<PAGE> 1
As filed with the Securities and Exchange Commission on April 10, 1998
Registration No. 33-64410
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 5
FORM S-6
------------------------------
FOR THE REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
------------------------------
A. Exact name of trust:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT - I
B. Name of depositor:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
C. Complete address of depositor's principal executive office:
51 Madison Avenue
New York, New York 10010
D. Name and complete address of agent for service:
Carol Yee, Esq.
New York Life Insurance and
Annuity Corporation
51 Madison Avenue
New York, New York 10010
Copy to:
Jeffrey Puretz, Esq. Michael J. McLaughlin, Esq.
Dechert, Price & Rhoads Senior Vice President
1500 K Street, N. W. and General Counsel
Washington, D.C. 20036 New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on ___________ pursuant to paragraph (a)(1) of Rule 485.
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE> 2
E. Title of securities being registered:
Flexible Premium Variable Universal Life Insurance Policy.
F. Approximate date of proposed public offering:
Not Applicable
G. Proposed maximum aggregate offering price to the public of the
securities being registered:
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
<PAGE> 3
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN A PROSPECTUS
<TABLE>
<CAPTION>
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
<S> <C>
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; Calvert
Social Balanced;
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;
Calvert Social
Balanced; 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; Calvert Social
Balanced; Fidelity
Variable Insurance
Products Fund and
Fidelity Variable
Insurance Products
Fund II; Janus Aspen
Series; Morgan Stanley
Universal Funds, Inc.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
<S> <C>
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; Calvert
Social Balanced;
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
39 Sales and Other Agreements
40 Not Applicable
41 Sales and Other Agreements
42 Not Applicable
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
<S> <C>
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; Calvert
Social Balanced;
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
</TABLE>
<PAGE> 6
NYLIAC VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
PROSPECTUS DATED MAY 1, 1998
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.
<TABLE>
<S> <C>
- -- MainStay VP Capital Appreciation
- -- MainStay VP Cash Management
- -- MainStay VP Convertible
- -- MainStay VP Government
- -- MainStay VP High Yield Corporate Bond
- -- MainStay VP International Equity
- -- MainStay VP Total Return
- -- MainStay VP Value
- -- MainStay VP Bond
- -- MainStay VP Growth Equity
- -- MainStay VP Indexed Equity
- -- Alger American Small Capitalization
- -- Calvert Social Balanced (formerly named
Calvert Socially Responsible)
- -- Fidelity VIP II Contrafund
- -- Fidelity VIP Equity-Income
- -- Janus Aspen Series Balanced
- -- Janus Aspen Series Worldwide Growth
- -- Morgan Stanley Emerging Markets Equity
</TABLE>
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 Calvert
Variable Series, Inc. (formerly named 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> 7
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 Account?...... 9
What is the Fixed Account?....... 10
How long will the Policy remain
in force?..................... 10
Is the amount 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?..................... 11
Can the Policy become a modified
endowment contract?........... 11
What Premiums are payable?....... 11
What are Unscheduled Premiums?... 11
When are Premiums put into the
Fixed Account or the Separate
Account?...................... 12
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
How is a person's age
calculated?................... 14
CHARGES UNDER THE POLICY........... 14
Deductions from Premiums......... 14
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Sales Expense Charge.......... 14
Premium Tax Charge............ 14
Federal Tax Charge............ 14
Cash Value Charges............... 15
Monthly Contract Charge....... 15
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
Fund Charges..................... 16
Surrender Charges................ 19
Exceptions to Surrender
Charge..................... 20
THE SEPARATE ACCOUNT............... 20
MAINSTAY VP SERIES FUND, INC. ..... 21
THE ALGER AMERICAN FUND............ 22
CALVERT VARIABLE SERIES, INC. ..... 22
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND AND FIDELITY
VARIABLE INSURANCE PRODUCTS FUND
II............................... 22
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... 28
Premiums......................... 28
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
</TABLE>
2
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEATH BENEFIT UNDER THE POLICY..... 32
Face Amount Changes.............. 33
CASH VALUE AND CASH SURRENDER
VALUE........................... 34
Cash Value....................... 34
Investment Return................ 34
Cash Surrender Value............. 35
Partial Withdrawals.............. 35
POLICY LOAN PRIVILEGE.............. 36
Source of Loan................... 36
Loan Interest.................... 36
Repayment........................ 36
Interest on Loaned Value......... 37
FREE LOOK PROVISION................ 37
EXCHANGE PRIVILEGE................. 37
Special New York Requirements.... 38
YOUR VOTING RIGHTS................. 38
OUR RIGHTS......................... 39
DIRECTORS AND PRINCIPAL OFFICERS OF
NYLIAC........................... 40
YEAR 2000 READINESS................ 41
THE FIXED ACCOUNT.................. 41
Interest Crediting............... 42
Transfers to Investment
Divisions..................... 42
Procedures for Telephone
Transfers..................... 43
FEDERAL INCOME TAX
CONSIDERATIONS................... 43
Tax Status of NYLIAC and the
Separate Account.............. 44
Charges for Taxes................ 44
Diversification Standards and
Control Issues................ 44
Life Insurance Status of
Policy........................ 45
Modified Endowment Contract
Status........................ 45
Policy Surrenders and Partial
Withdrawals................... 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Policy Loans and Interest
Deductions.................... 47
Corporate Alternative Minimum
Tax........................... 47
Exchanges or Assignments of
Policies...................... 48
STEP Program..................... 48
Other Tax Issues................. 48
Qualified Plans.................. 48
Withholding...................... 48
ADDITIONAL PROVISIONS OF THE
POLICY........................... 49
Reinstatement Option............. 49
Additional Benefits You Can Get
By Rider...................... 49
Payment Options.................. 51
Payees........................... 52
Proceeds at Interest Options
(Options 1A and 1B)........... 52
Life Income Option (Option 2).... 52
Beneficiary...................... 53
Assignment....................... 53
Limits on Our Rights to Challenge
the Policy.................... 53
Misstatement of Age or Sex....... 53
Suicide.......................... 53
When We Pay Proceeds............. 54
RECORDS AND REPORTS................ 54
SALES AND OTHER AGREEMENTS......... 55
LEGAL PROCEEDINGS.................. 55
INDEPENDENT ACCOUNTANTS............ 56
EXPERTS............................ 56
FINANCIAL STATEMENTS............... 56
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> 9
DEFINITION OF TERMS
ACCUMULATION UNITS: Accumulation Units are the accounting units used to
calculate the values under the Policy held in the Separate Account.
ACCUMULATION VALUE: The value of Accumulation Units in the Investment Divisions
of the Separate Account. This value does not include the assets in the Fixed
Account. 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 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 NYLIAC is open and the New York Stock
Exchange is open for trading. We are closed on national holidays, Martin Luther
King, Jr. Day and the Friday after Thanksgiving. In addition, we may choose to
close on the day immediately preceding or following a national holiday. 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 Account: 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 Account: the
Alger American Small Capitalization Portfolio. The Calvert Variable Series has
one Portfolio available to the Separate Account: the Calvert Social Balanced
Portfolio ("Calvert Social Balanced Portfolio"). The Fidelity Funds have two
Portfolios available to the Separate Account: the Contrafund Portfolio of the
Fidelity Variable Insurance Products Fund II ("Fidelity VIP II Contrafund
Portfolio") and the Equity-Income Portfolio of the Fidelity Variable Insurance
Products Fund ("Fidelity VIP Equity-Income Portfolio"). The Janus Aspen Series
has two Portfolios available to the Separate Account: the Balanced Portfolio of
the Janus Aspen Series ("Janus Aspen Series Balanced Portfolio") and the
Worldwide Growth Portfolio of the Janus Aspen Series ("Janus Aspen Series
Worldwide Growth Portfolio"). The Morgan Stanley Fund has one Portfolio
available to the Separate Account: the Emerging Markets Equity Portfolio
("Morgan Stanley Emerging Markets Equity Portfolio").
EXCESS LOAN: Excess of the unpaid loan and accrued interest over the Cash Value
of the Policy, less any applicable surrender charges and any deferred contract
charge.
4
<PAGE> 10
FIXED ACCOUNT: Assets in the Fixed Account are not part of the Separate Account
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.
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 ("Alger American Fund"), the Calvert Variable
Series, Inc. ("Calvert Variable Series"), 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 Aspen Series") 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 the Separate Account. Each Investment
Division invests exclusively in shares of a specified Eligible Portfolio.
IRC: Refers to the Internal Revenue Code.
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.)
5
<PAGE> 11
<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>
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.
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 under the Policy. This amount includes
any loan interest accrued to date.
POLICYOWNER: The person(s) and/or entity(ies) who owns the Policy.
POLICY YEAR: The twelve-month period starting with the Policy Date, and each
twelve-month period thereafter.
PREMIUMS: The total dollar amount paid for the Policy.
6
<PAGE> 12
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.
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 the
calculation assumes 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: NYLIAC Variable Universal Life Separate Account-I, a
segregated asset account established by NYLIAC to receive and invest Net
Premiums paid under the Policies.
SURRENDER: A surrender by the Policyowner of all rights under the Policy in
exchange for the entire Cash Surrender Value under the Policy.
VALUATION DATE: Any day on which the New York Stock Exchange is open for
trading.
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. Eastern Time) on any Valuation Date.
WE OR US: NYLIAC.
YOU: The person(s) and/or entity(ies) who own(s) the Policy.
7
<PAGE> 13
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 $84.1 billion at the end of 1997,
including assets of $20.1 billion of NYLIAC 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 may, 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 up or down to the extent
that Cash Value under the Policy is allocated to the Investment Division(s) of
the Separate Account.
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 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.
8
<PAGE> 14
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.
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 credited to the Fixed Account Value, and any Partial Withdrawals and
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 net investment factor
for the Policy used to calculate the value of an Accumulation Unit in any
Investment Division of the Separate Account 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
Account 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 Account
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
Account 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 Account 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 ACCOUNT?
The 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 Social Balanced, Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced, Janus Aspen Series Worldwide
Growth and Morgan Stanley Emerging Markets Equity. Each Investment Division of
the Separate Account invests only in the shares of a single corresponding
Eligible Portfolio. The Investment Divisions are designed to provide
9
<PAGE> 15
money to pay benefits under the Policy but they do not guarantee a minimum
interest rate nor guarantee against asset depreciation.
7. WHAT IS THE FIXED ACCOUNT?
As an alternative to the Separate Account, you may allocate or transfer all
or part of your funds to the Fixed Account. Net 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 charge 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. Additional provisions
apply to Policies with a Guaranteed Minimum Death Benefit rider. For details see
ADDITIONAL PROVISIONS OF THE POLICY--Additional Benefits You Can Get By
Rider--Guaranteed Minimum Death Benefit Rider at page 49.
9. IS THE AMOUNT 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.
Additional provisions apply to Policies with a Guaranteed Minimum Death Benefit
rider. For details see ADDITIONAL PROVISIONS OF THE POLICY--Additional Benefits
You Can Get By Rider--Guaranteed Minimum Death Benefit Rider at page 49.
10. IS THE DEATH BENEFIT SUBJECT TO INCOME TAXES?
A Death Benefit paid under a Policy 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 43.
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 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
10
<PAGE> 16
Policyowner may be taxed on all or a part of the amount distributed. For details
see CASH VALUE AND CASH SURRENDER VALUE--Cash Surrender Value at page 35 and
FEDERAL INCOME TAX CONSIDERATIONS at page 43.
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 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. It may also become a modified endowment contract if
a partial withdrawal or a decrease in death benefit occurs. 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 PREMIUMS ARE PAYABLE?
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
11
<PAGE> 17
Premiums. In certain states, unscheduled Premiums may be made once each Policy
Year. For details see GENERAL PROVISIONS OF THE POLICY--Premiums at page 28.
16. WHEN ARE PREMIUMS PUT INTO THE FIXED ACCOUNT OR THE SEPARATE ACCOUNT?
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 Account at the
Accumulation Unit value determined at the end of the Valuation Period, and to
the Fixed Account in accordance with your allocation election in effect at the
time when the Premium is received, and before any other deductions which may be
due are made. (Deductions are described in greater detail in Question 18, "Are
there charges against the Policy?")
17. HOW ARE PREMIUMS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
You may currently allocate Net Premiums to 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 Account 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;
(c) The monthly cost for any riders attached to the Policy.
A deduction may also be made for any temporary flat extras as set forth on
the Policy Data Page. A temporary flat extra is a charge per $1,000 of the face
amount made against the Cash Value for the amount of time specified on the
Policy Data Page. It is designed to cover the risk of substandard mortality
experience which is not permanent in nature.
12
<PAGE> 18
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 the
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,
are charged for mortality and expense risks and administrative charges,
respectively. The mortality and expense risk charge may be 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 Account's 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 14 and FEDERAL INCOME
TAX CONSIDERATIONS at page 43.
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 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. 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 37
and OUR RIGHTS at page 39.
13
<PAGE> 19
22. HOW IS A PERSON'S AGE CALCULATED?
When we refer to a person's age on any date, we mean his or her age on the
nearest birthday. However, the cost of insurance will be based on the prior
Policy Anniversary.
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.
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. 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
Account 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's 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 55.
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 (except in Oregon). 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").
14
<PAGE> 20
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 Account 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. 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 on each Monthly Deduction Day
is based on such factors as the sex, duration, underwriting class, and issue age
of the Insured, the life insurance benefit option in effect at that time, the
face amount and the Cash Value of the Policy. This charge is also based on
future expectations of such factors as investment income, mortality, expenses
and persistency. 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. Any
change in the cost of insurance rates 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 rates 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. The cost of insurance rates will never exceed the
guaranteed rates shown in the Policy. For increases in face amount, the cost of
insurance rates will vary based on the sex, 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 for cost of insurance protection and any charge
for any optional benefits added by rider are 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%.
15
<PAGE> 21
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.
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 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 43.
FUND CHARGES
Each Investment Division of the Separate Account purchases shares of the
corresponding Portfolio at net asset value. The net asset value reflects the
investment advisory fees and other expenses that are deducted from the assets of
the Portfolio. The advisory fees and other expenses are not fixed or specified
under the terms of the Policy, and they may vary from year to year. These fees
and expenses are described in the Funds' Prospectuses. The following chart
reflects fees and charges that are provided by the Fund or its agents, which are
based on 1997 expenses, and may reflect unanticipated material charges:
16
<PAGE> 22
The chart on the following two pages summarizes the 1997 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
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY
------------ ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Fees(b)....................... 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%
Total Separate Account Annual
Expenses...................... 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%
Administration Fees............. 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses.................. 0.09% 0.09% 0.17%(c) 0.13% 0.09% 0.17%(c)
Total Fund Annual Expenses...... 0.65% 0.54% 0.73%(c) 0.63% 0.59% 0.97%(c)
<CAPTION>
MAINSTAY VP
TOTAL MAINSTAY VP MAINSTAY VP
RETURN VALUE BOND
----------- ----------- -----------
<S> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Fees(b)....................... 0.60% 0.60% 0.60%
Administration Fees............. 0.10% 0.10% 0.10%
Total Separate Account Annual
Expenses...................... 0.70% 0.70% 0.70%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average net assets)
Advisory Fees................... 0.32% 0.36% 0.25%
Administration Fees............. 0.20% 0.20% 0.20%
Other Expenses.................. 0.08% 0.09% 0.05%
Total Fund Annual Expenses...... 0.60% 0.65% 0.50%
</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) These numbers reflect an expense reimbursement agreement effective through
December 31, 1998 limiting "Other Expenses" to 0.17% annually. In the
absence of the expense reimbursement arrangement, the "Total Fund Annual
Expenses" for the year ending December 31, 1997 would have been 0.78% and
1.25% for the MainStay VP Convertible and the MainStay VP International
Equity Portfolios, respectively.
17
<PAGE> 23
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP ALGER AMERICAN CALVERT FIDELITY VIP
GROWTH INDEXED SMALL SOCIAL FIDELITY VIP II EQUITY-
EQUITY EQUITY CAPITALIZATION BALANCED CONTRAFUND INCOME
----------- ----------- -------------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Fees(b)....................... 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%
Total Separate Account Annual
Expenses...................... 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................... 0.25% 0.10% 0.85% 0.69%(d) 0.60% 0.50%
Administration Fees............. 0.20% 0.20% -- -- -- --
Other Expenses.................. 0.05% 0.09% 0.04% 0.12%(d) 0.11% 0.08%
Total Fund Annual Expenses...... 0.50% 0.39% 0.89% 0.81%(d) 0.71%(e) 0.58%(e)
<CAPTION>
JANUS ASPEN
JANUS ASPEN SERIES MORGAN STANLEY
SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
----------- ----------- --------------
<S> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Fees(b)....................... 0.60% 0.60% 0.60%
Administration Fees............. 0.10% 0.10% 0.10%
Total Separate Account Annual
Expenses...................... 0.70% 0.70% 0.70%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average net assets)
Advisory Fees................... 0.76% 0.66% --
Administration Fees............. -- -- 0.25%
Other Expenses.................. 0.07% 0.08% 1.50%
Total Fund Annual Expenses...... 0.83%(f) 0.74%(f) 1.75%(g)
</TABLE>
- ------------
(d) These fees are based on expenses for the fiscal year 1997, and have been
restated to reflect an increase in transfer agency expenses of 0.01%
expected to be incurred in 1998. The "Advisory Fee" includes a performance
adjustment which could cause the fee to be as high as 0.85% or as low as
0.55%, depending on performance. "Other Expenses" reflect an indirect fee of
0.03%. "Total Fund Annual Expenses" after reductions for fees paid
indirectly would have been 0.78%.
(e) A portion of the brokerage commissions that these Portfolios pay was used
to reduce the Portfolios' annual expenses. In addition, these Portfolios
have entered into arrangements with their custodian and transfer agent
whereby interest earned on uninvested cash balances was used to reduce
custodian and transfer agent expenses. Including these reductions, the
"Total Fund Annual Expenses" would have been 0.68% for the Fidelity VIP II
Contrafund Portfolio and 0.57% for the Fidelity VIP Equity-Income
Portfolio.
(f) A reduced "Advisory Fee" schedule was put into effect on July 1, 1997. The
"Advisory Fee" reflects the new rate applied to net assets as of December
31, 1997. "Other Expenses" are based on gross expenses of the fund shares
before expense offset arrangements for the fiscal year ended December 31,
1997. 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 Aspen Series. Other waivers, if applicable, are
first applied against the "Advisory Fee" and then against "Other Expenses".
Absent such waivers or reductions, "Advisory Fees", "Other Expenses" and
"Total Fund Annual Expenses" for the fiscal year ended December 31, 1997
would have been 0.77%, 0.06% and 0.83%, respectively, for the Janus Aspen
Series Balanced Portfolio and 0.72%, 0.09% and 0.81%, respectively, for the
Janus Aspen Series Worldwide Growth Portfolio.
(g) Morgan Stanley Asset Management Inc. has agreed to a reduction in its
"Advisory Fees" and to reimburse the Portfolio for "Other Expenses" if such
fees would cause the "Total Fund Annual Expenses" to exceed 1.75% of average
daily net assets. This fee reduction agreement may be terminated by Morgan
Stanley Asset Management Inc. at any time without notice. Absent such
reductions, it is estimated that "Advisory Fees", "Other Expenses" and
"Total Fund Annual Expenses" would be 1.25%, 2.62% and 4.12%, respectively.
18
<PAGE> 24
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 on page 14. 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
19
<PAGE> 25
decrease would 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 but not limited to, cancellation of a Policy by NYLIAC, the payment of
proceeds upon the death of the Insured, or a required Internal Revenue Code
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 in the first
Policy Year:
<TABLE>
<S> <C> <C>
Scheduled Annual Premium........................................ $3,000.00
less: Sales Expense Charge (5%).............................. 150.00
Premium Tax Charge (2%)................................ 60.00
Federal Tax Charge (1.25%)............................. 37.50
---------
equals: Net Premium............................................ $2,752.50
plus: Net investment performance (varies monthly)............ 113.31
less: Monthly contract charges ($6 per month currently)...... 72.00
less: Charges for cost of insurance (varies monthly)......... 384.68
---------
equals: Cash Value............................................. $2,409.13
less: Surrender Charge (25% of Premium up to SEC Guideline
Annual Premium plus 5% of excess Premiums paid)........ 750.00
less: Balance of First Year Monthly Contract Charge(1)....... 228.00
---------
equals: Cash Surrender Value(at end of year 1)................. $1,431.13
</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 ACCOUNT
The Separate Account was established as of June 4, 1993, pursuant to
resolutions of the NYLIAC Board of Directors. The Separate Account is registered
as a unit investment trust with the SEC under the Investment Company Act of
1940, but such registration does not signify that the SEC supervises the
management, or the investment practices or policies, of the Separate Account.
The Separate Account meets the definition of "separate account" under the
federal securities laws.
Although the assets of the Separate Account belong to NYLIAC, these assets
are held separately from the other assets of NYLIAC, and are not chargeable with
liabilities incurred
20
<PAGE> 26
in any other business operations of NYLIAC (except to the extent that assets in
the Separate Account exceed the reserves and other liabilities of the Separate
Account). The income, capital gains and capital losses incurred on the assets of
the Separate Account are credited to or are charged against the assets of the
Separate Account, without regard to the income, capital gains or capital losses
arising out of any other business NYLIAC may conduct. Therefore, the investment
performance of the Separate Account is entirely independent of both the
investment performance of NYLIAC's Fixed Account and the performance of any
other separate account.
The Separate Account 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
Social Balanced Portfolio, the Fidelity VIP II Contrafund Portfolio, the
Fidelity VIP Equity-Income Portfolio, the Janus Aspen Series Balanced Portfolio,
the Janus Aspen Series 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 Account the charge for mortality and
expense risks, monthly charges assessed against the Policy and investment
results applicable to those assets that are in excess of net assets supporting
the Policies.
MAINSTAY VP SERIES FUND, INC.
The Separate Account currently invests 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
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
21
<PAGE> 27
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 Account currently invests in the Alger American Small
Capitalization Portfolio of The Alger American Fund. Currently, the Alger
American Small Capitalization Portfolio is the only Eligible Portfolio available
through The Alger American Fund for investment by the Separate Account.
Fred Alger Management, Inc. ("FAM") provides investment advisory services
to the Alger American Small Capitalization Portfolio in accordance with the
policies, programs and guidelines established by the Board of Trustees of The
Alger American Fund. As compensation for such services, The Alger American Fund
pays FAM a fee in the form of a daily charge at an annual rate of .85% of the
average daily net assets of the Portfolio. See the prospectus for The Alger
American Fund which is attached to this Prospectus.
CALVERT VARIABLE SERIES, INC.
The Separate Account currently invests in the Calvert Social Balanced
Portfolio of the Calvert Variable Series. Currently, the Calvert Social Balanced
Portfolio is the only Eligible Portfolio available through the Calvert Variable
Series for investment by the Separate Account.
Calvert Asset Management Company, Inc. ("CAM") provides investment advisory
services to the Calvert Social Balanced Portfolio in accordance with the
policies, programs and guidelines established by the Board of Directors of the
Calvert Variable Series. As compensation for such services, the Calvert Variable
Series pays CAM a fee in the form of a daily charge at an annual rate of .70% of
the first $500 million of the average daily net assets of the Calvert Social
Balanced Portfolio, .65% of the next $500 million of average daily net assets of
the Portfolio, and .60% of the average daily net assets of the Portfolio in
excess of $1 billion. This fee may be reduced or increased by up to 0.15%,
depending on the performance of the Calvert Social Balanced Portfolio relative
to the Lipper Balanced Funds Index. See the prospectus for the Calvert Variable
Series which is attached to this Prospectus.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
The Separate Account currently invests in the Fidelity VIP II Contrafund
and Fidelity VIP Equity-Income Portfolios of the Fidelity Variable Insurance
Products Funds. Currently, the Fidelity VIP II Contrafund and Fidelity VIP
Equity-Income Portfolios are the only Eligible Portfolios available through the
Fidelity Funds for investment by the Separate Account.
Fidelity Management and Research Company ("FMR") provides investment
advisory services to the Fidelity VIP II Contrafund and Fidelity VIP
Equity-Income Portfolios in accordance with the policies, programs and
guidelines established by the Boards of
22
<PAGE> 28
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 II Contrafund Portfolio's investments
that each sub-advisor manages on a discretionary basis. See the prospectus for
the Fidelity Variable Insurance Products Funds which is attached to this
Prospectus.
JANUS ASPEN SERIES
The Separate Account currently invests in the Janus Aspen Series Balanced
and Janus Aspen Series Worldwide Growth Portfolios of the Janus Aspen Series.
Currently, the Janus Aspen Series Balanced and Janus Aspen Series Worldwide
Growth Portfolios are the only Eligible Portfolios available through the Janus
Aspen Series for investment by the Separate Account.
Janus Capital Corporation ("JCC") provides investment advisory services to
the Janus Aspen Series Balanced and Janus Aspen Series Worldwide Growth
Portfolios in accordance with the policies, programs and guidelines established
by the Board of Trustees of the Janus Aspen Series. As compensation for such
services, the Janus Aspen Series pays JCC a management fee in the form of a
daily charge at an annual rate of .75% for the first $300 million of the average
daily net assets of each Portfolio, .70% of the next $200 million of the average
daily net assets of each Portfolio, and .65% of an amount over $500 million of
the average daily net assets of each Portfolio. JCC has agreed to reduce the
advisory fee for each Portfolio to the extent that such fee exceeds the
effective rate of the Janus retail fund corresponding to such Portfolio. JCC may
terminate this fee reduction at any time upon 90 days' notice to the Board of
Trustees of the Janus Aspen Series. See the prospectus for the Janus Aspen
Series which is attached to this Prospectus.
MORGAN STANLEY UNIVERSAL FUNDS, INC.
The Separate Account currently invests in the Morgan Stanley Emerging
Markets Equity Portfolio of the Morgan Stanley Fund. Currently, the Morgan
Stanley Emerging Markets Equity Portfolio is the only Eligible Portfolio
available through the Morgan Stanley Fund for investment by the Separate
Account.
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 Fund which is
attached to this Prospectus.
23
<PAGE> 29
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.
THE MAINSTAY VP GOVERNMENT PORTFOLIO
The MainStay VP Government Portfolio seeks a high level of current income,
consistent with safety of principal. It will invest primarily in U.S. Government
securities which include U.S. Treasury obligations and obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities. The U.S.
Government securities purchased for this Portfolio, but not the shares of the
Portfolio themselves, are issued or guaranteed by the U.S. Government or its
agencies or instrumentalities.
THE MAINSTAY VP HIGH YIELD CORPORATE BOND PORTFOLIO
The MainStay VP High Yield Corporate Bond Portfolio seeks maximum current
income through investment in a diversified portfolio of high yield, high risk
debt securities. This Portfolio seeks to achieve its primary objective by
investment in a diversified portfolio of high yield debt securities which are
ordinarily in the lower rating categories of recognized
24
<PAGE> 30
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.
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.
25
<PAGE> 31
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 or the S&P Small
Cap 600 Index, updated quarterly. Both indexes are broad indexes of small
capitalization stocks. 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 this combined range and in excess of that amount (up to
100% of its assets) during temporary defensive periods.
THE CALVERT SOCIAL BALANCED PORTFOLIO
The Calvert Social Balanced Portfolio seeks to achieve a total return above
the rate of inflation through an actively managed nondiversified 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 II CONTRAFUND PORTFOLIO
The Fidelity VIP II Contrafund Portfolio seeks long-term capital
appreciation by investing in securities of companies whose value FMR believes is
not fully recognized by the public. The Portfolio normally invests in common
stock and securities convertible into common stock, but has the flexibility to
invest in other types of securities.
THE FIDELITY VIP EQUITY-INCOME PORTFOLIO
The Fidelity VIP Equity-Income Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the Portfolio will also consider the potential for capital
appreciation. Secondarily, the Portfolio's goal is to achieve a yield that
exceeds the composite yield on the securities comprising the S&P 500 Index.
THE JANUS ASPEN SERIES BALANCED PORTFOLIO
The Janus Aspen Series Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. It is a
diversified Portfolio that, under normal circumstances, pursues its objective by
investing 40 to 60% of its assets in securities selected primarily for their
growth potential and 40 to 60% of its assets in securities selected primarily
for their income potential. The Portfolio normally invests at least 25% of its
assets in fixed-income senior securities, which include debt securities and
preferred stock.
26
<PAGE> 32
THE JANUS ASPEN SERIES WORLDWIDE GROWTH PORTFOLIO
The Janus Aspen Series Worldwide Growth Portfolio seeks long-term growth of
capital in a manner consistent with the preservation of capital. It invests in a
diversified portfolio of common stocks of foreign and domestic issuers. The
Portfolio has the flexibility to invest on a worldwide basis in companies and
organizations of any size, regardless of country of organization or place of
principal business activity. The Portfolio normally invests in issuers from at
least five different countries, including the United States. The Portfolio may
at times invest in fewer than five countries or even in a single country.
THE MORGAN STANLEY EMERGING MARKETS EQUITY PORTFOLIO
The Morgan Stanley Emerging Markets Equity Portfolio seeks long-term
capital appreciation by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks, sponsored
and unsponsored ADR's and other equity securities of emerging market country
issuers. 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 Calvert Variable Series, the
Fidelity Funds, the Janus Aspen Series and the Morgan Stanley Fund may also be
available to separate accounts of insurance companies unaffiliated with NYLIAC
and, in certain instances, to qualified plans. This is called "shared funding."
Although we do not anticipate any inherent difficulties arising from mixed and
shared funding, it is theoretically possible that, due to differences in tax
treatment or other considerations, the interests of owners of various contracts
participating in the Funds might at some time be in conflict. The Board of
Directors/Trustees of each Fund, each Fund's investment advisers, and NYLIAC are
required to monitor events to identify any material conflicts that arise from
the use of the Funds for mixed and shared funding. For more information about
the risks of mixed and shared funding please refer to the relevant Fund
prospectus.
We render certain services to owners of the Policies in connection with
investment of premiums and commitment of cash values to the Investment
Divisions, which, in turn, invest in the Eligible Portfolios. These services
include, among others, providing information about the Eligible Portfolios. We
receive a service fee from the investment advisers or other service providers of
some of the Funds in return for providing services of this type. Currently, we
receive service fees at annual rates ranging from .10% to .21% of the aggregate
net asset value of the shares of some of the Eligible Portfolios held by the
Investment Divisions.
27
<PAGE> 33
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 Account. 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 Account 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.
The Separate Account 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 the Separate
Account. 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
Account may be operated as a management company 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.
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 Net Premium to one or more
Investment Divisions or the Fixed Account. The Policyowner may currently
maintain Cash 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.
28
<PAGE> 34
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.
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
continuance 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 late period
expires without sufficient payment. For details see TERMINATION below.
Policies that are maintained at Cash Values just sufficient to cover fees
and charges or that are otherwise minimally funded are more subject to not being
able to maintain such Cash Values because of market fluctuation and other
performance related risks. When determining the amount of your scheduled Premium
payments, you should consider funding your Policy at a level which has the
potential to maximize the investment opportunities within your Policy and to
minimize the risks associated with market fluctuations.
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, unscheduled Premiums may
be made once each Policy Year.
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. 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 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.
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<PAGE> 35
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 prior to May 1, 1995 (except in New Jersey), the
life insurance benefit payable under the terms of the Policy for all ages is the
Policy face amount as shown on the Policy Data Page. 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 Surrender 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
Surrender Value of the Policy by presenting to NYLIAC's Principal Office 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 Surrender 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 which allows the
Policyowner to purchase shares of the Investment Divisions at regular intervals
in fixed dollar amounts so that the cost of the Policyowner's shares is averaged
over time and over various market cycles. 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. Because the same dollar amount is
transferred to a given Investment Division on each transfer, more units are
purchased in an Investment Division if the value per unit is low and fewer units
are purchased if the value per unit is high. Therefore, a lower than
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<PAGE> 36
average cost per unit may 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 growth or
protect against a loss in declining markets. Since it involves continuous
investing regardless of price levels, you should consider your financial ability
to continue to make purchases during periods of low price levels.
If you decide to use the Dollar Cost Averaging feature, NYLIAC will ask you
to specify:
-- the dollar amount you want to have transferred (minimum transfer: $100);
-- the Investment Division you want to transfer money from;
-- the Investment Divisions and/or Fixed Account you want to transfer money
to;
-- the date on which you want the transfers to be made, within the limits
indicated below; and
-- how often you would like the transfers made, either monthly, quarterly,
semi-annually or annually.
You are not allowed to make Dollar Cost Averaging transfers from the Fixed
Account, but you can make Dollar Cost Averaging transfers into the Fixed
Account.
NYLIAC will make all Dollar Cost Averaging transfers on the date you
specify, or on the next business day. You may specify any day of the month with
the exception of the 29th, 30th or 31st of a month. We will not process a Dollar
Cost Averaging transfer, unless we have received a written request at NYLIAC's
Principal Office. NYLIAC must receive this request at least one week before the
date Dollar Cost Averaging transfers are scheduled to begin.
The minimum Cash Value required to elect this option is $5,000. NYLIAC will
automatically suspend this feature if the Cash Value is less than $4,500 on a
transfer date. Once the Cash Value equals or exceeds this amount, the Dollar
Cost Averaging transfers will automatically resume as scheduled.
You may cancel the Dollar Cost Averaging option at any time by written
request. You may not elect Dollar Cost Averaging if you have chosen Automatic
Asset Reallocation. However, you have the option of alternating between these
two options.
The Dollar Cost Averaging option is available to you at no additional cost.
AUTOMATIC ASSET REALLOCATION
Selection of this option allows a Policyowner to maintain the percentage of
the Policyowner's Accumulation Value allocated to each Investment Division at a
pre-set level. For example, a Policyowner 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. 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
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<PAGE> 37
subsequent reallocations under this option. 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 to NYLIAC's Principal Office or by NYLIAC
automatically if the Cash Value is less than $4,500. The Automatic Asset
Reallocation option may not be elected if a Policyowner has selected the Dollar
Cost Averaging option. However, you have the option of alternating between these
two options.
DEATH BENEFIT UNDER THE POLICY
The Death Benefit is the amount payable to the named Beneficiary when the
Insured dies prior to the Insured's maturity date. 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 51.
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 1:
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 (and no loans)............ $ 50,000 $ 40,000
IRC Section 7702 Life Insurance Percentage On Date of
Death............................................... 215% 215%
</TABLE>
For Policy A, the Death Benefit would 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.
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<PAGE> 38
EXAMPLE 2:
The following example shows how the Death Benefit varies as a result of
investment performance on a Policy assuming age at death is 97 (past maturity
date):
<TABLE>
<CAPTION>
POLICY A POLICY B POLICY C
-------- -------- --------
<S> <C> <C> <C>
Face amount as shown on the Policy Data
Page..................................... $100,000 $100,000 $200,000
Cash Surrender Value on Date of Death...... $ 50,000 $110,000 $110,000
</TABLE>
After the maturity age, the face amount as shown on the Policy Data Page no
longer applies. Instead, the life insurance benefit is equal to the Cash Value
less any applicable Surrender Charges and outstanding Policy Debt, i.e. the
Policy Cash Surrender Value. Therefore, for Policy A the Death Benefit would
equal $50,000, for Policy B it would equal $110,000, and for Policy C it would
also equal $110,000.
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 is subject to NYLIAC's maximum retention limits.
Evidence of insurability must be 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.
Increases in face amount may be applied for and 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.
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 a surrender charge is then currently
applicable. 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.
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<PAGE> 39
CASH VALUE AND CASH SURRENDER VALUE
CASH VALUE
The Cash Value of the Policy is the amount provided for investment in the
Separate Account and the Fixed Account. The Cash Value of the Policy is held in
one or more Investment Divisions of the Separate Account 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
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
Account, or to the Fixed Account, is the lesser of (i) $500 or (ii) the total
value of the Accumulation Units in 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. 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, or at the
end of the Business Day if NYLIAC receives a written request. (See ADDITIONAL
PROVISIONS OF THE POLICY--When We Pay Proceeds at page 54.)
INVESTMENT RETURN
The investment return of a Policy is based on:
-- The Accumulation Units held in each Investment Division of the Separate
Account 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 Account
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 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
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<PAGE> 40
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 credited to the Fixed Account, and
because certain Surrenders or Partial Withdrawals are subject to a surrender
charge, and because of charges made against the Policy, 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 in writing or by calling a
service representative at (800)598-2019 to receive part of the Policy's Cash
Surrender Value or Surrender the Policy by written request only, 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 Business Day during which the request for
the Partial Withdrawal is received at NYLIAC's Principal Office, 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 14.
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 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.
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<PAGE> 41
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 Account 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.
(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
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<PAGE> 42
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%.
Currently, the amount in the Fixed Account which is collateral for an
outstanding loan is credited with interest at a rate that is 1% less than the
effective annual loan interest rate during the first 10 Policy Years and 0.5%
less than the effective rate in subsequent Policy Years. These rates are not
guaranteed and can change at any time.
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 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 Account. 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 Account.
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.) Unless otherwise required by state law, 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. The Policy will be void as of the Issue
Date. For canceled increases in the face amount, the refund equals the amount of
Premiums that are in excess of scheduled premiums which are allocated to the
increase in accordance with the surrender charge provision, less any portion of
such amount previously paid to the Policyowner.
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
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<PAGE> 43
be transferred to the Fixed Account to acquire fixed benefit life insurance
protection on the life of the Insured; provided, however, that the Policyowner
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
exchanged 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 Account 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.
The number of votes which are available to a Policyowner will be calculated
separately for each Investment Division of the Separate Account. 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.
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<PAGE> 44
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 Account. 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 Account with one or more other separate accounts;
-- Operate the Separate Account as management investment companies under
the 1940 Act or in any other form permitted by law;
-- Deregister the Separate Account under the 1940 Act;
-- Manage the Separate Account under the direction of a committee or
discharge such committee at any time;
-- Transfer the assets of the Separate Account to one or more other
separate accounts; and
-- Restrict or eliminate any of the voting rights of Policyowners or other
persons who have voting rights as to the Separate Account.
NYLIAC also reserves the right to change the names of the Separate Account.
We have reserved all rights to the name of New York Life Insurance Company
or any part of it. We may allow the Separate Account and other entities to use
our name or part of it, but we may also withdraw this right.
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DIRECTORS AND PRINCIPAL OFFICERS OF NYLIAC
<TABLE>
<S> <C>
DIRECTORS: POSITIONS DURING LAST FIVE YEARS:
Seymour Sternberg......................... Chairman of the Board, Chief Executive Officer and
President of New York Life from April 1997 to date;
President and Chief Operating Officer of New York
Life from October 1995 to April 1997; Vice Chairman
and President Elect from February 1995 to October
1995; Executive Vice President prior thereto.
President of NYLIAC from November 1995 to May 1997.
Jay S. Calhoun, III....................... Senior Vice President and Treasurer of New York Life
from March 1997 to date; Vice President and Treasurer
prior thereto. Senior Vice President and Treasurer of
NYLIAC from May 1997 to date; Vice President and
Treasurer prior thereto.
Richard M. Kernan, Jr..................... Executive Vice President and Chief Investment Officer
of New York Life from March 1991 to date.
Robert D. Rock............................ Senior Vice President in charge of the Individual
Annuity Department of New York Life from March 1992
to date; Vice President prior thereto. Senior Vice
President of NYLIAC from April 1992 to date.
Frederick J. Sievert...................... Vice Chairman of New York Life from January 1997 to
date; Executive Vice President from February 1995 to
January 1997; Senior Vice President and Chief
Financial Officer--Individual Operations prior
thereto. President of NYLIAC from May 1997 to date;
Executive Vice President from November 1995 to May
1997; Senior Vice President prior thereto.
Stephen N. Steinig........................ Senior Vice President and Chief Actuary of New York
Life from February 1994 to date; Chief Actuary and
Controller prior thereto. Senior Vice President and
Chief Actuary of NYLIAC from May 1991 to date.
OFFICERS:
Howard I. Atkins.......................... Executive Vice President and Chief Financial Officer
of New York Life and NYLIAC from April 1996 to date;
Chief Financial Officer of Midlantic Corporation
prior thereto.
</TABLE>
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<TABLE>
<S> <C>
Michael G. Gallo.......................... Senior Vice President in charge of the Individual
Life Department of New York Life from July 1995 to
date; Senior Vice President--Northeastern Agencies
from February 1994 to July 1995; Vice President prior
thereto. Senior Vice President of NYLIAC from August
1995 to date.
Solomon Goldfinger........................ Senior Vice President in charge of the Financial
Management Department and Chief Financial Officer of
New York Life from July 1995 to date; Senior Vice
President in charge of the Individual Life Department
prior thereto. Senior Vice President of NYLIAC from
April 1992 to date.
Jane L. Hamrick........................... Vice President and Actuary of New York Life from
March 1994 to date; Corporate Vice President and
Actuary prior thereto. Vice President and Actuary of
NYLIAC from April 1994 to date.
Jean E. Hoysradt.......................... Senior Vice President in charge of the Investment
Department of New York Life from March 1992 to date;
Senior Vice President of NYLIAC from April 1992 to
date.
Maryann L. Ingenito....................... Vice President of New York Life from April 1990 to
date. Vice President and Controller (Principal
Accounting Officer) of NYLIAC from December 1994 to
date; Vice President and Assistant Controller prior
thereto.
Frank J. Ollari........................... Senior Vice President in charge of the Real Estate
Department of New York Life from October 1989 to
date. Senior Vice President of NYLIAC from April 1992
to date.
</TABLE>
YEAR 2000 READINESS
The computer systems we use to process all Policy transactions and
valuations need to be modified to accommodate the changeover to Year 2000. These
modifications are necessary for us to be able to continue to administer the
Policies in Year 2000 and later. As is the case with most systems projects,
risks and uncertainties exist, and a project could be delayed. We are, however,
working to make these systems modifications, and we expect that the necessary
changes will be completed on time and in a way that will result in no disruption
to our Policy servicing operations.
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 the Separate
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<PAGE> 47
Account. NYLIAC has sole discretion to invest the assets of the Fixed Account
subject to applicable law. An interest in the Fixed Account is not registered
under the Securities Act of 1933, and the Fixed Account is not registered as an
investment company under the Investment Company Act of 1940. Accordingly neither
the Fixed Account nor any interests therein are generally subject to the
provisions of these statutes, and NYLIAC has been advised that the staff of the
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
permitted. 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. Any transfer
made in connection with the Dollar Cost Averaging and Automatic Asset
Reallocation Options will not count as a transfer toward the twelve transfer
limit.
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures.
See the Policy for details and a description of the Fixed Account.
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<PAGE> 48
PROCEDURES FOR TELEPHONE TRANSFERS
Policyowners may effect telephone transfers in two ways. All Policyowners
may directly contact a service representative at (800)598-2019. 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 and change of allocation of future
payments. 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 requests, callers 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. NYLIAC is not liable for any loss,
cost or expense for action on telephone instructions which are believed to be
genuine in accordance with these procedures. Telephone transfer requests must be
received no later than 4:00 p.m. Eastern Time to assure same-day processing.
Requests received after 4:00 p.m. will be processed at the end of the next
Valuation Period.
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 POLICY, AND IS NOT
INTENDED AS TAX ADVICE. NO ATTEMPT IS MADE TO CONSIDER ANY APPLICABLE STATE OR
OTHER TAX LAWS AND NO REPRESENTATION IS MADE AS TO THE LIKELIHOOD OF
CONTINUATION OF CURRENT FEDERAL INCOME TAX LAWS AND TREASURY REGULATIONS OR OF
CURRENT INTERPRETATIONS OF THE INTERNAL REVENUE SERVICE. FUTURE LEGISLATION,
REGULATIONS OR INTERPRETATIONS COULD ADVERSELY AFFECT THE TAX TREATMENT OF LIFE
INSURANCE POLICIES. LASTLY, THERE ARE MANY AREAS OF THE TAX LAW WHERE MINIMAL
GUIDANCE EXISTS IN THE FORM OF TREASURY REGULATIONS OR REVENUE RULINGS.
WHILE 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 TAX TREATMENT OF THE POLICIES, THE TAX TREATMENT
UNDER THE LAWS OF YOUR STATE, OR THE IMPACT OF PROPOSED OR FUTURE CHANGES IN TAX
LEGISLATION, REGULATIONS OR INTERPRETATIONS, YOU SHOULD CONSULT WITH A TAX
ADVISOR.
The ultimate effect of federal income taxes on values under the Policy and
on the economic benefit to the Policyowner or Beneficiary depends upon NYLIAC's
tax status, upon the terms of the Policy and upon the tax status of the
individual concerned.
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<PAGE> 49
TAX STATUS OF NYLIAC AND THE SEPARATE ACCOUNT
NYLIAC is taxed as a life insurance company under Subchapter L of the
Internal Revenue Code of 1986 (the "Code"). The Separate Account is not a
separate taxable entity from NYLIAC and its operation is taken into account by
NYLIAC in determining its income tax liability. All investment income and
realized net capital gains on the assets of the Separate Account are reinvested
and taken into account in determining 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 Account 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 Account for federal income taxes of NYLIAC that
may be attributable to the Separate Account. Periodically, NYLIAC reviews the
appropriateness of charges to the Separate Account for NYLIAC's federal income
taxes, and in the future, a charge may be made for federal income taxes incurred
by NYLIAC that are attributable to the Separate Account. In addition, depending
on the method of calculating interest on Policy Values allocated to the Fixed
Account (see preceding section), a charge may also be imposed for the Policy's
share of NYLIAC's federal income taxes attributable to the Fixed Account.
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 Account for the portion of such taxes,
if any, attributable to the Separate Account.
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 the 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
the 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 the Separate Account holding an
interest in such Portfolio.
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<PAGE> 50
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 Account are direct obligations of the
United States Treasury. Even if the 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 Account's investment in United States Treasury
Securities. Notwithstanding this modification of the general diversification
requirements, however, the investments of the Separate Account 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 Account.
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 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
45
<PAGE> 51
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, under our current interpretation of the law,
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.
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
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<PAGE> 52
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 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 provides that interest paid or accrued on a loan in
connection with a Policy is generally nondeductible. Certain exceptions apply,
however, with respect to Policies covering key employees. In addition, in the
case of Policies not held by individuals, special rules may limit the
deductibility of interest on loans that are not made in connection with a
Policy. 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 "inside build up" or income on the contract 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.
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<PAGE> 53
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.
STEP PROGRAM
The Severance Trust Executive Program ("STEP") is an employee welfare
benefit plan that provides severance benefits and life insurance coverage
through a ten-or-more employer trust as described in Section 419A(f)(6) of the
Code. The tax consequences of participating in a STEP trust are uncertain under
current law. There is a reasonable possibility that contributions to the STEP
trust may not be deductible for income tax purposes. Moreover, there is at least
some risk that an employee or owner may be viewed by the Internal Revenue
Service as receiving gross income in the year contributions are made to the STEP
trust. Prospective participants should have their own qualified advisors review
the legal and actuarial opinions applicable to the STEP Program.
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).
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.
Different withholding rules apply to payments made to U.S. citizens living
outside the United States and to non-U.S. citizens living outside of the United
States. U.S. citizens who live outside of the United States generally are not
permitted to elect not to have federal income taxes withheld from payments.
Payments to non-U.S. citizens who are not
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<PAGE> 54
residents of the United States generally are subject to 30% withholding, unless
an income tax treaty between their country of residence and the United States
provides for either a lower rate of withholding or an exemption from
withholding.
ADDITIONAL PROVISIONS OF THE POLICY
REINSTATEMENT OPTION
For a period of five (5) years after termination, you 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 Account or the
Fixed Account. An additional benefit is provided by a rider and is subject to
the terms of both the Policy and the rider. The following riders are available.
Guaranteed Minimum Death Benefit ("GMDB") Rider
This rider is subject to state regulatory approvals and may not be
available in all states. Please contact your registered representative to
determine if this rider is available in your state. In addition, the rider title
and requirements for this rider may vary by state. Please contact your
registered representative or refer to your rider for additional information.
Prior to its expiry date, this rider guarantees that the Policy will not
lapse even if the Policy's Cash Surrender Value is not enough to cover the
current monthly deduction charges defined in the Policy. Generally, this rider
is available with expiry dates of the Insured's age 70, 80 and, except for
Policies issued with a substandard underwriting class, 95. At issue, the
Policyowner can choose any one of the expiry dates, but the coverage period for
the rider must be at least 10 years.
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In exchange for the guarantee provided by this rider, the Policyowner is
required to pay a certain amount of Premiums into the Policy. A monthly GMDB
premium is calculated for the Policy and is shown on the Policy Data Page. This
amount is expressed monthly, but Premiums do not have to actually be paid on a
monthly basis. On each Monthly Deduction Day, a GMDB premium test is performed.
The test must be satisfied or the rider will end. The GMDB premium test is
satisfied as of a Monthly Deduction Day if the total Premiums paid to date under
the Policy, less any Partial Withdrawal made, are at least equal to the
cumulative sum of all monthly GMDB premiums from the date this rider is issued
up to that Monthly Deduction Day. The monthly GMDB premium can change if certain
changes are made to the Policy.
If on a Monthly Deduction Day, the Policy does not satisfy the GMDB premium
test and the amount by which the test is failed is more than one monthly GMDB
premium, the Policyowner will be notified by letter that the rider will end
unless the amount necessary to pass the GMDB premium test is paid by the next
Monthly Deduction Day. However, we will reinstate this rider if the required
payment is received before the Monthly Deduction Day which follows the date the
rider ended.
In addition to the Premium requirement described above, Policyowners must
pay a charge for the rider. The charge is $0.01 per $1000 of the sum of a
Policy's base face amount plus any face amount provided by an Other Covered
Insured rider. This charge will be deducted from the Policy's Cash Value on each
Monthly Deduction Day.
If a loan is taken during the first two Policy Years, this rider will end
when the loan is taken. After the first two Policy Years, loans are permitted
but are restricted. In general, the Cash Surrender Value minus the requested
loan must exceed the total of the monthly GMDB premiums, accumulated at an
annual effective interest rate of 6%, as of that date. If a Policyowner requests
a loan which would cause the GMDB rider to end, we will delay processing the
request until we receive the Policyowner's signed authorization to terminate the
Rider. Once terminated, the rider cannot be reinstated.
This rider will also end if the rider reaches its expiry date (age 70, 80
or 95, as selected by the Policyowner) or if the Policy ends or is surrendered.
The GMDB rider also covers the monthly deduction charges due for any other
riders which may be included in the Policy. However, if monthly deduction
charges are being waived under another rider attached to the Policy, the GMDB
rider is placed in an inactive status and no benefit under the GMDB rider is in
effect. While the rider is in an inactive status, no charge for the rider is
payable and no GMDB premium testing will be performed. However, once monthly
deductions for this Policy are no longer being waived, the GMDB rider will
automatically be restored. Beginning anew on the next Monthly Deduction Day, the
charge for this rider will be deducted and the GMDB premium test must again be
satisfied.
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 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.
50
<PAGE> 56
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
and is convertible up until the Policy Anniversary on which that insured is age
71 or on the death of the primary Insured, if earlier. This rider is currently
not available on the primary Insured for newly issued Policies.
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.
When less than 100% of the Death Benefit is accelerated, the Policy stays
in force, with the face amount and other Policy values reduced proportionately.
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 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.
51
<PAGE> 57
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%.
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
52
<PAGE> 58
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(s) and/or entity(ies) 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 (unless a
state has different requirements). 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 (or less where required by
law) from the Issue Date or with respect to an increase in face amount, the
effective date of the increase, and while the Policy is in force, we pay a
limited Death Benefit in one sum to the
53
<PAGE> 59
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 Account, loan proceeds attributable to the
Separate Account, 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 Account 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. We will also mail you a report
each quarter showing you the same information as of the end of the previous
quarter.
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 Investor's Services Inc. (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.
54
<PAGE> 60
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 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, NYLIAC and New York Life settled a nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyholders in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyholders in that
state who excluded themselves from the settlement of the nationwide class action
was recently reversed by an intermediate appellate court; plaintiffs filed a
motion for rehearing in the intermediate appellate court and the motion was
denied. Plaintiffs may file a petition with the highest court within the
statutory time allowed to do so. Most of these actions seek substantial or
unspecified compensatory and punitive damages.
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
55
<PAGE> 61
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.
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report
thereon) for the fiscal years ended December 31, 1997, 1996 and 1995, and of the
Separate Account (including the auditor's report thereon) for the years ended
December 31, 1997 and 1996 are included herein. 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.
56
<PAGE> 62
FINANCIAL STATEMENTS
F-1
<PAGE> 63
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
------------------------------------------------
ASSETS:
Investment at net asset value (Identified Cost:
$71,698,422; $8,162,465; $901,536; $1,710,793;
$12,510,806; $3,296,089; $20,293,241; $14,089,938;
$4,305,981, respectively)........................... $97,265,269 $ 8,162,474 $ 882,918
LIABILITIES:
Liability for mortality and expense risk charges...... 165,893 11,585 1,378
----------- ----------- -----------
Total equity...................................... $97,099,376 $ 8,150,889 $ 881,540
=========== =========== ===========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 5,124,798;
6,904,428; 74,626; 135,206; 856,537; 258,156;
1,523,627; 921,430; 330,171, respectively......... $97,099,376 $ 8,150,889 $ 881,540
=========== =========== ===========
Variable accumulation unit value.................... $ 18.95 $ 1.18 $ 11.81
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
------------------------------------------------
ASSETS:
Investment at net asset value (Identified Cost:
$21,322,048; $24,750,525; $1,837,228; $174,491;
$5,257,529; $2,176,634; $1,395,497; $7,449,468;
$1,984,797, respectively)........................... $22,281,943 $30,850,870 $ 1,931,280
LIABILITIES:
Liability for mortality and expense risk charges...... 37,467 50,736 2,937
----------- ----------- -----------
Total equity...................................... $22,244,476 $30,800,134 $ 1,928,343
=========== =========== ===========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 1,098,666;
1,335,045; 180,466; 14,661; 447,895; 178,000;
121,580; 621,916; 169,020, respectively........... $22,244,476 $30,800,134 $ 1,928,343
=========== =========== ===========
Variable accumulation unit value.................... $ 20.25 $ 23.07 $ 10.69
=========== =========== ===========
</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> 64
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
$ 1,691,885 $12,273,364 $ 3,155,744 $24,570,673 $16,016,103 $ 4,269,078
3,012 20,329 5,115 42,357 26,197 7,383
----------- ----------- ----------- ----------- ----------- -----------
$ 1,688,873 $12,253,035 $ 3,150,629 $24,528,316 $15,989,906 $ 4,261,695
=========== =========== =========== =========== =========== ===========
$ 1,688,873 $12,253,035 $ 3,150,629 $24,528,316 $15,989,906 $ 4,261,695
=========== =========== =========== =========== =========== ===========
$ 12.49 $ 14.31 $ 12.20 $ 16.10 $ 17.35 $ 12.91
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
$ 174,348 $ 5,747,398 $ 2,354,052 $ 1,498,501 $ 7,771,354 $ 1,688,354
250 8,457 3,409 2,381 11,677 2,487
----------- ----------- ----------- ----------- ----------- -----------
$ 174,098 $ 5,738,941 $ 2,350,643 $ 1,496,120 $ 7,759,677 $ 1,685,867
=========== =========== =========== =========== =========== ===========
$ 174,098 $ 5,738,941 $ 2,350,643 $ 1,496,120 $ 7,759,677 $ 1,685,867
=========== =========== =========== =========== =========== ===========
$ 11.88 $ 12.81 $ 13.21 $ 12.31 $ 12.48 $ 9.97
=========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-3
<PAGE> 65
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
---------------------------------------------------------
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 123 $ 290,588 $ 32,752
Mortality and expense risk charges.................. (557,291) (39,701) (3,647)
----------- ----------- -----------
Net investment income (loss).................... (557,168) 250,887 29,105
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 1,423,369 17,014,805 139,941
Cost of investments sold............................ (805,290) (17,014,751) (126,567)
----------- ----------- -----------
Net realized gain on investments................ 618,079 54 13,374
Realized gain distribution received................. 1,303,265 -- 46,486
Change in unrealized appreciation (depreciation)
on investments.................................... 14,268,963 9 (18,565)
----------- ----------- -----------
Net gain (loss) on investments.................. 16,190,307 63 41,295
----------- ----------- -----------
Decrease attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (15,392) (49) (107)
----------- ----------- -----------
Net increase in total equity resulting
from operations............................... $15,617,747 $ 250,901 $ 70,293
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
---------------------------------------------------------
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 154,149 $ 382,331 $ --
Mortality and expense risk charges.................. (118,883) (153,223) (6,663)
----------- ----------- -----------
Net investment income (loss).................... 35,266 229,108 (6,663)
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 665,550 1,458,314 96,138
Cost of investments sold............................ (461,321) (810,710) (93,572)
----------- ----------- -----------
Net realized gain on investments................ 204,229 647,604 2,566
Realized gain distribution received................. 2,869,322 701,766 27,734
Change in unrealized appreciation (depreciation)
on investments.................................... 675,936 4,086,848 94,168
----------- ----------- -----------
Net gain (loss) on investments.................. 3,749,487 5,436,218 124,468
----------- ----------- -----------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (4,349) (5,232) (165)
----------- ----------- -----------
Net increase (decrease) in total equity resulting
from operations............................... $ 3,780,404 $ 5,660,094 $ 117,640
=========== =========== ===========
</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> 66
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
$ 107,175 $ 782,162 $ 242,338 $ 516,372 $ 201,046 $ 266,329
(11,217) (91,731) (45,495) (148,128) (94,179) (26,020)
----------- ----------- ----------- ----------- ----------- -----------
95,958 690,431 196,843 368,244 106,867 240,309
----------- ----------- ----------- ----------- ----------- -----------
330,840 13,492,251 12,036,950 1,232,002 7,644,643 480,016
(324,609) (11,471,769) (11,261,034) (810,649) (5,322,018) (447,131)
----------- ----------- ----------- ----------- ----------- -----------
6,231 2,020,482 775,916 421,353 2,322,625 32,885
-- 486,646 -- 441,150 677,784 11,900
35,959 (1,969,535) (823,782) 2,055,337 (692,340) 45,233
----------- ----------- ----------- ----------- ----------- -----------
42,190 537,593 (47,866) 2,917,840 2,308,069 90,018
----------- ----------- ----------- ----------- ----------- -----------
(174) (2,363) (382) (3,477) (2,689) (431)
----------- ----------- ----------- ----------- ----------- -----------
$ 137,974 $ 1,225,661 $ 148,595 $ 3,282,607 $ 2,412,247 $ 329,896
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
$ 3,709 $ 5,634 $ 3,972 $ 29,131 $ 44,499 $ 11,490
(614) (18,741) (6,894) (5,466) (25,288) (6,777)
----------- ----------- ----------- ----------- ----------- -----------
3,095 (13,107) (2,922) 23,665 19,211 4,713
----------- ----------- ----------- ----------- ----------- -----------
33,234 172,065 150,267 104,654 155,684 187,902
(30,376) (150,779) (144,967) (93,347) (133,142) (162,977)
----------- ----------- ----------- ----------- ----------- -----------
2,858 21,286 5,300 11,307 22,542 24,925
8,046 14,890 19,970 1,077 17,119 50,836
821 488,379 177,716 103,207 319,287 (296,932)
----------- ----------- ----------- ----------- ----------- -----------
11,725 524,555 202,986 115,591 358,948 (221,171)
----------- ----------- ----------- ----------- ----------- -----------
(16) (592) (182) (176) (494) 134
----------- ----------- ----------- ----------- ----------- -----------
$ 14,804 $ 510,856 $ 199,882 $ 139,080 $ 377,665 $ (216,324)
=========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-5
<PAGE> 67
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
-------------------------------- --------------------------------
1997 1996 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income (loss)............ $ (557,168) $ (259,950) $ 250,887 $ 125,170
Net realized gain (loss) on
investments........................... 618,079 117,486 54 (31)
Realized gain distribution received..... 1,303,265 -- -- --
Change in unrealized appreciation
(depreciation) on investments......... 14,268,963 6,900,669 9 11
Increase (decrease) attributable to
funds of New York Life Insurance and
Annuity Corporation retained by Separate
Account............................... (15,392) (3,153) (49) 89
------------ ----------- ------------ -----------
Net increase in total equity resulting
from operations..................... 15,617,747 6,755,052 250,901 125,239
------------ ----------- ------------ -----------
Contributions and withdrawals:
Return of equity contribution to New
York Life Insurance and Annuity
Corporation........................... -- -- -- --
Policyowners' premium payments.......... 35,212,386 26,843,479 36,523,185 32,779,343
Cost of insurance....................... (13,265,402) (9,093,725) (1,411,287) (989,566)
Policyowners' surrenders................ (3,421,827) (1,271,171) (163,399) (56,535)
Net transfers to Fixed Account.......... (2,119,635) (1,045,732) (737,645) (557,133)
Transfers between Investment
Divisions............................. 5,279,916 11,653,145 (32,758,497) (27,966,704)
Policyowners' death benefits............ (69,600) (29,669) (10,139) --
------------ ----------- ------------ -----------
Net contributions and withdrawals..... 21,615,838 27,056,327 1,442,218 3,209,405
------------ ----------- ------------ -----------
Increase (decrease) in total
equity............................ 37,233,585 33,811,379 1,693,119 3,334,644
TOTAL EQUITY:
Beginning of year....................... 59,865,791 26,054,412 6,457,770 3,123,126
------------ ----------- ------------ -----------
End of year............................. $ 97,099,376 $59,865,791 $ 8,150,889 $ 6,457,770
============ =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
------------------------------- -------------------------------
1997 1996 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income.................... $ 196,843 $ 630,545 $ 368,244 $ 255,705
Net realized gain on investments......... 775,916 10,856 421,353 69,613
Realized gain distribution received...... -- 17,725 441,150 --
Change in unrealized appreciation
(depreciation) on investments.......... (823,782) 485,209 2,055,337 1,096,527
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate
Account................................ (382) (1,988) (3,477) (891)
----------- ----------- ----------- -----------
Net increase in total equity resulting
from operations...................... 148,595 1,142,347 3,282,607 1,420,954
----------- ----------- ----------- -----------
Contributions and withdrawals:
Return of equity contribution to New York
Life Insurance and Annuity Corporation. (11,738,745) -- -- --
Policyowners' premium payments........... 1,521,928 958,640 8,153,659 7,504,745
Cost of insurance........................ (500,492) (257,367) (3,111,363) (2,550,631)
Policyowners' surrenders................. (47,748) (14,717) (866,926) (393,720)
Net transfers to Fixed Account........... (43,728) (9,665) (499,837) (241,714)
Transfers between Investment Divisions... 242,651 794,305 344,132 2,569,434
Policyowners' death benefits............. (3,803) (2,096) (30,727) (12,043)
----------- ----------- ----------- -----------
Net contributions and withdrawals...... (10,569,937) 1,469,100 3,988,938 6,876,071
----------- ----------- ----------- -----------
Increase (decrease) in total
equity............................. (10,421,342) 2,611,447 7,271,545 8,297,025
TOTAL EQUITY:
Beginning of year........................ 13,571,971 10,960,524 17,256,771 8,959,746
----------- ----------- ----------- -----------
End of year.............................. $ 3,150,629 $13,571,971 $24,528,316 $17,256,771
=========== =========== =========== ===========
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-6
<PAGE> 68
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
------------------------- ------------------------- --------------------------
1997 1996(a) 1997 1996 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 29,105 $ 1,209 $ 95,958 $ 82,707 $ 690,431 $ 757,498
13,374 8 6,231 12,558 2,020,482 48,439
46,486 225 -- -- 486,646 233,076
(18,565) (52) 35,959 (60,509) (1,969,535) 1,191,289
(107) -- (174) (51) (2,363) (2,719)
----------- ----------- ----------- ----------- ------------ -----------
70,293 1,390 137,974 34,705 1,225,661 2,227,583
----------- ----------- ----------- ----------- ------------ -----------
-- -- -- -- (12,980,105) --
416,058 36,023 565,639 588,549 5,209,882 2,385,150
(111,682) (2,787) (224,791) (202,531) (1,602,404) (696,139)
(4,694) -- (68,227) (25,594) (247,985) (61,676)
(13,050) -- (41,442) (14,290) (80,517) (32,091)
389,933 100,056 (115,412) 90,391 2,688,651 2,269,082
-- -- -- (1,092) (4,740) (1,270)
----------- ----------- ----------- ----------- ------------ -----------
676,565 133,292 115,767 435,433 (7,017,218) 3,863,056
----------- ----------- ----------- ----------- ------------ -----------
746,858 134,682 253,741 470,138 (5,791,557) 6,090,639
134,682 -- 1,435,132 964,994 18,044,592 11,953,953
----------- ----------- ----------- ----------- ------------ -----------
$ 881,540 $ 134,682 $ 1,688,873 $ 1,435,132 $ 12,253,035 $18,044,592
=========== =========== =========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
------------------------- ------------------------- -------------------------
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------
$ 106,867 $ 92,729 $ 240,309 $ 165,236 $ 35,266 $ 43,146
2,322,625 15,992 32,885 12,900 204,229 30,033
677,784 186,950 11,900 -- 2,869,322 1,437,459
(692,340) 1,787,101 45,233 (115,255) 675,936 161,667
(2,689) (1,752) (431) (91) (4,349) (1,387)
----------- ----------- ----------- ----------- ----------- -----------
2,412,247 2,081,020 329,896 62,790 3,780,404 1,670,918
----------- ----------- ----------- ----------- ----------- -----------
(7,345,155) -- -- -- -- --
6,236,512 2,967,711 1,629,051 1,242,545 7,565,076 4,982,537
(2,115,916) (906,758) (499,972) (402,055) (2,621,057) (1,651,492)
(202,363) (62,672) (141,987) (45,388) (447,153) (203,329)
(134,401) (31,930) (92,777) (31,204) (287,713) (178,949)
3,413,486 2,776,686 156,019 627,608 2,607,194 2,251,912
(6,038) (1,828) (2,486) (2,075) (32,659) (15,505)
----------- ----------- ----------- ----------- ----------- -----------
(153,875) 4,741,209 1,047,848 1,389,431 6,783,688 5,185,174
----------- ----------- ----------- ----------- ----------- -----------
2,258,372 6,822,229 1,377,744 1,452,221 10,564,092 6,856,092
13,731,534 6,909,305 2,883,951 1,431,730 11,680,384 4,824,292
----------- ----------- ----------- ----------- ----------- -----------
$15,989,906 $13,731,534 $ 4,261,695 $ 2,883,951 $22,244,476 $11,680,384
=========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-7
<PAGE> 69
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP SMALL
INDEXED EQUITY CAPITALIZATION
------------------------------ ------------------------------
1997 1996 1997 1996(a)
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)................... $ 229,108 $ 135,508 $ (6,663) $ (67)
Net realized gain (loss) on investments........ 647,604 64,602 2,566 (30)
Realized gain distribution received............ 701,766 166,736 27,734 --
Change in unrealized appreciation
(depreciation) on investments................ 4,086,848 1,454,231 94,168 (117)
Increase (decrease) attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account..... (5,232) (1,534) (165) 3
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations.................. 5,660,094 1,819,543 117,640 (211)
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments................. 10,763,151 5,663,276 889,897 15,186
Cost of insurance.............................. (3,866,075) (1,832,018) (237,282) (3,169)
Policyowners' surrenders....................... (696,971) (189,215) (17,688) (29)
Net transfers from (to) Fixed Account.......... (527,396) (255,372) (20,195) 80
Transfers between Investment Divisions......... 5,609,822 3,981,697 1,079,383 109,530
Policyowners' death benefits................... (49,784) (2,523) (4,799) --
------------ ------------ ------------ ------------
Net contributions and withdrawals............ 11,232,747 7,365,845 1,689,316 121,598
------------ ------------ ------------ ------------
Increase in total equity................... 16,892,841 9,185,388 1,806,956 121,387
TOTAL EQUITY:
Beginning of year.............................. 13,907,293 4,721,905 121,387 --
------------ ------------ ------------ ------------
End of year.................................... $ 30,800,134 $ 13,907,293 $ 1,928,343 $ 121,387
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
------------------------------ ------------------------------
1997 1996(a) 1997 1996(a)
------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)................... $ (2,922) $ (36) $ 23,665 $ 847
Net realized gain on investments............... 5,300 121 11,307 1
Realized gain distribution received............ 19,970 -- 1,077 --
Change in unrealized appreciation
(depreciation) on investments................ 177,716 (298) 103,207 (203)
Increase (decrease) attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account..... (182) -- (176) --
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations.................. 199,882 (213) 139,080 645
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments................. 918,009 13,334 644,403 14,020
Cost of insurance.............................. (212,463) (1,305) (163,402) (1,851)
Policyowners' surrenders....................... (6,862) -- (7,064) --
Net transfers to Fixed Account................. (7,728) -- (11,645) --
Transfers between Investment Divisions......... 1,357,221 90,768 787,770 94,164
Policyowners' death benefits................... -- -- -- --
------------ ------------ ------------ ------------
Net contributions and withdrawals............ 2,048,177 102,797 1,250,062 106,333
------------ ------------ ------------ ------------
Increase in total equity................... 2,248,059 102,584 1,389,142 106,978
TOTAL EQUITY:
Beginning of year.............................. 102,584 -- 106,978 --
------------ ------------ ------------ ------------
End of year.................................... $ 2,350,643 $ 102,584 $ 1,496,120 $ 106,978
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-8
<PAGE> 70
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
------------------------------- -------------------------------
1997 1996(a) 1997 1996(a)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,095 $ 258 $ (13,107) $ (111)
2,858 -- 21,286 376
8,046 645 14,890 --
821 (965) 488,379 1,491
(16) -- (592) (1)
------------ ------------ ------------ ------------
14,804 (62) 510,856 1,755
------------ ------------ ------------ ------------
66,367 642 2,664,045 26,958
(19,221) (144) (596,242) (5,360)
(987) -- (42,541) (19)
(370) -- (49,073) (374)
89,506 23,563 2,995,348 233,588
-- -- -- --
------------ ------------ ------------ ------------
135,295 24,061 4,971,537 254,793
------------ ------------ ------------ ------------
150,099 23,999 5,482,393 256,548
23,999 -- 256,548 --
------------ ------------ ------------ ------------
$ 174,098 $ 23,999 $ 5,738,941 $ 256,548
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
------------------------------- -------------------------------
1997 1996(a) 1997 1996(a)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 19,211 $ 1,123 $ 4,713 $ 82
22,542 243 24,925 5
17,119 -- 50,836 --
319,287 2,600 (296,932) 489
(494) (2) 134 --
------------ ------------ ------------ ------------
377,665 3,964 (216,324) 576
------------ ------------ ------------ ------------
3,320,718 51,071 948,661 11,833
(742,262) (6,122) (209,093) (2,147)
(39,211) (12) (14,813) (16)
(95,247) -- (10,081) --
4,680,102 209,880 1,114,525 65,490
(869) -- (2,744) --
------------ ------------ ------------ ------------
7,123,231 254,817 1,826,455 75,160
------------ ------------ ------------ ------------
7,500,896 258,781 1,610,131 75,736
258,781 -- 75,736 --
------------ ------------ ------------ ------------
$ 7,759,677 $ 258,781 $ 1,685,867 $ 75,736
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-9
<PAGE> 71
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-10
<PAGE> 72
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
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 distributed by NYLIFE Distributors Inc. and sold by
registered representatives of NYLIFE Securities Inc. and by registered
representatives of broker-dealers who have entered into dealer agreements with
NYLIFE Distributors Inc. NYLIFE Securities Inc. and NYLIFE Distributors Inc. are
wholly-owned subsidiaries of NYLIFE Inc., which is a wholly-owned subsidiary 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 in the shares of the MainStay
VP Series Fund, Inc. (formerly, "New York Life MFA Series Fund, Inc."), The
Alger American Fund, the Acacia Capital Corporation, the Fidelity Variable
Insurance Products Fund, the Fidelity Variable Insurance Products Fund II, the
Janus Aspen Series and the Morgan Stanley Universal Funds, Inc. (collectively,
"Funds"). These assets are clearly identified and distinguished from the other
assets and liabilities of New York Life Insurance and Annuity Corporation.
VL Separate Account I offers the following eighteen variable Investment
Divisions, with their respective fund portfolios, for Policyowners to invest
premium payments: MainStay VP Capital Appreciation, MainStay VP Cash Management,
MainStay VP Convertible, MainStay VP Government, MainStay VP High Yield
Corporate Bond, MainStay VP International Equity, MainStay VP Total Return,
MainStay VP Value, MainStay VP Bond, MainStay VP Growth Equity, MainStay VP
Indexed Equity, Alger American Small Capitalization, Calvert Socially
Responsible, Fidelity VIP II: Contrafund, Fidelity VIP: Equity-Income, Janus
Aspen Balanced, Janus Aspen Worldwide Growth and Morgan Stanley Emerging Markets
Equity. Each Investment Division of VL Separate Account I will invest
exclusively in the corresponding Eligible Portfolio.
Initial premium payments received are allocated to the MainStay VP Cash
Management Investment Division until 20 days (10 days in New York) 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 investments are valued at the net asset value of
shares of the respective Fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
F-11
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, the investments of VL Separate Account I are as
follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
-------------------------------------------------------
Number of shares........................................ 4,344 8,163 82
Identified cost*........................................ $71,698 $ 8,162 $ 902
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
-------------------------------------------------------
Number of shares........................................ 1,097 1,499 44
Identified cost*........................................ $21,322 $24,751 $ 1,837
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1997, was as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
-------------------------------------------------------
Purchases............................................... $23,836 $18,713 $ 893
Proceeds from sales..................................... 1,423 17,015 140
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
-------------------------------------------------------
Purchases............................................... $10,367 $13,644 $ 1,809
Proceeds from sales..................................... 666 1,458 96
</TABLE>
F-12
<PAGE> 74
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
172 1,046 306 1,492 995 325
$ 1,711 $12,511 $ 3,296 $20,293 $14,090 $ 4,306
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
88 288 97 86 332 179
$ 174 $ 5,258 $ 2,177 $ 1,395 $ 7,449 $ 1,985
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 543 $ 7,639 $ 1,645 $ 6,040 $ 8,276 $ 1,782
331 13,492 12,037 1,232 7,645 480
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 180 $ 5,153 $ 2,219 $ 1,382 $ 7,326 $ 2,072
33 172 150 105 156 188
</TABLE>
During the year New York Life Insurance and Annuity Corporation withdrew
$32,064,005 from Separate Account I. This amount represented the New York Life
Insurance and Annuity Corporation's May 1, 1995 initial investment in the
Separate Account. This amount included accumulated appreciation of $7,064,005.
F-13
<PAGE> 75
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 daily 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 investment income and realized gains. The
income and gains are distributed to Policyowners as part of withdrawals of
amounts (in the form of surrenders, death benefits or transfers) in excess of
the net premium payments.
F-14
<PAGE> 76
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-15
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, the cost to Policyowners for accumulation units
outstanding, with adjustments for net investment income, market appreciation
(depreciation) and deduction for expenses is as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
------------------------------------------------
Cost to Policyowners (net of withdrawals)................ $106,699 $ 20,922 $ 971
Sales charges............................................ (8,042) (9,910) (46)
Cost of insurance........................................ (28,321) (3,334) (114)
Accumulated net investment income (loss)................. (812) 473 30
Accumulated net realized gain on investments and
realized gain distributions received................... 2,031 -- 60
Unrealized appreciation (depreciation) on investments.... 25,567 -- (19)
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (23) -- --
-------- -------- --------
Net amount applicable to Policyowners.................... $ 97,099 $ 8,151 $ 882
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
------------------------------------------------
Cost to Policyowners (net of withdrawals)................ $ 22,877 $ 31,100 $ 2,143
Sales charges............................................ (1,547) (1,953) (92)
Cost of insurance........................................ (5,141) (6,626) (240)
Accumulated net investment income (loss)................. 123 456 (7)
Accumulated net realized gain on investments and
realized gain distributions received................... 4,978 1,731 30
Unrealized appreciation (depreciation) on investments.... 960 6,100 94
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (6) (8) --
-------- -------- --------
Net amount applicable to Policyowners.................... $ 22,244 $ 30,800 $ 1,928
======== ======== ========
</TABLE>
F-16
<PAGE> 78
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
$ 2,260 $ 10,979 $ 2,240 $ 28,485 $ 14,705 $ 5,305
(202) (803) (262) (2,224) (969) (381)
(642) (2,361) (782) (7,796) (3,104) (1,190)
269 1,819 1,293 863 229 508
23 2,862 805 929 3,208 58
(19) (237) (140) 4,277 1,926 (37)
-- (6) (3) (6) (5) (1)
-------- -------- -------- -------- -------- --------
$ 1,689 $ 12,253 $ 3,151 $ 24,528 $ 15,990 $ 4,262
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
$ 185 $ 6,103 $ 2,461 $ 1,589 $ 8,470 $ 2,210
(7) (275) (95) (68) (344) (98)
(19) (602) (214) (165) (748) (211)
3 (13) (3) 25 20 5
12 37 25 12 40 76
-- 490 177 103 322 (296)
-- (1) -- -- -- --
-------- -------- -------- -------- -------- --------
$ 174 $ 5,739 $ 2,351 $ 1,496 $ 7,760 $ 1,686
======== ======== ======== ======== ======== ========
</TABLE>
F-17
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the years ended December 31, 1997 and
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
--------------------- -----------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
-----------------------------------------
Units redeemed on return of equity
contribution to New York Life Insurance
and Annuity Corporation................ -- -- -- --
Units issued on premium payments......... 2,026 1,859 31,570 29,552
Units redeemed on cost of insurance...... (763) (629) (1,220) (892)
Units redeemed on surrenders............. (196) (87) (141) (51)
Units redeemed on net transfers to
Fixed Account.......................... (130) (75) (650) (506)
Units issued (redeemed) on transfers
between Investment Divisions........... 317 821 (28,363) (25,270)
Units redeemed on death benefits......... (4) (2) (9) --
------- ------- ------- -------
Net increase (decrease)................ 1,250 1,887 1,187 2,833
Units outstanding, beginning of year..... 3,875 1,988 5,717 2,884
------- ------- ------- -------
Units outstanding, end of year........... 5,125 3,875 6,904 5,717
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
--------------------- -----------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
-----------------------------------------
Units redeemed on return of equity
contribution to New York Life Insurance
and Annuity Corporation................ (1,000) -- -- --
Units issued on premium payments......... 125 86 547 574
Units redeemed on cost of insurance...... (41) (24) (208) (195)
Units redeemed on surrenders............. (4) (1) (58) (30)
Units redeemed on net transfers to
Fixed Account.......................... (3) (1) (37) (20)
Units issued on transfers between
Investment Divisions................... 20 71 28 201
Units redeemed on death benefits......... -- -- (2) (1)
------- ------- ------- -------
Net increase (decrease)................ (903) 131 270 529
Units outstanding, beginning of year..... 1,161 1,030 1,254 725
------- ------- ------- -------
Units outstanding, end of year........... 258 1,161 1,524 1,254
======= ======= ======= =======
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-18
<PAGE> 80
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
----------------- ----------------- -----------------
1997 1996(a) 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------
-- -- -- -- (1,000) --
37 3 48 53 383 199
(10) -- (19) (18) (119) (58)
-- -- (6) (2) (18) (5)
(1) -- (3) (1) (5) (2)
36 10 (10) 8 200 191
-- -- -- -- -- --
------- ------- ------- ------- ------- -------
62 13 10 40 (559) 325
13 -- 125 85 1,416 1,091
------- ------- ------- ------- ------- -------
75 13 135 125 857 1,416
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
----------------- ----------------- -----------------
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------
(500) -- -- -- -- --
393 230 135 108 413 341
(134) (70) (41) (35) (143) (113)
(13) (5) (12) (4) (24) (14)
(10) (3) (7) (3) (17) (13)
219 219 12 55 146 155
-- -- -- -- (2) (1)
------- ------- ------- ------- ------- -------
(45) 371 87 121 373 355
966 595 243 122 726 371
------- ------- ------- ------- ------- -------
921 966 330 243 1,099 726
======= ======= ======= ======= ======= =======
</TABLE>
F-19
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP SMALL
INDEXED EQUITY CAPITALIZATION
---------------- ----------------
1997 1996 1997 1996(a)
<S> <C> <C> <C> <C>
-----------------------------------
Units issued on premium payments...................... 516 357 87 2
Units redeemed on cost of insurance................... (185) (115) (23) --
Units redeemed on surrenders.......................... (33) (12) (2) --
Units redeemed on net transfers to
Fixed Account....................................... (26) (16) (2) --
Units issued on transfers between
Investment Divisions................................ 270 253 108 11
Units redeemed on death benefits...................... (2) -- (1) --
------ ------ ------ ------
Net increase........................................ 540 467 167 13
Units outstanding, beginning of year.................. 795 328 13 --
------ ------ ------ ------
Units outstanding, end of year........................ 1,335 795 180 13
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
---------------- ----------------
1997 1996(a) 1997 1996(a)
<S> <C> <C> <C> <C>
-----------------------------------
Units issued on premium payments...................... 74 1 58 2
Units redeemed on cost of insurance................... (17) -- (14) --
Units redeemed on surrenders.......................... (1) -- (1) --
Units redeemed on net transfers to
Fixed Account....................................... (1) -- (1) --
Units issued on transfers between
Investment Divisions................................ 113 9 69 9
------ ------ ------ ------
Net increase........................................ 168 10 111 11
Units outstanding, beginning of year.................. 10 -- 11 --
------ ------ ------ ------
Units outstanding, end of year........................ 178 10 122 11
====== ====== ====== ======
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-20
<PAGE> 82
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
---------------- ----------------
1997 1996(a) 1997 1996(a)
<S> <C> <C> <C> <C>
-----------------------------------
7 -- 222 3
(2) -- (49) (1)
-- -- (3) --
-- -- (4) --
8 2 257 23
-- -- -- --
------ ------ ------ ------
13 2 423 25
2 -- 25 --
------ ------ ------ ------
15 2 448 25
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
---------------- ----------------
1997 1996(a) 1997 1996(a)
<S> <C> <C> <C> <C>
-----------------------------------
274 5 85 1
(61) (1) (19) --
(3) -- (1) --
(8) -- (1) --
395 21 97 7
------ ------ ------ ------
597 25 161 8
25 -- 8 --
------ ------ ------ ------
622 25 169 8
====== ====== ====== ======
</TABLE>
F-21
<PAGE> 83
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 year)
with respect to each Investment Division of VL Separate Account I:
<TABLE>
<CAPTION>
MAINSTAY VP
CAPITAL APPRECIATION
---------------------------------------------------------
1997 1996 1995 1994 1993++(a)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year........................... $15.45 $13.10 $ 9.72 $10.23 $10.00
Net investment income (loss)............................ (0.12) (0.09) -- 0.04 0.02
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................. 3.62 2.44 3.38 (0.55) 0.21
------ ------ ------ ------ ------
Unit value, end of year................................. $18.95 $15.45 $13.10 $ 9.72 $10.23
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL
CORPORATE BOND EQUITY
--------------------------- ---------------------------
1997 1996 1995(c) 1997 1996 1995(c)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of year........................... $12.75 $10.95 $10.00 $11.69 $10.65 $10.00
Net investment income................................... 0.67 0.61 0.36 0.33 0.58 0.46
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................. 0.89 1.19 0.59 0.18 0.46 0.19
------ ------ ------ ------ ------ ------
Unit value, end of year................................. $14.31 $12.75 $10.95 $12.20 $11.69 $10.65
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
GROWTH EQUITY
-------------------------------------
1997 1996 1995 1994(b)
<S> <C> <C> <C> <C>
-------------------------------------
Unit value, beginning of year........................... $16.09 $13.01 $10.14 $10.00
Net investment income (loss)............................ 0.04 0.08 0.17 0.30
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................. 4.12 3.00 2.70 (0.16)
------ ------ ------ ------
Unit value, end of year................................. $20.25 $16.09 $13.01 $10.14
====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
++ Per unit data based on average daily units outstanding during the period.
(a) For the period November 15, 1993 (Commencement of Operations) through
December 31, 1993.
(b) For the period May 2, 1994 (Commencement of Operations) through December 31,
1994.
(c) For the period May 1, 1995 (Commencement of Operations) through December
31, 1995.
(d) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-22
<PAGE> 84
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CASH MANAGEMENT CONVERTIBLE GOVERNMENT
--------------------------------------------------------- --------------------- ---------------------------------
1997 1996 1995 1994 1993++(a) 1997 1996(d) 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.13 $ 1.08 $ 1.03 $ 1.00 $ 1.00 $10.31 $10.00 $11.49 $11.31 $ 9.76
0.05 0.04 0.05 0.03 -- 0.64 0.16 0.71 0.76 0.93
-- 0.01 -- -- -- 0.86 0.15 0.29 (0.58) 0.62
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 1.18 $ 1.13 $ 1.08 $ 1.03 $ 1.00 $11.81 $10.31 $12.49 $11.49 $11.31
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
MAINSTAY VP
GOVERNMENT
---------------------
1994 1993++(a)
<S> <C> <C>
$10.01 $10.00
1.46 0.39
(1.71) (0.38)
------ ------
$ 9.76 $10.01
====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE BOND
--------------------------------------------------------- --------------------------------- ---------------------
1997 1996 1995 1994 1993++(a) 1997 1996 1995(c) 1997 1996
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$13.76 $12.37 $ 9.70 $10.18 $10.00 $14.22 $11.62 $10.00 $11.85 $11.70
0.26 0.26 0.32 0.52 0.18 0.12 0.12 0.05 0.80 0.92
2.08 1.13 2.35 (1.00) -- 3.01 2.48 1.57 0.26 (0.77)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$16.10 $13.76 $12.37 $ 9.70 $10.18 $17.35 $14.22 $11.62 $12.91 $11.85
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
MAINSTAY VP
BOND
---------------------
1995 1994(b)
<S> <C> <C>
$ 9.96 $10.00
1.03 1.70
0.71 (1.74)
------ ------
$11.70 $ 9.96
====== ======
</TABLE>
<TABLE>
<CAPTION>
ALGER CALVERT
MAINSTAY VP AMERICAN SOCIALLY
INDEXED EQUITY SMALL CAPITALIZATION RESPONSIBLE
--------------------------------------------------------- --------------------- ---------------------
1997 1996 1995 1994 1993++(a) 1997 1996(d) 1997 1996(d)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$17.49 $14.39 $10.58 $10.00 $10.00 $ 9.66 $10.00 $ 9.96 $10.00
0.22 0.24 0.34 0.49 -- (0.07) (0.01) 0.40 0.21
5.36 2.86 3.47 0.09 -- 1.10 (0.33) 1.52 (0.25)
------ ------ ------ ------ ------ ------ ------ ------ ------
$23.07 $17.49 $14.39 $10.58 $10.00 $10.69 $ 9.66 $11.88 $ 9.96
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-23
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP II: VIP:
CONTRAFUND EQUITY-INCOME
----------------- -----------------
1997 1996(d) 1997 1996(d)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year........................... $10.39 $10.00 $10.38 $10.00
Net investment loss..................................... (0.06) (0.01) (0.04) (0.01)
Net realized and unrealized gains on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................. 2.48 0.40 2.87 0.39
------ ------ ------ ------
Unit value, end of year................................. $12.81 $10.39 $13.21 $10.38
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS
ASPEN
JANUS ASPEN WORLDWIDE
BALANCED GROWTH
----------------- -----------------
1997 1996(d) 1997 1996(d)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year........................... $10.15 $10.00 $10.29 $10.00
Net investment income................................... 0.35 0.17 0.06 0.09
Net realized and unrealized gains (losses) on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................. 1.81 (0.02) 2.13 0.20
------ ------ ------ ------
Unit value, end of year................................. $12.31 $10.15 $12.48 $10.29
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MORGAN
STANLEY
EMERGING
MARKETS
EQUITY
-----------------
1997 1996(d)
<S> <C> <C>
-----------------
Unit value, beginning of year........................... $10.01 $10.00
Net investment income................................... 0.06 0.02
Net realized and unrealized losses on security
transactions
and realized capital gain distributions received
(includes the
effect of capital share transactions)................. (0.10) (0.01)
------ ------
Unit value, end of year................................. $ 9.97 $10.01
====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(d) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-24
<PAGE> 86
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, of changes in total equity and the selected
per unit data present fairly, in all material respects, the financial position
of the New York Life Insurance and Annuity Corporation Variable Universal Life
Separate Account I comprised of the MainStay VP Capital Appreciation Investment
Division, MainStay VP Cash Management Investment Division, MainStay VP
Convertible Investment Division, MainStay VP Government Investment Division,
MainStay VP High Yield Corporate Bond Investment Division, MainStay VP
International Equity Investment Division, MainStay VP Total Return Investment
Division, MainStay VP Value Investment Division, MainStay VP Bond Investment
Division, MainStay VP Growth Equity Investment Division, MainStay VP Indexed
Equity Investment Division, Alger American Small Capitalization Investment
Division, Calvert Socially Responsible Investment Division, Fidelity VIP II:
Contrafund Investment Division, Fidelity VIP: Equity-Income Investment Division,
Janus Aspen Balanced Investment Division, Janus Aspen Worldwide Growth
Investment Division, and Morgan Stanley Emerging Markets Equity Investment
Division at December 31, 1997, and the results of its operations, 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 (herein referred to as the "financial statements") are
the responsibility of management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments at December 31, 1997 with the MainStay VP Series
Fund, Inc., The Alger American Fund, the Acacia Capital Corporation, the
Fidelity Variable Insurance Products Fund, the Fidelity Variable Insurance
Products Fund II, the Janus Aspen Series, and the Morgan Stanley Universal
Funds, Inc., provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
February 23, 1998
F-25
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
New York Life Insurance and Annuity Corporation
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of New York Life Insurance and
Annuity Corporation at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
F-26
<PAGE> 88
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value...................... $12,170 $11,854
Held to maturity, at amortized cost.................... 801 647
Equity securities........................................... 83 70
Mortgage loans.............................................. 1,305 1,113
Real estate................................................. 151 151
Policy loans................................................ 481 464
Other long-term investments................................. 20 17
------- -------
Total investments................................. 15,011 14,316
Cash and cash equivalents................................... 773 236
Deferred policy acquisition costs........................... 688 691
Other assets................................................ 345 252
Separate account assets..................................... 4,315 2,445
------- -------
Total assets...................................... $21,132 $17,940
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances............................. $13,716 $13,163
Future policy benefits...................................... 276 251
Policy claims............................................... 55 57
Deferred taxes.............................................. 93 47
Other liabilities........................................... 727 333
Separate account liabilities................................ 4,303 2,403
------- -------
Total liabilities................................. 19,170 16,254
STOCKHOLDER'S EQUITY
Capital stock -- par value $10,000
(20,000 shares authorized,
2,500 issued and outstanding)............................. 25 25
Additional paid in capital.................................. 480 480
Net unrealized gains on investments......................... 157 68
Retained earnings........................................... 1,300 1,113
------- -------
Total stockholder's equity........................ 1,962 1,686
------- -------
Total liabilities and stockholder's equity........ $21,132 $17,940
======= =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 89
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees........................ $ 267 $ 234 $ 224
Net investment income.................................. 1,066 1,048 1,012
Investment gains, net.................................. 126 65 38
Other income........................................... 82 58 71
------ ------ ------
Total revenues.................................... 1,541 1,405 1,345
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances... 748 723 742
Policyholder benefits.................................. 141 117 168
Operating expenses..................................... 352 299 239
------ ------ ------
Total expenses.................................... 1,241 1,139 1,149
------ ------ ------
Income before Federal income taxes.......................... 300 266 196
Federal income taxes:
Current................................................ 114 121 84
Deferred............................................... (1) (24) (8)
------ ------ ------
Total Federal income taxes........................ 113 97 76
------ ------ ------
Net income.................................................. $ 187 $ 169 $ 120
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 90
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Stockholder's equity, beginning of year..................... $1,686 $1,676 $1,141
Net income.................................................. 187 169 120
Change in unrealized gains and losses on investments........ 89 (159) 415
------ ------ ------
Stockholder's equity, end of year........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 91
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 187 $ 169 $ 120
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... (43) (18) (26)
Net capitalization of deferred policy acquisition
costs................................................ (85) (44) (40)
Universal life and annuity fees........................ (202) (188) (183)
Interest credited to policyholders' account balances... 748 723 742
Net realized investment gains.......................... (126) (65) (38)
Deferred income taxes.................................. (1) (24) (8)
Decrease in net separate account assets................ 30 6 17
Decrease (increase) in other assets and other
liabilities.......................................... 126 (127) 308
(Decrease) increase in policy claims................... (2) (24) 8
Increase (decrease) in future policy benefits.......... 25 18 (80)
-------- ------- -------
Net cash provided by operating activities......... 657 426 820
-------- ------- -------
Cash Flows from Investing Activities:
Proceeds from sale of available for sale fixed
maturities............................................. 13,378 5,787 2,370
Proceeds from maturity of available for sale fixed
maturities............................................. 1,137 1,505 930
Proceeds from sale of held to maturity fixed securities... 3 -- --
Proceeds from maturity of held to maturity fixed
maturities............................................. 112 141 103
Proceeds from sale of equity securities................... 140 47 40
Proceeds from repayment of mortgage loans................. 220 143 244
Proceeds from sale of real estate......................... 24 55 13
Proceeds from other invested assets....................... 16 4 31
Cost of available for sale fixed maturities acquired...... (14,391) (7,447) (4,320)
Cost of held to maturity fixed maturities acquired........ (281) (95) (162)
Cost of equity securities acquired........................ (163) (43) (12)
Cost of mortgage loans acquired........................... (413) (280) (320)
Cost of real estate acquired.............................. (4) (35) (14)
Cost of other invested assets acquired.................... (25) (8) (5)
Policy loans.............................................. (17) (29) (25)
Securities sold under agreements to repurchase (net)...... 134 (37) (168)
-------- ------- -------
Net cash used in investing activities............. (130) (292) (1,295)
-------- ------- -------
Cash Flows from Financing Activities:
Policyholders' account balances:
Deposits............................................... 1,228 1,069 1,252
Withdrawals............................................ (176) (562) (751)
Net transfers to the separate accounts.................... (1,040) (733) (238)
Other, net................................................ -- -- (52)
-------- ------- -------
Net cash provided (used) by financing
activities...................................... 12 (226) 211
-------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2) 2 (1)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 537 (90) (265)
-------- ------- -------
Cash and cash equivalents, beginning of year................ 236 326 591
-------- ------- -------
Cash and cash equivalents, end of year...................... $ 773 $ 236 $ 326
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 92
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 -- NATURE OF OPERATIONS
New York Life Insurance and Annuity Corporation ("NYLIAC"), is a direct,
wholly owned subsidiary of New York Life Insurance Company ("New York Life")
domiciled in the State of Delaware. NYLIAC offers a wide variety of interest
sensitive insurance and annuity products to a large cross section of the
insurance market. NYLIAC markets its products in all 50 of the United States,
the District of Columbia and Taiwan, primarily through its agency force. In
addition, NYLIAC markets Corporate Owned Life Insurance through independent
brokers and brokerage general agents.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements of life insurance enterprises requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. Actual results may differ from estimates.
INVESTMENTS
Fixed maturity investments, which NYLIAC has both the ability and the
intent to hold to maturity, are stated at amortized cost. Investments identified
as available for sale are reported at fair value. Unrealized gains and losses on
available for sale securities are reported in stockholder's equity, net of
deferred taxes and related adjustments. The cost basis of fixed maturities is
adjusted for impairments in value deemed to be other than temporary, with the
associated realized loss reported in net income. Equity securities are carried
at fair value with related unrealized gains and losses reflected in
stockholder's equity, net of deferred taxes and related adjustments. Realized
losses are recognized in net income for other than temporary declines in the
fair value of equity securities. Mortgage loans are carried at unpaid principal
balances, net of impairment reserves, and are generally secured. Investment real
estate, which NYLIAC has the intent to hold for the production of income, is
carried at depreciated cost net of write-downs for other than temporary declines
in fair value. Properties held for sale are carried at the lower of cost or fair
value less estimated selling costs. Policy loans are stated at the aggregate
balance due, which approximates fair value since loans on policies have no
defined maturity date and reduce amounts payable at death or surrender. Cash
equivalents include investments that have maturities of 90 days or less at date
of purchase and are carried at amortized cost, which approximates fair value.
Short-term investments include investments that have maturities of between
91-365 days at date of purchase. They are included in fixed maturities on the
balance sheet, and are carried at amortized cost, which approximates fair value.
F-31
<PAGE> 93
INVESTMENTS -- (CONTINUED)
Derivative financial instruments used by NYLIAC to hedge exposure to
interest rate and foreign currency fluctuations are accounted for on an accrual
basis. Realized gains and losses related to contracts that are effective hedges
on specific assets are deferred and recognized in net income in the same period
as gains and losses on the hedged assets. Amounts payable or receivable under
interest rate, currency and commodity swap agreements and interest rate floor
agreements are recognized as investment income or expense when earned. Premiums
paid for interest rate floor agreements are amortized into interest expense over
the life of the agreement. Unamortized premiums are included in other assets in
the balance sheet.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business and certain costs of issuing policies
that vary with and are primarily related to the production of new business have
been deferred and recorded as an asset in the balance sheet. These consist
primarily of commissions, certain expenses of underwriting and issuing
contracts, and certain agency expenses. Acquisition costs for universal life and
annuity contracts are amortized in proportion to estimated gross profits over
the effective life of the contracts, which is assumed to be 25 years for
universal life contracts and 15 years for annuities. Changes in assumptions are
reflected in the current year's amortization.
The carrying amount of the deferred policy acquisition cost asset is
adjusted at each balance sheet date as if the unrealized gains or losses on
investments associated with these insurance contracts had been realized and
included in the gross profits used to determine current period amortization. The
increase or decrease in the deferred policy acquisition cost asset due to
unrealized gains or losses is recorded in stockholder's equity.
RECOGNITION OF INCOME AND RELATED EXPENSES
Amounts received under universal life and annuity contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period for mortality and expense risk,
policy administration and surrender charges. Policy benefits and claims that are
charged to expense include benefit claims incurred in the period in excess of
related policyholders' account balances.
POLICYHOLDERS' ACCOUNT BALANCES
Policyholders' account balances on universal life and annuity contracts are
equal to cumulative deposits plus credited interest less withdrawals and
charges.
FEDERAL INCOME TAXES
NYLIAC is a member of a group which files a consolidated Federal income tax
return with New York Life. The consolidated income tax provision or benefit is
allocated among the members of the group in accordance with a tax allocation
agreement. The tax allocation agreement provides that each member of the group
is allocated its share of the consolidated tax provision or benefit determined
on a separate company basis. Current Federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or recoverable
as a result of taxable operations for the current year and any adjustments to
such estimates from prior years. Deferred income tax assets and liabilities are
recognized for the future tax consequence of temporary differences between
financial statement carrying amounts and income tax bases of assets and
liabilities.
Current Federal income taxes include a provision for NYLIAC's share of the
equity base tax applicable to mutual life insurance companies and their
subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate (the actual rate will be announced at a later date by
the Internal Revenue Service ("IRS")) used to compute the equity base tax.
F-32
<PAGE> 94
REINSURANCE
NYLIAC enters into reinsurance agreements in the normal course of its
insurance business to reduce overall risk. NYLIAC remains liable for reinsurance
ceded if the reinsurer fails to meet its obligation on the business it has
assumed. NYLIAC evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
SEPARATE ACCOUNTS
NYLIAC has established separate accounts with varying investment objectives
which are segregated from NYLIAC's general account and are maintained for the
benefit of separate account policyholders and NYLIAC. Separate account assets
are stated at market value. The liability for separate accounts represents
policyholders' interests in the separate account assets. For its registered
separate accounts, these liabilities include accumulated net investment income
and realized and unrealized gains and losses on those assets, and generally
reflect market value. For its guaranteed, non-registered separate accounts, the
liability represents amounts due policyholders pursuant to the terms of the
binder agreements.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of various assets and liabilities are included throughout the
notes to financial statements. Specifically, fair value disclosure of fixed
maturities, short-term investments, cash equivalents, equity securities and
mortgage loans is reported in Note 2 -- Significant Accounting Policies and Note
3 -- Investments. Fair values for policyholders' account balances are reported
in Note 5 -- Insurance Liabilities. Fair values for derivative financial
instruments are included in Note 10 -- Derivative Financial Instruments and Risk
Management. Fair values for repurchase agreements are included in Note
11 -- Commitments and Contingencies.
BUSINESS RISKS AND UNCERTAINTIES
The development of policy reserves and deferred policy acquisition costs
for NYLIAC's products requires management to make estimates and assumptions
regarding mortality, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and future expectations
of mortality, morbidity, expense, persistency and investment assumptions. Actual
results could differ from those estimates. Management monitors actual
experience, and where circumstances warrant, revises its assumptions and the
related estimates for policy reserves and deferred policy acquisition costs.
NYLIAC regularly invests in mortgage loans, mortgage-backed securities and
other securities subject to prepayment and call risk. Significant changes in
prevailing interest rates and/or geographic conditions may adversely affect the
timing and amount of cash flows on such securities, as well as their related
values. In addition, the amortization of market premium and accretion of market
discount for mortgage-backed securities is based on historical experience and
estimates of future payment experience on the underlying mortgage loans. Actual
prepayment speeds will differ from original estimates and may result in material
adjustments to amortization or accretion recorded in future periods.
As a subsidiary of a mutual life insurance company, NYLIAC is subject to a
tax on its equity base. The rates applied to NYLIAC's equity base are determined
annually by the IRS after comparison of mutual life insurance company earnings
for the year to the average earnings of the 50 largest stock life insurance
companies for the prior three years. Due to the timing of earnings information,
estimates of the current year's tax rate must be made by management. The
ultimate amounts of equity base tax incurred may vary considerably from the
original estimates.
F-33
<PAGE> 95
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997 the FASB issued SFAS 130, "Reporting Comprehensive Income"
which establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income is composed of two items -- "net
income" and "other comprehensive income". Other comprehensive income includes
all changes in equity from nonowner sources (e.g., unrealized holding gains and
losses on available for sale securities).
This Statement requires that the Company classify items of other
comprehensive income according to their nature and present each item separately
in the financial statement in which other comprehensive income is reported. This
Statement also requires that the accumulated balance of other comprehensive
income be reported as a separate item in the equity section of the balance
sheet. This Statement is effective for the 1998 financial statements of the
Company. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Adoption of this Statement will have no
effect on reported net income or stockholder's equity.
NOTE 3 -- INVESTMENTS
FIXED MATURITIES
For publicly traded fixed maturities, estimated fair value is determined
using quoted market prices. For fixed maturities without a readily ascertainable
market value, NYLIAC has determined an estimated fair value using either a
discounted cash flow approach (including provisions for credit risk) or a
proprietary matrix pricing model.
At December 31, 1997 and 1996, the maturity distribution of fixed
maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE COST FAIR VALUE
------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 480 $ 482 $ 489 $ 491
Due after one year through five years.... 3,053 3,099 3,019 3,039
Due after five years through ten years... 2,156 2,230 2,122 2,151
Due after ten years...................... 2,425 2,608 2,030 2,091
Asset-backed securities:
Government or government agency..... 2,271 2,324 2,866 2,916
Other............................... 1,411 1,427 1,168 1,166
------- ------- ------- -------
Total Available for Sale............ $11,796 $12,170 $11,694 $11,854
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE COST FAIR VALUE
---------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 30 $ 30 $ 24 $ 24
Due after one year through five years.... 225 239 192 194
Due after five years through ten years... 226 240 235 241
Due after ten years...................... 224 238 100 105
Asset-backed securities.................. 96 97 96 96
------- ------- ------- -------
Total Held to Maturity.............. $ 801 $ 844 $ 647 $ 660
======= ======= ======= =======
</TABLE>
F-34
<PAGE> 96
FIXED MATURITIES -- (CONTINUED)
At December 31, 1997 and 1996, the distribution of gross unrealized gains
and losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,066 $ 36 $ 1 $ 1,101
U.S. agencies, state and municipal........ 1,946 42 2 1,986
Foreign governments....................... 237 19 -- 256
Corporate................................. 7,136 276 12 7,400
Other..................................... 1,411 20 4 1,427
------- ---- --- -------
Total Available for Sale............. $11,796 $393 $19 $12,170
======= ==== === =======
HELD TO MATURITY
- ------------------------------------------
Corporate................................. $ 705 $ 42 $-- $ 747
Other..................................... 96 1 -- 97
------- ---- --- -------
Total Held to Maturity............... $ 801 $ 43 $-- $ 844
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,243 $ 24 $ 7 $ 1,260
U.S. agencies, state and municipal........ 2,561 64 15 2,610
Foreign governments....................... 191 13 1 203
Corporate................................. 6,531 131 47 6,615
Other..................................... 1,168 19 21 1,166
------- ---- --- -------
Total Available for Sale............. $11,694 $251 $91 $11,854
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
HELD TO MATURITY COST GAINS LOSSES FAIR VALUE
---------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate................................. $ 551 $ 15 $ 2 $ 564
Other..................................... 96 -- -- 96
------- ---- --- -------
Total Held to Maturity............... $ 647 $ 15 $ 2 $ 660
======= ==== === =======
</TABLE>
F-35
<PAGE> 97
EQUITY SECURITIES
Estimated fair value for equity securities has been determined using quoted
market prices. At December 31, 1997 and 1996, the distribution of gross
unrealized gains and losses on equity securities is as follows (in millions):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997...................... $66 $25 $8 $83
1996...................... $63 $ 8 $1 $70
</TABLE>
MORTGAGE LOANS
NYLIAC's mortgage loans are diversified by property type, location and
borrower, and are generally collateralized by the related property. The carrying
value of mortgage loans was $1,305 million and $1,113 million at December 31,
1997 and 1996, respectively.
The fair market value of the mortgage loan portfolio at December 31, 1997
and 1996 is estimated to be $1,408 million and $1,194 million, respectively.
Market values are 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.
At December 31, 1997, contractual commitments to extend credit under
commercial and residential mortgage loan agreements amounted to approximately
$108 million, all at a fixed market rate of interest. These commitments are
diversified by property type and geographic region.
The provision for losses on mortgage loans was $14 million and $20 million
at December 31, 1997 and 1996, respectively. The activity in the specific and
general provision as of December 31, 1997 and 1996 is summarized below (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Beginning balance.................................. $20 $20
Reductions credited to operations.................. (1) (1)
Direct writedowns.................................. -- 9
Recoveries of amounts previously charged off....... (5) (8)
--- ---
Ending balance..................................... $14 $20
=== ===
</TABLE>
Impaired mortgage loans along with specific provisions for losses as of
December 31, 1997 and 1996, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Impaired mortgage loans with provisions for
losses.......................................... $19 $ 39
Provision for losses.............................. (8) (14)
--- ----
Net impaired mortgage loans....................... $11 $ 25
=== ====
</TABLE>
F-36
<PAGE> 98
MORTGAGE LOANS -- (CONTINUED)
NYLIAC accrues interest income on impaired loans to the extent it is deemed
collectible and the loan continues to perform under its original or restructured
contractual terms. Interest income on problem loans is generally recognized on a
cash basis. Cash payments on loans in the process of foreclosure are generally
treated as a return of principal.
At December 31, 1997 and 1996, the distribution of the mortgage loan
portfolio by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Property Type:
Office building.......................... $ 601 $ 643
Retail................................... 255 235
Apartments............................... 187 179
Residential.............................. 172 18
Other.................................... 90 38
------ ------
Total............................... $1,305 $1,113
====== ======
Geographic Region:
Central.................................. $ 250 $ 246
Pacific.................................. 145 133
Middle Atlantic.......................... 426 377
South Atlantic........................... 362 307
New England.............................. 73 33
Other.................................... 49 17
------ ------
Total............................... $1,305 $1,113
====== ======
</TABLE>
REAL ESTATE
At December 31, 1997 and 1996, NYLIAC's real estate portfolio consisted of
the following (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Investment....................................... $103 $105
Acquired through foreclosure..................... 19 39
Real estate joint ventures and limited partnerships 29 7
---- ----
Total real estate...................... $151 $151
==== ====
</TABLE>
Accumulated depreciation on real estate was $8 million and $5 million at
December 31, 1997 and 1996, respectively. Depreciation expense totaled $3
million for each of the years ended December 31, 1997, 1996 and 1995.
F-37
<PAGE> 99
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
The components of net investment income for the years ended December 31,
1997, 1996 and 1995, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Fixed maturities..................... $ 961 $ 920 $ 904
Equity securities.................... 6 3 3
Mortgage loans....................... 96 93 82
Real estate.......................... 18 21 19
Policy loans......................... 39 37 35
Other................................ 1 6 4
------ ------ ------
Gross investment income......... 1,121 1,080 1,047
Investment expenses.................. (55) (32) (35)
------ ------ ------
Net investment income...... $1,066 $1,048 $1,012
====== ====== ======
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, realized investment
gains computed under the specific identification method are as follows (in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities....................... $172 $ (83) $100 $ (64) $ 62 $ (32)
Equity securities...................... 9 (4) 22 (1) 16 (7)
Mortgage loans......................... 12 (8) 15 (19) 15 (19)
Real estate............................ 3 (2) 6 (3) 1 (1)
Derivative instruments................. 80 (71) 46 (41) 102 (102)
Other.................................. 19 (1) 7 (3) 9 (6)
---- ----- ---- ----- ---- -----
Subtotal.......................... $295 $(169) $196 $(131) $205 $(167)
---- ----- ---- ----- ---- -----
Investment gains, net.................. $126 $65 $38
===== ==== ====
</TABLE>
During 1997, one fixed maturity investment that had been classified as held
to maturity was sold due to credit deterioration. The investment had an
amortized cost of $2,791,000, and the sale resulted in a realized gain of
$14,000.
F-38
<PAGE> 100
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES -- (CONTINUED)
Stockholder's equity at December 31, 1997 and 1996 includes net unrealized
gains as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Net unrealized gains on investments before adjustments...... $ 382 $ 163
----- -----
Related adjustments:
Deferred policy acquisition costs...................... (148) (60)
Policyholder liabilities............................... 7 2
Deferred Federal income taxes.......................... (84) (37)
----- -----
(225) (95)
----- -----
Net unrealized gains on investments included in
stockholder's equity...................................... $ 157 $ 68
===== =====
</TABLE>
Changes in net unrealized gains and losses on investments were as follows
(in millions):
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Unrealized gains (losses) on investments:
Beginning of year...................................... $163 $ 535
End of year............................................ 382 163
---- -----
Net change............................................. 219 (372)
Change in related adjustments of balance sheet accounts:
Deferred policy acquisition costs...................... (88) 136
Policyholder liabilities............................... 5 (7)
Deferred Federal income taxes.......................... (47) 84
---- -----
Change in unrealized gains on investments................... 89 (159)
Net unrealized gains on investments at beginning of year.... 68 227
---- -----
Net unrealized gains on investments at end of year.......... $157 $ 68
==== =====
</TABLE>
NOTE 5 -- INSURANCE LIABILITIES
POLICYHOLDERS' ACCOUNT BALANCES
NYLIAC's annuity contracts are primarily deferred annuities. The carrying
value, which approximates fair value, of NYLIAC's liabilities for deferred
annuities at December 31, 1997 and 1996, was $7,150 million and $7,345 million,
respectively.
NOTE 6 -- SEPARATE ACCOUNTS
NYLIAC maintains nine non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products. NYLIAC maintains
investments in the registered separate accounts of $12 million and $42 million
at December 31, 1997 and 1996, respectively. The assets of the separate
accounts, which are carried at market value, represent investments in shares of
the New York Life sponsored MainStay VP Series Fund and other nonproprietary
funds.
In addition, in 1997 two guaranteed, non-registered separate accounts were
established for universal life insurance policies. These accounts provide a
minimum guaranteed interest rate with a market value adjustment imposed upon
certain surrenders. The assets of these separate accounts are carried at market
value.
F-39
<PAGE> 101
NOTE 7 -- DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs (DAC) for the years ended
December 31, 1997, 1996 and 1995 is as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of year before adjustment for
unrealized gains on investments........................... $751 $ 707 $ 667
Current year additions...................................... 200 151 126
Amortized during year....................................... (115) (107) (86)
Balance at end of year before adjustment for unrealized
gains on investments...................................... 836 751 707
Adjustment for unrealized gains on investments.............. (148) (60) (196)
---- ----- -----
Balance at end of year...................................... $688 $ 691 $ 511
==== ===== =====
</TABLE>
NOTE 8 -- FEDERAL INCOME TAXES
The components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Future policyholder benefits........... $153 $131
Employee and agents benefits........... 49 44
Other.................................. 6 16
---- ----
Gross deferred tax assets......... 208 191
==== ====
Deferred tax liabilities:
Deferred policy acquisition costs...... 147 161
Investments............................ 149 68
Other.................................. 5 9
---- ----
Gross deferred tax liabilities.... 301 238
---- ----
Net deferred tax liability........ $ 93 $ 47
==== ====
</TABLE>
The gross deferred tax asset relates to temporary differences that are
expected to reverse as net ordinary deductions. Management believes that
NYLIAC's taxable income in future years will be sufficient to realize the
deferred tax benefits and therefore, no valuation allowance has been recorded.
F-40
<PAGE> 102
NOTE 8 -- FEDERAL INCOME TAXES -- (CONTINUED)
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............. 35.0% 35.0% 35.0%
Equity base tax............................... 3.3 3.2 --
Tax-exempt income............................. (.5) (.7) (1.3)
Other......................................... (.1) (.9) 5.2
---- ---- ----
Effective tax rate............................ 37.7% 36.6% 38.9%
==== ==== ====
</TABLE>
NYLIAC's Federal income tax returns are routinely examined by the IRS and
provisions are made in the financial statements in anticipation of the results
of these audits. The IRS has completed audits through 1993. There were no
material effects on NYLIAC's results of operations as a result of these audits.
NYLIAC believes that its recorded income tax liabilities are adequate for all
open years.
NOTE 9 -- REINSURANCE
A group reinsurance agreement between NYLIAC and New York Life was approved
by the New York State Insurance Department in 1981 and was terminated effective
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. Cash settlements were made between the companies through 1996 as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Premiums due..................................... $-- $(32)
Benefit reimbursement............................ 22 20
Experience refund................................ 4 8
--- ----
Net settlement paid (received) by NYLIAC......... $26 $ (4)
=== ====
</TABLE>
As a result of the termination of the group reinsurance agreement between
NYLIAC and New York Life, NYLIAC transferred $119 million in 1996 as payment for
the reserves held to support the claims of the disabled lives covered under the
group reinsurance contract. At December 31, 1995, NYLIAC had established a
liability of $119 million for this payment.
On April 1, 1997 NYLIAC, under the terms of an assumption reinsurance
agreement, acquired certain bank owned life insurance policies that had been
issued by Confederation Life Insurance Company. In conjunction with this
transaction, NYLIAC recorded a liability for policyholder account balances of
$278 million, and received cash of $245 million and a note receivable of $11
million. The difference of $22 million between the liability recorded and the
assets received has been recorded as DAC, which will be amortized over the
remaining life of the policies, assumed to be 25 years.
F-41
<PAGE> 103
NOTE 10 -- 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
currency forward exchange contracts, interest rate floors, and interest rate and
commodity swaps. NYLIAC has not engaged in derivative financial instrument
transactions for speculative purposes.
Notional or contractual amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts exchanged between the parties engaged in the transaction.
The amounts exchanged are determined by reference to the notional amounts and
other terms of the derivative financial instruments which relate to interest
rates, exchange rates, or other financial indices.
NYLIAC is exposed to credit-related losses in the event that a counterparty
fails to perform its obligations under contractual terms. The credit exposure of
derivative financial instruments is represented by the sum of fair values of
contracts with each counterparty, if the net value is positive, at the reporting
date.
NYLIAC deals with highly rated counterparties and does not expect the
counterparties to fail to meet their obligations. NYLIAC has controls in place
to monitor credit exposures by limiting transactions with specific
counterparties within specified dollar limits and assessing the future
creditworthiness of counterparties. NYLIAC uses master netting agreements and
adjusts transaction levels, when appropriate, to minimize risk.
INTEREST RATE RISK MANAGEMENT
NYLIAC enters into various types of interest rate contracts primarily to
minimize exposure of specific assets held by NYLIAC to fluctuations in interest
rates.
The following table summarizes the notional amounts and credit exposures of
interest rate related derivative transactions (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps........................ $125,000 $2,973 $ 57,000 $992
Interest Rate Floors....................... $150,000 $ 251 $150,000 $120
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed upon notional amount. Swap
contracts outstanding at December 31, 1997 are between seven years, eight months
and twenty years in maturity. At December 31, 1996 such contracts were between
eight years, eight months and fourteen years, four months in maturity. NYLIAC
does not act as an intermediary or broker in interest rate swaps.
F-42
<PAGE> 104
INTEREST RATE RISK MANAGEMENT -- (CONTINUED)
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>
1997 1996
-------- -------
<S> <C> <C>
Receive -- fixed swaps -- Notional amount (in thousands).... $125,000 $57,000
Average receive rate................................... 6.64% 7.19%
Average pay rate....................................... 5.70% 5.92%
</TABLE>
During the term of the swap, net settlement amounts are recorded as
investment income or expense when earned. Fair values of interest rate swaps
were $2,973,000 and $569,000 at December 31, 1997 and 1996, respectively, based
on quoted market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest rates
on a portfolio of assets. Amounts received during the term of interest rate
floor agreements are recorded as investment income.
At December 31, 1997 and 1996, unamortized premiums on interest rate floors
amounted to $447,000 and $522,000, respectively. Fair values of such agreements
were $251,000 and $120,000 at December 31, 1997 and 1996, respectively, based on
quoted market prices.
COMMODITY RISK MANAGEMENT
NYLIAC has certain bond investments with interest payments linked to prices
of commodities such as gold and crude oil. NYLIAC has entered into commodity
swaps with a total notional amount of $18,000,000 as a hedge against commodity
risks. The credit exposure of these swaps is $3,021,000 at December 31, 1997.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
In 1995, NYLIAC and New York Life settled a nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyowners in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyowners in that state
who excluded themselves from the settlement of the nationwide class action was
recently reversed by an intermediate appellate court; plaintiffs have filed a
motion for rehearing in the intermediate appellate court. Most of these actions
seek substantial or unspecified compensatory and punitive damages.
F-43
<PAGE> 105
LITIGATION -- (CONTINUED)
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
LOANED SECURITIES AND REPURCHASE AGREEMENTS
NYLIAC participates in a securities lending program for the purpose of
enhancing income on securities held. At December 31, 1997, $659 million ($826
million at December 31, 1996) of NYLIAC's bonds were on loan to others, but were
fully collateralized in an account held in trust for NYLIAC.
NYLIAC enters into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The
liability reported in the balance sheet (included in other liabilities) at
December 31, 1997 of $184 million ($50 million at December 31, 1996)
approximates fair value. The investments acquired with the funds received from
the securities sold are primarily included in cash and cash equivalents in the
balance sheet.
NOTE 12 -- RELATED PARTY TRANSACTIONS
New York Life provides NYLIAC with services and facilities for the sale of
insurance and other activities related to the business of insurance. NYLIAC
reimburses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life and
NYLIAC. Such costs, amounting to $247 million for the year ended December 31,
1997 ($191 million for 1996 and $166 million for 1995) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
NOTE 13 -- SUPPLEMENTAL CASH FLOW INFORMATION
As a result of the reinsurance agreement with New York Life discussed in
Note 9, NYLIAC transferred $119 million in fixed maturities to New York Life
during 1996.
Federal income taxes paid were $126 million, $146 million, and $57 million
during 1997, 1996 and 1995, respectively.
Interest paid was $5 million, $3 million and $2 million during 1997, 1996
and 1995, respectively.
F-44
<PAGE> 106
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP
Accounting practices used to prepare statutory financial statements for
regulatory filings of life insurance companies differ in certain instances from
GAAP. The following chart reconciles NYLIAC's statutory surplus determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with stockholder's equity on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory Surplus......................................... $1,089 $ 998 $ 878
------ ------ ------
Adjustments:
Deferred policy acquisition costs.................... 688 691 511
Investment related................................... 377 151 511
Asset valuation reserve.............................. 165 164 137
Interest maintenance reserve......................... 105 35 26
Non-admitted assets.................................. 59 31 26
Policyholder liabilities............................. (330) (262) (187)
Deferred taxes....................................... (93) (47) (156)
Employee benefit liabilities......................... (66) (63) (61)
Other................................................ (32) (12) (9)
------ ------ ------
Total adjustments............................... 873 688 798
------ ------ ------
Total GAAP Stockholder's Equity........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
The following chart reconciles NYLIAC's statutory net income determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with net income on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Net Income.................................... $134 $148 $ 95
---- ---- ----
Adjustments:
Deferred policy acquisition costs.................. 63 44 40
Investment related................................. 92 1 (11)
Interest maintenance reserve....................... (14) 9 6
Policyholder liabilities........................... (84) (54) (4)
Deferred taxes..................................... (1) 24 8
Other.............................................. (3) (3) (14)
---- ---- ----
Total Adjustments............................. 53 21 25
---- ---- ----
GAAP Net Income......................................... $187 $169 $120
==== ==== ====
</TABLE>
F-45
<PAGE> 107
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP -- (CONTINUED)
Financial statements prepared on the statutory basis of accounting vary
from those prepared under GAAP, primarily as follows: (1) the costs related to
acquiring business, principally commissions and certain policy issue expenses
are charged to income in the year incurred, whereas under GAAP they would be
deferred and amortized over the periods benefitted; (2) funds received under
deposit-type contracts are reported as premium income, whereas under GAAP, such
funds are recorded as a liability; (3) life insurance reserves are based on
different assumptions than they are under GAAP; (4) life insurance companies are
required to establish an Asset Valuation Reserve ("AVR") by a direct charge to
surplus to offset potential investment losses, whereas under GAAP, the AVR is
not recognized and any reserve for losses on investments would be deducted from
the assets to which they relate and would be charged to income; (5) investments
in fixed maturities are generally carried at amortized cost or values prescribed
by the National Association of Insurance Commissioners ("NAIC"); under GAAP,
investments in fixed maturities, which are available for sale or held for
trading, are generally carried at market value, with changes in market value
charged against equity or reflected in earnings; (6) realized gains and losses
resulting from changes in interest rates on fixed income investments are
deferred in the interest maintenance reserve ("IMR") and amortized into
investment income over the remaining life of the investment sold, whereas under
GAAP, the gains and losses are recognized in income at the time of sale; and (7)
deferred federal income taxes are not provided for as they are under GAAP; (8)
certain assets are considered non-admitted and excluded from assets in the
balance sheet, whereas they are included under GAAP.
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company, and for determining its solvency
under the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with generally accepted accounting
principles in making such determinations.
At December 31, 1997 and 1996, on a statutory basis, admitted assets were
$20,059 million and $17,099 million, respectively, and total liabilities were
$18,970 million and $16,101 million, respectively, which included policy
reserves of $13,666 million and $13,099 million, respectively.
NYLIAC is restricted as to the amounts it may pay as dividends to New York
Life. The maximum amount of dividends which can be paid by a Delaware insurance
company to its stockholders may not exceed that part of its available and
accumulated surplus funds which is derived from net operating profits and
realized capital gains. Such available and accumulated funds at December 31,
1997 were $584 million.
F-46
<PAGE> 108
APPENDIX A
ILLUSTRATIONS
The following tables demonstrate the way in which your Policy works. The
tables are based on the age, initial death benefit and premium as follows:
The tables are for a Policy issued to a male, preferred, age 35 with a
scheduled annual premium of $3,000 and an initial Death Benefit of $250,000.
The tables show how the Cash Value, Cash Surrender Value and Death Benefit
would vary over an extended period of time assuming hypothetical gross rates of
return equivalent to a constant annual rate of 0%, 6% or 12%. The tables will
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
Investment Divisions of the Separate Account and the Fixed Account, if the
actual gross rate of return for all Investment Divisions averaged 0%, 6% or 12%,
but varied above or below that average for individual Investment Divisions. They
would also differ if any policy loans or Partial Withdrawals were made during
the period of time illustrated.
The first table reflects all charges under the Policy and assumes that the
cost of insurance charges are based on our current cost of insurance rates and
reflects the deduction of all charges from scheduled premium and the Cash Value
at the current levels. It also reflects a daily mortality and expense risk
charge assessed against the Separate Account equivalent to an annual charge of
0.60% (on a current 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.
The second table 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 reflects the deduction of all charges from scheduled Premiums and the
Cash Value at their guaranteed maximum levels. It also reflects a daily
mortality and expense risk charge assessed against the Separate Account
equivalent to an annual charge of 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 tables also reflect total assumed investment advisory fees together
with the expenses incurred by the Funds of 0.73% of the average daily net assets
of the Funds. The total is based upon (a) 0.42% 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) 0.17% of average daily net
assets of the Funds which is an average of the other expenses after expense
reimbursement for each Portfolio.
An expense reimbursement agreement which limited "Other Expenses" to 0.17%
annually was in effect until December 31, 1996 for the MainStay VP Capital
Appreciation, MainStay VP Cash Management, MainStay VP Government, MainStay VP
Total Return, MainStay VP Bond, MainStay VP Growth Equity and MainStay VP
Indexed Equity Portfolios. "Other Expenses" and "Total Fund Annual Expenses"
have been restated to reflect the absence of the limitation in 1996. "Other
Expenses" and "Total Fund Annual Expenses" for the MainStay VP Convertible,
MainStay VP High
A-1
<PAGE> 109
Yield Corporate Bond, MainStay VP International Equity and MainStay VP Value
Portfolios reflect an expense reimbursement agreement effective through December
31, 1997 limiting "Other Expenses" to 0.17% annually. "Other Expenses" and
"Total Fund Annual Expenses" for the MainStay VP Convertible and MainStay VP
International Equity Portfolios reflect an expense reimbursement agreement
effective through December 31, 1998 limiting "Other Expenses" to 0.17% annually.
In the absence of the expense reimbursement arrangement, the "Total Fund Annual
Expenses" for the year ended December 31, 1996 would have been 1.46%, 0.71%,
1.51% and 0.79% for the MainStay VP Convertible, MainStay VP High Yield
Corporate Bond, MainStay VP International Equity and MainStay VP Value
Portfolios, respectively, and for the year ended December 31, 1997, 0.78% and
1.25% for the MainStay VP Convertible and MainStay VP International Equity
Portfolios, respectively. Numbers for the MainStay VP Convertible Portfolio have
been annualized based on the period October 1, 1996 (the date of inception) to
December 31, 1996.
For the Calvert Social Balanced Portfolio, "Other Expenses" are based on
expenses for fiscal year 1996, and have been restated to reflect an increase in
transfer agency expenses of 0.03% expected to be incurred in 1997. The "Advisory
Fee" includes a performance adjustment which could cause the fee to be as high
as 0.85% or as low as 0.55%, depending on performance. "Other Expenses" reflect
an indirect fee of 0.03%. "Total Fund Annual Expenses" after reductions for fees
paid indirectly would have been 0.81%.
A portion of the brokerage commissions that the Fidelity VIP II Contrafund
and Fidelity VIP Equity Income Portfolios pay was used to reduce the Portfolios'
annual expenses. In addition, these Portfolios have entered into arrangements
with their custodian and transfer agent whereby interest earned on uninvested
cash balances was used to reduce custodian and transfer agent expenses.
Including these reductions, the "Total Fund Annual Expenses" would have been
0.68% for the Fidelity VIP II Contrafund Portfolio and 0.57% for the Fidelity
VIP Equity-Income Portfolio.
A reduced "Advisory Fee" schedule for the Janus Aspen Series Balanced
Portfolio and Janus Aspen Series Worldwide Growth Portfolio was put into effect
on July 1, 1997. The "Advisory Fee" reflects the new rate applied to net assets
as of December 31, 1997. "Other Expenses" are based on gross expenses of the
fund shares before expense offset arrangements for the fiscal year ended
December 31, 1997. 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. JCC may
terminate this fee reduction at any time upon 90 days' notice to the Board of
Trustees of the Janus Aspen Series. Other waivers, if applicable, are first
applied against the "Advisory Fee" and then against "Other Expenses". Absent
such waivers or reductions, "Advisory Fees," "Other Expenses" and "Total Fund
Annual Expenses" for the fiscal year ended December 31, 1997 would have been:
0.77%, 0.06% and 0.83%, respectively, for the Janus Aspen Series Balanced
Portfolio and 0.72%, 0.09% and 0.81%, respectively, for the Janus Aspen Series
Worldwide Growth Portfolio.
Morgan Stanley Asset Management Inc. has agreed to a reduction in its
"Advisory Fees" and to reimburse the Morgan Stanley Emerging Markets Equity
Portfolio for "Other Expenses" if such fees would cause the "Total Fund Annual
Expenses" to exceed 1.75% of average daily net assets. This fee reduction
agreement may be terminated by Morgan Stanley Asset Management Inc. at any time
without notice. Absent such reductions, it is estimated that "Advisory Fees",
"Other Expenses" and "Total Fund Annual Expenses" for the current fiscal year
would be 1.25%, 2.62% and 4.12%, 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,
A-2
<PAGE> 110
the gross rates of return of 0%, 6% and 12% would correspond to actual net
investment returns of -1.43%, 4.57% and 10.57%, respectively, based on the
current charge for mortality and expense risks, and -1.73%, 4.27% and 10.27%,
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-3
<PAGE> 111
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE: 35, PREFERRED
SCHEDULED ANNUAL PREMIUM: $3,000
INITIAL FACE AMOUNT: $250,000
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 3,150 250,000 250,000 250,000 2,259 2,409 2,560 1,281 1,431 1,582
2 6,458 250,000 250,000 250,000 4,233 4,662 5,110 3,326 3,755 4,203
3 9,931 250,000 250,000 250,000 6,378 7,230 8,155 5,321 6,173 7,098
4 13,578 250,000 250,000 250,000 8,466 9,890 11,497 7,259 8,683 10,290
5 17,407 250,000 250,000 250,000 10,527 12,675 15,197 9,170 11,318 13,840
6 21,427 250,000 250,000 250,000 12,562 15,591 19,294 11,055 14,084 17,787
7 25,648 250,000 250,000 250,000 14,542 18,617 23,802 13,177 17,251 22,436
8 30,080 250,000 250,000 250,000 16,470 21,758 28,766 15,256 20,544 27,552
9 34,734 250,000 250,000 250,000 18,373 25,048 34,264 17,311 23,986 33,202
10 39,621 250,000 250,000 250,000 20,225 28,467 40,328 19,314 27,557 39,417
15 67,974 250,000 250,000 250,000 29,369 48,515 82,494 29,217 48,363 82,342
20 104,160 250,000 250,000 250,000 36,648 72,546 151,909 36,648 72,546 151,909
30 209,287 250,000 250,000 549,581 43,970 136,680 454,165 43,970 136,680 454,165
</TABLE>
- ------------
(1) All Premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no Policy loan or Partial Withdrawal has been made.
THE ILLUSTRATION IS HYPOTHETICAL AND MAY NOT BE USED TO PROJECT OR PREDICT
INVESTMENT RESULTS. THE INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY
AND ARE BASED ON A HYPOTHETICAL LEVEL ANNUAL RATE OF RETURN. EVEN IF YOUR
AVERAGE RATE OF RETURN IS THE SAME AS THE HYPOTHETICAL RATE, YOUR ACTUAL RESULTS
WILL DIFFER DUE TO ANNUAL FLUCTUATIONS ABOVE OR BELOW THE HYPOTHETICAL AVERAGE
RATE OF RETURN.
A-4
<PAGE> 112
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE: 35, PREFERRED
SCHEDULED ANNUAL PREMIUM: $3,000
INITIAL FACE AMOUNT: $250,000
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 3,150 250,000 250,000 250,000 2,081 2,226 2,371 1,103 1,248 1,393
2 6,458 250,000 250,000 250,000 3,875 4,282 4,707 2,968 3,375 3,800
3 9,931 250,000 250,000 250,000 5,837 6,638 7,509 4,780 5,581 6,452
4 13,578 250,000 250,000 250,000 7,712 9,041 10,544 6,505 7,834 9,337
5 17,407 250,000 250,000 250,000 9,529 11,523 13,868 8,172 10,166 12,511
6 21,427 250,000 250,000 250,000 11,263 14,058 17,484 9,756 12,551 15,977
7 25,648 250,000 250,000 250,000 12,914 16,652 21,423 11,549 15,286 20,057
8 30,080 250,000 250,000 250,000 14,458 19,279 25,693 13,244 18,065 24,479
9 34,734 250,000 250,000 250,000 15,925 21,971 30,361 14,863 20,908 29,299
10 39,621 250,000 250,000 250,000 17,289 24,704 35,444 16,378 23,794 34,533
15 67,974 250,000 250,000 250,000 22,558 39,063 68,913 22,406 38,911 68,761
20 104,160 250,000 250,000 250,000 24,557 54,154 122,143 24,557 54,154 122,143
30 209,287 250,000 250,000 423,939 10,765 81,146 350,166 10,765 81,146 350,166
</TABLE>
- ------------
(1) All Premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no Policy loan or Partial Withdrawal has been made.
THE ILLUSTRATION IS HYPOTHETICAL AND MAY NOT BE USED TO PROJECT OR PREDICT
INVESTMENT RESULTS. THE INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY
AND ARE BASED ON A HYPOTHETICAL LEVEL ANNUAL RATE OF RETURN. EVEN IF YOUR
AVERAGE RATE OF RETURN IS THE SAME AS THE HYPOTHETICAL RATE, YOUR ACTUAL RESULTS
WILL DIFFER DUE TO ANNUAL FLUCTUATIONS ABOVE OR BELOW THE HYPOTHETICAL AVERAGE
RATE OF RETURN.
A-5
<PAGE> 113
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 114
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934 , the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Reference is made to Article VIII of the Depositor's By-Laws.
New York Life maintains Directors and Officers Liability/Company
Reimbursement ("D&O") insurance which covers directors, officers and trustees of
New York Life, its subsidiaries, and its subsidiaries and certain affiliates
including the Depositor while acting in their capacity as such. The total annual
aggregate of D&O coverage is $100 million applicable to all insureds under the
D&O policies. There is no assurance that such coverage will be maintained by New
York Life or for the Depositor in the future as, in the past, there have been
large variances in the availability of D&O insurance for financial institutions.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Depositor pursuant to the foregoing provisions, or otherwise, the Depositor
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person of the Depositor in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Depositor will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION AS TO THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
New York Life Insurance and Annuity Corporation ("NYLIAC"), the
sponsoring insurance company of the NYLIAC Variable Universal Life Separate
Account-I, hereby represents that the fees and charges deducted under the
Flexible Premium Variable Universal Life Insurance Policies are reasonable in
relation to the services rendered, the expenses expected to be incurred and the
risks assumed by NYLIAC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 110 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
II-1
<PAGE> 115
The representation as to the reasonableness of aggregate fees and charges.
The signatures.
Written consents of the following persons:
(a) Jonathan E. Gaines, Esq.
(b) Jane L. Hamrick, Vice President and Actuary
(c) Price Waterhouse LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B- 2:
(1) Resolution of the Board of Directors of NYLIAC establishing
the Separate Account - Previously filed as Exhibit (1) to
Registrant's initial Registration Statement on Form S-6,
re-filed in accordance with Regulation S-T, 17 CFR 232.102(e)
as Exhibit (1) to Registrant's Post-Effective Amendment No. 4
on Form S-6, and incorporated herein by reference.
(2) Not applicable.
(3)(a)(1) Distribution Agreement between NYLIFE Securities Inc. and
NYLIAC - Previously filed as Exhibit (3)(a) to Post-Effective
Amendment No. 1 to the registration statement on Form S-6 for
NYLIAC MFA Separate Account-I (File No. 2-86084), re-filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit
(3)(a)(1) to Registrant's Post-Effective Amendment No. 4 on
Form S-6, and incorporated herein by reference.
(3)(a)(2) Distribution Agreement between NYLIFE Distributors Inc. and
NYLIAC - Previously filed as Exhibit (3)(a)(2) to Registrant's
Post-Effective Amendment No. 3 on Form S-6, and incorporated
herein by reference.
(3)(b) Not applicable.
(3)(c) Not applicable.
(4) Not applicable.
(5) Form of Policy - Previously filed as Exhibit (5) to
Registrant's initial Registration Statement, re-filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit
(5) to Registrant's Post-Effective Amendment No. 4 on Form
S-6, and incorporated herein by reference. Rider to the Policy
- filed herewith.
(6)(a) Certificate of Incorporation of NYLIAC - previously filed as
Exhibit (6)(a) to the registration statement on Form S-6 for
NYLIAC MFA Separate Account-I (File No. 2-86083), re-filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit
(6)(a) to the initial registration statement on Form S-6 for
NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I (File No. 333-07617), and incorporated herein by
reference.
II-2
<PAGE> 116
(6)(b)(1) By-Laws of NYLIAC - Previously filed as Exhibit (6)(b) to the
registration statement on Form S-6 for NYLIAC MFA Separate
Account-I (File No. 2-86083), re-filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (6)(b) to the
initial registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(6)(b)(2) Amendments to By-Laws of NYLIAC - Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (6)(b) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Variable
Universal Life Separate Account-I (File No. 333-39157), and
incorporated herein by reference.
(7) Not applicable.
(8) Not applicable.
(9)(a) Stock Sale Agreement between NYLIAC and MainStay VP Series
Fund, Inc. (formerly New York Life MFA Series Fund, Inc.) -
Previously filed as Exhibit (9) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, re-filed as Exhibit (9)(a) to
Pre-Effective Amendment No. 1 to the registration statement on
Form S-6 for NYLIAC Corporate Sponsored Variable Universal
Life Separate Account-I (File No. 333-07617), and incorporated
herein by reference.
(9)(b) Powers of Attorney for the Directors and Officers of NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(c) to Pre-Effective Amendment No. 2
to the registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617) for the following, and incorporated herein by
reference:
Jay S. Calhoun, Vice President, Treasurer and Director
(Principal Financial Officer)
Richard M. Kernan, Jr., Director
Robert D. Rock, Senior Vice President and Director
Frederick J. Sievert, President and Director
(Principal Executive Officer)
Stephen N. Steinig, Senior Vice President, Chief
Actuary and Director
Seymour Sternberg, Director
(9)(c) Power of Attorney for Maryann L. Ingenito, Vice President and
Controller (Principal Accounting Officer) - Previously filed
in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(d) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617), and incorporated herein by reference.
(9)(d) Power of Attorney for Howard I. Atkins, Executive Vice
President (Principal Financial Officer) - Previously filed as
Exhibit 8(d) to Registrant's Pre-Effective Amendment No. 1 on
Form S-6 (File No. 333-39157), and incorporated herein by
reference.
(9)(e) Memorandum describing NYLIAC's issuance, transfer and
redemption procedures for the Policies - Previously filed as
Exhibit (11) to Registrant's Pre-Effective Amendment No. 1 on
Form S-6, refiled in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(d) to Registrant's Post-Effective
Amendment No. 4 on Form S-6, and incorporated herein by
reference.
(9)(f) Participation Agreement among Acacia Capital Corporation,
Calvert Asset Management Company, Inc. and NYLIAC, as amended
- Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(1) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
II-3
<PAGE> 117
(9)(g) Participation Agreement among The Alger American Fund, Fred
Alger and Company, Incorporated and NYLIAC - Previously filed
in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(b)(2) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617), and incorporated herein by reference.
(9)(h) Participation Agreement between Janus Aspen Series and NYLIAC
- Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(3) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(9)(i) Participation Agreement among Morgan Stanley Universal Funds,
Inc., Morgan Stanley Asset Management Inc. and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(4) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(9)(j) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(5) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(9)(k) Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and NYLIAC - Previously
filed in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(b)(6) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617), and incorporated herein by reference.
(10) Form of Application - Previously filed as Exhibit (10) to
Registrant's initial Registration Statement on Form S-6,
re-filed in accordance with Regulation S-T, 17 CFR 232.102(e)
as Exhibit (10) to Registrant's Post-Effective Amendment No. 4
on Form S-6, and incorporated herein by reference.
2. Opinion and Consent of Jonathan E. Gaines, Esq.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Opinion and Consent of Jane L. Hamrick, Vice President and
Actuary.
7. Consent of Price Waterhouse LLP.
II-4
<PAGE> 118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
NYLIAC Variable Universal Life Separate Account-I, certifies that it meets all
of the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City and State of New York on the 10th day of April,
1998.
NYLIAC VARIABLE UNIVERSAL LIFE
SEPARATE ACCOUNT-I
(Registrant)
By /s/ MELVIN J. FEINBERG
-------------------------------------
Melvin J. Feinberg
Vice President and Actuary
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
(Depositor)
By /s/ MELVIN J. FEINBERG
-------------------------------------
Melvin J. Feinberg
Vice President and Actuary
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Howard I. Atkins* Executive Vice President
(Principal Financial Officer)
Jay S. Calhoun* Vice President, Treasurer and
Director
Maryann L. Ingenito* Vice President and Controller
(Principal Accounting Officer)
Richard M. Kernan, Jr.* Director
Robert D. Rock* Senior Vice President and Director
Frederick J. Sievert* President and Director
(Principal Executive Officer)
Stephen N. Steinig* Senior Vice President,
Chief Actuary and Director
Seymour Sternberg* Director
*By /s/ MELVIN J. FEINBERG
-------------------------------------
Melvin J. Feinberg
Attorney-in-Fact
April 10, 1998
II-5
<PAGE> 119
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
1.(5) Rider to Policy
2. Opinion and Consent of Jonathan E. Gaines, Esq.
6. Opinion and Consent of Jane L. Hamrick
7. Consent of Price Waterhouse LLP
</TABLE>
<PAGE> 1
EXHIBIT 1.(5)
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
RIDER
GUARANTEED MINIMUM DEATH BENEFIT (GMDB)
1. WHAT IS THE BENEFIT FOR THIS RIDER? Prior to its Expiry Date, this
rider guarantees that the policy to which it is attached will never
lapse because the policy's cash surrender value is not enough to cover
the current Monthly Deduction Charges defined in the policy. The Expiry
Date is shown on the Policy Data page and is based on the benefit
period you selected at time of application for this rider.
2. HOW DOES THE RIDER BENEFIT OPERATE? If on any Monthly Deduction Day,
the policy's cash surrender value is not enough to cover the required
Monthly Deduction Charges, this rider will be activated provided it is
still in force.
When this rider is activated, the Monthly Deduction Charges will be
deducted from the policy's cash value to the extent there is sufficient
value. The amount of the Monthly Deduction Charges which exceeds the
available cash value will be waived, including the charge for this
rider.
3. WHEN IS THIS RIDER IN FORCE? This rider will be in force if all of the
following conditions are met:
(a) The policy is still in force;
(b) This rider has not reached its Expiry Date;
(c) The Guaranteed Minimum Death Benefit (GMDB) Premium Test described
in Section 4 of this rider is satisfied. If this test is not
satisfied, this rider will still be in force provided it has not
ended as described in Section 7; and
(d) The requirements for policy loans, stated in Section 8 of this
rider, must have been satisfied.
If the rider ends during a period when the rider benefit is activated,
the policy will enter the Late Period, as described in the "Premiums"
Section of this policy on the date this rider ends and will lapse in
the event the required payment is not made.
4. HOW IS THE GMDB PREMIUM TEST SATISFIED? The GMDB Premium Test is
satisfied as of a Monthly Deduction Day if the total premiums paid to
date under the policy, less any partial withdrawals made, are at least
equal to the Total GMDB Premium as of that date.
5. WHAT IS A GMDB PREMIUM? The Total GMDB Premium on a Monthly Deduction
Day is equal to the cumulative sum of all Monthly GMDB Premiums from
the Policy Date up to that Monthly Deduction Day. The Monthly GMDB
Premium is shown on the Policy Data page.
Since this policy must continue to qualify as Life Insurance, as
defined under Section 7702 of the Internal Revenue Code, we will never
require the payment of a GMDB Premium which would exceed the Guideline
Premium Limit. If this occurs, we will mail a notice to you telling you
of this.
6. CAN THE GMDB PREMIUM EVER CHANGE? The Monthly GMDB Premium can change
if: (a) the face amount of the policy or any attached riders changes;
(b) the Life Insurance Benefit Option changes; (c) any riders are added
to or removed from the policy; (d) the Insured's class of risk
changes; or (e) a partial withdrawal is made. If the Monthly GMDB
Premium changes, the Total GMDB Premium will increase each month by the
new Monthly GMDB Premium beginning on the Monthly Deduction Day on or
after the date of the change.
If the Monthly GMDB Premium changes, we will give you new Policy Data
pages which reflect the change.
7. WHAT HAPPENS IF THE GMDB PREMIUM TEST IS NOT SATISFIED? If on a Monthly
Deduction Day, this policy does not satisfy the GMDB Premium Test and
the amount by which the Test is failed is more than one Monthly GMDB
Premium; we will send a notice to you requesting a payment equal to the
amount necessary to pass the GMDB Premium Test as of that Monthly
Deduction Day. If this payment is not received by the next Monthly
Deduction Day, this rider will end on that day. However, we will
reinstate this rider if the required payment is received before the
Monthly Deduction Day Which follows the date the rider ended.
(over)
797-300
<PAGE> 2
GUARANTEED MINIMUM DEATH BENEFIT (GMDB)
(CONTINUED)
8. WHAT HAPPENS TO THIS RIDER IF I TAKE A POLICY LOAN? In order to keep
this rider in force, the following restrictions apply to loans taken
under the policy to which this rider is attached:
(a) If a loan is taken during the first 2 policy years, this rider will
end when the loan is taken.
(b) If a loan is requested after the first 2 policy years (or when
unpaid loan interest is charged as a new loan), the cash surrender
value less the new loan and any previous unpaid loans and accrued
interest must exceed the total of the Monthly GMDB Premiums,
accumulated at an annual effective rate of 6%, as of that date. If
the new loan is for an amount which would cause this rider to end,
we will notify you prior to granting the loan.
9. IS THERE A CHARGE FOR THIS RIDER? There is a charge for this rider, as
shown on the Policy Data page. This charge will be deducted from the
policy's cash value on each Monthly Deduction Day.
10. ARE SUPPLEMENTARY BENEFIT RIDERS COVERED UNDER THIS RIDER? The GMDB
benefit also covers the monthly deductions due for any other riders
which may be included in this policy.
11. WHAT HAPPENS TO THIS RIDER IF MONTHLY DEDUCTIONS ARE BEING WAIVED UNDER
ANOTHER RIDER? If monthly deductions for this policy are being waived
under the terms of another rider attached to this policy, this rider is
placed on an inactive status and no benefit under this rider is in
effect. In addition, no charges (including the Monthly GMDB Premium,
shown on the Policy Data page) for this rider will be payable to us.
However, once monthly deductions for this policy are no longer being
waived as described above, this rider will automatically be restored.
Beginning on the next Monthly Deduction Day, the charge for this rider
will be deducted, the Monthly GMDB Premium must again be paid, and the
GMDB premium tests will be resumed.
12. DOES THIS RIDER HAVE CASH VALUE OR LOAN VALUE? This rider does not have
cash or loan value.
13. HOW ARE DATES AND AMOUNTS FOR THIS RIDER SHOWN? When this rider is
issued at the same time as the policy, we show the Expiry Date, the
Monthly GMDB Premium and the charge for this rider on the Policy Data
page. The rider and policy have the same date of issue.
When this rider is added to a policy which is already inforce, we also
put in an add-on rider. The add-on rider shows the Expiry Date, the
date of issue, which will be a Monthly Deduction Day, the Total GMDB
Premium as of that issue date, the Monthly GMDB Premium and the charge
for this rider. When this rider is added to an in-force policy, we may
request an additional payment. This payment is needed to satisfy the
GMDB Premium Test as of the date of issue of this rider.
14. IS THIS RIDER A PART OF THE CONTRACT? This rider, when paid for, is
made a part of the policy, based on the application for the rider.
15. WHEN WILL THIS RIDER END? You may cancel this rider, at any time, by
sending us your signed notice. This rider will end on the Monthly
Deduction Day on or next following the date we receive your request.
This rider will also end for any of the following reasons:
(a) If the rider reaches its Expiry Date;
(b) The GMDB Premium Test is not satisfied on a Monthly Deduction Day,
and any required payment is not received by the next Monthly
Deduction Day;
(c) If a loan is taken under the policy which violates the restrictions
set forth in Section 8;
(d) If the policy ends or is surrendered.
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
/s/ GEORGE J. TRAPP /s/ FREDRICK J. SIEVERT
- ------------------------ -----------------------
Secretary President
97300-2
<PAGE> 1
EXHIBIT 2
[NEW YORK LIFE INSURANCE COMPANY LOGO]
NEW YORK LIFE INSURANCE COMPANY
51 Madison Avenue, New York, NY 10010
(212) 576-3763
JONATHAN E. GAINES
Vice President and
Associate General Counsel
April 10, 1998
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
RE: NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
Ladies and Gentlemen:
This opinion is furnished in connection with the filing by New York Life
Insurance and Annuity Corporation ("NYLIAC") of Post-Effective Amendment No. 5
to the registration statement on Form S-6 ("Registration Statement") under the
Securities Act of 1933, as amended, of NYLIAC Variable Universal Life Separate
Account-I ("Separate Account-I"). Separate Account-I receives and invests
premiums allocated to it under a flexible premium variable universal life policy
("Policy"). The Policy is offered in the manner described in the Registration
Statement.
In connection with this opinion, I have made such examination of the law
and have examined such corporate records and such other documents as I consider
appropriate as a basis for the opinion hereinafter expressed. On the basis of
such examination, it is my opinion that:
1. NYLIAC is a corporation duly organized and validly existing under
the laws of the State of Delaware.
2. Separate Account-I is a separate account established and maintained
by NYLIAC pursuant to Section 2932 of the Delaware Insurance Code,
under which the income, gains and losses, realized or unrealized,
from assets allocated to Separate Account-I shall be credited to or
charged against Separate Account-I, without regard to other income,
gains or losses of NYLIAC.
<PAGE> 2
Securities and Exchange Commission
April 10, 1998
Page 2
3. The Policies have been duly authorized by NYLIAC and, when sold in
jurisdictions authorizing such sales, in accordance with the
Registration Statement, will constitute validly issued and binding
obligations of NYLIAC in accordance with their terms.
4. Each owner of a Policy will not be subject to any deductions,
charges, or assessments imposed by NYLIAC other than those provided
in the Policy.
I consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ JONATHAN E. GAINES
Jonathan E. Gaines
Vice President and
Associate General Counsel
<PAGE> 1
Exhibit 6
[NEW YORK LIFE INSURANCE COMPANY LETTERHEAD]
April 10, 1998
New York Life Insurance
and Annuity Corporation
51 Madison Avenue
New York, NY 10010
RE: NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
Ladies and Gentlemen:
This opinion is furnished in connection with the referenced
registration statement filed by New York Life Insurance and Annuity Corporation
("NYLIAC") under the Securities Act of 1933 (the "Registration Statement"). The
prospectus included in the Registration Statement on Form S-6 describes flexible
premium variable universal life insurance policies (the "Policies"). The forms
of Policies were prepared under my direction, and I am familiar with the
Registration Statement, as amended, and Exhibits thereto.
In my opinion, the illustrations of benefits under the Policies
included in the Section entitled "Illustrations" in Appendix A of the
prospectus, based on the assumptions stated in the illustrations, are consistent
with the provisions of the respective forms of the Policies. The age selected in
the illustrations is representative of the manner in which the Policies operate.
In addition, I have reviewed the discount rate used in calculating
the present value of NYLIAC's future tax deductions resulting from the
amortization of its deduction for certain acquisition costs. In my opinion, the
DAC tax charge is reasonable in relation to NYLIAC's increased federal tax
burden under section 848 resulting from the receipt of premiums; the targeted
rate of return used in calculating such charges is reasonable; and the factors
taken into account by NYLIAC in determining the targeted rate of return are
appropriate.
<PAGE> 2
New York Life Insurance
and Annuity Corporation
April 10, 1998
Page 2
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading
"Experts" in the prospectus.
Very truly yours,
/s/Jane L. Hamrick
--------------------------
Jane L. Hamrick
Vice President and Actuary
<PAGE> 1
Exhibit 7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 5 to the registration statement on Form S-6 (the
"Registration Statement") of our report dated February 13, 1998, relating to the
financial statements of New York Life Insurance and Annuity Corporation, and of
our report dated February 23, 1998, relating to the financial statements and
selected per unit data of New York Life Insurance and Annuity Corporation
Variable Universal Life Separate Account-I. We also consent to the reference to
us under the heading "Independent Accountants" which appears in such Prospectus.
PRICE WATERHOUSE, LLP
1177 Avenue of the Americas
New York, New York
April 10, 1998
