
9
<PAGE>
7. WHAT IS THE FIXED ACCOUNT?
As an alternative to the Separate Accounts, you may allocate or transfer all
or part of your funds to the Fixed Account. Premiums applied to and any
amounts transferred to the Fixed Account are credited with interest using a
fixed interest rate. NYLIAC will set a rate in advance to be effective no
earlier than the next day. This rate will never be less than 4% per year. All
amounts (including amounts applied to or transferred to the Fixed Account
thereafter) receive the new interest rate. Different rates may apply to loaned
and unloaned funds.
8. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy does not automatically terminate for failure to pay scheduled
Premiums. Payment of these amounts does not guarantee the Policy will remain
in force. The Policy terminates only when the Cash Surrender Value is
insufficient to pay the monthly deduction or where there is an excess loan,
and a late period expires without sufficient payment. In New York, Policies
issued on or after May 1, 1995 will terminate at the Insured's age 100.
9. IS THE LEVEL OF THE DEATH BENEFIT GUARANTEED?
So long as the Policy remains in force, the proceeds payable under the
Policy will be based on the Life Insurance Benefit Option in effect on the
date of death. Death Benefit proceeds will, however, be reduced by any
outstanding Policy Debt, and/or increased by any additional death benefits
added by rider.
10. IS THE DEATH BENEFIT SUBJECT TO INCOME TAXES?
A Death Benefit paid under our Policies may be fully excludable from the
gross income of the Beneficiary for federal income tax purposes. For details
see FEDERAL INCOME TAX CONSIDERATIONS at page 42.
11. DOES THE POLICY HAVE A CASH SURRENDER VALUE?
The Policyowner may surrender the Policy at any time and receive its Cash
Value less any Policy Debt less the then applicable surrender charge and any
deferred contract charges. Partial Withdrawals are also allowed subject to
certain restrictions. The Cash Surrender Value of a Policy fluctuates with the
investment performance of the Separate Account Investment Divisions in which
the Policy has Accumulation Value and the amount held in the Fixed Account. It
may increase or decrease daily.
For federal income tax purposes, the Policyowner usually is not taxed on
increases in the Cash Surrender Value until he or she actually surrenders the
Policy. However, in connection with certain Partial Withdrawals of Cash Value
and loans on the Policy, the Policyowner may be taxed on all or a part of the
amount distributed. For details see CASH SURRENDER VALUE at page 35 and
FEDERAL INCOME TAX CONSIDERATIONS at page 42.
12. WHAT IS A MODIFIED ENDOWMENT CONTRACT?
A modified endowment contract (as defined by the IRC) is a life insurance
policy under which the premiums paid during the first seven contract years
exceed the cumulative
10
<PAGE>
premiums payable under a policy providing for guaranteed benefits upon the
payment of seven level annual premiums. Certain changes to the Policy can
subject it to retesting for a new seven-year period. During the Insured's
lifetime, distributions from a modified endowment contract, including
collateral assignments, loans and Partial Withdrawals, are taxable to the
extent of any income in the contract and may also incur a penalty tax if the
Policyowner is not yet age 59 1/2.
13. CAN THE POLICY BECOME A MODIFIED ENDOWMENT CONTRACT?
Since the Policy permits flexible Premium payments, it may become a modified
endowment contract. NYLIAC currently has the systems capability to test a
Policy at issue to determine whether it will be classified as a modified
endowment contract. This at-issue test examines the Policy for the first seven
contract years, based on the Policy application and the initial Premium
requested, and based on the assumption that there are no increases in Premiums
during the period. NYLIAC has instituted procedures to monitor whether a
Policy may become a modified endowment contract after issue. For details see
FEDERAL INCOME TAX CONSIDERATIONS--Modified Endowment Contract Status at page
45.
14. WHAT ABOUT PREMIUMS?
The amount and interval of any scheduled Premiums are shown on the Policy
Data Page. A scheduled Premium does not have to be paid to keep the Policy in
force, if there is enough Cash Surrender Value to cover the charges made on
the Monthly Deduction Day. The amount of any scheduled Premium may be
increased or decreased subject to the limits we set. However, in no event may
the Premium be an amount which would jeopardize the Policy continuing to
qualify as "life insurance," as defined under Section 7702 of the IRC. The
frequency of Premium payments may also be changed subject to our minimum
Premium rules. Scheduled Premiums end on the Policy Anniversary on which the
Insured is age 95.
15. WHAT ARE UNSCHEDULED PREMIUMS?
While the Insured is living, you may pay unscheduled Premiums at any time
prior to the Policy Anniversary on which the Insured is age 95. Any
unscheduled Premiums must equal at least $50. However, in no event may the
Premium be an amount which would jeopardize the Policy continuing to qualify
as "life insurance," as defined under Section 7702 of the IRC. Unscheduled
Premiums also include the proceeds of an exchange made in accordance with
Section 1035 of the IRC. If an unscheduled Premium would result in an increase
in the life insurance benefit greater than the increase in the Cash Value, we
reserve the right to require proof of insurability before accepting that
Premium and applying it to the Policy. We also reserve the right to limit the
number and amount of any unscheduled Premiums. In certain states, including
New York and New Jersey, unscheduled Premiums may be made once each Policy
Year. For details see GENERAL PROVISIONS OF THE POLICY--Premiums at page 29.
16. WHEN ARE PREMIUMS PUT INTO THE FIXED ACCOUNT OR THE SEPARATE ACCOUNTS?
When we receive a Premium, whether scheduled or unscheduled, we will deduct
a Sales Expense Charge not to exceed the amount shown on the Policy Data Page.
We will also deduct the Premium Tax and Federal Tax Charges. The balance of
the Premium (the Net Premium) will be applied to the Separate Accounts, at the
Accumulation Unit value
11
<PAGE>
determined at the end of the Valuation Period, and to the Fixed Account, when
the Premium is received in accordance with your allocation election in effect
at that time, and before any other deductions which may be due are made.
(Deductions are described in greater detail in "Are there charges against the
Policy?")
17. HOW ARE PREMIUMS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
You may currently maintain Accumulation Value in any number of Allocation
Alternatives. Moreover, you may raise or lower the percentages of the Net
Premium (which must be in whole number percentages) allocated to each
Allocation Alternative at the time you make a Premium payment. Premiums will
be allocated to the MainStay VP Cash Management Investment Division until 20
days (10 days in New York) after the Issue Date. Thereafter, Net Premiums will
be allocated in accordance with the Policyowner's instructions. (In the
District of Columbia, when the Policy is issued, the Premium is allocated
entirely to the MainStay VP Cash Management Investment Division. On the later
of 20 days after the Policy is delivered or 45 days after the application is
executed, the Net Premium is allocated according to the Policyowner's
instructions.)
18. ARE THERE CHARGES AGAINST THE POLICY?
Certain charges are made against the Policy. Three charges are deducted from
each Premium, whether scheduled or unscheduled. A Sales Expense Charge not to
exceed 5% is used to partially cover sales expenses. Deductions of 2% and
1.25% are also made for Premium Tax and Federal Tax Charges, respectively.
Each Premium, net of these charges, is allocated to the Fixed Account or the
Investment Divisions of the Separate Accounts and becomes a part of the Cash
Value. For details see DEDUCTIONS FROM PREMIUMS at page 14.
On each Monthly Deduction Day, the following deductions are made from the
Policy's Cash Value:
(a) A monthly contract charge not to exceed, on an annual basis, the
amount shown on the Policy Data Page. (In the first Policy Year, the excess
of the monthly charge over the amount of the monthly charge applicable in
renewal years is deferred to the earlier of the first Policy Anniversary or
surrender of the Policy. However, if the Policy is surrendered in the first
Policy Year, the full amount deferred is deducted).
(b) The monthly cost of insurance for the amount of the life insurance
benefit in effect at that time;
(c) The monthly cost for any riders attached to the Policy.
The Monthly Deduction Day for the Policy is shown on the Policy Data Page.
The first Monthly Deduction Day is the Issue Date of the Policy. All monthly
deductions are made on a pro-rata basis from each of the Investment Divisions
and any unloaned amount in the Fixed Account.
Some deductions are made on a daily basis against the assets of each
Separate Account's Investment Divisions. Daily charges calculated at an annual
rate of .60% and .10% of the value of the assets of each Investment Division
is charged for mortality and expense risks and administrative charges,
respectively. The mortality and expense risk charge may be
12
<PAGE>
changed at NYLIAC's option subject to a maximum charge of .90%. Similarly, tax
assessments may be calculated daily. Currently, we are not making any charges
for income taxes, but we may make charges in the future against the Separate
Accounts' Investment Divisions for federal income taxes attributable to them.
There are also certain charges when a Policyowner surrenders a Policy or
decreases the Policy's face amount. A Partial Withdrawal or a change in the
Life Insurance Benefit Option may result in a decrease in face amount. Upon
surrender or any transaction which results in a decrease in face amount, a
surrender charge is assessed. The surrender charge is deducted from the Cash
Value at the time of surrender or decrease.
Partial Withdrawals of Cash Value are permitted. A charge not to exceed the
lesser of $25 or 2% of the amount withdrawn is imposed for each Partial
Withdrawal. Where the face amount is decreased, a surrender charge is also
imposed. For details see CHARGES UNDER THE POLICY at page 13 and FEDERAL
INCOME TAX CONSIDERATIONS at page 42.
19. WHAT IS THE LOAN PRIVILEGE?
Using the Policy as sole security, you can borrow any amount up to the loan
value of the Policy. The loan value on any given date is equal to 90% of the
Cash Value less applicable surrender charges, less any deferred contract
charge and less any Policy Debt.
20. DO I HAVE A RIGHT TO CANCEL?
Yes. Upon issue, Premiums will be allocated to the MainStay VP Cash
Management Division until the end of the free look period, as stated in your
Policy. Under the free look provision, you, the Policyowner, generally have
twenty days (ten days in New York) after you receive the Policy to return the
Policy and receive a refund. The Policy may be returned to our Principal
Office, to any of our agency offices, or to the registered representative who
sold you the Policy. For details see FREE LOOK PROVISION at page 37.
21. CAN THE POLICY BE EXCHANGED OR ALL AMOUNTS ALLOCATED TO THE FIXED
ACCOUNT?
You have the right during the first two Policy Years to either (1) transfer
all of the Policy's Accumulation Value to the Fixed Account, or (2) exchange
the Policy for a permanent fixed benefit policy offered by us for this
purpose. Similar rights are available during the first two years after an
increase in the Policy's face amount. For details see EXCHANGE PRIVILEGE at
page 38. Policies issued in Colorado, Massachusetts and New York have special
rights when NYLIAC changes the objective of an Investment Division. See your
Policy for additional details, as well as EXCHANGE PRIVILEGE at page 38 and
OUR RIGHTS at page 39.
CHARGES UNDER THE POLICY
Certain charges are deducted to compensate for providing the insurance
benefits under the Policy, for any riders, for administering the Policy, for
assuming certain risks, and for incurring certain expenses in distributing the
Policy.
13
<PAGE>
DEDUCTIONS FROM PREMIUMS
When we receive a Premium, whether scheduled or unscheduled, we will deduct
a Sales Expense Charge not to exceed the amount shown on the Policy Data Page,
which is part of the Policy provided to each Policyowner. The Sales Expense
Charge will not exceed 5% of any Premium. We will also deduct a Premium Tax
Charge which is an amount equal to the expected average premium tax and a
federal tax charge. The Net Premium will be applied to the Separate Accounts
and Fixed Account in accordance with your allocation election in effect at
that time, and before any other deductions which may be due are made.
SALES EXPENSE CHARGE
The Sales Expense Charge component of the Premium deduction will not exceed
5% of any Premium and is in addition to the surrender charge (for a discussion
of the surrender charge, see SURRENDER CHARGES at page 19). The Sales Expense
Charge is currently eliminated after the tenth Policy Year. We reserve the
right to impose this charge in Policy Year 11 and thereafter in the future.
The amount of the Sales Expense Charge in a Policy Year is not necessarily
related to our actual sales expenses for that particular year. To the extent
that sales expenses are not covered by the Sales Expense Charge and the
surrender charge, they will be recovered from NYLIAC surplus, including any
amounts derived from the mortality and expense risk charge or the cost of
insurance charge. For a discussion of the commissions paid under the Policy,
see SALES AND OTHER AGREEMENTS at page 52.
PREMIUM TAX CHARGE
Various states and jurisdictions impose a tax on premiums received by
insurance companies. These taxes vary from state to state. We deduct 2% of
each Premium to cover state premium taxes. NYLIAC reserves the right to
increase this charge (except in New Jersey) consistent with changes in
applicable law.
FEDERAL TAX CHARGE
NYLIAC's federal tax obligations will increase based upon Premiums received
under the Policies. We deduct 1.25% of each Premium to cover this federal tax
charge. NYLIAC reserves the right to increase this charge consistent with
changes in applicable law and subject to any required approval of the
Securities and Exchange Commission (the "SEC").
CASH VALUE CHARGES
On each Monthly Deduction Day, a monthly contract charge, a cost of
insurance charge, and a rider charge for the cost of any additional riders are
deducted from the Accumulation Value and Fixed Account Value in proportion to
the non-loaned Cash Value in the Separate Accounts and the Fixed Account.
MONTHLY CONTRACT CHARGE
In the first Policy Year, there is a charge currently equal to $300 on an
annual basis to compensate NYLIAC for costs incurred in providing certain
administrative services including premium collection, recordkeeping,
processing claims and communicating with Policyowners.
14
<PAGE>
In subsequent Policy Years, the charge currently is equal to $72 on an annual
basis. These charges are not designed to produce a profit. While these charges
may increase or decrease, they will never exceed $324 on an annual basis in
the first Policy Year and $96 in each Policy Year thereafter. These charges
are deducted on the Issue Date and on each Monthly Deduction Day thereafter.
In the first Policy Year, the excess of the annual charge over the amount of
the annual charge applicable in renewal years (currently $228) is advanced to
your Accumulation Value and deduction is deferred to the earlier of the first
Policy Anniversary or Surrender of the Policy.
CHARGE FOR COST OF INSURANCE PROTECTION
A charge for the cost of insurance protection is deducted on each Monthly
Deduction Day and is based on such factors as the sex, smoker class, duration,
underwriting class, and issue age of the Insured and the face amount of the
Policy. This charge is also based on future expectations of such factors as
investment income, mortality, expense and persistency. Any changes in the
charge will be in accordance with the procedures and standards on file with
all appropriate officials, including the Superintendent of Insurance of the
State of New York. For the initial face amount, the monthly cost of insurance
charge will be reviewed whenever the rates for new issues change, but in any
event, at least once every five years and not more frequently than annually.
This charge will never exceed the guaranteed charge shown in the Policy. For
increases in face amount, the charge for the cost of insurance protection will
vary based on the sex, smoker class, underwriting class, attained age at the
time of the increase and the duration from the date of the increase, not the
current attained age. The charge varies monthly because it is determined by
multiplying the applicable cost of insurance rates by the amount at risk each
Policy month and then adding the amount of any applicable flat extra charge.
Charges for any optional benefits added by rider are also deducted from the
Cash Value.
Under an increase in face amount, new cost of insurance rates apply to the
new coverage segment based on the rating for the increase. Elected decreases
in face amount reduce or cancel prior segments and their associated cost of
insurance rates on a last-in-first-out basis.
SEPARATE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE
We charge the Investment Divisions for the mortality and expense risks we
assume. We deduct a daily charge at an effective annual rate of .60% of the
value of each Investment Division's assets, subject to a guaranteed maximum of
.90%.
The mortality risk we assume is that the group of lives insured under our
Policies may, on average, live for shorter periods of time than we estimated.
The expense risk we assume is that our costs of issuing and administering
Policies may be more than we estimated.
If these charges are insufficient to cover actual costs and assumed risks,
the loss will fall on NYLIAC. Conversely, if the charge proves more than
sufficient, any excess will be added to the NYLIAC surplus.
15
<PAGE>
ADMINISTRATIVE CHARGE
We charge the Investment Divisions a daily charge for providing Policy
administrative services equal, on an annual basis, to .10% of the average
daily net asset value of the applicable Separate Account. This charge is not
designed to produce a profit and is guaranteed not to increase.
OTHER CHARGES FOR FEDERAL INCOME TAXES
We do not currently make any charge against the Investment Divisions for
federal income taxes attributable to them. However, we may make such a charge
eventually in order to provide for the future federal income tax liability of
the Investment Divisions. For more information on charges for federal income
taxes, see FEDERAL INCOME TAX CONSIDERATIONS at page 42.
16
<PAGE>
The chart on the following two pages summarizes the Separate Account charges
applicable to a Policy, as well as the charges at the Fund level:/(a)/
<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>
SEPARATE ACCOUNT
ANNUAL EXPENSES
(as a % of
average account
value)
Mortality and
Expense Risk
Fees/(b)/...... 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
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....... 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
FUND ANNUAL
EXPENSES AFTER
REIMBURSEMENT
(as a % of
average net
assets)
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%/(c)/ 0.62%/(c)/ 0.73%/(d)/ 0.67%/(c)/ 0.67%/(c)/ 0.97%/(c)/ 0.69%/(c)/ 0.73%/(c)/ 0.62%/(c)/
</TABLE>
- ----
(a) This chart does not reflect deductions from Premiums and Cash Value
charges which are described in the immediately preceding sections.
(b) This is the current fee; maximum is 0.90%.
(c) 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. 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. 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.
(d) "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.
17
<PAGE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP ALGER AMERICAN CALVERT FIDELITY VIP JANUS ASPEN
GROWTH INDEXED SMALL SOCIALLY FIDELITY VIP EQUITY- JANUS ASPEN WORLDWIDE
EQUITY EQUITY CAPITALIZATION RESPONSIBLE CONTRAFUND INCOME BALANCED GROWTH
----------- ----------- -------------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
(as a % of
average account
value)
Mortality and
Expense Risk
Fees/(b)/...... 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
Administration
Fees........... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Total Separate
Account Annual
Expenses....... 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
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%
Administration
Fees........... 0.20% 0.20% -- -- -- -- -- --
Other Expenses.. 0.17% 0.17% 0.07% 0.13% 0.11% 0.10% 0.55% 0.22%
Total Portfolio
Annual
Expenses....... 0.62%/(c)/ 0.47%/(c)/ 0.92% 0.83%/(e)/ 0.72% 0.61% 1.37%/(f)/ 0.90%/(f)/
<CAPTION>
MORGAN STANLEY
EMERGING
MARKETS EQUITY
--------------
<S> <C>
SEPARATE ACCOUNT
ANNUAL EXPENSES
(as a % of
average account
value)
Mortality and
Expense Risk
Fees/(b)/...... 0.60%
Administration
Fees........... 0.10%
Total Separate
Account Annual
Expenses....... 0.70%
FUND ANNUAL
EXPENSES AFTER
REIMBURSEMENT
(as a % of
average account
value)
Advisory Fees... 0.85%
Administration
Fees........... 0.25%
Other Expenses.. 0.65%
Total Portfolio
Annual
Expenses....... 1.75%/(g)/
</TABLE>
- ----
(e) 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
22 and the prospectus to 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%.
(f) 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.
(g) "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.
18
<PAGE>
SURRENDER CHARGES
During the first 15 policy years, a surrender charge will be assessed on a
complete Surrender or decrease in face amount, including decreases caused by a
change in the Life Insurance Benefit Option or Partial Withdrawals on Option 1
Policies. This surrender charge is in addition to the Sales Expense Charge
discussed above. The surrender charge in the first Policy Year is equal to 25%
of Premiums paid to date up to the Guideline Annual Premium, as determined in
accordance with applicable SEC rules, for the first year, plus 5% of Premiums
paid in that year which are in excess of the SEC Guideline Annual Premium for
the first year but not in excess of the sum of the SEC Guideline Annual
Premiums through the sixth Policy Year. The surrender charge in the second
Policy Year and thereafter is equal to the applicable percentage shown in the
table below multiplied by the Base Surrender Charge. The Base Surrender Charge
is equal to 25% of the lesser of the Premiums paid to date or the SEC
Guideline Annual Premium for the first Policy Year, plus 5% of the lesser of:
(i) Premiums paid in excess of the SEC Guideline Annual Premium for the first
Policy Year, or (ii) the sum of the SEC Guideline Annual Premiums for the
first six Policy Years, minus the SEC Guideline Annual Premium for the first
Policy Year.
<TABLE>
<CAPTION>
YEAR SURRENDER CHARGE
---- ----------------
<S> <C>
2-6...................................................... 100%
7....................................................... 90%
8....................................................... 80%
9....................................................... 70%
10...................................................... 60%
11...................................................... 50%
12...................................................... 40%
13...................................................... 30%
14...................................................... 20%
15...................................................... 10%
16+..................................................... 0%
</TABLE>
During the first two Policy Years, the surrender charge is further limited
to the sum of: (i) 30% of all Premiums paid during the first two Policy Years
up to one SEC Guideline Annual Premium, plus (ii) 10% of all Premiums in the
first two Policy Years in excess of one SEC Guideline Annual Premium, but not
more than two SEC Guideline Annual Premiums, plus (iii) 9% of all Premium
payments in the first two Policy Years in excess of two SEC Guideline Annual
Premiums, less (iv) any Sales Expense Charges deducted from such Premiums,
less (v) any surrender charge previously deducted.
Surrender charges and surrender charge periods are calculated separately for
the initial face amount and for each increase in the face amount, including an
increase caused by a change in the Life Insurance Benefit Option. Premium
payments after an increase will be allocated between the initial face amount
and the increase based on the relative SEC Guideline Annual Premiums. A
decrease in face amount will result in the imposition of a surrender charge
equal to the difference between the surrender charge which would have been
payable on a complete Surrender prior to the decrease and the surrender charge
which would be payable on a complete Surrender after the decrease. For
example, assume a Policy with a $100,000 face amount is to be decreased to a
$50,000 face amount. If a complete Surrender of the Policy prior to the
decrease would result in a surrender charge of $1,250 and a complete Surrender
of the $50,000 remaining face amount after the decrease would
19
<PAGE>
result in a surrender charge of $750, the surrender charge imposed in
connection with the decrease will be $500 ($1,250-$750). Where, because of
increases in face amount, there are multiple schedules of surrender charges,
the charge applied will be based first on the surrender charge associated with
the last increase in face amount, then on each prior increase, in the reverse
order in which the increases occurred, and then to the initial face amount.
The percentages specified above and/or the Policy Year in which the
surrender charge is reduced may vary for individuals having a life expectancy
of less than 20 years either at the time that a Policy is issued or the face
amount is increased.
EXCEPTIONS TO SURRENDER CHARGE
There are a number of exceptions to the imposition of a surrender charge,
including among others, cancellation of a Policy by NYLIAC, the payment of
proceeds upon the death of the Insured, or a Surrender or Partial Withdrawal
which constitutes an IRS minimum distribution for the Policy.
How the Policy Works
This example is based on the illustration from page A-1, assuming a 6%
hypothetical gross annual investment return and current charges:
<TABLE>
<S> <C>
Scheduled Annual Premium....................................... $2,000.00
less: Sales Expense Charge (5%).............................. 100.00
Premium Tax Charge (2%)................................... 40.00
Federal Tax Charge (1.25%)................................ 25.00
---------
equals: Net Premium............................................ 1,835.00
plus: Net investment performance (varies monthly)............ 73.80
less: Monthly contract charges ($6 per month currently)...... 72.00
less: Charges for cost of insurance (varies monthly)......... 283.78
---------
equals: Cash Value............................................. $1,553.02
less: Surrender Charge (25% of Premium up to SEC Guideline
Annual Premium plus 5% of excess Premiums paid)........ 473.49
less: Balance of First Year Monthly Contract Charge(1)....... 228.00
---------
equals: Cash Surrender Value................................... 851.53
</TABLE>
- --------
(1) In the first Policy Year, the excess of the annual charge over the annual
charge applicable in renewal years is advanced to your Accumulation Value
and deduction is deferred to the earlier of the first Policy Anniversary
or Surrender of the Policy.
THE SEPARATE ACCOUNTS
Each of the Separate Accounts was established as of June 4, 1993, pursuant
to resolutions of the NYLIAC Board of Directors. The Separate Accounts are
registered as unit investment trusts with the SEC under the Investment Company
Act of 1940, but such
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registration does not signify that the SEC 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 Premiums solely in the corresponding Eligible Portfolios of the
Funds. 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.
Investment Divisions may, subject to any required regulatory approvals, be
added or deleted at the discretion of NYLIAC.
NYLIAC may accumulate in the Separate Accounts the charge for mortality and
expense risks, monthly charges assessed against the Policy and investment
results applicable to those assets that are in excess of net assets supporting
the Policies.
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 the
MainStay VP Series
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Fund. As compensation for such services, the 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 daily net assets
of the MainStay VP Capital Appreciation Portfolio, the MainStay VP Cash
Management Portfolio, the MainStay VP Convertible Portfolio, the MainStay VP
Government Portfolio, the MainStay VP High Yield Corporate Bond Portfolio, the
MainStay VP International Equity Portfolio, the MainStay VP Total Return
Portfolio and the MainStay VP Value Portfolio, respectively. The MainStay VP
Series Fund pays Monitor a fee in the form of a daily charge at an annual rate
of .10% of the aggregate daily net assets of the MainStay VP Indexed Equity
Portfolio. The 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 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.
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.
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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 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.
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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.
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 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.
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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 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.
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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 or
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.
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 that 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.
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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 Aspen 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 Aspen 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.
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 Premiums to an
Investment Division corresponding to a particular Eligible Portfolio.
The Funds' shares may also be available to certain separate accounts funding
variable annuity 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
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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 a Policyowner's interest in an Investment Division will
not be made until the Policyowner 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 Policyowners.
Each of the Separate Accounts currently has eighteen Investment Divisions
which invest Premiums 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 Policyowners 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 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 value on the payable date.
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GENERAL PROVISIONS OF THE POLICY
This section of the Prospectus describes the general provisions of the
Policy, and is subject to the terms of the Policy. You may review a copy of
the Policy upon request.
PREMIUMS
The Policyowner may allocate a portion of each Premium to one or more
Investment Divisions or the Fixed Account. The Policyowner may currently
maintain Accumulation Value in any number of Allocation Alternatives. The
Policyowner selects a Premium payment schedule in the Application and is not
bound by an inflexible Premium schedule. Two premium concepts are very
important under the Policy: scheduled Premiums and unscheduled Premiums.
SCHEDULED PREMIUMS
The amount of the scheduled Premium is shown on the Policy Data Page.
UNSCHEDULED PREMIUMS
While the Insured is living, you may make unscheduled Premium payments at
any time prior to the Policy Anniversary on which the Insured is age 95. Any
unscheduled Premium must equal at least $50. However, in no event may the
Premium be an amount which would jeopardize the Policy continuing to qualify
as "life insurance," as defined under Section 7702 of the IRC. Unscheduled
Premiums also include the proceeds of an exchange made in accordance with
Section 1035 of the IRC. If an unscheduled Premium would result in an increase
in the life insurance benefit greater than the increase in the Cash Value, we
reserve the right to require proof of insurability before accepting that
payment and applying it to the Policy. We also reserve the right to limit the
number and amount of any unscheduled Premiums. In certain states, including
New York and New Jersey, unscheduled Premiums may be made once each Policy
Year.
There is no penalty if the scheduled Premium is not paid, nor does payment
of this amount guarantee coverage for any period of time. Instead, the
duration of the Policy depends upon the Policy's Cash Surrender Value. Even if
scheduled Premiums are paid, the Policy terminates when the Cash Surrender
Value becomes insufficient to pay certain monthly charges and a grace period
expires without sufficient payment. For details see TERMINATION below.
MINIMUM AND MAXIMUM PREMIUM PAYMENTS
While the Policy is in force, Premiums may be paid at any time while the
Insured is living and before the Policy Anniversary on which the Insured is
age 95, subject to certain restrictions on scheduled and unscheduled Premiums
described above. The minimum unscheduled Premium payment is $50.00. Premiums
should be sent to our Principal Office or to the address indicated for payment
on the notice.
TERMINATION
The Policy does not terminate for failure to pay Premiums since payments,
other than the initial Premium, are not specifically required. Rather, if on a
Monthly Deduction Day, the
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Cash Surrender Value is less than the Monthly Deduction Charge for the next
policy month, the Policy will continue for a late period of 62 days after that
Monthly Deduction Day.
LATE PERIOD
We allow 62 days to pay any Premium necessary to cover the overdue monthly
deduction and/or excess Policy loan. NYLIAC will mail a notice to you at your
last known address, and a copy to the last known assignee on our records, if
any, at least 31 days before the end of the late period which sets forth this
amount. During the late period, the Policy remains in force. If we do not
receive the required payment before the end of the late period, the Policy
will end and there will be no Cash Value or life insurance benefit. If the
Insured dies during the late period, we will pay the Death Benefit. However,
these proceeds will be reduced by the amount of any unpaid loan and accrued
interest and Monthly Deduction Charges for the full policy month or months
that run from the beginning of the late period through the policy month in
which the Insured dies.
MATURITY DATE
For all Policies issued in New Jersey and for Policies issued on or after
May 1, 1995 in all other states, a Policy matures beginning on the anniversary
on which the Insured is age 95 and the face amount of the Policy, as shown on
the Policy Data Page, will no longer apply. Instead, the life insurance
benefit under the Policy will equal the Cash Value of the Policy, less
surrender charges and outstanding Policy Debt. The Owner will be notified one
year prior to maturity that, upon reaching attained age 95, the Owner may
elect either to receive the Cash Value of the Policy at such time or to
continue to hold the Policy. Please consult your tax adviser regarding the tax
implications of these options. If the Policy is held, the Policy's
Accumulation Value will be transferred to the Fixed Account and the Owners
will receive interest payments at an effective guaranteed annual rate of not
less than 4%. No further monthly deductions will be made for cost of
insurance. You may surrender the Policy for an amount equal to the Cash Value
of the Policy by presenting to NYLIAC a signed written request providing such
information as is requested by NYLIAC. NYLIAC will deduct any unpaid loan and
accrued interest from such proceeds. (In New York, when the Insured reaches
attained age 100, the Owner will automatically receive the Cash Value of the
Policy.) If the Policy is still in force upon the death of the Insured, these
proceeds will be paid to the Beneficiary.
Any insurance on an Other Covered Insured, provided by a rider attached to
the Policy, which is still in effect will end on the Policy Anniversary when
the Insured under a Policy is age 95. However, if an Other Covered Insured is
younger than age 70 when the rider ends, that insured can convert the term
insurance at that time as provided in the rider.
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 securities is averaged over time and over various market cycles.
The Policyowner may specify, prior to termination of the Policy, a specific
dollar amount to be transferred from any Investment Division to any
combination of Investment Divisions and the Fixed Account. The Policyowner
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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. 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 divisions (for each Investment Division and the Fixed Account) with
each transfer. The minimum Cash Value required to elect this option is $5,000.
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 a division with each
transfer, more units are purchased in a 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 Policyowner, or on the next Business Day. The
Policyowner 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
Policyowner in a written request or by NYLIAC automatically if the Cash Value
is less than $5,000. The Dollar Cost Averaging option may not be elected if a
Policyowner has selected the Automatic Asset Reallocation option.
AUTOMATIC ASSET REALLOCATION
Selection of this option allows an Owner to maintain the percentage of the
Owner's Accumulation Value allocated to each Investment Division at a pre-set
level. For example, an Owner might specify that 50% of the Accumulation Value
of a Policy be allocated to the MainStay VP Growth Equity Investment Division
and 50% of the 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 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 Accumulation Value among the Investment
Divisions under this option will be counted as one transfer. NYLIAC reserves
the right to charge up to $30 for each transfer in excess of twelve. The
minimum Accumulation Value required to elect this option is $5,000;
thereafter, you must maintain a minimum Accumulation Value of $4,500 in order
to have subsequent reallocations under this option.
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<PAGE>
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
Policyowner in a written request or by NYLIAC automatically if the Cash Value
is less than $5,000. The Automatic Asset Reallocation option may not be
elected if a Policyowner has selected the Dollar Cost Averaging option.
DEATH BENEFIT UNDER THE POLICY
The Death Benefit is the amount payable to the named Beneficiary when the
Insured dies. Upon receiving due proof of death, we pay the Beneficiary the
Death Benefit amount determined as of the date the Insured dies. All or part
of the benefit can be paid in cash or applied under one or more of our payment
options described under ADDITIONAL PROVISIONS OF THE POLICY--Payment Options
at page 49.
The amount of the Death Benefit is determined by whether you have chosen
Life Insurance Benefit Option 1 or Life Insurance Benefit Option 2. See "Life
Insurance Benefit Options" under DEFINITION OF TERMS at page 5. Added to the
amount determined by the selected Life Insurance Benefit Option is the value
of any additional benefits provided by rider. We pay interest on the Death
Benefit from the date of death to the date the Death Benefit is paid or a
payment option becomes effective. The interest rate equals the rate determined
under the Interest Payment Option as described in ADDITIONAL PROVISIONS OF THE
POLICY--Payment Options. We subtract any outstanding Policy Debt, and any
unpaid monthly deductions if the death occurs during the 62-day late Period
and then credit the interest. Under both Life Insurance Benefit Options,
negative investment experience in the Investment Divisions will never result
in a Death Benefit that will be less than the face amount, so long as the
Policy remains in force.
EXAMPLE
The following example shows how the Death Benefit varies as a result of
investment performance on a Policy with Life Insurance Benefit Option 1
assuming age at death is 45:
<TABLE>
<CAPTION>
POLICY A POLICY B
-------- --------
<S> <C> <C>
Face amount............................................ $100,000 $100,000
Cash Value on Date of Death ........................... $ 50,000 $ 40,000
IRC Section 7702 Life Insurance Percentage On Date of
Death................................................. 215% 215%
</TABLE>
For Policy A, the Death Benefit will equal $107,500 which is the greater of
the $100,000 face amount or the Cash Value times the IRC Section 7702 Life
Insurance Percentage. For Policy B, the Death Benefit would equal the $100,000
face amount.
FACE AMOUNT CHANGES
Certain states may impose limitations on increasing or decreasing the face
amount of your Policy. Refer to your Policy for details. You can apply in
writing to have the face amount increased or decreased. An increase in
coverage must be for at least $5,000 and, in some states, is subject to
NYLIAC's maximum retention limits. Evidence of insurability must be
32
<PAGE>
submitted with the application. A surrender charge may be imposed on decreases
in face amount. The Insured may not be older than age 90 as of the date of any
increase in face amount.
You can change the Life Insurance Benefit Option of the Policy. Any change
of option will take effect on the Monthly Deduction Day on or after the date
we receive your signed request at our Principal Office or such other location
that we indicate to you in writing. If you change from Option 1 to Option 2,
the face amount of the Policy will be decreased by the Cash Value. A surrender
charge will be assessed in that event. If you change from Option 2 to Option
1, the face amount of the Policy will be increased by the Cash Value. A new
schedule of surrender charges will apply to the increase.
Increases in face amount may be applied for and, in some states, are subject
to NYLIAC's maximum retention limits. The minimum amount of any increase is
$5,000. Evidence of insurability satisfactory to us is required for an
increase. We reserve the right to limit increases, and the number of increases
may be limited by state law. Any increase will take effect on the next Monthly
Deduction Day on or after we approve the application for increase. An increase
in face amount may affect the net amount at risk which may affect a
Policyowner's cost of insurance charge. Face amount increases incur new 15
year surrender charge periods on the amount of the increase.
Decreases in coverage are allowed. The face amount will be reduced by
canceling insurance segments on a last purchased, first canceled basis and the
appropriate surrender charge will be deducted from the Cash Value. (For a
discussion of the charges associated with a decrease, see SURRENDER CHARGES at
page 19.) Consult your tax adviser regarding the tax consequences of
decreasing your coverage. A decrease in face amount is effective on the next
Monthly Deduction Day following the receipt of a written request. The face
amount may not be decreased to less than $50,000. We reserve the right to
terminate the option of decreasing the face amount, and the number of
decreases may be limited by state law.
CASH VALUE AND CASH SURRENDER VALUE
CASH VALUE
The Cash Value of the Policy is the amount provided for investment in the
Separate Accounts and the Fixed Account. The Cash Value of the Policy is held
in one or more Investment Divisions of the Separate Accounts and the Fixed
Account. Initially, this value equals the net amount of the first Premium paid
under the Policy. This amount is allocated among the Fixed Account and the
Investment Divisions according to the allocation percentages requested in the
Application, or as subsequently changed by the Policyowner.
All or part of the Cash Value may be transferred among Investment Divisions.
Amounts may be transferred between Investment Divisions of the same Separate
Account or to the Fixed Account. We reserve the right to limit the number of
transfers to the Fixed Account after the first two Policy Years. (In New
Jersey and New York, no more than twelve transfers per Policy Year may be made
from the Investment Divisions to the Fixed Account after the first two Policy
Years.) 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
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<PAGE>
the Investment Division. The value of the remaining Accumulation Units in the
Investment Division or the Fixed Account Value must equal at least $500. If,
after an ordered transfer, the value of the remaining Accumulation Units in an
Investment Division or the Fixed Account Value would be less than $500, the
entire value will be transferred. There is no charge for the first twelve
transfers in any one Policy Year. NYLIAC reserves the right to charge $30 for
each transfer in excess of twelve per year.
Transfers may also be made from the Fixed Account to the Investment
Divisions in certain situations. (See THE FIXED ACCOUNT at page 41.)
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. (Telephone transfers are
not permitted in New York.) 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 WHEN WE PAY PROCEEDS
at page 52.)
In all states except New York, Policyowners may effect telephone transfers
in two ways. All Policyowners may directly contact a service representative.
Policyowners may also request access to an electronic service known as a Voice
Response Unit (VRU). The VRU will permit the unassisted transfer of monies
among the Investment Divisions and/or the Fixed Account, change of the
allocation of future payments and loans against the Policy's Cash Value
(subject to individual state regulation). All Policyowners 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 their social security number and
address. All calls will also be recorded. A Personal Identification Number
(PIN) will be assigned to all Policyowners who request VRU access. The PIN is
selected by and known only to the Policyowner. Proper entry of the PIN is
required before any transactions will be allowed through the VRU. Furthermore,
all 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.
INVESTMENT RETURN
The investment return of a Policy is based on:
. The Accumulation Units held in each Investment Division of the Separate
Accounts for that Policy,
. The investment experience of each Investment Division as measured by its
actual net rate of return, and
. The interest rate credited on Cash Values held in the Fixed Account.
The investment experience of an Investment Division of the Separate Accounts
reflects increases or decreases in the net asset value of the shares of the
underlying Fund, any dividend or capital gains distributions declared by the
Fund, and any charges against the
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<PAGE>
assets of the Investment Division. This investment experience is determined
each day on which the net asset value of the underlying Fund is determined-
that is, on each Valuation Date. The actual net rate of return for a
Investment Division measures the investment experience from the end of one
Valuation Date to the end of the next Valuation Date.
CASH SURRENDER VALUE
The Policy may be surrendered for its Cash Surrender Value at any time
before the Insured dies. Unless a later effective date is selected, the
Surrender is effective on the date we receive the Policy and a written request
in proper form at our Principal Office. The Policy and written request for
Surrender are deemed received on the date on which they are received by mail
at NYLIAC's Principal Office or such other location that we indicate to you in
writing. If, however, the date on which they are received is not a Valuation
Date, or if they are received other than through the mail after the closing of
the New York Stock Exchange, they are deemed received on the next Valuation
Date. The Cash Surrender Value is the Cash Value less any surrender charges,
any deferred contract charges and outstanding Policy Debt.
Since the Cash Value of the Policy fluctuates with the performance of the
Investment Divisions and the interest rate earned by the Fixed Account, and
because certain Surrenders or Partial Withdrawals are subject to a surrender
charge, the total amount paid upon Surrender of the Policy (taking into
account any prior withdrawals) may be more or less than the total Premiums.
PARTIAL WITHDRAWALS
The Policyowner may make a Partial Withdrawal or Surrender the Policy to
receive part or all of the Policy's Cash Surrender Value, at any time while
the Insured is living. The minimum Partial Withdrawal is $500, unless NYLIAC
agrees otherwise. Uniform rules will be applied in agreeing to Partial
Withdrawals under $500. The amount available for a Partial Withdrawal is the
Policy's Cash Value at the end of the valuation period during which the
written request for the Partial Withdrawal is received by NYLIAC, less any
surrender charges and any deferred contract charge and Policy Debt. The
Partial Withdrawal will be made on a pro-rata basis from the Fixed Account
and/or Investment Divisions, unless you indicate otherwise. If the portion of
your request for a Partial Withdrawal from the Fixed Account or Investment
Division is greater than the amount in the Fixed Account and/or Investment
Division, we will reduce the Partial Withdrawal by that amount and pay you the
entire value of that Fixed Account and/or Investment Division, less any
surrender charge which may apply. Partial Withdrawals will cause a reduction
in the Policy's face amount when Life Insurance Benefit Option 1 is in effect.
NYLIAC reserves the right to limit the amount and frequency of Partial
Withdrawals, and state law limitations may also apply. Partial Withdrawals and
Surrenders may be subject to surrender charges. For details see CHARGES UNDER
THE POLICY at page 13.
NYLIAC may charge a fee, not to exceed the lesser of $25 or 2% of the amount
withdrawn, for processing a Partial Withdrawal. This fee will be deducted from
the remaining balance of the Fixed Account and/or Investment Divisions based
on the withdrawal allocation, or if the fee amount exceeds the remaining
balance, it will be deducted from the Fixed Account and/or Investment
Divisions on a pro rata basis. When you make a Partial
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<PAGE>
Withdrawal, the life insurance benefit, the Cash Value, and the Cash Surrender
Value will be reduced by the amount of the withdrawal proceeds you receive as
of the date you receive the payment and any applicable surrender charge.
POLICY LOAN PRIVILEGE
Using the Policy as sole security, you can borrow any amount up to the loan
value of the Policy. The loan value on any given date is equal to 90% of the
Cash Value less any applicable surrender charges, less any deferred contract
charge and less any Policy Debt. Certain of the provisions discussed below,
applicable to Policy loans, differ considerably in the state of New Jersey.
New Jersey Policyowners should review their Policy for further details.
SOURCE OF LOAN
When a loan is requested, an amount necessary to increase the Fixed Account
Value to 108% of the new loan amount, less the excess of the Accumulation
Value of the Fixed Account over any outstanding Policy loan, is transferred
from the Separate Accounts to the Fixed Account. This transfer will be made on
a pro-rata basis from the various Investment Divisions. While a Policy loan is
outstanding, no Partial Withdrawals or transfers which would reduce the
Accumulation Value of the Fixed Account below 108% of the outstanding loan are
permitted. However, monthly deductions, such as the cost of insurance charge,
may reduce the Fixed Account below the 108% threshold.
LOAN INTEREST
The effective annual loan interest rate is 8%, which is payable in arrears.
We reserve the right to set a lower rate which we will determine at least once
every twelve months, but not more frequently than once in any three month
period. Loan interest for the Policy Year in which a loan is taken will be due
on the next Policy Anniversary. Loan interest accrues each day and is payable
on the Policy Anniversary, on the date of death, Surrender, or lapse, or on
the date of a loan increase or loan repayment. Loan interest not paid in cash
as of the Policy Anniversary, or prior to the expiration of the late period,
will be charged as a new loan. An amount may need to be transferred to the
Fixed Account to cover this increased loan amount.
If the loan interest rate is lower than 8% per year, any subsequent increase
in the interest rate will be subject to the following conditions:
(1) The effective date of any increase in the interest rate shall not be
earlier than one year after the effective date of the establishment of the
previous rate.
(2) The amount by which the interest rate may be increased will not
exceed one percent per year, but the rate of interest shall in no event
ever exceed 8%.
(3) We will give notice of the interest rate in effect when a loan is
made and when sending notice of loan interest due.
(4) If a loan is outstanding 40 days or more before the effective date of
an increase in the interest rate, we will notify you of that increase at
least 30 days prior to the effective date of the increase.
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<PAGE>
(5) We will give notice of any increase in the interest rate when a loan
is made during the 40 days before the effective date of the increase.
REPAYMENT
All or part of an unpaid loan can be repaid before the Insured's death or
before the Policy is surrendered. Loan repayments are allocated to the
Investment Divisions and/or the Fixed Account in accordance with premium
allocations in effect at the time of the loan repayment, unless you indicate
otherwise. If a loan is outstanding when the life insurance or surrender
proceeds become payable, we will deduct the amount of any Policy Debt from
these proceeds. In addition, it may happen in a given Policy Year that, based
on the loan interest rate in effect when that year began (ignoring any
subsequent increase in the rate during that year), an unpaid loan and accrued
interest exceeds the Cash Value of the Policy, less any applicable surrender
charges and any deferred contract charge. In that event, we will mail a notice
to you at your last known address, and a copy to the last known assignee on
our records, if any. All insurance will end 31 days after the date on which we
mail that notice to you if the excess amount is not paid within that 31 days.
INTEREST ON LOANED VALUE
Any loaned amount is held in the Fixed Account and earns interest at a rate
determined by NYLIAC, which will never be less than 2% less than the effective
annual loan interest rate and in no event less than 4%.
As long as a loan is outstanding, that portion of the Policy's Cash Value
held in the Fixed Account is not affected by the Separate Account's investment
performance. The Cash Value is also affected because the portion of the Cash
Value equal to the Policy loan is credited with an interest rate declared by
NYLIAC rather than a rate of return reflecting the investment performance of
the Separate Accounts. Any interest credited on the loan amount in the Fixed
Account remains in the Fixed Account unless the Policyowner transfers amounts
no longer needed as security to the Separate Accounts.
FREE LOOK PROVISION
The Policy contains a provision which permits cancellation by returning it
to us, or to the registered representative through whom it was purchased
within 20 days (or the amount of time required by state law but not less than
10 days) after the Policyowner receives it. The Policyowner may cancel
increases in the face amount under the same time limitations. Premiums will be
allocated to the MainStay VP Cash Management Division until 20 days (10 days
in New York) after the Issue Date. (In the District of Columbia, when the
Policy is issued, the Premium is allocated entirely to the MainStay VP Cash
Management Investment Division. On the later of 20 days after the Policy is
delivered or 45 days after the application is executed, the Net Premium is
allocated according to the Policyowner's instructions.) Upon cancellation, the
Policyowner will then receive from us the greater of the Policy's Cash Value
as of the date the Policy is returned or the Premiums paid, less loans and
Partial Withdrawals. For canceled increases in the face amount, the refund
equals the amount of Premiums allocated to the increase in accordance with the
surrender charge provision, less any portion of such amount previously paid to
the Policyowner.
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<PAGE>
EXCHANGE PRIVILEGE
At any time within 24 months of the Issue Date or after an increase in the
face amount of the Policy, the Policyowner may request that the entire
Accumulation Value of the Policy be transferred to the Fixed Account to
acquire fixed benefit life insurance protection on the life of the Insured;
provided, however, that the Owner may request such a transfer within 24 months
after an increase in the face amount of the Policy solely with respect to the
lesser of that portion of the post-increase Premiums attributable to the
increase in the face amount of the Policy or the Accumulation Value under the
Policy. The exchange will become effective when NYLIAC receives proper written
request.
At any time within 24 months of the Issue Date, the Policyowner may exchange
the Policy for a Policy on a permanent plan of life insurance which we are
offering for this purpose. NYLIAC will not require evidence of insurability.
The date of exchange will be the later of (a) the date you send us the Policy
along with a proper written request; or (b) the date we receive at our
Principal Office or such other location that we indicate to you in writing,
the necessary payment for the exchange. Upon an exchange of a Policy, all
riders and benefits will end unless we agree otherwise or unless required
under state law. The endorsed policy will have the same Issue Date, issue age
and risk classification as the original Policy. In order to exchange the
Policy, we will require: (a) that the Policy be in effect on the date of
exchange; (b) repayment of any unpaid loan plus accrued interest; and (c) an
adjustment, if any, for Premiums and Cash Values of the Policy and any new
policy.
SPECIAL NEW YORK REQUIREMENTS. In the event of a material change in the
investment policy of any Portfolio, you have the option of converting your
Policy within 60 days after the effective date of such change or the date you
receive notification of such change, whichever is later. You may elect to
convert your Policy, without providing evidence of insurability to NYLIAC, to
a new flexible premium life insurance policy, for an amount of insurance not
to exceed the amount of Death Benefit under the original Policy, on the date
of conversion. The new policy will be based on the same issue age, sex and
class of risk as your original Policy, but will not offer variable investment
options such as the Investment Divisions. All riders attached to your original
Policy will end on the date of any such conversion.
YOUR 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 Policyowners
having a lesser role in governing the business of the Funds.
To the extent required by law, the Eligible Portfolio shares held in 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 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.
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<PAGE>
The number of votes which are available to a Policyowner 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.
While a Policy is in force, the Policyowner holds a voting interest in each
Investment Division to which Accumulation Value is allocated. The number of
votes which are available to a Policyowner 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.
OUR RIGHTS
We reserve the right to take certain actions in connection with our
operations and the operations of the Separate Accounts. These actions will be
taken in accordance with applicable laws (including obtaining any required
approval of the SEC and any other required regulatory approvals). If
necessary, we will seek approval by Policyowners.
Specifically, we reserve the right to:
. Add or remove any Investment Division;
. Create new Separate Accounts;
. Combine the Separate Accounts with one or more other separate accounts;
. Operate the Separate Accounts as management investment companies under
the 1940 Act or in any other form permitted by law;
. Deregister the Separate Accounts under the 1940 Act;
. Manage the Separate Accounts under the direction of a committee or dis-
charge such committee at any time;
. Transfer the assets of the Separate Accounts to one or more other sepa-
rate accounts; and
. Restrict or eliminate any of the voting rights of Policyowners or other
persons who have voting rights as to the Separate Accounts.
NYLIAC also reserves the right to change the names of the Separate Accounts.
We have reserved all rights to the name of New York Life Insurance Company
or any part of it. We may allow the Separate Accounts and other entities to
use our name or part of it, but we may also withdraw this right.
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<PAGE>
DIRECTORS AND PRINCIPAL OFFICERS OF NYLIAC
DIRECTORS: POSITIONS DURING LAST FIVE YEARS:
Seymour Sternberg...................... President and Chief Operating Offi-
cer of New York Life from October
1995 to date; Vice Chairman and
President Elect from February 1995
to October 1995; Executive Vice
President prior thereto. President
of NYLIAC from November 1995 to
date.
Jay S. Calhoun, III.................... Vice President and Treasurer of New
York Life from November 1992 to
date; Vice President and Associate
Treasurer from March 1992 to Novem-
ber 1992; Corporate Vice President
prior thereto. Vice President and
Treasurer of NYLIAC from January
1993 to date.
Lee M. Gammill, Jr. ................... Vice Chairman of New York Life from
February 1995 to date; Executive
Vice President prior thereto. Presi-
dent of NYLIAC from July 1991 to No-
vember 1995.
Richard M. Kernan, Jr. ................ Executive Vice President and Chief
Investment Officer of New York Life
from March 1991 to date.
Gary R. McPhail........................ Executive Vice President of New York
Life from August 1995 to date. Exec-
utive Vice President of NYLIAC from
November 1995 to date. Executive
Vice President in charge of Sales
and Marketing, Lincoln National Cor-
poration, prior thereto.
Robert D. Rock......................... Senior Vice President in charge of
the Individual Annuity Department of
New York Life from March 1992 to
date; Vice President in charge of
the Individual Annuity Department
from November 1991 to March 1992;
Vice President prior thereto. Senior
Vice President of NYLIAC from April
1992 to date; Vice President prior
thereto.
Frederick J. Sievert................... Executive Vice President of New York
Life from February 1995 to date; Se-
nior Vice President and Chief Finan-
cial Officer--Individual Operations
from January 1992 to February 1995.
Executive Vice President of NYLIAC
from November 1995 to date; Senior
Vice President from June 1992 to No-
vember 1995. Senior Vice President,
Individual Insurance Division, Royal
Maccabees Life Insurance Company
prior thereto.
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<PAGE>
Stephen N. Steinig..................... Senior Vice President and Chief Ac-
tuary of New York Life from February
1994 to date; Chief Actuary and Con-
troller from January 1992 to Febru-
ary 1994; Senior Vice President and
Chief Actuary prior thereto. Senior
Vice President and Chief Actuary of
NYLIAC from May 1991 to date.
OFFICERS:
Michael Gallo.......................... Senior Vice President in charge of
the Individual Life Department of
New York Life from July 1995 to
date; Senior Vice President--North-
eastern Agencies from February 1994
to July 1995; Vice President prior
thereto. Senior Vice President of
NYLIAC from August 1995 to date.
Solomon Goldfinger..................... Senior Vice President in charge of
Financial Management of New York
Life from July 1995 to date; Senior
Vice President in charge of the In-
dividual Life Department from March
1992 to July 1995; Vice President
and Actuary in charge of the Indi-
vidual Life Department prior there-
to. Senior Vice President of NYLIAC
from April 1992 to date; Vice Presi-
dent from February 1992 to April
1992; Vice President and Actuary
prior thereto.
Jean E. Hoystradt...................... Senior Vice President in charge of
Investment Department of New York
Life from March 1992 to date; Vice
President prior thereto. Senior Vice
President of NYLIAC from April 1992
to date; Vice President prior
thereto.
Maryann L. Ingenito.................... Vice President of New York Life from
April 1990 to date. Vice President
and Controller (Principal Accounting
Officer) of NYLIAC from December
1994 to date; Vice President and As-
sistant Controller prior thereto.
Frank J. Ollari........................ Senior Vice President in charge of
the Mortgage Finance Department of
New York Life from October 1989 to
date. Senior Vice President of
NYLIAC from April 1992 to date; Vice
President prior thereto.
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 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
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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 SEC has not reviewed the
disclosures in this Prospectus relating to the Fixed Account. These
disclosures regarding the Fixed Account may, however, be subject to certain
applicable provisions of the Federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
INTEREST CREDITING
NYLIAC guarantees that it will credit interest at an effective annual rate
of at least 4% to Premiums or portions of Premiums allocated or transferred to
the Fixed Account under the Policies. NYLIAC may, AT ITS SOLE DISCRETION,
credit a higher rate of interest to the Fixed Account, or to amounts allocated
or transferred to the Fixed Account. The interest rate will be set by NYLIAC
and can change daily. The interest rate may differ for loaned and non-loaned
amounts in the Fixed Account.
TRANSFERS TO INVESTMENT DIVISIONS
Amounts may be transferred from the Fixed Account to the Separate Account
Investment Divisions, subject to the following conditions.
1. Maximum Transfer. An amount not greater than 20% of the Fixed Account
Value at the beginning of the Policy Year may be transferred during that
Policy Year from the Fixed Account to the Investment Divisions.
2. Minimum Transfer. Transfers of at least the minimum amount are permit-
ted. In New York, 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 Account Value. In most other states, we will consider
transfers of amounts less than this minimum.
3. Minimum Remaining Value. 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.
NYLIAC reserves the right to limit transfers from the Investment Divisions
to the Fixed Account after the first two Policy Years. In New Jersey and New
York, transfers to the Fixed Account after the first two Policy Years may not
be made more than twelve times per Policy Year. Policyowners should review
their Policy for further details.
Unlimited transfers between Investment Divisions 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.
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone (not available in New York) in accordance with established
procedures.
See the Policy for details and a description of the Fixed Account.
FEDERAL INCOME TAX CONSIDERATIONS
THE DISCUSSION CONTAINED HEREIN IS GENERAL IN NATURE, IS NOT AN EXHAUSTIVE
DISCUSSION OF ALL TAX QUESTIONS THAT MIGHT ARISE UNDER THE
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POLICIES, AND IS NOT INTENDED AS TAX ADVICE. NO ATTEMPT IS MADE TO CONSIDER
ANY APPLICABLE STATE OR OTHER TAX LAWS AND NO REPRESENTATION IS MADE AS TO THE
LIKELIHOOD OF CONTINUATION OF CURRENT FEDERAL INCOME TAX LAWS AND TREASURY
REGULATIONS OR OF CURRENT INTERPRETATIONS OF THE INTERNAL REVENUE SERVICE.
WHILE NYLIAC RESERVES THE RIGHT TO MAKE CHANGES IN THE POLICY TO ASSURE THAT
IT CONTINUES TO QUALIFY AS LIFE INSURANCE FOR TAX PURPOSES, NYLIAC CANNOT MAKE
ANY GUARANTEE REGARDING THE FUTURE TAX TREATMENT OF ANY POLICY. FOR COMPLETE
INFORMATION ON THE IMPACT OF CHANGES WITH RESPECT TO THE POLICY AND FEDERAL
AND STATE CONSIDERATIONS, A QUALIFIED TAX ADVISOR SHOULD BE CONSULTED.
The ultimate effect of federal income taxes on values under the Policy and
on the economic benefit to the Policyowner or Beneficiary depends upon
NYLIAC's tax status, upon the terms of the Policy and upon the tax status of
the individual concerned.
TAX STATUS OF NYLIAC AND THE SEPARATE ACCOUNTS
NYLIAC is taxed as a life insurance company under Subchapter L of the
Internal Revenue Code of 1986 (the "Code"). The Separate Accounts are not
separate taxable entities from NYLIAC and their operations are taken into
account by NYLIAC in determining its income tax liability. All investment
income and realized net capital gains on the assets of the Separate Accounts
are reinvested and taken into account in determining Policy Cash Values and
are automatically applied to increase the book reserves associated with the
Policies. Under existing federal income tax law, neither the investment income
nor any net capital gains of the Separate Accounts, are taxed to NYLIAC to the
extent those items are applied to increase reserves associated with the
Policies.
CHARGES FOR TAXES
NYLIAC imposes a Federal Tax Charge equal to 1.25% of Premiums received
under the Policy to compensate NYLIAC for the federal income tax liability it
incurs under Section 848 of the Code by reason of its receipt of Premiums
under the Policy. NYLIAC believes that this charge is reasonable in relation
to the increased tax burden it incurs as a result of Section 848. No other
charge is currently made to the Separate Accounts for federal income taxes of
NYLIAC that may be attributable to the Separate Accounts. Periodically, NYLIAC
reviews the appropriateness of charges to the Separate Accounts for NYLIAC's
federal income taxes, and in the future, a charge may be made for federal
income taxes incurred by NYLIAC that are attributable to the Separate
Accounts. In addition, depending on the method of calculating interest on
Policy Values allocated to the Fixed Account (see preceding section), a charge
may also be imposed for the Policy's share of NYLIAC's federal income taxes
attributable to the Fixed Account.
Under current laws, NYLIAC may incur state or local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, NYLIAC
reserves the right to charge the Separate Accounts for the portion of such
taxes, if any, attributable to the Separate Accounts.
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DIVERSIFICATION STANDARDS AND CONTROL ISSUES
In addition to other requirements imposed by the Code, a Policy will qualify
as life insurance under the Code only if the diversification requirements of
Code Section 817(h) are satisfied by each Separate Account in which any of the
Policy values are held. To assure that each Policy continues to qualify as
life insurance for federal income tax purposes, NYLIAC intends for each
Separate Account to comply with Code Section 817(h) and the Regulations
thereunder. To satisfy these diversification standards, the Regulations
generally require that on the last day of each quarter of a calendar year no
more than 55% of the value of a Separate Account's assets can be represented
by any one investment, no more than 70% can be represented by any two
investments, no more than 80% can be represented by any three investments, and
no more than 90% can be represented by any four investments. For purposes of
these rules, all securities of the same issuer generally are treated as a
single investment, but each U.S. Government agency or instrumentality is
treated as separate issuer. In addition a "look-through" rule applies to treat
a pro-rata portion of each asset of each Eligible Portfolio as an asset of
each Separate Account holding an interest in such Portfolio.
With respect to variable life insurance contracts, the general
diversification requirements of Code Section 817(h) are modified to the extent
that any of the assets of the Separate Accounts are direct obligations of the
United States Treasury. Even if such a Separate Account invests only in United
States Treasury Securities it will be treated as adequately diversified under
Code Section 817(h). In addition, for purposes of determining whether its
holdings of assets other than United States Treasury Securities are adequately
diversified, the generally applicable percentage limitations are increased
based on the value of the Separate Accounts' investment in United States
Treasury Securities. Notwithstanding this modification of the general
diversification requirements, however, the investments of the Separate
Accounts will be structured to comply with the general diversification
standards because they serve as an investment vehicle for certain variable
annuity contracts which must comply with the general standards.
In connection with its issuance of temporary regulations under Code Section
817(h) in 1986, the Treasury Department announced that such temporary
regulations did not provide guidance concerning the extent to which
Policyowners could be permitted to direct their investments to particular
divisions of a separate account and that guidance on this issue would be
forthcoming. Regulations addressing this issue have not yet been issued or
proposed, and it is not clear, at this time, whether such regulations will
ever be issued or what such regulations might provide. If such regulations
were to be issued in the future, it is possible that the Policy might need to
be modified to comply with such regulations. For these reasons, NYLIAC
reserves the right to modify the Policy, as necessary, to prevent the
Policyowner from being considered the owner of the assets of the Separate
Accounts.
LIFE INSURANCE STATUS OF POLICY
NYLIAC believes that the Policy meets the statutory definition of life
insurance under Code Section 7702 and that the Policyowner and Beneficiary of
any Policy will receive the same federal income tax treatment as that accorded
to owners and beneficiaries of fixed benefit life insurance policies.
Specifically, the Death Benefit under the Policy will be excludable from the
gross income of the Beneficiary subject to the terms and conditions of
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Section 101(a)(1) of the Code. Pursuant to Section 101(g) of the Code, amounts
received after December 31, 1996, by the Policyowner may also be excludable
from the Policyowner's gross income when the Insured has a terminal illness.
(Death benefits under a "modified endowment contract" as discussed below are
treated in the same manner as death benefits under life insurance contracts
that are not so classified.)
In addition, unless the Policy is a "modified endowment contract," in which
case the receipt of any loan under the Policy may result in recognition of
income to the Policyowner, the Policyowner will not be deemed to be in
constructive receipt of the Cash Values, including increments thereon, under
the Policy until proceeds of the Policy are received upon a surrender of the
Policy or a Partial Withdrawal.
MODIFIED ENDOWMENT CONTRACT STATUS
A Policy will be a modified endowment contract if it satisfies the
definition of life insurance set out in the Internal Revenue Code, but it
either fails the additional "7-pay test" set forth in Code Section 7702A or
was received in exchange for a modified endowment contract. A Policy will fail
the 7-pay test if the accumulated amount paid under the contract at any time
during the first seven contract years exceeds the total premiums that would
have been payable under a policy providing for guaranteed benefits upon the
payment of seven level annual premiums. A Policy received in exchange for a
modified endowment contract will be taxed as a modified endowment contract
even if it would otherwise satisfy the 7-pay test.
While the 7-pay test is generally applied as of the time the Policy is
issued, certain changes in the contractual terms of a Policy will require a
Policy to be retested to determine whether the change has caused the Policy to
become a modified endowment contract. For example, a reduction in death
benefits during the first seven contract years will cause the Policy to be
retested as if it had originally been issued with the reduced death benefit.
In addition, if a "material change" occurs at any time while the Policy is
in force, a new 7-pay test period will start and the Policy will need to be
retested to determine whether it continues to meet the 7-pay test. The term
"material change" generally includes increases in death benefits, but does not
include an increase in death benefits which is attributable to the payment of
premiums necessary to fund the lowest level of death benefits payable during
the first seven contract years, or which is attributable to the crediting of
interest with respect to such premiums.
Because the Policy provides for flexible Premiums, NYLIAC has instituted
procedures to monitor whether increases in death benefits or additional
Premiums cause either the start of a new seven-year test period or the
taxation of distributions and loans. All additional Premiums will be
considered in these determinations.
If a Policy fails the 7-pay test, all distributions (including loans)
occurring in the year of failure and thereafter will be subject to the rules
for modified endowment contracts. A recapture provision also applies to loans
and distributions that are received in anticipation of failing the 7-pay test.
Under the Code, any distribution or loan made within two years prior to the
date that a Policy fails the 7-pay test is considered to have been made in
anticipation of the failure.
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POLICY SURRENDERS AND PARTIAL WITHDRAWALS
Upon a full surrender of a Policy for its Cash Surrender Value the
Policyowner will recognize ordinary income for federal tax purposes to the
extent that the Cash Surrender Value exceeds the investment in the contract
(the total of all Premiums paid but not previously recovered plus any other
consideration paid for the Policy). The tax consequences of a Partial
Withdrawal from a Policy will depend upon whether the Partial Withdrawal
results in a reduction of future benefits under the Policy and whether the
Policy is a modified endowment contract.
If the Policy is not a modified endowment contract, the general rule is that
a Partial Withdrawal from a Policy is taxable only to the extent that it
exceeds the total investment in the contract. An exception to this general
rule applies, however, if a reduction of future benefits occurs during the
first 15 years after a Policy is issued and there is a cash distribution
associated with that reduction. In such a case, Code Section 7702(f)(7)
overrides the general rule and prescribes a formula under which the
Policyowner may be taxed on all or a part of the amount distributed. After 15
years, the rule of Code Section 7702(f)(7) no longer applies so that cash
distributions from a Policy that is not a modified endowment contract will not
be subject to federal income tax, except to the extent they exceed the total
investment in the contract. NYLIAC suggests that a Policyowner consult with a
tax advisor in advance of a proposed decrease in face amount or a Partial
Withdrawal. In addition, any amounts distributed under a "modified endowment
contract" (including proceeds of any loan) are taxable to the extent of any
accumulated income in the Policy. In general, the amount which may be subject
to tax is the excess of the Cash Value (both loaned and unloaned) over the
previously unrecovered Premiums paid.
Under certain circumstances, a distribution under a modified endowment
contract (including a loan) may be taxable even though it exceeds the amount
of accumulated income in the Policy. This can occur because for purposes of
determining the amount of income received upon a distribution (or loan) from a
modified endowment contract, the Code requires the aggregation of all modified
endowment contracts issued to the same Policyowner by an insurer and its
affiliates within the same calendar year. Therefore, loans and distributions
from any one such Policy are taxable to the extent of the income accumulated
in all the modified endowment contracts required to be so aggregated.
If any amount is taxable as a distribution of income under a modified
endowment contract (as a result of a policy surrender, a Partial Withdrawal or
a loan), it may also be subject to a 10% penalty tax under Code Section 72(v).
Limited exceptions from the additional penalty tax are available for certain
distributions to individual Policyowners. The penalty tax will not apply to
distributions: (i) that are made on or after the date the taxpayer attains age
59 1/2; or (ii) that are attributable to the taxpayer's becoming disabled; or
(iii) that are part of a series of substantially equal periodic payments (made
not less frequently than annually) made for the life or life expectancy of the
taxpayer.
POLICY LOANS AND INTEREST DEDUCTIONS
NYLIAC also believes that under current law any loan received under the
Policy will be treated as Policy Debt of a Policyowner and that, unless the
Policy is a modified endowment contract, no part of any loan under a Policy
will constitute income to the Policyowner. If the
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Policy is a modified endowment contract (see discussion above) loans will be
fully taxable to the extent of the income in the Policy (and in any other
contracts with which it must be aggregated) and could be subject to the
additional 10 percent tax.
Code Section 264 imposes stringent limitations on the deduction of interest
paid or accrued on loans in connection with a Policy. In addition, under the
"personal" interest limitation provisions of Code Section 163, no deduction is
allowed for interest on any Policy loan if the proceeds are used for personal
purposes, even if the Policy and loan otherwise meet the requirements of Code
Section 264. The limitations on deductibility of personal interest may not
apply to disallow all or part of the interest expense as a deduction if the
loan proceeds are used for "trade or business" or "investment" purposes.
NYLIAC suggests consultation with a tax advisor for further guidance.
CORPORATE ALTERNATIVE MINIMUM TAX
Ownership of a Policy by a corporation may affect the Policyowner's exposure
to the corporate alternative minimum tax. In determining whether it is subject
to alternative minimum tax a corporate Policyowner must make two computations.
First, the corporation must take into account a portion of the current year's
increase in the built-in gain in its corporate-owned policies. Second, the
corporation must take into account a portion of the amount by which the Death
Benefits received under any Policy exceed the sum of (i) the Premiums paid on
that Policy in the year of death, and (ii) the corporation's basis in the
Policy (as measured for alternative minimum tax purposes) as of the end of the
corporation's tax year immediately preceding the year of death.
EXCHANGES OR ASSIGNMENTS OF POLICIES
A change of the Policyowner or the Insured or an exchange or assignment of a
Policy may have significant tax consequences depending on the circumstances.
For example, an assignment or exchange of a Policy may result in taxable
income to the transferring Policyowner. Further, Code Section 101(a) provides,
subject to certain exceptions, that where a Policy has been transferred for
value, only the portion of the Death Benefit which is equal to the total
consideration paid for the Policy may be excluded from gross income. For
complete information with respect to Policy assignments and exchanges, a
qualified tax advisor should be consulted.
OTHER TAX ISSUES
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary.
QUALIFIED PLANS
In the future, NYLIAC may make the Policy available to certain tax-qualified
employee benefit plans. The rules governing such use are complex, and a
purchaser should not use the Policy in conjunction with any such qualified
plan until he or she has consulted a competent tax advisor. The Policy may not
be acquired by an Individual Retirement Account (IRA).
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WITHHOLDING
Under Section 3405 of the Code, withholding is generally required with
respect to certain taxable distributions under insurance contracts. In the
case of periodic payments (payments made as an annuity or on a similar basis),
the withholding is at graduated rates (as though the payments were employee
wages). With respect to non-periodic distributions, the withholding is at a
flat rate of 10%. A Policyowner can elect to have either non-periodic or
periodic payments made without withholding except where the Policyowner's tax
identification number has not been furnished to NYLIAC or the Internal Revenue
Service has notified NYLIAC that the tax identification number furnished by
the Policyowner is incorrect.
ADDITIONAL PROVISIONS OF THE POLICY
REINSTATEMENT OPTION
For a period of five (5) years after termination, you, as Policyowner, can
request that we reinstate the Policy during the Insured's lifetime. We will
not reinstate the Policy if it has been returned for its Cash Surrender Value.
Note that a termination or reinstatement may cause the Policy to become a
modified endowment contract.
Before we will reinstate the Policy, we must receive the following:
. A payment in an amount which is sufficient to keep the Policy in force
for at least 3 months plus, if the Policy lapses before, and is
reinstated after, the first Policy Anniversary, an amount equal to 150%
of any deferred contract charge not previously deducted. This payment
will be in lieu of the payment of all Premiums in arrears. Any unpaid
loan must also be repaid, together with loan interest at 6% compounded
once each year from the end of the late period to the date of
reinstatement. If a Policy loan interest rate of less than 6% is in
effect when the Policy is reinstated, the interest rate for any unpaid
loan at the time of reinstatement will be the same as the Policy loan
interest rate. The effective date of reinstatement will be the Monthly
Deduction Day on or following the date we approve the request for
reinstatement; and
. Evidence of insurability satisfactory to us if the reinstatement is
requested more than 30 days after termination.
If we do reinstate the Policy, the face amount for the reinstated Policy
will be the same as it would have been if the Policy had not terminated.
ADDITIONAL BENEFITS YOU CAN GET BY RIDER
The Policy can include additional benefits that we approve based on our
standards and limits for issuing insurance and classifying risks. None of
these benefits depends on the investment performance of the Separate Accounts
or the Fixed Account. An additional benefit is provided by a rider and is
subject to the terms of both the Policy and the rider. The following riders
are available.
Children's Insurance Rider
This rider provides level term insurance coverage on the lives of children
of the Insured until the earlier of the Policy Anniversary on which the child
is age 25 or the one on which
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the Insured is or would have been age 65. The rider coverage may be converted
at that time to a current-dated permanent life insurance policy.
Term Insurance On Other Covered Insured Rider (also referred to as
Supplemental Insurance Benefit Rider)
This rider provides level term insurance coverage on one or more insureds
which is convertible up until the Policy Anniversary on which that insured is
age 71 or on the death of the Insured, if earlier.
Monthly Deduction Waiver Rider
This rider provides for the waiver of Monthly Deductions in the event of
total disability of the Insured.
Accidental Death Benefit Rider
This rider provides for an additional Death Benefit in the event the
Insured's death was caused by accidental bodily injury occurring within one
year of the Insured's death. No benefit is payable under this rider if the
Insured dies before his or her first birthday or after the Policy Anniversary
when the Insured is age 70.
Guaranteed Insurability Rider
This rider allows the Policyowner to increase the face amount of the Policy
or purchase a new policy on the Insured for a specified option amount on
specified dates, without evidence of insurability.
Spouse Paid-Up Insurance Purchase Option Rider (not available in New York)
This rider allows the Insured's spouse or the spouse of an Other Covered
Insured to purchase a paid-up insurance policy on his or her life on that
insured's death in the amount up to the Death Benefit on the Policy, provided
the spouse is the beneficiary under the policy or the applicable Term
Insurance On Other Covered Insured Rider.
Accelerated Benefits Rider
This rider allows the Policyowner to receive 25% or more of the Death
Benefit up to $250,000, less an interest adjustment, when the Insured has a
life expectancy of twelve months or less. Amounts received under this rider
after December 31, 1996 will generally be excludable from the Policyowner's
gross income under Section 101(g) of the Code. The exclusion from gross income
will not apply, however, if the Policyowner is not the Insured and the
Policyowner has an insurable interest in the life of the Insured either
because the Insured is a director, officer or employee of the Policyowner or
because the Insured has a financial interest in a business of the Policyowner.
PAYMENT OPTIONS
The proceeds of the Policy will be paid in one sum, or if elected, all or
part of these proceeds can be placed under one or more of the options
described in this section. If we
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agree, the proceeds may be placed under some other method of payment instead.
Any life insurance proceeds paid in one sum will bear interest compounded each
year from the Insured's death to the date of payment. We set the interest rate
each year. This rate will be at least 3% per year, and will not be less than
required by law.
While the Insured is living, you can elect or change an option. You can also
elect or change one or more Beneficiaries who will be the payee or payees
under that option. After the Insured dies, any person who is to receive
proceeds in one sum (other than an assignee) can elect an option and name
payees. The person who elects an option can also name one or more successor
payees to receive any amount remaining at the death of the payee. Naming these
payees cancels any prior choice of successor payees. A payee who did not elect
the option does not have the right to advance or assign payments, take the
payments in one sum, or make any other change. However, the payees may be
given the right to do one or more of these things if the person who elects the
option tells us in writing and we agree. If we agree, a payee who elects
Option 1A, 1B, or 2 may later elect to have any amount we still have, or the
present value of any elected payments, placed under some other option
described in this section. When any payment under an option would be less than
$100, we may pay any unpaid amount or present value in one sum.
PAYEES
Only individuals who are to receive payments in their own behalf may be
named as payees or successor payees, unless we agree otherwise. We may require
proof of the age or the survival of a payee. It may happen that when the last
surviving payee dies, we still have an unpaid amount, or there are some
payments which remain to be made. If so, we will pay the unpaid amount with
interest to the date of payment, or pay the present value of the remaining
payments, to that payee's estate in one sum. The present value of the
remaining payments is based on the interest rate used to compute them, and is
always less than their sum.
PROCEEDS AT INTEREST OPTIONS (OPTIONS 1A AND 1B)
The Policy proceeds may be left with us at interest. We will set the
interest rate each year. This rate will be at least 3% per year.
For the Interest Accumulation Option (Option 1A), we credit interest each
year on the amount we still have. This amount can be withdrawn at any time in
sums of $100 or more. We pay interest to the date of withdrawal on sums
withdrawn.
For the Interest Payment Option (Option 1B), we pay interest once each
month, every 3 months, every 6 months, or once each year, as chosen, based on
the amount we still have.
LIFE INCOME OPTION (OPTION 2) (NOT AVAILABLE IN MASSACHUSETTS AND MONTANA)
We make equal payments each month during the lifetime of the payee or
payees. We determine the amount of the monthly payment by applying the Policy
proceeds to purchase a corresponding single Premium life annuity policy which
is being issued when the first payment is due. Payments are based on the
appropriately adjusted annuity Premium rate in effect at that time, but will
not be less than the corresponding minimum amount shown in the appropriate
Option 2 Table. These minimum amounts are based on the 1983 Table "a" with
Projection Scale G and with interest compounded each year at 3%.
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When asked, we will state in writing what the minimum amount of each monthly
payment would be under these options. It is based on the sex and adjusted age
of the payee. To find the adjusted age in the year the first payment is due,
we increase or decrease the payee's age at that time, as follows:
<TABLE>
<CAPTION>
1995 AND 2036 AND
EARLIER 1996-2005 2006-2015 2016-2025 2026-2035 LATER
-------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
+2 +1 0 -1 -2 -3
</TABLE>
For Option 2, we make a payment each month while the payee is living.
Payments do not change, and are guaranteed for 10 years, even if both payees
die sooner.
BENEFICIARY
A Beneficiary is any person or entity named on our records to receive
insurance proceeds after the Insured dies. You name the Beneficiary when you
apply for the Policy. There may be different classes of beneficiaries, such as
primary and secondary. These classes set the order of payment. There may be
more than one Beneficiary in a class.
The Beneficiary may be changed during the Insured's lifetime by writing to
our Principal Office or such other location that we indicate to you in
writing. Generally, the change will take effect as of the date the request is
signed. If no Beneficiary is living when the Insured dies, unless provided
otherwise, the Death Benefit is paid to the Policyowner or, if deceased, the
Policyowner's estate.
ASSIGNMENT
The Policy may be assigned as collateral for a loan or other obligation. But
for any assignment to be binding on us, we must receive a signed copy of it at
our Principal Office or such other location that we indicate to you in
writing. We are not responsible for the validity of any assignment.
LIMITS ON OUR RIGHTS TO CHALLENGE THE POLICY
Except for any increases in face amount, other than one due solely to a
change in the Life Insurance Benefit Option, we must bring any legal action to
contest the validity of a Policy within two years from its Issue Date. After
that we cannot contest its validity, except for failure to pay Premiums unless
the Insured died within that two year period. For any increase in the face
amount, other than one due solely to a change in the Life Insurance Benefit
Option, we must bring legal action to contest that increase within two years
from the effective date of the increase.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex is misstated in the Policy application, the Cash
Value (except in Pennsylvania), Cash Surrender Value and the Death Benefit
will be adjusted to reflect the correct age and sex. The Death Benefit payable
under the Policy will be adjusted based on what the Policy would provide
according to the most recent mortality charge for the correct date of birth or
correct sex.
SUICIDE
If the Insured commits suicide within two years from the Issue Date or with
respect to an increase in face amount, the effective date of the increase (or
less where required by law),
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and while the Policy is in force, we pay a limited Death Benefit in one sum to
the Beneficiary. The limited Death Benefit is the amount of Premiums, less any
Policy Debt or amounts withdrawn. For any increases in the face amount, the
limited Death Benefit will be the monthly deductions made for that increase.
If the limited Death Benefit for the entire Policy is payable, there will be
no additional payment for the increase.
WHEN WE PAY PROCEEDS
If the Policy has not terminated, payment of the Cash Surrender Value, loan
proceeds or the Death Benefit are made within 7 days after we receive all
requirements at our Principal Office or such other location that we indicate
to you in writing. But we can delay payment of the Cash Surrender Value or any
Partial Withdrawal from the Separate Accounts, loan proceeds attributable to
the Separate Accounts, or the Death Benefit during any period that:
. It is not reasonably practicable to determine the amount because the New
York Stock Exchange is closed (other than customary weekend and holiday
closings), trading is restricted by the SEC, or the SEC declares that an
emergency exists; or
. The SEC, by order, permits us to delay payment in order to protect our
Policyowners.
We may delay paying any surrender value or loan proceeds on the Fixed
Account for up to 6 months from the date the request is received at our
Principal Office. We can delay payment of the entire Death Benefit if payment
is contested. We investigate all death claims arising within the two-year
contestable period. Upon receiving the information from a completed
investigation, we generally make a determination within five days as to
whether the claim should be authorized for payment. Payments are made promptly
after authorization. If payment of a Cash Surrender Value or Partial
Withdrawal value is delayed for 30 days or more, we add interest at an annual
rate of 3%. We add interest to a Death Benefit from the date of death to the
date of payment at the same rate as is paid under the Interest Payment Option.
RECORDS AND REPORTS
All records and accounts relating to the Separate Accounts and the Fixed
Account are maintained by New York Life or NYLIAC. Each year we will mail you
a report showing the Cash Value, Cash Surrender Value and Policy Debt as of
the latest Policy Anniversary. This report contains any additional information
required by any applicable law or regulation.
Reports and promotional literature may contain the ratings New York Life and
NYLIAC have received from independent rating agencies. Both companies are
among only a few companies that have consistently received among the highest
possible ratings from the four major independent rating companies: A.M. Best
and Moody's (for financial strength and stability) and Standard and Poor's and
Duff & Phelps (for claims paying ability). However, neither New York Life nor
NYLIAC guarantees the investment performance of the Investment Divisions.
SALES AND OTHER AGREEMENTS
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
52
<PAGE>
wholly-owned subsidiary of New York Life. The commissions paid to registered
representatives of broker-dealers who have entered into dealer agreements with
NYLIFE Distributors during a Policy's first year will not exceed 50% of the
Premiums paid up to a Policy's "breakpoint" Premium (6.5% in the second and
subsequent Policy Years) plus 3.5% of Premiums paid in excess of such amount.
The "breakpoint" Premium is the lesser of the target premium and the
annualized scheduled Premium specified on the Application. Commissions in
excess of the percentage payable on renewal Premiums are available for
Premiums paid in connection with most increases in a Policy's face amount.
Registered representatives who meet certain productivity standards and/or
participate in certain programs may receive additional compensation. 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.
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
intermediate appellate court and the settlement judgement 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
punitive damages.
The ultimate liability that could result from such litigation and
proceedings 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 financial statements included herein have been included in reliance on
the reports of Price Waterhouse LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
EXPERTS
Actuarial matters in this Prospectus have been examined by Jane L. Hamrick,
Vice President and Actuary. An opinion on actuarial matters is filed as an
exhibit to the registration statements we filed with the SEC.
53
<PAGE>
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 herein. The financial statements
for the Separate Accounts do not contain information on the MainStay VP
Convertible, Alger American Small Capitalization, Calvert Socially
Responsible, 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. The
financial statements of NYLIAC included herein should be considered only as
bearing upon the ability of NYLIAC to meet its obligations under the Policy.
54
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
55
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
---------------------------------
ASSETS:
Investment in New York Life MFA Series
Fund, Inc., at net asset value
(Identified Cost: $21,699,203;
$3,127,013; $960,948; $11,434,113;
$10,781,409; $7,848,862; $6,089,705;
$1,400,887; $4,709,797; $4,170,114,
respectively)........................... $26,096,418 $ 3,127,002 $ 966,590
LIABILITIES:
Liability for mortality and expense risk
charges................................. 42,006 3,876 1,596
----------- ----------- -----------
Total equity............................ $26,054,412 $ 3,123,126 $ 964,994
=========== =========== ===========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
1,988,398; 2,883,826; 85,299; 91,397;
29,571; 724,564; 94,528; 122,386;
370,775; 328,212, respectively.......... $26,054,412 $ 3,123,126 $ 964,994
Equity of New York Life Insurance and An-
nuity Corporation:
Variable accumulation units outstanding:
0; 0; 0; 1,000,000; 1,000,000; 0;
500,000; 0; 0; 0, respectively.......... -- -- --
----------- ----------- -----------
Total equity............................ $26,054,412 $ 3,123,126 $ 964,994
=========== =========== ===========
Variable accumulation unit value......... $ 13.10 $ 1.08 $ 11.31
=========== =========== ===========
</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
VL SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL TOTAL GROWTH INDEXED
CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY EQUITY
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
$11,974,917 $10,979,637 $ 8,974,429 $ 6,921,109 $ 1,434,006 $ 4,832,090 $ 4,729,379
20,964 19,113 14,683 11,804 2,276 7,798 7,474
----------- ----------- ----------- ----------- ----------- ----------- -----------
$11,953,953 $10,960,524 $ 8,959,746 $ 6,909,305 $ 1,431,730 $ 4,824,292 $ 4,721,905
=========== =========== =========== =========== =========== =========== ===========
$ 1,001,059 $ 314,810 $ 8,959,746 $ 1,098,560 $ 1,431,730 $ 4,824,292 $ 4,721,905
10,952,894 10,645,714 -- 5,810,745 -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
$11,953,953 $10,960,524 $ 8,959,746 $ 6,909,305 $ 1,431,730 $ 4,824,292 $ 4,721,905
=========== =========== =========== =========== =========== =========== ===========
$ 10.95 $ 10.65 $ 12.37 $ 11.62 $ 11.70 $ 13.01 $ 14.39
=========== =========== =========== =========== =========== =========== ===========
</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
APPRECIATION MANAGEMENT GOVERNMENT
<S> <C> <C> <C>
---------------------------------
INVESTMENT INCOME:
Dividend income.......................... $ 103,050 $ 90,630 $ 67,028
Mortality and expense risk charges....... (109,478) (11,695) (5,066)
---------- ----------- ----------
Net investment income (loss)............ (6,428) 78,935 61,962
---------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments........ 124,239 6,358,057 281,210
Cost of investments sold................. (116,184) (6,358,078) (274,817)
---------- ----------- ----------
Net realized gain (loss) on investments. 8,055 (21) 6,393
Realized gain distribution received...... -- -- --
Change in unrealized
appreciation/depreciation
on investments.......................... 4,319,912 (10) 33,007
---------- ----------- ----------
Net gain (loss) on investments.......... 4,327,967 (31) 39,400
---------- ----------- ----------
Decrease attributable to funds of New
York Life Insurance
and Annuity Corporation retained by
Separate Account........................ (4,266) (106) (109)
---------- ----------- ----------
Net increase in total equity resulting
from operations........................ $4,317,273 $ 78,798 $ 101,253
========== =========== ==========
</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
VL SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL TOTAL GROWTH INDEXED
COPORATE BOND(A) EQUITY(A) RETURN VALUE(A) BOND EQUITY EQUITY
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------
$ 421,652 $ 513,224 $ 210,054 $ 56,399 $ 87,653 $ 54,972 $ 90,666
(50,471) (47,380) (41,758) (27,067) (6,131) (18,465) (19,115)
---------- ---------- ---------- ---------- ---------- ---------- ----------
371,181 465,844 168,296 29,332 81,522 36,507 71,551
---------- ---------- ---------- ---------- ---------- ---------- ----------
46,011 44,736 217,483 49,641 49,659 124,759 123,718
(43,641) (44,319) (209,701) (44,508) (49,253) (116,875) (106,179)
---------- ---------- ---------- ---------- ---------- ---------- ----------
2,370 417 7,782 5,133 406 7,884 17,539
71,092 -- -- -- -- 388,941 128,630
540,804 198,228 1,184,761 831,404 53,397 168,723 572,871
---------- ---------- ---------- ---------- ---------- ---------- ----------
614,266 198,645 1,192,543 836,537 53,803 565,548 719,040
---------- ---------- ---------- ---------- ---------- ---------- ----------
(1,187) (1,004) (1,368) (915) (136) (637) (896)
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 984,260 $ 663,485 $1,359,471 $ 864,954 $ 135,189 $ 601,418 $ 789,695
========== ========== ========== ========== ========== ========== ==========
</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).......................... $ (6,428) $ 11,728
Net realized gain (loss) on investments............... 8,055 (15,948)
Realized gain distribution received................... -- --
Change in unrealized appreciation/depreciation on
investments.......................................... 4,319,912 77,278
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account..................................... (4,266) (130)
----------- -----------
Net increase (decrease) in total equity resulting
from operations..................................... 4,317,273 72,928
----------- -----------
Contributions and withdrawals:
Equity contributions by New York Life Insurance and
Annuity Corporation.................................. -- --
Policyowners' premium payments........................ 13,583,511 3,849,463
Cost of insurance..................................... (4,921,516) (1,040,147)
Policyowners' surrenders.............................. (350,169) (11,855)
Net transfers from (to) Fixed Account................. (173,462) 14,171
Transfers between Investment Divisions................ 6,607,556 4,111,141
Policyowners' death benefits.......................... (6,744) --
----------- -----------
Total contributions and withdrawals (net)............ 14,739,176 6,922,773
----------- -----------
Increase in total equity............................ 19,056,449 6,995,701
TOTAL EQUITY:
Beginning of period................................... 6,997,963 2,262
----------- -----------
End of period......................................... $26,054,412 $ 6,997,963
=========== ===========
</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
VL SEPARATE ACCOUNT I
<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>
- ------------------------------------------------------------------------------------------------------
$ 78,935 $ 17,604 $ 61,962 $ 27,524 $ 371,181 $ -- $ 465,844 $ --
(21) (3) 6,393 (2,503) 2,370 -- 417 --
-- -- -- -- 71,092 -- -- --
(10) (1) 33,007 (26,493) 540,804 -- 198,228 --
(106) (24) (109) 1 (1,187) -- (1,004) --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
78,798 17,576 101,253 (1,471) 984,260 -- 663,485 --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
-- -- -- -- 10,000,000 -- 10,000,000 --
16,416,407 9,690,281 488,388 266,309 330,982 -- 118,017 --
(583,667) (346,317) (164,242) (50,722) (62,383) -- (24,022) --
(2,298) (839) (7,422) (236) (62) -- (66) --
(227,064) (277,902) (15,530) -- (16,477) -- (967) --
(14,242,324) (7,510,595) 173,606 152,547 717,633 -- 204,077 --
-- -- -- -- -- -- -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,361,054 1,554,628 474,800 367,898 10,969,693 -- 10,297,039 --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
1,439,852 1,572,204 576,053 366,427 11,953,953 -- 10,960,524 --
1,683,274 111,070 388,941 22,514 -- -- -- --
- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 3,123,126 $ 1,683,274 $ 964,994 $ 388,941 $11,953,953 $ -- $10,960,524 $ --
=========== =========== =========== =========== =========== =========== =========== ===========
</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, 1995and December 31, 1994
<TABLE>
<CAPTION>
TOTAL RETURN
----------------------
1995 1994
<S> <C> <C>
------------------
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income................................... $ 168,296 $ 70,789
Net realized gain (loss) on investments................. 7,782 (10,776)
Realized gain distribution received..................... -- --
Change in unrealized appreciation/depreciation on
investments............................................ 1,184,761 (59,141)
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account........................... (1,368) (20)
---------- ----------
Net increase in total equity resulting from
operations............................................ 1,359,471 852
---------- ----------
Contributions and withdrawals:
Equity contributions by New York Life Insurance and
Annuity Corporation.................................... -- --
Policyowners' premium payments.......................... 4,559,675 1,679,464
Cost of insurance....................................... (1,729,202) (405,121)
Policyowners' surrenders................................ (175,199) (4,333)
Net transfers from (to) Fixed Account................... (153,144) (41,397)
Transfers between Investment Divisions.................. 1,903,627 1,941,419
Policyowners' death benefits............................ (1,793) --
---------- ----------
Total contributions and withdrawals (net).............. 4,403,964 3,170,032
---------- ----------
Increase in total equity.............................. 5,763,435 3,170,884
TOTAL EQUITY:
Beginning of period..................................... 3,196,311 25,427
---------- ----------
End of period........................................... $8,959,746 $3,196,311
========== ==========
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
(b) For the period May 2, 1994 (Commencement of Operations) through December
31, 1994.
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
VL SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
VALUE BOND GROWTH EQUITY INDEXED EQUITY
- ---------------------- ---------------------- ---------------------- ----------------------
1995(A) 1994 1995 1994(B) 1995 1994(B) 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
$ 29,332 $ -- $ 81,522 $ 21,272 $ 36,507 $ 8,293 $ 71,551 $ 20,310
5,133 -- 406 (4) 7,884 417 17,539 (467)
-- -- -- -- 388,941 39,333 128,630 4,323
831,404 -- 53,397 (20,278) 168,723 (46,431) 572,871 (13,607)
(915) -- (136) (1) (637) (6) (896) (14)
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
864,954 -- 135,189 989 601,418 1,606 789,695 10,545
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
5,000,000 -- -- -- -- -- -- --
397,494 -- 761,127 117,636 2,495,614 253,183 2,254,847 604,456
(81,413) -- (265,847) (22,471) (802,176) (66,107) (785,474) (142,158)
(4,246) -- (10,640) (11) (33,720) (305) (45,112) (1,860)
-- -- (4,094) -- (63,184) 121 (64,176) (2,035)
732,516 -- 481,252 238,600 1,936,157 502,198 1,482,291 620,551
-- -- -- -- (513) -- (97) --
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6,044,351 -- 961,798 333,754 3,532,178 689,090 2,842,279 1,078,954
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6,909,305 -- 1,096,987 334,743 4,133,596 690,696 3,631,974 1,089,499
-- -- 334,743 -- 690,696 -- 1,089,931 432
- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$6,909,305 $ -- $1,431,730 $ 334,743 $4,824,292 $ 690,696 $4,721,905 $1,089,931
========== ========== ========== ========== ========== ========== ========== ==========
</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>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Organization and Accounting Policies:
- -------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation Variable Universal Life
Separate Account I ("VL Separate Account I") was established on June 4, 1993,
under Delaware law by New York Life Insurance and Annuity Corporation, a
wholly owned subsidiary of New York Life Insurance Company. The VL Separate
Account I policies are designed for individuals who seek lifetime insurance
protection and flexibility with respect to premium payments and death
benefits. 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. VL Separate Account I is
registered under the Investment Company Act of 1940, as amended, as a unit
investment trust. The assets of VL Separate Account I are invested exclusively
in the shares of the New York Life MFA Series Fund, Inc. (the "MFA Fund"), a
diversified open-end management investment company, and are clearly identified
and distinguished from the other assets and liabilities of New York Life
Insurance and Annuity Corporation.
On May 1, 1995, New York Life Insurance and Annuity Corporation created three
new Investment Divisions within VL Separate Account I, the High Yield
Corporate Bond, International Equity, and Value 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.
There are ten Investment Divisions within VL Separate Account I which invest
solely 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. Premium payments received are allocated to the Cash
Management Investment Division until 20 days after the policy issue date.
Thereafter, premium payments will be allocated to the Investment Divisions of
VL Separate Account I in accordance with the Policyowner's instructions. In
addition, the Policyowner has the option to transfer amounts between the
Investment Divisions of VL Separate Account I and the Fixed Account of New
York Life Insurance and Annuity Corporation.
No Federal income tax is payable on investment income or capital gains of VL
Separate Account I under current Federal income tax law.
Security Valuation--The investment in the MFA Fund is valued at the net asset
value of shares of the respective fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding
portfolio.
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-9
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1995, the investment in the MFA Fund by the respective Invest-
ment Divisions of VL Separate Account I is as follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------
<S> <C> <C> <C> <C>
Number of Shares.............. 1,684 3,127 97 1,135
Identified Cost*.............. $21,699 $3,127 $961 $11,434
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Transactions in MFA Fund shares for the year ended December 31, 1995, were as
follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(A)
------------------------------------------
<S> <C> <C> <C> <C>
Purchases..................... $14,885 $7,800 $819 $11,478
Proceeds from Sales........... 124 6,358 281 46
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
F-11
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED
EQUITY RETURN VALUE BOND EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1,077 677 598 107 281 350
$10,781 $7,849 $6,090 $1,401 $4,710 $4,170
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED
EQUITY RETURN VALUE BOND EQUITY EQUITY
PORTFOLIO(A) PORTFOLIO PORTFOLIO(A) PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10,826 $4,799 $6,134 $1,095 $4,089 $3,171
45 217 50 50 125 124
</TABLE>
On May 1, 1995, to facilitate the commencement of operations for the three
new portfolios of the MFA Fund, New York Life Insurance and Annuity
Corporation contributed $25,000,000 to the three new Investment Divisions of
VL Separate Account I which then purchased shares in the MFA Fund as follows:
High Yield Corporate Bond, $10,000,000; International Equity, $10,000,000 and
Value, $5,000,000. In aggregate, these Investment Divisions purchased
2,500,000 shares at $10.00 per share in the new portfolios.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
VL Separate Account I is 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 .70% of the daily net
asset value of each Investment Division. New York Life Insurance and Annuity
Corporation may increase these charges in the future up to a maximum annual
rate of 1.00%. 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:
- --------------------------------------------------------------------------------
VL Separate Account I does not expect to declare dividends to Policyowners from
accumulated net income and realized gains. The income and gains are distributed
to Policyowners as part of withdrawals of amounts (in the form of surrenders,
death benefits, or transfers) in excess of the net premium payments.
F-13
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1995, the cost to Policyowners for accumulation units outstand-
ing, with adjustments for net investment income, market
appreciation/depreciation and deduction for expenses is as follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
<S> <C> <C> <C> <C>
------------------------------------------
Cost to Policyowners (net of
withdrawals)................ $29,478 $6,761 $1,166 $11,067
Sales charges................ (1,853) (2,802) (86) (35)
Cost of insurance............ (5,961) (933) (215) (62)
Accumulated net investment
income...................... 5 97 90 371
Accumulated net realized gain
(loss) on investments and
realized gain distributions
received.................... (8) -- 4 73
Unrealized
appreciation/depreciation
on investments.............. 4,397 -- 6 541
Decrease attributable to
funds of New York Life
Insurance and Annuity
Corporation retained by
Separate Account............ (4) -- -- (1)
------- ------- ------- -------
Net amount applicable to
Policyowners................ $26,054 $ 3,123 $ 965 $11,954
======= ======= ======= =======
</TABLE>
F-15
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED
EQUITY RETURN VALUE BOND EQUITY EQUITY
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
$10,334 $10,398 $ 6,168 $ 1,677 $ 5,380 $ 5,154
(12) (665) (42) (93) (291) (304)
(24) (2,134) (81) (288) (868) (928)
466 239 29 103 45 92
-- (3) 5 -- 437 150
198 1,126 831 33 122 559
(1) (1) (1) -- (1) (1)
------- ------- ------- ------- ------- -------
$10,961 $ 8,960 $ 6,909 $ 1,432 $ 4,824 $ 4,722
======= ======= ======= ======= ======= =======
</TABLE>
F-16
<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
-------------------- -----------------
1995 1994 1995 1994
<S> <C> <C> <C> <C>
------------------------------
Units issued on contribution by New
York Life Insurance
and Annuity Corporation............ -- -- -- --
Units issued on premium payments.... 1,166 402 15,446 9,516
Units redeemed on cost of insurance. (421) (108) (550) (340)
Units redeemed on surrenders........ (29) (1) (2) (1)
Units redeemed on death benefits.... (1) -- -- --
Units issued (redeemed) on net
transfers to Fixed Account......... (15) 1 (215) (274)
Units issued (redeemed) on transfers
between Investment Divisions....... 568 426 (13,425) (7,382)
---------- ---------- -------- -------
Net increase........................ 1,268 720 1,254 1,519
Units outstanding, beginning of
period............................. 720 -- 1,630 111
---------- ---------- -------- -------
Units outstanding, end of period.... 1,988 720 2,884 1,630
========== ========== ======== =======
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
F-17
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY TOTAL RETURN VALUE
- -------------- --------------- ----------------------- -------------- ---------------
1995 1994 1995(A) 1994 1995(A) 1994 1995 1994 1995(A) 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------
-- -- 1,000 -- 1,000 -- -- -- 500 --
47 27 31 -- 12 -- 407 174 35 --
(15) (5) (6) -- (2) -- (153) (42) (7) --
(1) -- -- -- -- -- (15) -- -- --
-- -- -- -- -- -- -- -- -- --
(1) -- (2) -- -- -- (14) (5) -- --
15 16 68 -- 20 -- 171 200 67 --
- ------ ------ ------ ------ ---------- ---------- ------ ------ ------ ------
45 38 1,091 -- 1,030 -- 396 327 595 --
40 2 -- -- -- -- 329 2 -- --
- ------ ------ ------ ------ ---------- ---------- ------ ------ ------ ------
85 40 1,091 -- 1,030 -- 725 329 595 --
====== ====== ====== ====== ========== ========== ====== ====== ====== ======
</TABLE>
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND GROWTH EQUITY INDEXED EQUITY
--------------- --------------- --------------
1995 1994(B) 1995 1994(B) 1995 1994
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------
Units issued on premium
payments.................... 70 12 212 25 176 58
Units redeemed on cost of
insurance................... (25) (2) (67) (7) (61) (14)
Units redeemed on surrenders. (1) -- (3) -- (3) --
Units redeemed on net
transfers to Fixed Account.. -- -- (5) -- (5) --
Units issued on transfers
between Investment
Divisions................... 44 24 166 50 118 59
------ ------ ------ ------ ------- -------
Net increase................. 88 34 303 68 225 103
Units outstanding, beginning
of period................... 34 -- 68 -- 103 --
------ ------ ------ ------ ------- -------
Units outstanding, end of
period...................... 122 34 371 68 328 103
====== ====== ====== ====== ======= =======
</TABLE>
(a) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
(b) For the period May 2, 1994 (Commencement of Operations) through December
31, 1994.
F-19
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-20
<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 VL Separate Account I:
<TABLE>
<CAPTION>
CAPITAL APPRECIATION CASH MANAGEMENT
------------------------ -----------------------
1995+ 1994+ 1993++(A) 1995+ 1994+ 1993++(A)
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------
Unit value, beginning of
period....................... $ 9.72 $10.23 $10.00 $ 1.03 $ 1.00 $ 1.00
Net investment income ........ -- 0.04 0.02 0.05 0.03 --
Net realized and unrealized
gains (losses) on security
transactions and realized
capital gain distributions
received (includes the effect
of capital share
transactions)................ 3.38 (0.55) 0.21 -- -- --
------ ------ ------ ------ ------ ------
Unit value, end of period..... $13.10 $ 9.72 $10.23 $ 1.08 $ 1.03 $ 1.00
====== ====== ====== ====== ====== ======
</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 November 15, 1993 (Commencement of Operations) through De-
cember 31, 1993.
(b) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
F-21
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD
GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
------------------------------------------------ ----------------------
1995+ 1994+ 1993++(A) 1995+(B) 1994 1993 1995+(B) 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------
$ 9.76 $10.01 $10.00 $10.00 $ -- $ -- $10.00 $ -- $ --
0.93 1.46 0.39 0.36 -- -- 0.46 -- --
0.62 (1.71) (0.38) 0.59 -- -- 0.19 -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
$11.31 $ 9.76 $10.01 $10.95 $ -- $ -- $10.65 $ -- $ --
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL RETURN VALUE
------------------------ ----------------------
1995+ 1994+ 1993++(A) 1995+(B) 1994 1993
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------
Unit value, beginning of
period........................ $ 9.70 $10.18 $10.00 $10.00 $ -- $ --
Net investment income ......... 0.32 0.52 0.18 0.05 -- --
Net realized and unrealized
gains (losses) on security
transactions and realized
capital gain distributions
received (includes the effect
of capital share
transactions)................. 2.35 (1.00) -- 1.57 -- --
------ ------ ------ ------ ------ ------
Unit value, end of period...... $12.37 $ 9.70 $10.18 $11.62 $ -- $ --
====== ====== ====== ====== ====== ======
</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 November 15, 1993 (Commencement of Operations) through De-
cember 31, 1993.
(b) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
(c) For the period May 2, 1994 (Commencement of Operations) through December
31, 1994.
F-23
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND GROWTH EQUITY INDEXED EQUITY
----------------------------------------------- -----------------------
1995+ 1994+(C) 1993 1995+ 1994+(C) 1993 1995+ 1994+ 1993++(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------
$ 9.96 $10.00 $ -- $10.14 $10.00 $ -- $10.58 $10.00 $10.00
1.03 1.70 -- 0.17 0.30 -- 0.34 0.49 --
0.71 (1.74) -- 2.70 (0.16) -- 3.47 0.09 --
------ ------ ------ ------ ------ ------ ------ ------ ------
$11.70 $ 9.96 $ -- $13.01 $10.14 $ -- $14.39 $10.58 $10.00
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance
and Annuity Corporation and the Variable Universal Life Policyowners:
In our opinion, the accompanying statement 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 Uni-
versal Life Separate Account I (comprised of the Capital Appreciation Invest-
ment Division, the Cash Management Investment Division, the Government Invest-
ment Division, the High Yield Corporate Bond Investment Division, the Interna-
tional Equity Investment Division, the Total Return Investment Division, the
Value Investment Division, the Bond Investment Division, the Growth Equity In-
vestment Division and the Indexed Equity Investment Division) at December 31,
1995, the results of its operations for the year then ended (for the High
Yield Corporate Bond Investment Division, International Equity Investment Di-
vision and Value Investment Division for the period May 1, 1995 (commencement
of operations) through December 31, 1995) and the changes in its total equity
and the selected per unit data for each of the periods presented in conformity
with generally accepted accounting principles. These financial statements and
the 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 au-
diting standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of the investment at December 31, 1995
with New York Life MFA Series Fund, Inc., provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 15, 1996
F-25
<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-26
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-27
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF OPERATIONS ANNUITY CORPORATION
(Prepared from the Annual Statement filed (A WHOLLY OWNED
with the Delaware Insurance Department) SUBSIDIARY OF
NEW YORK LIFE INSURANCE
COMPANY)
<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-28
<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-29
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF CASH FLOWS ANNUITY CORPORATION
(Prepared from the Annual Statement filed (A WHOLLY OWNED SUBSIDI-
with the Delaware Insurance Department) ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
<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-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1995 and 1994
NOTE 1--Nature of Operations:
- -------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation ("NYLIAC"), a direct, wholly
owned subsidiary of New York Life Insurance Company ("New York Life"), is a
stock life insurance company. NYLIAC offers a wide variety of interest sensi-
tive insurance and annuity products to a large cross section of the total in-
surance market. NYLIAC markets its products in all 50 of the United States,
the District of Columbia and Taiwan, primarily through its agency force. In
addition, NYLIAC markets Corporate Owned Life Insurance through independent
brokers and brokerage general agents.
The following companies are also direct, wholly owned subsidiaries of New
York Life: New York Life and Health Insurance Company, NYLIFE Insurance Com-
pany of Arizona and NYLIFE Inc.
- -------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- -------------------------------------------------------------------------------
Basis of Presentation--The accompanying financial statements have been prepared
on the basis of accounting practices prescribed or permitted by the Delaware
Insurance Department ("statutory accounting practices"). Statutory accounting
practices are currently considered generally accepted accounting principles
for mutual life insurance companies and their stock life subsidiaries, such as
NYLIAC. The Financial Accounting Standards Board has issued an Interpretation
which establishes a different definition of generally accepted accounting
principles for mutual life insurance companies. Under that Interpretation, fi-
nancial statements of mutual life insurance companies for periods beginning
after December 15, 1995 which are prepared on the basis of statutory account-
ing practices will no longer be characterized as in conformity with generally
accepted accounting principles. Financial statements prepared in conformity
with statutory accounting practices will continue to be required by insurance
regulatory authorities.
Management of NYLIAC has not yet determined the effect on its December 31,
1995 financial statements of applying the new Interpretation nor whether it
will continue to present its general purpose financial statements in confor-
mity with the statutory basis of accounting or adopt the accounting changes
required in order to continue to present its financial statements in confor-
mity with generally accepted accounting principles. If NYLIAC chooses to adopt
the accounting changes required, the effect of the changes would be reported
retroactively through restatement of all previously issued financial state-
ments presented for comparative purposes. The cumulative effect of adopting
these changes would be included in the earliest year restated.
Investments--Investments are carried in accordance with methods and values
prescribed by the National Association of Insurance Commissioners ("NAIC").
Bonds are generally stated at amortized cost. Preferred stocks are generally
stated at cost. Common stocks are stated at market value. Mortgage loans on
real estate are stated at cost or amortized cost, but at no time stated at
more than the appraised value of the underlying collateral. Real estate is
stated at the lower of cost less accumulated depreciation and encumbrances or
market value, except for real estate joint ventures which are stated on an eq-
uity basis. Depreciation of real estate (excluding foreclosed properties which
are not depreciated) is calculated using the straight-line method over the es-
timated lives of the assets (generally 30 years). Policy loans are stated at
the aggregate balance due (which approximates fair value). Limited partnership
investments (included in other assets) are stated on the equity basis. The
value of invested assets has been adjusted for impairments that are other than
temporary. Investment income is recorded on the accrual basis, except where
collection is 90 days past due or is considered uncertain.
F-31
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
Prepayment assumptions for loan-backed bonds were developed internally using
a proprietary model; outside services were used for structured securities. The
prospective adjustment method is used to adjust the amortization of premiums
and discounts on such securities.
Derivative financial instruments used by NYLIAC to hedge exposure to inter-
est rate and foreign currency fluctuations are accounted for on an accrual ba-
sis. Gains and losses related to contracts that are effective hedges on spe-
cific assets are deferred and recognized in income in the same period as gains
and losses on the hedged asset.
The Asset Valuation Reserve ("AVR") is required by insurance regulators to
stabilize surplus from fluctuations in the market value of bonds, stocks,
mortgage loans, real estate and other invested assets. Changes in the reserve
are accounted for as direct increases or decreases in surplus. The Interest
Maintenance Reserve ("IMR"), also required by insurance regulators, captures
interest related realized gains and losses (net of taxes) on fixed income in-
vestments (bonds, preferred stocks and mortgage loans) which are amortized
into net investment income over the expected years to maturity of the invest-
ments sold using the seriatim method for bonds and the grouped method for
mortgage loans and preferred stock.
Amounts payable or receivable under interest rate swap, commodity swap and
interest rate floor agreements are recognized as investment income or expense
when earned. Premiums paid for interest rate floor agreements are amortized
into interest expense over the life of the agreement. Unamortized premiums are
included in other assets in the Statement of Financial Position.
Unrealized gains and losses on foreign exchange forward contracts are re-
ported as other assets or liabilities, as appropriate. Realized gains and
losses are recognized in net income upon termination of the contracts.
Premiums and Related Expenses--Premiums are taken into income over the pre-
mium-paying period of the policies. Commissions and other costs associated
with acquiring new business are charged to operations as incurred.
Policy Reserves--Policy reserves are based on mortality tables and valuation
interest rates which are consistent with statutory requirements and are de-
signed to be sufficient to provide for contractual benefits.
Federal Income Taxes--Provision is made for federal income taxes estimated
to be payable to New York Life under a tax allocation agreement, including an
allocation of the equity base tax. Adjustments to such estimates, including
those related to the true-up or true-down of the equity base tax, are recorded
in gain from operations when known. Realized gains and losses are reported af-
ter adjustment for the associated federal income tax.
Change in Accounting Policy for the Equity Base Tax--Each year, an estimated
Differential Earnings Rate (DER) is used to determine the equity base tax re-
ported in the annual statement as part of gain from operations for that year.
When the final DER is known, NYLIAC records a true-up or true-down adjustment
for the difference between the estimated and final DER.
Based on recent NAIC discussions of this item, NYLIAC changed that policy to
accelerate the recognition of the DER adjustment by one year and to record DER
adjustments through net gain. Previously, NYLIAC recorded such adjustments 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.
F-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Separate Accounts--NYLIAC has established separate accounts with varying in-
vestment objectives which are segregated from NYLIAC's general account and are
maintained for the benefit of separate account contractholders and NYLIAC.
Separate account assets are generally stated at market value. The liability
for separate accounts represents contractholders' interests in the separate
account assets, including accumulated net investment income and realized and
unrealized gains and losses on those assets. Separate account liabilities gen-
erally reflect market value.
Nonadmitted Assets--Under statutory accounting practices, certain assets are
designated as "nonadmitted assets" and are not included in the Statement of
Financial Position.
Fair Values of Financial Instruments--Fair values of various assets and lia-
bilities are included throughout the notes to financial statements. Specifi-
cally, fair value disclosure of bonds, mortgage loans, and cash and short-term
investments is reported in Note 3. Fair values for insurance liabilities (pol-
icy reserves) are reported in Note 7. Fair values for derivative financial in-
struments are included in Note 12.
Permitted Statutory Accounting Practices--NYLIAC prepares its statutory fi-
nancial statements in accordance with accounting principles and practices pre-
scribed or permitted by the Delaware Insurance Department. Prescribed statu-
tory accounting practices include state laws and regulations along with NAIC
regulations. Permitted statutory accounting practices encompass accounting
practices that are not prescribed; such practices differ from state to state,
may differ from company to company within a state, and may change in the fu-
ture. Furthermore, the NAIC has started a project to codify statutory account-
ing practices, the result of which is expected to constitute the only source
of "prescribed" statutory accounting practices. Accordingly, that project,
which is expected to be completed in 1997, will likely change the definition
of what comprises prescribed versus permitted statutory accounting practices,
and may result in changes to the accounting policies that insurance enter-
prises use to prepare their statutory financial statements. NYLIAC has no ma-
terial permitted statutory accounting practices.
Business Risks and Uncertainties--The preparation of financial statements of
life insurance enterprises requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities at the date
of the financial statements. As a provider of life insurance and annuity prod-
ucts, NYLIAC's operating results in any given period depend on estimates of
policy reserves required to provide for future policyowner benefits.
The development of policy reserves for NYLIAC's products requires management
to make estimates and assumptions regarding mortality, morbidity, lapse, ex-
pense and investment experience. Such estimates are primarily based on histor-
ical experience and, in many cases, state insurance laws require specific mor-
tality, morbidity and investment assumptions to be used by NYLIAC. Actual re-
sults could differ materially from those estimates. Management monitors actual
experience, and where circumstances warrant, revises its assumptions and the
related reserve estimates.
NYLIAC regularly invests in mortgage backed securities and other securities
subject to prepayment and call risk. Significant changes in prevailing inter-
est rates may adversely affect the timing and amount of cash flows on such se-
curities. 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.
F-33
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
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-34
<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-35
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
At December 31, 1995 and 1994, the distribution of the mortgage loan portfo-
lio by geographic location and property type was as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
STATEMENT % OF STATEMENT % OF
VALUE TOTAL VALUE TOTAL
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Geographic Distribution:
Middle Atlantic.............................. $ 421 39.7% $432 44.6%
South Atlantic............................... 275 25.9 202 20.8
Pacific...................................... 132 12.4 140 14.4
East North Central........................... 132 12.4 130 13.4
West South Central........................... 52 4.9 15 1.6
East South Central........................... 22 2.1 29 3.0
Mountain..................................... 15 1.4 13 1.4
New England.................................. 12 1.1 7 .7
West North Central........................... 1 .1 1 .1
------ ----- ---- -----
Total....................................... $1,062 100.0% $969 100.0%
====== ===== ==== =====
Property Type:
Office Building.............................. $ 696 65.5% $649 67.0%
Retail....................................... 185 17.4 166 17.1
Apartments................................... 152 14.3 125 12.9
Industrial................................... 21 2.0 29 3.0
Residential.................................. 8 .8 -- --
------ ----- ---- -----
Total....................................... $1,062 100.0% $969 100.0%
====== ===== ==== =====
</TABLE>
At December 31, 1995 and 1994, anticipated maturities in NYLIAC's mortgage
loan portfolio were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------ ----
<S> <C> <C>
Due in one year or less..................................... $ 84 $142
Due after one year through five years....................... 398 345
Due after five years through ten years...................... 460 408
Due after ten years......................................... 120 74
------ ----
Total..................................................... $1,062 $969
====== ====
</TABLE>
Fair values for the mortgage loan portfolio at December 31, 1995 and 1994
were estimated to be $1,103,000,000 and $946,000,000, respectively, and were
determined by discounting the projected cash flow for each individual loan to
determine the current net present value. The discount rate used approximates
the current rate for new mortgages with comparable characteristics and similar
remaining maturities. As mortgage loans are generally intended to be held to
maturity and fair
F-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
values do not necessarily represent the values for which these loans could
have been sold at December 31, 1995 or 1994, care should be exercised in draw-
ing any conclusions from these fair values. The method of determining state-
ment 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-37
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
For the years ended December 31, 1995, 1994 and 1993 realized capital gains
and losses were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- ------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Bonds................................... $ 62 $ (31) $ 94 $(132) $ 99 $(115)
Mortgage loans.......................... 4 (8) 1 -- 2 --
Preferred and common stocks............. 16 (6) 6 (1) 7 --
Real estate............................. -- (1) -- (3) -- (3)
Derivative instruments.................. 102 (103) 4 (14) -- --
Other assets............................ 10 (3) 5 -- 3 (13)
---- ----- ---- ----- ---- -----
$194 $(152) $110 $(150) $111 $(131)
==== ===== ==== ===== ==== =====
Net realized capital gains (losses)
before capital gains tax and transfers
to the IMR............................. 42 (40) (20)
Less:
Capital gains tax (benefit)............ 19 (19) (3)
Gains (losses) transferred to the IMR.. 23 (25) 44
---- ---- -----
Net realized capital gains (losses)
after capital gains tax and transfers
to the IMR............................. $ 0 $ 4 $ (61)
==== ==== =====
</TABLE>
Proceeds from investments in bonds sold, matured or repaid were
$3,395,000,000, $4,520,000,000 and $5,197,000,000 for the years ended December
31, 1995, 1994 and 1993, respectively.
- -------------------------------------------------------------------------------
NOTE 5--Dividends to Stockholder
- -------------------------------------------------------------------------------
No dividends were declared or paid to New York Life in 1995. In 1994 and 1993,
NYLIAC declared and paid dividends of $70,000,000 and $71,000,000, respective-
ly, to New York Life. These dividends were paid from current year earnings, as
permitted by the Delaware Insurance Department.
- -------------------------------------------------------------------------------
NOTE 6--Service Agreement with New York Life
- -------------------------------------------------------------------------------
New York Life provides NYLIAC with services and facilities for the sale of in-
surance and other activities related to the business of insurance. NYLIAC re-
imburses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life
and NYLIAC. Such costs, amounting to $166,000,000 for the year ended December
31, 1995 ($147,000,000 for 1994 and $124,000,000 for 1993) are reflected in
operating expenses and net investment income in the accompanying Statement of
Operations.
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-38
<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-39
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
Liability for Unpaid Accident and Health Claims and Claim Adjustment Ex-
penses--Activity in the liability for unpaid accident and health claims and
claim adjustment expenses is summarized as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Balance at January 1.............................................. $20 $18
Incurred related to:
Current Year......................................................... 22 20
Prior Year........................................................... -- --
--- ---
Total Incurred....................................................... 22 20
--- ---
Paid related to:
Current Year......................................................... -- --
Prior Year........................................................... 20 18
--- ---
Total Paid........................................................... 20 18
--- ---
Net Balance at December 31............................................ $22 $20
</TABLE>
- -------------------------------------------------------------------------------
NOTE 8--Separate Accounts
- -------------------------------------------------------------------------------
NYLIAC maintains seven nonguaranteed separate accounts for its variable de-
ferred annuity and variable universal life products. The assets of the sepa-
rate accounts represent shares of New York Life sponsored MFA Series Fund and
Acacia Capital Corporation Calvert Socially Responsible Portfolio as follows
(in millions):
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
NO. OF STATEMENT NO. OF STATEMENT
PORTFOLIO SHARES VALUE SHARES VALUE
--------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Growth Equity............................... 24.823 $ 428 22.479 $330
Bond........................................ 17.514 235 17.099 207
Capital Appreciation........................ 15.784 244 9.952 114
Indexed Equity.............................. 7.776 105 6.088 63
Total Return................................ 14.699 195 11.562 122
Government.................................. 6.477 65 6.691 62
Cash Management............................. 88.930 89 72.526 73
International Equity........................ 1.435 15 -- --
High Yield Corporate Bond................... 4.105 43 -- --
Value....................................... 2.109 24 -- --
Socially Responsible........................ .356 1 -- --
------- ------ ------- ----
Total..................................... 184.008 $1,444 146.397 $971
======= ====== ======= ====
</TABLE>
F-40
<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-41
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
Set forth below is a reconciliation of the statutory federal income tax rate
to the effective tax rate for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate...................... 35.0% 35.0% 35.0%
Exempt interest........................................ (1.7) (2.8) (1.0)
Allocable share of equity base tax imposed on New York
Life:
Current year estimate................................. 5.0 2.7 2.3
Change in accounting policy........................... (8.0) -- --
Deferred acquisition costs............................. 8.3 6.0 5.6
Increase (decrease) in statutory reserves in excess of
increase in tax reserves.............................. 1.6 (1.5) 2.1
Other.................................................. (1.4) (.1) (.2)
---- ---- ----
Effective tax rate................................... 38.8% 39.3% 43.8%
==== ==== ====
</TABLE>
- -------------------------------------------------------------------------------
NOTE 10--Reinsurance
- -------------------------------------------------------------------------------
NYLIAC enters into reinsurance agreements in the normal course of its insurance
business to reduce overall risks. NYLIAC remains liable for reinsurance ceded
if the reinsurer fails to meet its obligations on the business it has assumed.
Life insurance reinsured was 11% and 9% of total life insurance in-force at
December 31, 1995 and 1994, respectively.
In 1994, NYLIAC entered into a coinsurance/modified coinsurance reinsurance
agreement, covering a specific block of NYLIAC's Single Premium Multi-Life
Corporate Owned Life Insurance business. In 1995, this treaty was amended to
cover 1995 and future years' business. In 1995, NYLIAC ceded $216,000,000 in
premiums ($220,000,000 in 1994) reduced by an experience refund of $8,000,000
($4,000,000 in 1994). In addition, in 1995 NYLIAC recorded a commission and
expense allowance of $22,000,000 ($22,000,000 in 1994), a modco reserve ad-
justment of $185,000,000 ($194,000,000 in 1994), and a reserve credit of
$43,000,000 ($22,000,000 in 1994), related to the coinsurance portion of the
agreement.
A group reinsurance agreement between NYLIAC and New York Life was approved
by the New York State Insurance Department in 1981 and was terminated effec-
tive December 31, 1995. Under the terms of the agreement, NYLIAC assumed the
liabilities for group health long-term disability policies issued by New York
Life. NYLIAC assumed premiums of $29,000,000, $26,000,000 and $25,000,000 for
the years 1995, 1994 and 1993, respectively. A settlement is made between the
companies in the subsequent year. In 1995, NYLIAC received $4,000,000 from New
York Life (NYLIAC paid $1,000,000 and received $24,000,000 from New York Life
in 1994 and 1993, respectively), consisting of premiums due to NYLIAC of
$32,000,000 ($33,000,000 in 1994 and $41,000,000 in 1993), reduced by a bene-
fit reimbursement of $20,000,000 ($18,000,000 in 1994 and $15,000,000 in 1993)
and an experience refund of $8,000,000 ($16,000,000 in 1994 and $2,000,000 in
1993).
F-42
<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-43
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
The following table summarizes the notional amounts and credit exposures of
interest rate related derivative transactions (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps......................... $ 50,000 -- $ 80,000 $2,636
Floors Purchased............................ $150,000 -- $150,000 $ 15
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at speci-
fied intervals, the difference between fixed- rate and floating-rate interest
amounts calculated by reference to an agreed notional amount. Swap contracts
outstanding at December 31, 1995 are between ten months and eight years, seven
months in maturity. At December 31, 1994 such contracts are between seven
months and eight years, seven months in maturity. NYLIAC does not act as an
intermediary or broker in interest rate swaps.
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows.
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Receive--fixed swaps--
Notional amount (in
thousands)................. $15,000 $45,000
Average receive rate.... 7.93% 8.30%
Average pay rate........ 7.39% 5.85%
Pay--fixed swaps--Notional
amount (in thousands)...... $35,000 $35,000
Average pay rate........ 7.46% 7.46%
Average receive rate.... 6.02% 5.74%
</TABLE>
During the term of the swap, net settlement amounts are recorded as invest-
ment income or expense when earned. Fair values of interest rate swaps at De-
cember 31, 1995 and 1994 were $(2,298,000) and $1,760,000 respectively, based
on quoted market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest
rates on a portfolio of assets.
Premiums paid for interest rate floor agreements purchased are included in
other assets in the Statement of Financial Position and are amortized into in-
terest expense over the terms of the agreements. At December 31, 1995 and
1994, unamortized premiums amounted to $597,000 and $672,000, respectively.
Amounts received during the term of interest rate floor agreements are re-
corded as investment income. Fair values of interest rate floors at December
31, 1995 and 1994 were $395,000 and $15,000, respectively, based on quoted
market prices.
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.
F-44
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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
F-45
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDI-
ARY OF
NEW YORK LIFE INSURANCE
COMPANY)
counterparty to fail to meet its obligation. The fair value of the swap at De-
cember 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.
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-46
<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-47
<PAGE>
APPENDIX A
ILLUSTRATIONS
The following tables demonstrate the way in which your Policy works. The
tables are based on the age, initial death benefit and premium as follows:
The Table is for a Policy issued to a male, non-smoker, age 35 with a
scheduled annual premium of $2,000 and an initial Death Benefit of $150,000.
The table shows how the Cash Value, Cash Surrender Value and Death Benefit
would vary over an extended period of time assuming hypothetical gross rates
of return equivalent to a constant annual rate of 0%, 6% or 12%. The table
will assist in the comparison of the Death Benefit, Cash Value and Cash
Surrender Value of the Policy with other variable life insurance plans.
The Death Benefit, Cash Value and Cash Surrender Value for a policy would be
different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below those averages for the period. They
would also be different depending on the allocation of the Cash Value among
the Divisions of the Separate Account and the Fixed Account, if the actual
gross rate of return for all Divisions averaged 0%, 6% or 12%, but varied
above or below that average for individual Divisions. They would also differ
if any policy loans or Partial Withdrawals were made during the period of time
illustrated.
The illustration reflects all charges under the Policy and assumes that the
cost of insurance charges are based on our guaranteed maximum cost of
insurance rates and reflect the deduction of all charges from the Cash Value
at their guaranteed maximum levels. They also reflect a daily mortality and
expense risk charge assessed against the Separate Account equivalent to an
annual charge of 0.60% (on a current basis) and 0.90% (on a guaranteed basis)
of the assets in the Separate Account and a daily asset based administrative
charge assessed against the Separate Account equivalent to an annual charge of
0.10% on the assets in each Investment Division attributable to the Policies.
The illustration also reflects total assumed investment advisory fees
together with the expenses incurred by the Funds of 0.81% of the average daily
net assets of the Funds. The total is based upon (a) 0.47% of average daily
net assets, which is an average of the management fees of each Portfolio; (b)
0.14% of average daily net assets of the Funds which is an average of actual
administrative fees for each Portfolio; and (c) 0.21% of average daily net
assets of the Funds which is an average of the other expenses after expense
reimbursement for each Portfolio.
Commencing in May, 1996, NYLIAC has agreed to pay certain other expenses
which were previously charged to the MainStay VP Series Fund. In addition,
there is an expense reimbursement agreement effective through December 31,
1996, limiting Other Expenses to 0.17% annually for the MainStay VP Series
Fund. In the absence of the expense reimbursement agreement 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. 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.
A-1
<PAGE>
Likewise, the expense reimbursement agreement applies to the MainStay VP
Convertible Portfolio. Absent such limitation, it is estimated that total
annual expenses for the current fiscal year would be .36%. 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.
Janus Capital Corporation ("JCC") has agreed to reduce the advisory fee for
both Janus Portfolios to the extent that such fee exceeds the effective rate
of the Janus retail fund corresponding to such Portfolio. 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.
Morgan Stanley Asset Management Inc. has agreed to a reduction in its
management fees and to reimburse the Morgan Stanley Emerging Markets Equity
Portfolio if such fees would cause the "Total 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" for the
current fiscal year would be 1.25% and 2.15%, respectively.
Taking into account the assumed charges for mortality and expense risks and
administrative fees in the Separate Account and the average investment
advisory fees and expenses of the Funds, the gross rates of return of 0%, 6%
and 12% would correspond to actual net investment returns of -1.51%, 4.49% and
10.49%, respectively, based on the current charge for mortality and expense
risks, and -1.81%, 4.19% and 10.19%, respectively, based on the guaranteed
maximum charge for mortality and expense risks.
The actual investment advisory fees and expenses may be more or less than
the amounts illustrated and will depend on the allocations made by the
Policyowner.
The second column of the tables show the amount which would accumulate if an
amount equal to the initial premium were invested and earned interest, after
taxes, at 5% per year, compounded annually.
NYLIAC will furnish upon request a comparable illustration using the age,
sex and underwriting classification of an Insured for any initial Death
Benefit and premium requested. In addition to an illustration assuming Policy
charges at their maximum, we will furnish an illustration assuming current
Policy charges and current cost of insurance rates.
A-2
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE: 35, NON-SMOKER
SCHEDULED ANNUAL PREMIUM: $2,000
INITIAL FACE AMOUNT: $150,000
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
END OF YEAR
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2) CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
VALUE(2) PLUS INTEREST AT 5% ----------------------------- --------------------------- ------------------------------
POLICY YEAR AS OF END OF YEAR(1) 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- -------------------- --------- --------- --------- -------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 150,000 150,000 150,000 1,454 1,553 1,652 753 852 950
2 4,305 150,000 150,000 150,000 2,647 2,922 3,210 2,074 2,349 2,636
3 6,620 150,000 150,000 150,000 4,032 4,577 5,168 3,358 3,903 4,495
4 9,051 150,000 150,000 150,000 5,399 6,309 7,337 4,625 5,536 6,564
5 11,604 150,000 150,000 150,000 6,748 8,123 9,739 5,874 7,250 8,866
6 14,284 150,000 150,000 150,000 8,062 10,006 12,381 7,129 9,072 11,447
7 17,078 150,000 150,000 150,000 9,360 11,978 15,307 8,520 11,137 14,466
8 20,053 150,000 150,000 150,000 10,625 14,026 18,530 9,878 13,279 17,783
9 23,156 150,000 150,000 150,000 11,857 16,154 22,083 11,204 15,501 21,430
10 26,414 150,000 150,000 150,000 13,058 18,368 26,004 12,497 17,808 25,444
15 45,315 150,000 150,000 150,000 19,012 31, 383 53,314 18,918 31,289 53,220
20 69,439 150,000 150,000 153,108 23,713 46,962 98,303 23,713 46,962 98,303
30 139,522 150,000 150,000 354,444 28,290 88,689 292,889 28,290 88,689 292,889
</TABLE>
- ----
(1) All premiums are illustrated as if made at the beginning of the Policy
Year.
(2) Assumes no policy loan or Partial Withdrawal has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUNDS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS AN-
NUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY
WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL WITHDRAWALS WERE MADE.
NO REPRESENTATIONS CAN BE MADE BY NEW YORK LIFE INSURANCE AND ANNUITY COMPANY
OR THE SEPARATE ACCOUNTS OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
A-3
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE: 35, NON-SMOKER
SCHEDULED ANNUAL PREMIUM: $2,000
INITIAL FACE AMOUNT: $150,000
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
END OF YEAR
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2) CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
VALUE(2) PLUS INTEREST AT 5% ----------------------------- --------------------------- ------------------------------
POLICY YEAR AS OF END OF YEAR(1) 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- -------------------- --------- --------- --------- -------- -------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,100 150,000 150,000 150,000 1,390 1,487 1,584 689 786 883
2 4,305 150,000 150,000 150,000 2,517 2,784 3,063 1,943 2,211 2,490
3 6,620 150,000 150,000 150,000 3,833 4,359 4,930 3,159 3,685 4,257
4 9,051 150,000 150,000 150,000 5,093 5,968 6,956 4,320 5,194 6,183
5 11,604 150,000 150,000 150,000 6,317 7,631 9,177 5,444 6,758 8,304
6 14,284 150,000 150,000 150,000 7,489 9,335 11,596 6,555 8,401 10,662
7 17,078 150,000 150,000 150,000 8,609 11,081 14,234 7,769 10,241 13,394
8 20,053 150,000 150,000 150,000 9,663 12,857 17,101 8,916 12,110 16,354
9 23,156 150,000 150,000 150,000 10,669 14,680 20,238 10,015 14,026 19,584
10 26,414 150,000 150,000 150,000 11,611 16,537 23,660 11,051 15,977 23,099
15 45,315 150,000 150,000 150,000 15,374 26,409 46,296 15,280 26,316 46,203
20 69,439 150,000 150,000 150,000 17,163 37,093 82,575 17,163 37,093 82,575
30 139,522 150,000 150,000 286,403 10,243 58,712 236,555 10,243 58,712 236,555
</TABLE>
- ----
(1) All premiums are illustrated as if made at the beginning of the Policy
Year.
(2) Assumes no policy loan or Partial Withdrawal has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST
OR FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUNDS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER
VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS AN-
NUAL RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY
WOULD ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL WITHDRAWALS WERE MADE.
NO REPRESENTATIONS CAN BE MADE BY NEW YORK LIFE INSURANCE AND ANNUITY COMPANY
OR THE SEPARATE ACCOUNTS OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
A-4
