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Filed pursuant to Rule 497(c)
under the Securities Act of 1933
File Nos. 333-39157 and 811-07798
SURVIVORSHIP VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
PROSPECTUS DATED MAY 6, 1998
This Prospectus describes a flexible premium survivorship variable
universal life insurance policy offered by New York Life Insurance and Annuity
Corporation ("NYLIAC").
POLICY FEATURES
LIFE INSURANCE PROTECTION--This policy offers life insurance protection on two
insureds, with a life insurance benefit payable when the last surviving insured
dies while the policy is in effect.
CHOICE OF LIFE INSURANCE BENEFIT OPTIONS--You may choose either a fixed life
insurance benefit equal to the face amount of your policy or a variable life
insurance benefit equal to the sum of your policy's face amount and cash value.
If you choose a variable benefit, the life insurance benefit may increase or
decrease depending on the performance of the investment options you select. Your
policy's life insurance benefit will never be less than the face amount of your
policy. A higher life insurance benefit may apply if necessary to qualify as
life insurance under the Internal Revenue Code. The policy proceeds we pay will
be the sum of this life insurance benefit plus any rider death benefits less any
loans (including any accrued loan interest).
FLEXIBLE PREMIUM PAYMENTS--You may decide the amount of premiums to pay and when
to pay them, within limits. Although premium payments are flexible, additional
premiums may be required to keep the policy in effect. The policy may terminate
if its cash surrender value is insufficient to pay the policy's monthly charges.
The cash surrender value of your policy will fluctuate depending on the
performance of the investment options you have chosen.
LOANS, WITHDRAWALS AND SURRENDERS--You can borrow against or withdraw money from
your policy, within limits. Loans and withdrawals will reduce the policy's
proceeds and cash surrender value. You can also surrender your policy at any
time. The cash surrender value of your policy may increase or decrease depending
on the performance of the investment options you select. There is no guaranteed
cash surrender value for your policy. If you surrender your policy or take a
partial withdrawal during the first fifteen policy years or within fifteen years
after you increase the face amount, a surrender charge may apply.
FACE AMOUNT INCREASES AND DECREASES--You may increase or decrease the face
amount of your policy, within limits. We will apply a new schedule of surrender
charges to any increase in your policy's face amount. We may also deduct a
surrender charge for any reduction in the face amount.
INVESTMENT OPTIONS--Your policy allows you to choose how you want to invest your
premium payments. You have the option of allocating your premiums among eighteen
investment divisions and a fixed account. The eighteen investment divisions
available under your policy are:
<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
- -- 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 the investment divisions,
which involve varying degrees of risk.
FREE LOOK PERIOD--You may examine the policy for a limited period and cancel it
for a refund of the greater of the cash value of your policy or the total
premiums you have paid less any loans or withdrawals you have taken.
REPLACING EXISTING INSURANCE WITH THIS POLICY MAY NOT BE TO YOUR ADVANTAGE.
IMPORTANT NOTICES
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, THE FIDELITY VARIABLE INSURANCE PRODUCTS FUND II, THE FIDELITY
VARIABLE INSURANCE PRODUCTS FUND, THE JANUS ASPEN SERIES AND THE MORGAN
STANLEY UNIVERSAL FUNDS, INC.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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SUMMARY OF POLICY FEATURES............. 4
DEFINITIONS............................ 8
GENERAL DESCRIPTION.................... 10
How the Policy is Available.......... 10
How the Policy Works................. 10
LIFE INSURANCE PROTECTION.............. 12
Your Policy Proceeds................. 12
Your Life Insurance Benefit....... 12
Changing Your Life Insurance
Benefit Option.................. 13
Changing the Face Amount of Your
Policy.......................... 15
CASH VALUE AND CASH SURRENDER VALUE.... 16
Cash Value........................... 16
Amount in the Separate Account.... 16
Amount in the Fixed Account....... 17
Investment Return................. 17
Cash Surrender Value................. 17
LOANS.................................. 18
Your Policy as Collateral for the
Loan.............................. 18
Loan Interest........................ 18
Interest on the Cash Value Held as
Collateral........................ 18
When Loan Interest is Due............ 19
Loan Repayment....................... 19
The Effects of a Policy Loan......... 19
PARTIAL WITHDRAWALS.................... 20
Amount Available to Withdraw......... 20
Requesting a Partial Withdrawal...... 20
When is the Partial Withdrawal
Effective......................... 20
Partial Withdrawal Fee and Surrender
Charge............................ 20
Allocation of Partial Withdrawal and
Fee............................... 20
The Effects of a Partial
Withdrawal........................ 21
SURRENDERS............................. 21
Requesting a Surrender............... 21
When is the Surrender Effective...... 21
Surrender Charges.................... 21
ADDITIONAL BENEFITS THROUGH RIDERS AND
OPTIONS.............................. 21
How the Riders are Available......... 22
Supplementary Term Rider............. 22
First-to-Die Monthly Deduction Waiver
Rider............................. 23
Level First-to-Die Term Rider........ 23
Living Benefits Rider................ 23
</TABLE>
<TABLE>
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POLICY SPLIT OPTION.................... 24
About Your New Policy................ 24
PREMIUMS............................... 25
Termination.......................... 26
Late Period.......................... 26
Reinstatement Option................. 26
Maturity Date........................ 27
INVESTMENTS............................ 27
The Separate Account................. 28
Funds............................. 29
Portfolios........................ 30
Additions, Deletions or
Substitutions of Investments.... 34
Reinvestment...................... 35
The Fixed Account.................... 35
Interest Credited on Amounts in
the Fixed Account............... 35
Assets in the Fixed Account....... 35
Transfers Between Investment
Divisions and/or the Fixed
Account........................... 35
Requesting a Transfer............. 36
Dollar Cost Averaging................ 36
Automatic Asset Reallocation......... 37
Interest Sweep....................... 38
DEDUCTIONS AND CHARGES................. 38
Deductions from Premiums............. 39
Sales Expense Charge.............. 39
Premium Tax Charge................ 40
Federal Tax Charge................ 40
Deductions from Cash Value........... 40
Monthly Contract Charge........... 41
Charge for Cost of Insurance
Protection...................... 41
Charge Per $1,000 of Initial Face
Amount.......................... 42
Rider Charges..................... 42
Separate Account Charges............. 42
Mortality and Expense Risk
Charge.......................... 42
Administrative Charge............. 43
Other Charges for Federal Income
Taxes........................... 43
Fund Charges......................... 43
Surrender Charges.................... 45
Charges in Policy Years 1-15...... 45
Additional Charge on a Surrender
in the First Policy Year........ 45
Surrender Charges after Face
Amount Increases................ 46
</TABLE>
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<TABLE>
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Surrender Charges on Face Amount
Decreases....................... 46
Exceptions to Surrender Charge.... 46
POLICY PROCEEDS........................ 47
Beneficiary.......................... 47
When We Pay Proceeds................. 47
Payment Options...................... 48
Payees............................... 49
ADDITIONAL POLICY PROVISIONS........... 49
Limits on Our Rights to Challenge
Your Policy....................... 49
Suicide.............................. 49
Misstatement of Age or Sex........... 50
Assignment........................... 50
FREE LOOK.............................. 50
EXCHANGE PRIVILEGE..................... 50
ADDITIONAL PROVISIONS REGARDING THE
SEPARATE ACCOUNT..................... 51
Your Voting Rights................... 51
</TABLE>
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Our Rights........................... 52
FEDERAL INCOME TAX CONSIDERATIONS...... 52
ABOUT NYLIAC........................... 58
Year 2000 Readiness.................. 59
Directors and Principal Officers of
NYLIAC............................ 59
RECORDS AND REPORTS.................... 60
SALES AND OTHER AGREEMENTS............. 60
LEGAL PROCEEDINGS...................... 61
INDEPENDENT ACCOUNTANTS................ 61
EXPERTS................................ 61
FINANCIAL STATEMENTS................... 61
FINANCIAL STATEMENTS................... F-1
APPENDIX A: Illustrations.............. A-1
APPENDIX B: Variations By
Jurisdiction......................... B-1
APPENDIX C: Maximum Surrender
Charges.............................. C-1
</TABLE>
IMPORTANT NOTICE
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH AN OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED
SUPPLEMENT OR IN ANY SUPPLEMENTAL SALES MATERIAL WE AUTHORIZE.
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SUMMARY OF POLICY FEATURES
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE TERMS OF YOUR
POLICY AND RIDERS AND THE MORE DETAILED INFORMATION CONTAINED LATER IN THIS
PROSPECTUS, INCLUDING THE APPENDIX OF VARIATIONS BY JURISDICTION CONTAINED IN
APPENDIX B.
POLICY PROCEEDS -- When the last surviving insured dies, we will pay the
beneficiary of your Policy an amount equal to your Policy's Life Insurance
Benefit plus any rider death benefits less any outstanding loans (including
accrued loan interest).
- -- LIFE INSURANCE BENEFITS
- Option 1--a fixed benefit equal to your Policy's face amount.
- Option 2--a variable benefit that equals the sum of your Policy's face
amount and cash value.
- In some cases, a higher Life Insurance Benefit may apply if necessary to
qualify as life insurance under the Internal Revenue Code.
- Within limits, you may increase or decrease the face amount of your Policy.
The minimum face amount for your Policy is $100,000.
RIDER BENEFITS -- You may apply for the following additional rider benefits:
- -- SUPPLEMENTARY TERM RIDER
- -- FIRST-TO-DIE MONTHLY DEDUCTION WAIVER RIDER
- -- LEVEL FIRST-TO-DIE TERM RIDER
- -- LIVING BENEFITS RIDER
LOANS -- You may borrow up to 90% of your Policy's cash surrender value. Any
amount that secures a loan remains part of your Policy's cash surrender value
but is transferred to the Fixed Account. Amounts securing a loan may earn a
different interest rate than other amounts in the Fixed Account. For the first
ten Policy Years, the interest rate we currently credit on the amounts set aside
to secure the loan is 1.0% lower than the rate we charge for loan interest.
Beginning in the eleventh Policy Year, the interest we currently expect to
credit on the loaned amounts is 0.5% lower than the interest rate we charge for
loan interest. We guarantee the interest rate we credit on the loaned amounts
will never be less than 2.0% lower than the interest rate we charge for loan
interest.
PARTIAL WITHDRAWALS -- You may request a partial withdrawal from your Policy's
cash surrender value at any time, within limits. When you make a partial
withdrawal, we will deduct a fee for processing the withdrawal. A surrender
charge may apply as a result of a partial withdrawal.
SURRENDERS -- You may surrender your Policy for its cash surrender value at any
time while either insured is living. If you surrender your Policy during the
first fifteen Policy Years or within fifteen years after you increase the face
amount of your Policy, a surrender charge may apply.
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PREMIUMS -- You may make premium payments as often as you like and for any
amount you choose, within limits. Other than the initial premium, there are no
required premium payments. However, under certain conditions, you may be
required to make additional premium payments to keep your Policy from
terminating.
DEDUCTIONS AND CHARGES --
DEDUCTIONS FROM PREMIUMS
- -- SALES EXPENSE CHARGE
- Target Premium--We assess a sales expense charge based on your Policy's
Target Premium. Your initial Target Premium is set at the time your Policy
is issued. You can find this initial Target Premium on the Policy Data Page
of your Policy. Your Target Premium may change if you change the face amount
of your Policy.
- Current--During each of the first ten Policy Years, we currently deduct a
sales expense charge of 8% of any premiums paid up to the Target Premium.
Once the Target Premium for that Policy Year has been reached, we currently
deduct a sales expense charge of 4% from any additional premiums paid in
that Policy Year. During each Policy Year beginning with the eleventh Policy
Year, we currently expect to deduct a sales expense charge of 4% of any
premiums paid up to the Target Premium, with no charge for premiums paid in
excess of the Target Premium.
- Guaranteed--During each of the first ten Policy Years, we guarantee that any
sales expense charge we deduct will never exceed 9% of any premiums paid up
to the Target Premium. Once the Target Premium for that Policy Year has been
reached, we will never deduct a sales expense charge more than 6.5% of any
additional premiums paid in that Policy Year. Beginning with the eleventh
Policy Year, we guarantee that any sales expense charge will never exceed
6.5% of any premiums paid.
- -- PREMIUM TAX CHARGE
We deduct 2% of each premium payment you make as a premium tax charge. We may
increase this charge to reflect changes in the law.
- -- FEDERAL TAX CHARGE
For Non-Qualified Policies, we deduct 1.25% of each premium payment you make
as a Federal tax charge. We may increase this charge to reflect changes in
the law.
DEDUCTIONS FROM CASH VALUE
- -- MONTHLY CONTRACT CHARGE
- Current--We currently deduct a monthly contract charge of $59 per month
during the first Policy Year and expect to deduct $9 per month in later
Policy Years.
- Guaranteed--We guarantee that we will never deduct a monthly contract charge
that exceeds $62 per month during the first Policy Year and $12 per month in
later Policy Years.
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- -- CHARGE FOR COST OF INSURANCE PROTECTION
We deduct a charge for cost of insurance protection each month. This charge
is equal to the net amount at risk multiplied by a monthly cost of insurance
rate plus any applicable flat extra charge. The monthly cost of insurance
rate is determined based on the insureds' issue ages, sexes, and underwriting
classes and the Policy Year. The cost of insurance rates will never exceed
the guaranteed maximum cost of insurance rates for your Policy.
- -- CHARGE PER $1,000 OF THE INITIAL FACE AMOUNT
On each Monthly Deduction Day, during the first three Policy Years, we will
deduct $0.04 per $1,000 of your Policy's initial face amount (not including
riders). We guarantee we will never increase this charge. This charge will
always be at least $10 per month and will never be more than $100 per month.
- -- RIDER CHARGES
Each month, we will deduct any cost of insurance charges for the optional
riders you have chosen.
SEPARATE ACCOUNT CHARGES
- -- MORTALITY AND EXPENSE RISK CHARGE
- Current--We currently deduct a daily mortality and expense risk charge that
is equivalent to an annual rate of 0.60% of the average daily net asset
value of each Investment Division.
- Guaranteed--We guarantee that the mortality and expense risk charge will
never exceed the equivalent of an annual rate of 0.90% of the average daily
net asset value of each Investment Division.
- -- ADMINISTRATIVE CHARGE
We deduct a daily administrative charge equivalent to an annual rate of 0.10%
of the average daily net asset value of each Investment Division. We
guarantee we will never increase this charge.
- -- OTHER CHARGES FOR FEDERAL INCOME TAXES
We do not currently deduct a charge for Federal income taxes from the
Investment Divisions, though we may do so in the future, to reflect changes
in the law.
FUND CHARGES-- Each Investment Division of the Separate Account purchases shares
of the corresponding Eligible 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. (See page 44
for a list of these charges.)
SURRENDER CHARGES-- If you surrender your Policy or if you decrease the face
amount of your Policy (including a decrease in the face amount that results from
changing the Life Insurance Benefit Option or from a partial withdrawal) during
the first fifteen Policy Years or within fifteen years after you increase the
face amount, a surrender charge may apply. (See page 45 for an explanation of
these charges.)
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INVESTMENTS -- The balance of your premium payment after we deduct the premium
charges is called your net premium. Your net premium is allocated between the
eighteen Investment Divisions available under the Policy and the Fixed Account,
based on your instructions. The eighteen Investment Divisions available under
your Policy are:
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- -- MainStay VP Capital Appreciation -- MainStay VP Growth Equity
- -- MainStay VP Cash Management -- MainStay VP Indexed Equity
- -- MainStay VP Convertible -- Alger American Small Capitalization
- -- MainStay VP Government -- Calvert Social Balanced
- -- MainStay VP High Yield Corporate -- Fidelity VIP II Contrafund
Bond -- Fidelity VIP Equity-Income
- -- MainStay VP International Equity -- Janus Aspen Series Balanced
- -- MainStay VP Total Return -- Janus Aspen Series Worldwide Growth
- -- MainStay VP Value -- Morgan Stanley Emerging Markets
- -- MainStay VP Bond Equity
</TABLE>
You may adjust your allocation to various Investment Divisions and/or the
Fixed Account by changing your premium allocation percentages or making
transfers among these options, within limits.
ADDITIONAL INFORMATION
FREE LOOK PERIOD
- -- You have the right to examine your Policy. If you are not satisfied with it,
you may cancel it within twenty days.
- -- If you cancel the Policy, we will refund the greater of the cash value of
your Policy or the total premiums you have paid, less any loans or partial
withdrawals you have taken.
INCOME TAX EFFECT
- -- Generally, life insurance benefits are not currently subject to Federal
income tax. The earnings on the amounts you invest in the Investment
Divisions and the Fixed Account are also generally not subject to income tax
as long as they remain invested in the Policy. If you take a partial
withdrawal, surrender or terminate your Policy, or if your Policy matures,
you may incur taxable income. You may also incur taxable income if your
Policy becomes a modified endowment contract and you take a Policy loan.
IMPORTANT NOTICE
THE POLICY IS A LEGAL CONTRACT BETWEEN YOU AND NYLIAC. THE CONTRACT
CONSISTS OF THE APPLICATION FOR THE POLICY AND THE POLICY, AND ANY RIDERS AND
ENDORSEMENTS ATTACHED TO IT.
VARIATIONS
SURVIVORSHIP VARIABLE UNIVERSAL LIFE IS SUBJECT TO THE INSURANCE LAWS AND
REGULATIONS OF EACH JURISDICTION IN WHICH IT IS SOLD. AS A RESULT, CERTAIN TERMS
OF OUR SURVIVORSHIP VARIABLE UNIVERSAL LIFE POLICIES MAY VARY FROM JURISDICTION
TO JURISDICTION. APPENDIX B LISTS THE VARIATIONS THAT APPLY TO SURVIVORSHIP
VARIABLE UNIVERSAL LIFE. PLEASE REVIEW THIS LIST TO DETERMINE WHETHER ANY OF
THESE VARIATIONS APPLY TO YOUR POLICY.
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DEFINITIONS
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 Fund has one
Portfolio available to the Separate Account: the Calvert Social Balanced
Portfolio. Fidelity Investments(R) has 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 of the Morgan Stanley Universal Funds, Inc. ("Morgan Stanley
Emerging Markets Equity Portfolio").
FIXED ACCOUNT: The Fixed Account is supported by assets in the general account
of NYLIAC. The amount in the Fixed Account earns interest on a daily basis.
FUNDS (EACH INDIVIDUALLY A "FUND"): The MainStay VP Series Fund, Inc.
("MainStay VP Series Fund" and, formerly, "New York Life MFA Series Fund,
Inc."), The Alger American Fund ("The Alger American Fund"), the Calvert
Variable Series ("Calvert Fund"), the Fidelity Variable Insurance Products Fund
and the Fidelity Variable Insurance Products Fund II (collectively "Fidelity
Investments(R)"), the Janus Aspen Series and the Morgan Stanley Universal Funds,
Inc. ("Morgan Stanley Fund").
INVESTMENT DIVISION: A division of the Separate Account. Each Investment
Division invests exclusively in shares of a specified Eligible Portfolio.
ISSUE DATE: The date we issue the Policy as specified in the Policy Data Page.
LIFE INSURANCE BENEFIT: The benefit calculated under the Life Insurance Benefit
Option you have chosen.
MONTHLY DEDUCTION DAY: The date as of which we deduct your monthly contract
charge; cost of insurance charge; the charge per $1,000 of initial face amount,
if any; and any rider charges from your Policy's cash value. The first Monthly
Deduction Day will be the monthly anniversary of the Policy Date on or following
the Issue Date.
NON-QUALIFIED POLICY: A Policy that is issued to persons or entities other than
employee benefit plans that qualify for special Federal income tax treatment.
POLICY: The flexible premium survivorship variable universal life insurance
Policy offered by NYLIAC that is described in this Prospectus.
POLICY DATA PAGE: Page 2 of your Policy. The Policy Data Page contains your
Policy's specifications.
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POLICY DATE: The date used to determine when your life insurance coverage
begins. It is also the date used as the starting point for determining Policy
Years and Monthly Deduction Days (other than the first Monthly Deduction Day
which is based on your Policy's Issue Date). Your Policy Date will be the same
as your Issue Date, unless you request otherwise. Generally, you may not choose
a Policy Date that is more than six months before your Policy's Issue Date. You
can find your Policy Date on the Policy Data Page of your Policy.
POLICY PROCEEDS: The benefit we will pay to your beneficiary when we receive
proof that the last surviving insured died. It is equal to the Life Insurance
Benefit plus any additional death benefits under any riders you have chosen
minus any outstanding loans (including any accrued loan interest).
POLICY YEAR: The twelve-month period starting on your Policy Date, and each
twelve-month period thereafter.
QUALIFIED POLICY: A Policy owned by an employee benefit plan that qualifies for
special federal income tax treatment.
SEPARATE ACCOUNT: NYLIAC Variable Universal Life Separate Account-I, a
segregated asset account established by NYLIAC to receive and invest net
premiums to be allocated to the Eligible Portfolios.
TARGET PREMIUM: An amount shown on the Policy Data Page of your Policy that we
use to calculate the sales expense and surrender charges. Any changes to the
face amount of your base Policy will affect your Target Premium.
VARIABLE PRODUCT SERVICES: The place you may write to us at for Policy service.
You may write to us at Variable Product Services, Madison Square Station, P.O.
Box 922, New York, New York 10159, or Variable Product Services, 51 Madison
Avenue, Room 452, New York, New York 10010.
WE OR US: NYLIAC.
YOU: The person(s) and/or entity(ies) who owns the Policy.
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GENERAL DESCRIPTION
This Prospectus describes a flexible premium survivorship variable
universal life insurance policy offered by New York Life Insurance and Annuity
Corporation ("NYLIAC"). The Policy provides life insurance protection on two
lives (the insureds), and pays Policy Proceeds when the last surviving insured
dies while the Policy is in effect. The Policy offers:
-- flexible premium payments, where you select the timing and amount of the
premium;
-- a choice of two Life Insurance Benefit Options;
-- loan and partial withdrawal privileges;
-- the ability to increase or decrease the Policy's face amount of
insurance;
-- additional benefits through the use of optional riders; and
-- a selection of premium and expense allocation alternatives, including
eighteen variable Investment Divisions and a Fixed Account with a
guaranteed interest rate.
HOW THE POLICY IS AVAILABLE
Survivorship Variable Universal Life is available to our policyowners as
either a Non-Qualified or Qualified Policy. We issue Qualified Policies on a
unisex basis. Any reference in this Prospectus which makes a distinction based
on the sex of the insureds shall be disregarded as it relates to such Policies.
HOW THE POLICY WORKS
We will pay your beneficiary the Life Insurance Benefit plus any additional
rider death benefit (less any loans including any accrued loan interest) if your
Policy is still in effect when the last surviving insured dies. Your Policy will
stay in effect so long as the cash surrender value of your Policy is sufficient
to pay your Policy's monthly charges. The following example demonstrates how we
determine the cash surrender value of your Policy.
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EXAMPLE
This example is based on the illustration shown in Appendix A. It assumes
current charges and a 6% hypothetical gross annual investment return, which
results in a 4.57% net annual investment return. It also assumes the Policy is
in its first Policy Year.
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PREMIUM(1) $ 15,000.00 You choose the amount of premium you intend to
Less sales expense charge(2) 1,106.49 pay and the frequency with which you intend to
Less premium tax charge (2%) 300.00 make these payments. We call this your planned
Less Federal tax charge (1.25%) 187.50 premium. Any additional premium payments you
(if applicable) make are called unplanned premiums.
- -------------------------------------------
NET PREMIUM $ 13,406.01 Net Premium is allocated to the Investment
Plus net investment performance (earned 582.65 Divisions and/or the Fixed Account based on your
from the Investment Divisions and/or instructions.
the Fixed Account) (varies monthly)
Less total annual monthly contract 708.00
charge(3)
Less total annual monthly cost of 32.22
insurance charge (varies monthly)
Less total annual charge per $1,000 of the
initial face amount of your Policy 480.00
(not including riders)
Less total annual monthly cost of
riders(4)
0.00
- -------------------------------------------
CASH VALUE $ 12,768.44 Cash Value is used to determine the amount of
Less surrender charge(5) 2,532.43 your Life Insurance Benefit as well as the cash
(if applicable) surrender value of your Policy.
We may assess a surrender charge when you make a
partial withdrawal or full surrender in the
first fifteen Policy Years or within fifteen
years after you increase the face amount.
- -------------------------------------------
CASH SURRENDER VALUE $ 10,236.01 The amount of loans, withdrawals and surrenders
you can make is based on your Policy's cash
surrender value. Your Policy will terminate if
your cash surrender value is insufficient to pay
your Policy's monthly charges.
</TABLE>
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(1) This example assumes you pay an annual planned premium of $15,000 at the
beginning of the Policy Year and that you do not make any unplanned premium
payments.
(2) For details about how we calculate the sales expense charge for your Policy,
please refer to page 39. This example assumes the charges we are currently
deducting.
(3) We currently deduct a monthly contract charge of $59 per month from Policies
in their first Policy Year. For Policies in later Policy Years, we currently
expect to deduct a monthly contract charge of $9 per month.
(4) This example assumes you have not chosen any riders.
(5) If you surrender your Policy in the first Policy Year, we will include an
additional contract charge in the surrender charge we deduct from your
Policy. For details, please refer to page 45.
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LIFE INSURANCE PROTECTION
YOUR POLICY PROCEEDS
We will pay proceeds to your beneficiary when we receive satisfactory proof
that the last surviving insured died. These proceeds will equal:
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<S> <C> <C>
1) the Life Insurance Benefit calculated under the Life
Insurance Benefit Option you have chosen;
plus 2) any additional death benefits under the riders you have
chosen;
less 3) any outstanding loans, (including any accrued loan interest)
on the Policy.
</TABLE>
We will pay interest on these proceeds from the date the last surviving
insured died until the date we pay the proceeds or the date when the payment
option you have chosen becomes effective.
YOUR LIFE INSURANCE BENEFIT
Under your Policy, the Life Insurance Benefit depends on the Life Insurance
Benefit Option you choose. Your Policy offers two options:
OPTION 1-- The Life Insurance Benefit under this option is equal to the
Policy's face amount. Except as described below, your Life
Insurance Benefit under this option will be a fixed amount.
OPTION 2-- The Life Insurance Benefit under this option is equal to the
Policy's face amount plus the Policy's cash value. The Life
Insurance Benefit under this option is variable and will
fluctuate with the Policy's cash value. Your Life Insurance
Benefit will never be less than your Policy's face amount.
Under both options, your Life Insurance Benefit may be greater if the
minimum percentage of the Policy's cash value necessary for the Policy to
qualify as life insurance under Section 7702 of the Internal Revenue Code is
greater than the amount calculated under the option you have chosen. In general,
this higher Life Insurance Benefit will be the cash value of your Policy
multiplied by the minimum percentage required by Section 7702 of the Internal
Revenue Code. (You can find this percentage on the Policy Data Page of your
Policy).
Assuming your Life Insurance Benefit does not increase as described in the
above paragraph, and assuming the same face amount and premium payments under
both options:
- If you choose Option 1, your Life Insurance Benefit will not vary in
amount and you will generally have lower total Policy cost of
insurance charges and lower Policy Proceeds.
- If you choose Option 2, your Life Insurance Benefit will vary with
your Policy's cash value and you will generally have higher total
Policy cost of insurance charges and higher Policy Proceeds.
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<PAGE> 13
EXAMPLES
(Effect of IRC Section 7702 on Life Insurance Benefit)
LIFE INSURANCE BENEFIT OPTION 1
<TABLE>
<S> <C> <C>
EXAMPLE 1:
Life Insurance Benefit = Face Amount
Face Amount: $100,000
Cash Value: $ 25,000
IRC Section 7702
Percentage 379%
Greater of:
Face Amount: $100,000
% of Cash Value:
($25,000 X 379%) $ 94,750
-----------------------
--------
Life Insurance Benefit: $100,000
EXAMPLE 2:
Life Insurance Benefit = % of Cash Value
Face Amount: $100,000
Cash Value: $ 50,000
IRC Section 7702
Percentage 379%
Greater of:
Face Amount: $100,000
% of Cash Value:
($50,000 X 379%) $189,500
-----------------------
--------
Life Insurance Benefit: $189,500
LIFE INSURANCE BENEFIT OPTION 2
EXAMPLE 1:
Life Insurance Benefit = Face Amount +
Cash Value
Face Amount: $100,000
Cash Value: $ 20,000
IRC Section 7702
Percentage 379%
Greater of:
Face Amount + Cash Value: $120,000
% of Cash Value:
($20,000 X 379%) $ 75,800
-----------------------
--------
Life Insurance Benefit: $120,000
EXAMPLE 2:
Life Insurance Benefit = % of Cash Value
Face Amount: $100,000
Cash Value: $ 40,000
IRC Section 7702
Percentage 379%
Greater of:
Face Amount + Cash Value: $140,000
% of Cash Value:
($40,000 X 379%) $151,600
-----------------------
--------
Life Insurance Benefit: $151,600
</TABLE>
CHANGING YOUR LIFE INSURANCE BENEFIT OPTION
You can change the Life Insurance Benefit Option for your Policy while both
insureds are still living. However, we may prohibit you from changing the Life
Insurance Benefit Option if the change would cause the face amount of the Policy
to be less than $100,000, would cause the Policy to fail to qualify as life
insurance under Section 7702 of the Internal Revenue Code, or would cause the
Policy's face amount to exceed our retention limits. Additionally, if you elect
to have the Supplementary Term Rider included in your Policy, you
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<PAGE> 14
must Select Option 1 and you can never change your Life Insurance Benefit Option
to Option 2, even if the Supplementary Term Rider ends.
CHANGES FROM OPTION 1 TO OPTION 2
If you change from Option 1 to Option 2, we will decrease the face amount
of your Policy by the amount of the cash value, so that your Life Insurance
Benefit immediately before and after the change remains the same. If a
surrender charge is applicable to face amount decreases at the time you change
your Life Insurance Benefit Option, we will assess a surrender charge on the
amount of the face amount decrease.
CHANGES FROM OPTION 2 TO OPTION 1
If you change from Option 2 to Option 1, we will increase the face amount
of your Policy by the amount of the cash value, so that your Life Insurance
Benefit immediately before and after the change remains the same. We will
continue to apply the existing surrender charge schedule to your Policy, but
we will not apply a new surrender charge schedule to the increased face amount
resulting from the change in this option.
In order to change your Life Insurance Benefit Option, you must submit a
signed request to Variable Product Services (or any other address we indicate to
you in writing). We will change your Life Insurance Benefit Option on the
Monthly Deduction Day on or after the date we receive your written request.
EXAMPLE
CHANGE FROM OPTION 1 TO OPTION 2
Cash Value $ 200,000
Face Amount
before option change $1,000,000
Face Amount
after option change $ 800,000
($1,000,000 - $200,000)
Life Insurance Benefit
immediately before and
after Option change $1,000,000
CHANGE FROM OPTION 2 TO OPTION 1
Cash Value $ 150,000
Face Amount
before option change $1,000,000
Face Amount
after option change $1,150,000
($1,000,000 + $150,000)
Life Insurance Benefit
immediately before and
after option change $1,150,000
14
<PAGE> 15
CHANGING THE FACE AMOUNT OF YOUR POLICY
The face amount of your Policy affects the amount of the Life Insurance
Benefit of your Policy.
INCREASING YOUR POLICY'S FACE AMOUNT
You may request an increase in the face amount of your Policy if all of
the following conditions are met:
-- both insureds are still living;
-- the older insured is age 90 or younger;
-- the increase you are requesting is $5,000 or more;
-- the requested increase will not cause the Policy's face amount to
exceed our maximum retention limit; and
-- you submit a written application signed by each insured along with
satisfactory evidence of insurability.
We may limit any increase in the face amount of your Policy.
If we approve your request for a face amount increase, your Policy's face
amount will be increased on the Monthly Deduction Day on or after the day we
approve the increase.
An increase in the face amount of your Policy may have the following
consequences which you should consider:
-- additional cost of insurance charges;
-- a new fifteen year surrender charge period applicable only to the
amount of the increase;
-- a new suicide and contestability period applicable only to the amount
of the increase; and
-- a change in the life insurance percentage applied to the entire Policy
under Section 7702 of the Internal Revenue Code.
DECREASING YOUR POLICY'S FACE AMOUNT
You may request a decrease in the face amount of your Policy if both of
the following conditions are met:
-- either insured is still living; and
-- the decrease you are requesting will not reduce the Policy's face
amount below $100,000.
We may limit any decrease in the face amount of your Policy.
If we approve your request for a face amount decrease, your Policy's face
amount will be decreased on the Monthly Deduction Day on or after the day we
receive your written request for a decrease.
A decrease in the face amount of your Policy may have the following
consequences which you should consider:
-- lower total Policy cost of insurance charges;
-- a surrender charge may apply to the amount of the decreased face
amount based on a last increased, first canceled basis; and
-- possible adverse tax consequences.
15
<PAGE> 16
CASH VALUE AND CASH SURRENDER VALUE
CASH VALUE
The cash value of your Policy is the sum of the amounts in the Investment
Divisions in the Separate Account and in the Fixed Account (net of fees and
charges). These amounts are allocated based on the instructions you have given
us. A number of factors affect your Policy's cash value including but not
limited to:
-- the amount and frequency of the premiums you pay;
-- the investment experience of the Investment Divisions you choose;
-- the interest credited on the amount in the Fixed Account; and
-- the amount of any partial withdrawals you make (including any charges
you incur as a result of the withdrawal).
The cash value is not necessarily the amount you receive when you surrender
your Policy. See CASH SURRENDER VALUE on page 17 and SURRENDERS on page 21 for
details about surrendering your Policy.
AMOUNT IN THE SEPARATE ACCOUNT
Amounts allocated to an Investment Division are used to purchase
accumulation units of an Investment Division. Accumulation units are redeemed
from an Investment Division when amounts are loaned, withdrawn, transferred,
surrendered or deducted for charges or loan interest. The number of accumulation
units purchased or redeemed in an Investment Division is calculated by dividing
the dollar amount of the transaction by the Investment Division's accumulation
unit value. On any given day, the amount you have in the Separate Account is the
value of the accumulation units you have in all of the Investment Divisions of
the Separate Account. The value of the accumulation units you have in a given
Investment Division equals the current accumulation unit value for the
Investment Division multiplied by the number of accumulation units held in that
Investment Division.
We determine accumulation unit values for the Investment Divisions as of
the end of each valuation day. A valuation day is any day on which the New York
Stock Exchange is open for trading.
The value of an accumulation unit on any valuation day equals the
accumulation unit on the preceding valuation day multiplied by the net
investment factor for the period from the time the New York Stock Exchange
closed on the immediately preceding valuation day to the time it closed on the
current valuation day.
The net investment factor for an Investment Division for this period equals
(a) divided by (b) less (c) [i.e., (a / b) - c]where:
(a) is the sum of:
(1) the net asset value of the Fund share held in the Separate
Account for that Investment Division determined at the end of
the 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 period,
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<PAGE> 17
(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 previous valuation day,
(c) is a factor representing the mortality and expense risk charge and
administrative charges. This factor accrues daily and is currently
equal, on an annual basis, to .70% (the sum of .60% and .10%) of
the daily average net asset value of the Investment Division.
The net investment factor may be greater or less than one; therefore, the
value of an accumulation unit may increase or decrease.
AMOUNT IN THE FIXED ACCOUNT
The amount you have in the Fixed Account equals:
1) the sum of the net premiums you have allocated to the Fixed
Account;
plus 2) any transfers you have made from the Separate Account to the
Fixed Account;
plus 3) any interest credited to the Fixed Account;
less 4) any amounts you have withdrawn from the Fixed Account;
less 5) any charges we have deducted from the Fixed Account;
less 6) any transfers you have made from the Fixed Account to the
Separate Account.
INVESTMENT RETURN
The investment return of your Policy is based on the amount you have in
each Investment Division of the Separate Account, the amount you have in the
Fixed Account, the investment experience of each Investment Division as measured
by its actual net rate of return, and the interest rate we credit on the amount
you have 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 valuation day, which is when the net
asset value of the underlying Fund is determined. The actual net rate of return
for an Investment Division measures the investment experience from the end of
one valuation day to the end of the next valuation day.
CASH SURRENDER VALUE
The cash surrender value of your Policy is the amount we will pay you if
you surrender your Policy. The cash surrender value of your Policy is equal to
the cash value of the Policy less any surrender charges, any additional contract
charge, and any outstanding Policy loans (including any accrued loan interest).
Since the cash value of the Policy fluctuates with the performance of the
Investment Divisions and the interest credited to the Fixed Account, and because
a surrender charge may apply, the cash surrender value may be more or less than
the total premium payments you have made less any premium deductions and
deductions from cash value that were made.
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<PAGE> 18
Cash surrender value is significant for two reasons:
-- Loans and Partial Withdrawals--You can take loans and partial
withdrawals from your Policy based on the amount of the Policy's
cash surrender value.
-- Keeping Your Policy in Effect--While premium payments are flexible,
additional premium payments may be required so that the cash
surrender value of your Policy is sufficient to pay the charges
needed to keep your Policy in effect.
LOANS
You can borrow up to 90% of your Policy's cash surrender value. Your Policy
will be used as collateral to secure this loan. Any amount that secures a loan
remains part of your Policy's cash value but is transferred to the Fixed
Account. We credit any amount that secures a loan (the loaned amount) with an
interest rate that we expect to be different from the interest rate we credit on
any unloaned amount.
YOUR POLICY AS COLLATERAL FOR THE LOAN
When you request a loan, we will transfer funds from the Separate Account
to the Fixed Account so that the cash value of the amount in the Fixed Account
(less any outstanding loans, including any accrued loan interest) is at least
108% of the requested loan. We will transfer these funds from the Investment
Divisions of the Separate Account in proportion to the amounts you have in each
Investment Division. While any Policy loan is outstanding, we will not allow you
to make any partial withdrawals or transfer any funds from the Fixed Account if
the partial withdrawal or transfer would cause the cash value of the Fixed
Account to fall below 108% of all outstanding loans. Additionally, if the
monthly deductions from cash value will cause the cash value of the Fixed
Account to fall below 108% of all outstanding Policy loans, we may take these
deductions from the Investment Divisions of the Separate Account in proportion
to the amounts you have in each Investment Division.
LOAN INTEREST
We currently charge an effective annual loan interest rate of 8%, which is
payable in arrears. We may set a lower rate. If we set a lower rate, we will
determine this lower rate at least once every twelve months, but not more
frequently than once every three months. If we lower this rate, we may increase
it again in the future by no more than 1% per calendar year, within certain
limits.
INTEREST ON THE CASH VALUE HELD AS COLLATERAL
When you take a loan from your Policy, the amount we hold in the Fixed
Account to secure the loan earns interest at a different rate than the rate we
charge you for loan interest. The rate we credit on loaned amounts will never be
less than 2.0% less than the rate we charge for Policy loans. We guarantee that
the interest rate we credit on loaned amounts will always be at least 4.0%. For
the first ten Policy Years, the rate we currently credit on loaned amounts is
1.0% less than the rate we charge for loan interest. Beginning in the eleventh
Policy Year, the rate we currently expect to credit on loaned amounts is 0.5%
less than the rate we charge for loan interest.
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<PAGE> 19
WHEN LOAN INTEREST IS DUE
The interest we charge on a loan accrues daily and is payable on the
earliest of the following dates:
-- the Policy anniversary;
-- the date of a loan increase or loan repayment;
-- the date the Policy is surrendered;
-- the date the Policy lapses; or
-- the date on which the last surviving insured dies.
Any loan interest due on a Policy anniversary which is not paid will be
charged against the Policy as an additional loan.
LOAN REPAYMENT
You may repay all or part of a Policy loan at any time while your Policy is
in effect. We will allocate your loan repayments to the Investment Divisions
and/or Fixed Account according to your most recent instructions on how to
allocate your premium payments. If you would like your loan repayment allocated
differently, you must indicate this in writing at the time of the repayment. Any
payment we receive from you while you have a loan outstanding will be considered
a premium payment unless you tell us in writing that it is a loan repayment.
If the amount of any unpaid loans (including any accrued loan interest) is
greater than the cash value of your Policy less any applicable surrender charges
and any additional contract charge we will mail a notice to you at your last
known address. We will also send a copy of the notice to the last known
assignee, if any, on our records. If you do not pay the necessary amount within
31 days after the day we mail you this notice, your Policy will terminate.
THE EFFECTS OF A POLICY LOAN
As long as there is an outstanding loan, the amount held as collateral
remains in the Fixed Account which does not share in the Separate Account's
investment performance. As you repay your loan, the amount held as collateral
will be reduced. You may then choose whether to invest the amounts no longer
required for collateral in the Investment Divisions and/or to leave them
invested in the Fixed Account. If your Policy is a modified endowment contract,
a loan may result in taxable income to you. See FEDERAL INCOME TAX
CONSIDERATIONS on page 52 for more information.
A loan will affect the cash surrender value of your Policy, and its Policy
Proceeds. If you surrender your Policy, if your Policy terminates, or if a Life
Insurance Benefit becomes payable under the Policy, and there are any
outstanding loans at that time, we will deduct the amount of any outstanding
loans (including any accrued loan interest) from the cash value of your Policy
or from the Policy Proceeds we pay.
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<PAGE> 20
PARTIAL WITHDRAWALS
You may request a partial withdrawal from your Policy's cash surrender
value if the following conditions are met:
-- at least one insured is living;
-- the partial withdrawal being requested is at least $500; and
-- the partial withdrawal will not cause the Policy to fail to qualify as
life insurance under Section 7702 of the Internal Revenue Code.
AMOUNT AVAILABLE TO WITHDRAW
You may withdraw an amount up to the cash surrender value of your Policy.
Partial withdrawals are processed at the price next determined after we receive
your written request. If you request a partial withdrawal that would reduce the
face amount of your Policy (not including riders) below $100,000, we may require
you to surrender your Policy.
REQUESTING A PARTIAL WITHDRAWAL
You may request a partial withdrawal from your Policy by sending a written
request to Variable Product Services.
WHEN IS THE PARTIAL WITHDRAWAL EFFECTIVE
Unless you choose a later effective date, your requested partial withdrawal
will be effective on the date we receive your written request. However, if the
day we receive your request is not a day on which the New York Stock Exchange is
open or if your request is received after the close of the New York Stock
Exchange, then the requested partial withdrawal will be effective on the next
day on which the New York Stock Exchange is open.
PARTIAL WITHDRAWAL FEE AND SURRENDER CHARGE
When you make a partial withdrawal, we will deduct a fee for processing the
partial withdrawal. This fee will not exceed the lesser of $25 or 2% of the
amount withdrawn. Additionally, a partial withdrawal may result in a decrease in
your Policy's face amount which may cause a surrender charge to apply as
described in SURRENDER CHARGES on page 45.
ALLOCATION OF PARTIAL WITHDRAWAL AND FEE
You may specify how much of the partial withdrawal you want taken from the
amount you have in each of the Investment Divisions and in the Fixed Account. If
you do not specify how you would like your partial withdrawal allocated, we will
deduct the partial withdrawal and any withdrawal fee from the Investment
Divisions and/or the Fixed Account in proportion to the amounts you have in each
of these investment options. If you request a partial withdrawal that is greater
than the amount in the Investment Divisions and/or in the Fixed Account you have
chosen, we will reduce the amount of the partial withdrawal to the amount
available in those Investment Divisions and/or in the Fixed Account and pay you
that amount less any applicable withdrawal fee and surrender charge.
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<PAGE> 21
THE EFFECTS OF A PARTIAL WITHDRAWAL
When you make a partial withdrawal, your cash value and cash surrender
value will be reduced by the amount of the partial withdrawal, and any
applicable withdrawal fee and surrender charge. Additionally, if you have
elected Life Insurance Benefit Option 1, your Policy's face amount and your
Policy Proceeds will be reduced by the amount of the withdrawal (without any
withdrawal fee or surrender charge). If you have elected Life Insurance Benefit
Option 2, your Policy's face amount will not be reduced but your Policy Proceeds
will be reduced by the amount of the partial withdrawal and any applicable
withdrawal fee and surrender charge. A partial withdrawal may result in taxable
income to you. See FEDERAL INCOME TAX CONSIDERATIONS on page 52 for more
information.
We may restrict the amount and frequency of partial withdrawals, within
certain limits.
SURRENDERS
You may surrender your Policy for its cash surrender value at any time
while either insured is living.
REQUESTING A SURRENDER
You may surrender the Policy by sending a written request and the Policy to
Variable Product Services.
WHEN IS THE SURRENDER EFFECTIVE
Unless you choose a later effective date, your surrender will be effective
on the date we receive your written request and the Policy. However, if the day
we receive your request is not a day on which the New York Stock Exchange is
open or if your request is received after the close of the New York Stock
Exchange, then the requested surrender will be effective on the next day on
which the New York Stock Exchange is open.
SURRENDER CHARGES
If you surrender your Policy during the first fifteen Policy Years or
within fifteen years after you increase the face amount of your Policy, a
surrender charge may apply. We will deduct any applicable surrender charge from
the amounts you have in the Investment Divisions and the Fixed Account in
proportion to these amounts. See SURRENDER CHARGES on page 45 for details.
ADDITIONAL BENEFITS THROUGH RIDERS AND OPTIONS
You may apply for additional benefits by selecting any of the following
optional riders:
-- Supplementary Term Rider
-- First-to-Die Monthly Deduction Waiver Rider
-- Level First-to-Die Term Rider
-- Living Benefits Rider (also known as Accelerated Benefits Rider)
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<PAGE> 22
HOW THE RIDERS ARE AVAILABLE
Generally, you must select your riders when you apply for your Policy.
However, you may only elect the Living Benefits Rider after the death of the
first insured.
The Living Benefits Rider is only available on Non-Qualified Policies.
Generally, all other riders are available on both Non-Qualified and Qualified
Policies.
SUPPLEMENTARY TERM RIDER
This rider provides a term insurance death benefit that is payable when the
last surviving insured dies. It insures the same individuals covered by your
base Policy. At the time you apply for this rider, you select a target face
amount for your Policy. The initial term insurance death benefit under this
rider equals the target face amount less the initial face amount of your base
Policy (not including riders). We recalculate the term insurance death benefit
on each Monthly Deduction Day, so that the amount of the term insurance death
benefit equals the target face amount less the current Life Insurance Benefit at
that time.
Because the Life Insurance Benefit of your base Policy (not including
riders) may increase or decrease depending on investment performance, the
rider's term insurance death benefit will do the reverse in order to maintain a
level target face amount. For example, if your Life Insurance Benefit increases,
the rider's term insurance death benefit will decrease by the same amount. If
the base Policy's Life Insurance Benefit changes for any reason other than
because of the requirements of Section 7702 of the Internal Revenue Code, we
will make a corresponding adjustment to the target face amount.
<TABLE>
<S> <C> <C> <C> <C>
Target Base Policy's Supplementary
Face less Life Insurance equals Term Rider
Amount Benefit Death Benefit
</TABLE>
If you compare a Policy with this rider to a Policy that initially provides
the same Policy Proceeds but does not have this rider, the Policy with this
rider will have lower surrender charges and a lower Target Premium. (See TARGET
PREMIUM on page 40 for additional information about Target Premium)
We will only allow you to elect this rider if:
-- the initial target face amount is at least $1,000,000;
-- the base Policy Life Insurance Benefit is at least $200,000;
-- the initial term insurance death benefit is at least the minimum amount
we allow, which is currently $100,000.
-- the initial term insurance death benefit is no greater than four times
the Policy's Life Insurance Benefit; and
-- you have chosen Life Insurance Benefit Option 1.
Within certain limits, you may:
-- increase or decrease this rider's term insurance death benefit or target
face amount; and/or
-- convert this rider to increase the face amount of your base Policy. The
minimum amount of term insurance benefit you may convert is $5,000,
which is the same as the minimum base face amount increase. (Note: The
target face amount of your Policy after this conversion will be the same
as the target face amount of your Policy including riders before the
conversion. Your Target Premium will increase as a result of the
increase in the face amount of your base policy and a new surrender
charge period will apply to the increase. (See TARGET PREMIUM on page 40
for additional information about Target Premium.))
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<PAGE> 23
You may request changes to your Policy under this rider if:
(a) you do not decrease the target face amount below $1,000,000, unless the
decrease is due to a partial withdrawal;
(b) you do not decrease the base Policy's Life Insurance Benefit below
$200,000, unless the decrease is due to a partial withdrawal; and
(c) you do not make a change that causes the term insurance death benefit
to be greater than four times the Policy's Life Insurance Benefit. This
requirement prohibits you from increasing the term insurance death
benefit or decreasing the base Policy face amount to an amount that
would violate this maximum ratio.
Once you choose this rider, you may not change your Life Insurance Benefit
Option, even after this rider ends or is terminated.
FIRST-TO-DIE MONTHLY DEDUCTION WAIVER RIDER
If either insured dies while this rider is in effect, we will waive your
Policy's monthly deductions from cash value for the remainder of the Policy. The
charges we will waive under this rider are:
(a) the monthly contract charge;
(b) the monthly cost of insurance charge for the base Policy (not including
riders);
(c) the charge per $1,000 of the initial face amount (not including
riders), which only applies during the first three Policy Years;
(d) any monthly rider charges.
These deductions are described in more detail under DEDUCTIONS FROM CASH
VALUE on page 40 and on the Policy Data Page of your Policy.
LEVEL FIRST-TO-DIE TERM RIDER
This rider provides a level term insurance death benefit which we will pay
when the first insured dies while this rider is in effect. We will only pay the
benefit under this rider once, even if both insureds die at the same time.
You may decrease the face amount of this rider as long as you do not
decrease it below the minimum amount we require to issue the rider. You may not
increase the face amount of this rider.
LIVING BENEFITS RIDER (ALSO KNOWN AS ACCELERATED BENEFITS RIDER)
Under this rider, after the first insured dies, if the last surviving
insured has a life expectancy of twelve months or less, you may request a
portion or all of the Policy Proceeds as an accelerated death benefit.
You may elect to receive an accelerated death benefit of 25%, 50%, 75%, or
100% of certain eligible proceeds from your Policy Proceeds. We will pay you an
amount equal to:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Elected X Eligible X Interest - Administrative fee - Elected percentage of an
percentage proceeds factor (up to $150) unpaid Policy loan
</TABLE>
Minimum accelerated benefit amount: $25,000.
Maximum accelerated benefit amount: $250,000 (total for all of your NYLIAC
policies).
If you accelerate less than 100% of the eligible proceeds, the remaining
face amount of your Policy after we pay this benefit must be at least $100,000.
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<PAGE> 24
When we make a payment under this rider, we will reduce your Policy's face
amount, rider death benefits, monthly deductions, cash value, and any unpaid
Policy loan based on the percentage you elected.
POLICY SPLIT OPTION
You may split your Policy into two single adjustable life insurance
policies that each insure the life of one of the insureds under certain
circumstances. You are allowed to make this split within six months after either
of the following two dates:
(1) the date a final divorce decree which terminates the marriage of the
insureds has been in effect for six months; or
(2) the effective date of a change in the Federal tax law which results in
(a) a reduction in the unlimited Federal Estate Tax marital deduction
provision (Section 2056 of the Internal Revenue Code), or
(b) a reduction of at least 50% in the level of estate tax rate from
the 1986 Tax Act payable on death.
You must request a Policy split in writing. At the time of the split:
-- both insureds must be living;
-- we will not ask for evidence of insurability;
-- each new Policy will be an adjustable life insurance Policy which we
offer for the purpose of this option and which was available on the
Policy Date of your original Policy; and
-- an insurable interest must exist between the owner of each new policy
and the insured of that new policy under all applicable laws.
ABOUT YOUR NEW POLICY
-- The Policy Date and Issue Date of each new policy will be the date when
you split the Policy.
-- The policyowner and beneficiary of each new policy will be the same as
under the original Policy, unless otherwise stated.
-- We will not assess a fee or surrender charge on a Policy that is
terminating as a result of a Policy split. However, all fees and charges
that generally apply to the type of policy you are splitting your Policy
into, including a new surrender charge schedule, will apply to each of
the new policies that result from the Policy split.
-- The cost of insurance rates for each new policy will be based on the
insured's age and sex on the date of the split and most recent
underwriting class on the original Policy.
-- The initial premium for each new policy will be one half of the cash
value of the original Policy less any unpaid loan (including any accrued
loan interest).
-- The face amount of each new policy will equal one half of the original
base Policy face amount, plus one half of the face amount of any riders
on the original Policy. The benefits from any Level First-to-Die Term
Rider in effect will be excluded from this calculation.
-- If the original Policy has been assigned, each new policy will have the
same assignment.
Splitting your Policy may have certain adverse tax consequences. Please
read the FEDERAL INCOME TAX CONSIDERATIONS on page 52 for more details.
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PREMIUMS
Although premium payments are flexible, additional premium payments may be
required so that the cash surrender value of your Policy is sufficient to pay
the charges needed to keep your Policy in effect. 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 planned 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.
Premiums are the total dollar amount you pay into your Policy. When we
receive a premium payment, we deduct the sales expense, premium tax, and Federal
tax charges that apply. The balance of the premium is called the net premium. We
apply your net premium to the Investment Divisions and/or the Fixed Account,
according to your instructions. For more details on when and how your premiums
are applied, see INVESTMENTS on page 27.
For purposes of determining whether we require additional underwriting when
accepting a premium payment, we divide your premium payments into planned and
unplanned premiums.
PLANNED PREMIUM
When you apply for your Policy, you select a premium payment schedule,
which indicates the amount and frequency of premium payments you intend to make.
The premium amount you select for this schedule is called your "planned
premium." It is shown on the Policy Data Page of your Policy.
- -- You may increase or decrease the amount of your planned premium and change
the frequency of your payments, within limits.
- -- Planned premium payments end on the Policy anniversary on which the younger
insured is, or would have been, age 100.
- -- Your Policy will not automatically terminate if you are unable to pay the
planned premium. However, payment of your planned premium does not guarantee
your Policy will remain in effect. Your Policy will terminate if the cash
surrender value is insufficient to pay the monthly deduction charges or if
you have an excess Policy loan, and you reach the end of the late period and
you have not made the necessary payment. See LATE PERIOD and TERMINATION on
page 26 for more details.
UNPLANNED PREMIUM
An unplanned premium is a payment you make that is not part of the premium
payment schedule you choose.
- -- While at least one insured is living, you may make unplanned premium payments
at any time before the Policy anniversary on which the younger insured is, or
would have been, age 100. However, if payment of an unplanned premium will
cause the Life Insurance Benefit of your Policy to increase more than the
cash value will increase, both insureds must be living, and we may require
proof of insurability before accepting that payment and applying it to your
Policy.
- -- If you exchange another life insurance policy to acquire this Policy under
Section 1035 of the Internal Revenue Code, we will treat the proceeds of that
exchange as an unplanned premium.
- -- The minimum unplanned premium amount we allow is $50.
- -- We may limit the number and amount of any unplanned premium payments.
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<PAGE> 26
TERMINATION
If your Policy's cash surrender value on any Monthly Deduction Day is less
than the monthly deductions from cash value for the next Policy month, your
Policy will continue in the late period for 62 days after that date. If the late
period expires without sufficient payment, then your Policy will end without any
benefits. See LATE PERIOD below for more details.
LATE PERIOD
The late period is the 62 days following the Monthly Deduction Day on which
the cash surrender value of your Policy is insufficient to pay for monthly
deductions from cash value for the next Policy month. During this period, you
have the opportunity to pay any premium needed to cover any overdue charges. We
will mail a notice to your last known address stating this amount. We will also
send a copy to the last known assignee, if any, on our records. We will mail
these notices at least 31 days before the end of the late period. Your Policy
remains in effect during the late period. However, if we do not receive the
required payment before the end of the late period, your Policy will end without
any benefits.
During the late period, we will pay your beneficiary any benefits the
beneficiary is entitled to as follows:
-- If the last surviving insured dies during the late period, we will pay
the Policy Proceeds, which we will reduce by the unpaid monthly
deductions from cash value for the full Policy months from the beginning
of the late period through the Policy month in which the last surviving
insured dies.
-- If the Policy has a First-to-Die Monthly Deduction Waiver Rider and the
first insured dies while the Policy is in the late period, we will
approve the waiver claim when you pay all overdue monthly deductions
from cash value.
-- If the Policy has a Level First-to-Die Term Rider and the first insured
dies while the Policy is in the late period, we will pay the proceeds
due under this rider less any overdue charges for this rider.
REINSTATEMENT OPTION
You can request that we reinstate your Policy if all of these conditions
are met:
-- your request is made within five years after your Policy terminated;
-- both insureds are living (However, we will accept your reinstatement
request when only one insured is living, if the other insured died
before your Policy terminated); and
-- you have not surrendered your Policy.
It is important to realize that a termination or reinstatement may cause
your Policy to become a modified endowment contract. Modified endowment
contracts are subject to less favorable tax treatment. For more information
about modified endowment contracts, please see page 54.
Before we will reinstate your Policy, we must receive the following:
(1) a payment equal to the sum of (a) and (b) where:
(a) is an amount which is sufficient to keep the Policy in effect for at
least three months; and
(b) is 115% of any additional contract charge for a Policy that ended
during the first Policy Year and is later reinstated. (This
additional contract charge is
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<PAGE> 27
equal to the difference between the monthly contract charge for the
first Policy Year and the monthly contract charge for subsequent
Policy Years multiplied by the number of Monthly Deduction Days
missed during the first Policy Year because the Policy was not in
effect).
(2) satisfactory evidence of insurability, if your reinstatement request is
more than 31 days after termination.
The effective date of reinstatement will be the Monthly Deduction Day on or
following the date we approve your request. If your Policy is reinstated, the
face amount for the reinstated Policy will be the same as it would have been if
the Policy had not terminated.
The cash value of the reinstated Policy will be the cash value at the time
the Policy lapsed less the difference between the surrender charge assessed at
the time of the lapse and the surrender charge that applies at the time the
Policy is reinstated. We will deduct any unpaid loan from this cash value or any
unpaid loan can be repaid, together with loan interest up to 6% compounded once
each year from the end of the late period to the date of reinstatement.
MATURITY DATE
Your Policy matures on the Policy anniversary on which the younger insured
is, or would have been, age 100. Beginning on this maturity date, the face
amount of your Policy, as shown on the Policy Data Page, will no longer apply.
Instead, your Life Insurance Benefit will equal the cash value of your Policy.
One year before your Policy's maturity date, we will notify you that on
your maturity date you may elect either:
(1) to receive the cash surrender value of your Policy; or
(2) to continue the Policy, without having to pay any more monthly contract
or cost of insurance charges.
If you choose to surrender your Policy, you must submit a signed request to
Variable Product Services (or any other address we indicate to you in writing).
Please consult your tax advisor regarding the tax implications of these
options.
If your Policy is still in effect when the last surviving insured dies, we
will pay the Policy Proceeds to the beneficiary.
INVESTMENTS
Your Policy offers a choice of investment options in which you can invest
your net premium. You may allocate your net premium (1) to any of the Investment
Divisions of the Separate Account, and/or (2) to the Fixed Account. We refer to
the Investment Divisions and the Fixed Account as your investment options.
Your net premium, which equals the balance of any planned or unplanned
premium payment after we deduct sales expense, premium tax, and any Federal tax
charges that apply, is applied to the Investment Divisions of the Separate
Account and/or to the Fixed Account according to the most recent premium
allocation election you have given to us. The only exception to this allocation
of your premium is for any premium payments you
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<PAGE> 28
make during the free look period. The net premiums from any payments made during
this period are initially allocated to the Mainstay VP Cash Management
Investment Division. They remain there until the end of the free look period.
For more details, see FREE LOOK on page 50. When the free look period is over,
we will allocate your net premiums according to your instructions. You can
change your premium allocation any time you make a premium payment by submitting
a revised premium allocation form. The allocation percentages must be in whole
numbers.
THE SEPARATE ACCOUNT
NYLIAC Variable Universal Life Separate Account-I, referred to by us as the
Separate Account, is a segregated asset account established by NYLIAC to receive
and invest your net premiums.
The Separate Account was established on June 4, 1993 under the laws of
Delaware, in accordance with the resolutions set forth by the NYLIAC Board of
Directors. The Separate Account is registered as a unit investment trust with
the Securities and Exchange Commission (SEC) under the Investment Company Act of
1940. This registration does not mean that the SEC supervises the management, or
the investment practices or policies, of the Separate Account.
Although the assets of the Separate Account belong to NYLIAC, these assets
are held separately from the other assets of NYLIAC, and under applicable
insurance law, cannot be charged for liabilities incurred 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). These assets
are not subject to the claims of our general creditors. 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 consists of twenty-two Investment Divisions,
eighteen of which are available under your Policy. The Investment Divisions
invest exclusively in the corresponding Eligible Portfolios of the Funds. The
income, capital gains, and capital losses incurred on the assets of an
Investment Division are credited to or are charged against the assets of the
Investment Division, without regard to the income, capital gains or capital
losses of any other Investment Division. The Investment Divisions of the
Separate Account are designed to provide money to pay benefits under your
Policy, but they do not guarantee a minimum rate of return or protect against
asset depreciation. They will
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fluctuate up and down depending on market conditions. The Eligible Portfolios of
the relevant Funds, along with their portfolio managers, are listed in the
following table:
<TABLE>
<S> <C> <C>
FUND PORTFOLIO MANAGERS ELIGIBLE PORTFOLIOS
- ------------------------------------------------------------------------------------------------------
MainStay VP Series Fund, Inc. MacKay-Shields Financial MainStay VP Capital Appreciation;
Corporation 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 Series Fund, Inc. Monitor Capital Advisors, Inc. MainStay VP Indexed Equity
- ------------------------------------------------------------------------------------------------------
MainStay VP Series Fund, Inc. New York Life Insurance MainStay VP Bond;
Company MainStay VP Growth Equity
- ------------------------------------------------------------------------------------------------------
The Alger American Fund Fred Alger Management, Inc. Alger American Small
Capitalization
- ------------------------------------------------------------------------------------------------------
Calvert Fund Calvert Asset Management Calvert Social Balanced
Company
- ------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Management and Fidelity VIP II Contrafund
Products Fund II Research Company
- ------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Management and Fidelity VIP Equity-Income
Products Fund Research Company
- ------------------------------------------------------------------------------------------------------
Janus Aspen Series Janus Capital Corporation Janus Aspen Series Balanced;
Janus Aspen Series Worldwide
Growth
- ------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Morgan Stanley Asset Morgan Stanley Emerging Markets
Funds, Inc. Management Inc. Equity
</TABLE>
FUNDS
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, Monitor and New York
Life are required to 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. 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. is required to provide
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. See the Prospectus for The
Alger American Fund which is attached to this Prospectus.
Calvert Fund--The Separate Account currently invests in the Calvert Social
Balanced Portfolio of the Calvert Variable Series. Currently, the Calvert Social
Balanced Portfolio is
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<PAGE> 30
the only Eligible Portfolio available through the Calvert Fund for investment by
the Separate Account. Calvert Asset Management Company, Inc. 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 Fund. 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
Fidelity Investments for investment by the Separate Account. Fidelity Management
and Research Company 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 Trustees of
Fidelity Investments. See the Prospectus for the Fidelity Investments 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 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. 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.
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. See the
Prospectus for the Morgan Stanley Fund which is attached to this Prospectus.
PORTFOLIOS
The Eligible Portfolios, which are offered by the Funds mentioned in the
previous section, are the mutual fund portfolios which you may invest in through
the Investment Divisions of the Separate Account. The assets of each Eligible
Portfolio are separate from the others and each Portfolio has different
investment objectives and policies. As a result, each Eligible Portfolio
operates as a separate investment Fund and the investment performance of one
Portfolio has no effect on the investment performance of any other Portfolio.
The following describes the investment characteristics of each of the eighteen
Portfolios in greater detail:
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 compa-
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<PAGE> 31
nies 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 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
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<PAGE> 32
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.
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.
Alger American Small Capitalization Portfolio--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
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<PAGE> 33
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. The Portfolio will normally
invest in common stock or securities convertible into common stock of companies
whose value the Portfolio manager believes is not fully recognized by the
public. This Portfolio also has the flexibility to invest in any type of
security that may produce capital appreciation.
The Fidelity VIP Equity-Income Portfolio--The Fidelity VIP Equity-Income
Portfolio seeks reasonable income by investing primarily in income producing
equity securities. Its goal is to achieve a yield in excess of the yield on
securities comprising the S&P 500. At least 65% of this Portfolio will be
invested in income producing equity securities. The Fund has the flexibility,
however, to invest the balance in all types of domestic and foreign securities,
including bonds.
The Janus Aspen Series Balanced Portfolio--The Janus Aspen Series Balanced
Portfolio seeks long-term capital growth, consistent with preservation of
capital and balanced by current income. It is a diversified Portfolio that,
under normal circumstances, pursues its objective by investing 40% to 60% of its
assets in securities selected primarily for their growth potential and 40% to
60% of its assets in securities selected primarily for their income potential.
The Portfolio normally invests at least 25% of its assets in fixed-income senior
securities, which include debt securities and preferred stock.
The Janus Aspen Series Worldwide Growth Portfolio--The Janus Aspen Series
Worldwide Growth Portfolio seeks long-term growth of capital in a manner
consistent with the preservation of capital. It invests in a diversified
portfolio of common stocks of foreign and domestic issuers. The Portfolio has
the flexibility to invest on a worldwide basis in companies and organizations of
any size, regardless of country of organization or place of principal business
activity. The Portfolio normally invests in issuers from at least five different
countries, including the United States. The Portfolio may at times invest in
fewer than five countries or even in a single country.
The Morgan Stanley 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.
You can find additional information concerning the investment objectives
and policies of the Eligible Portfolios and the investment advisory services and
charges and expenses in the current prospectus for the relevant Funds. These
prospectuses are attached at the end of this Prospectus. It is important to read
the Funds' prospectuses carefully before you make any decision about your
allocation of premiums to an Investment Division.
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<PAGE> 34
The Funds' shares may also be available to certain separate accounts we use
to fund our variable annuity policies. This is called "mixed funding." Shares of
The Alger American Fund, the Calvert Fund, Fidelity Investments(R), the Janus
Aspen Series and the Morgan Stanley Fund may also be available to separate
accounts of insurance companies that are not affiliated with NYLIAC and, in
certain instances, to qualified plans. This is called "shared funding." Although
we do not anticipate that any difficulties will result from mixed and shared
funding, it is possible that differences in tax treatment and other
considerations may cause the interests of owners of various contracts
participating in the Funds to 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.
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
We may add, delete or substitute the Eligible Portfolio shares held by any
Investment Division, within certain limits. We may eliminate the shares of any
of the Eligible Portfolios and substitute shares of another portfolio of a Fund,
or of another registered open-end management investment company or other
investment vehicles, if the shares of the Eligible Portfolios are no longer
available for investment or, if we decide that investment in an Eligible
Portfolio is inappropriate given the purposes of the Separate Account. We will
not substitute shares attributable to your interest in an Investment Division
until you have been notified of the change, as required by the Investment
Company Act of 1940.
The Separate Account may purchase other securities for other series or
classes of policies, or may convert between series or classes of policies based
on your request.
In the future, we may 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. We may establish new
investment divisions and/or eliminate one or more Investment Divisions when
marketing, tax, investment or other conditions make it appropriate. We may
decide whether or not the new investment divisions will be made available to
existing policyowners.
If we make a substitution or change to the Investment Divisions, we may
change your Policy to reflect such substitution or change. If we decide it is in
the best interests of our policyholders who have voting rights under the
Policies, the Separate Account may be (1) operated as management companies under
the Investment Company Act of 1940 or managed under the direction of a
committee, (2) deregistered under such Act in the event such registration is no
longer required, or (3) combined with one or more other separate accounts.
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<PAGE> 35
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 date they are paid.
THE FIXED ACCOUNT
You may choose to allocate all or part of your net premiums to the Fixed
Account.
INTEREST CREDITED ON AMOUNTS IN THE FIXED ACCOUNT
We will credit any amounts in the Fixed Account with an interest rate that
we determine. We can change this rate periodically. We will set this rate in
advance and any new rate we set will become effective on or after the next day.
We will credit the entire amount in the Fixed Account with interest at this new
interest rate. We may credit different interest rates to loaned and unloaned
amounts in the Fixed Account. We guarantee that the interest rate that we credit
on amounts in the Fixed Account will never be less than an effective annual rate
of 4%.
ASSETS IN THE FIXED ACCOUNT
The Fixed Account is supported by the assets in our general account, which
includes all of our assets except those assets specifically allocated to
separate accounts. These assets are subject to the claims of our general
creditors. We may invest the assets of the Fixed Account however we choose,
within limits. Your 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. Therefore, the Fixed Account
and any interests earned in the Fixed Account are generally not subject to these
statutes. 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.
TRANSFERS BETWEEN INVESTMENT DIVISIONS AND/OR THE FIXED ACCOUNT
You may transfer all or part of the cash value of your Policy (1) from the
Fixed Account to the Investment Divisions of the Separate Account, (2) from the
Investment Divisions of the Separate Account to the Fixed Account, or (3)
between the Investment Divisions in the Separate Account.
You may request a transfer, under the following conditions:
-- Maximum Transfer--There is no limit on the amount you may transfer from
one Investment Division to another Investment Division or to the Fixed
Account. The maximum amount you may transfer from the Fixed Account to
the Investment Divisions during any Policy Year is 10% of the amount in
the Fixed Account at the beginning of the Policy Year.
-- Minimum Transfer--The minimum amount that you may transfer from the
Investment Divisions or the Fixed Account is the lesser of (i) $500 or
(ii) the total amount in the Investment Divisions or the Fixed Account.
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<PAGE> 36
-- Minimum Remaining Value--If a transfer will cause the amount you have in
the Investment Divisions or the Fixed Account to be less than $500, we
will transfer the entire amount in the Investment Divisions and/or the
Fixed Account you have chosen.
-- Number of Transfers--You may make an unlimited number of transfers from
the Investment Divisions of the Separate Account to the Fixed Account
within the first two Policy Years. We may limit this type of transfer
after the first two Policy Years. You may make an unlimited number of
transfers between Investment Divisions each Policy Year. You may make an
unlimited number of transfers from the Fixed Account to the Investment
Divisions each Policy Year.
-- Transfer Charge--We may impose a charge up to $30 per transfer for each
transfer after the first twelve in any Policy Year. We will not count
any transfer made in connection with the Dollar Cost Averaging,
Automatic Asset Reallocation and Interest Sweep Options as a transfer
toward the twelve transfer limit.
REQUESTING A TRANSFER:
You can request a transfer in two ways:
-- submit your request in writing on a form we approve to Variable Product
Services; or
-- telephone a service representative at 800-598-2019 on business days
between the hours of 8:00 a.m. and 4:00 p.m. (Eastern Time).
We will use reasonable procedures to make sure that the instructions we
receive through the telephone are genuine. Before a service representative
accepts any request, he or she will ask the caller for the caller's Social
Security Number and address. We will also record all calls. We are not
responsible for any loss, cost or expense for any actions we take based on
telephone instructions we believe are genuine.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a systematic method of investing which allows you
to purchase shares of the Investment Divisions at regular intervals in fixed
dollar amounts so that the cost of your 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. Since 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 average cost per unit will be achieved
if prices fluctuate over the long term. Similarly, for each transfer out of an
Investment Division, more units are sold in an Investment Division if the value
per unit is low and fewer units are sold if the value per unit is high. Dollar
Cost Averaging does not assure growth or protect against a loss in declining
markets.
If you decide to use the Dollar Cost Averaging feature, we 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;
36
<PAGE> 37
-- the date on which you want the transfers to be made, within limits; 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.
We 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 Variable
Product Services. We 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. We 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 Policy features.
This option is available to you at no additional cost.
AUTOMATIC ASSET REALLOCATION
If you choose the Automatic Asset Reallocation feature, we will
automatically reallocate your assets among the Investment Divisions in order to
maintain a pre-determined percentage invested in the Investment Division(s) you
have selected. For example, you could specify that 50% of the amount you have in
the Separate Account be allocated to a particular Investment Division and the
other 50% be allocated to another Investment Division. Over time, the variations
in each of these Investment Division's investment results would cause this
balance to shift. If you elect the Automatic Asset Reallocation feature, we will
automatically reallocate the amounts you have in the Separate Account among the
various Investment Divisions so that they are invested in the percentages you
specify.
You may choose to schedule the reallocations quarterly, semi-annually or
annually. You may not choose to have your investments reallocated on a monthly
basis. The minimum amount you must have in the Separate Account in order to
elect this option is $5,000. We will automatically suspend this feature if the
cash value is less than $4,500 on a reallocation date. Once the cash value
equals or exceeds this amount, Automatic Asset Reallocation will automatically
resume as scheduled. There is no minimum amount which you must allocate among
the Investment Divisions under this feature.
You may cancel the Automatic Asset Reallocation feature at any time by
written request. You may not elect Automatic Asset Reallocation if you have
chosen Dollar Cost Averaging. However, you have the option of alternating
between these two Policy features.
This option is available to you at no additional cost.
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<PAGE> 38
INTEREST SWEEP
You may instruct us to periodically transfer the interest earned in the
Fixed Account into the Investment Division(s) you specify. This automatic
process is called Interest Sweep. If You choose the Interest Sweep feature, we
will ask you to specify:
-- the date you want this feature to start;
-- the percentages you want to be transferred to each Investment Division;
and
-- how often you want us to make these transfers: monthly, quarterly,
semi-annually or annually.
We will begin to make Interest Sweep transfers if the amount in the Fixed
Account is at least $5,000. You may specify any date that you want us to make
these automatic transfers, with the exception of the 29th, 30th or 31st of a
month.
You may not choose the Interest Sweep feature if you have instructed us to
allocate any part of your Policy expenses to the Fixed Account. If you want to
elect the Interest Sweep feature and you want to allocate your expenses, you
must allocate your expenses to the MainStay VP Cash Management Investment
Division.
You may request Interest Sweep in addition to either the Dollar Cost
Averaging or Automatic Asset Reallocation features. If an Interest Sweep
transfer is scheduled for the same day as a Dollar Cost Averaging or Automatic
Asset Reallocation transfer, we will process the Interest Sweep transfer first.
If an Interest Sweep transfer would cause more than 10% of the amount you
have in the Fixed Account at the beginning of the Policy Year to be transferred
from the Fixed Account, we will not process the transfer and we will suspend the
Interest Sweep feature. If the amount you have in the Fixed Account is less than
$4,500, we will automatically suspend this feature. Once the amount you have in
the Fixed Account equals or exceeds this amount, the Interest Sweep feature will
automatically resume as scheduled. You may cancel the Interest Sweep feature at
any time by written request.
This option is available to you at no additional cost.
DEDUCTIONS AND CHARGES
We assess certain charges and deductions from your Policy as compensation
for providing the Life Insurance Benefit under your Policy, for providing the
benefits under any riders, for administering the Policy, for assuming certain
risks and for incurring certain expenses in issuing the Policy. Four types of
charges are deducted from your Policy:
-- deductions from premiums,
-- deductions from cash value,
-- Separate Account charges, and
-- Fund charges.
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<PAGE> 39
Additionally, surrender charges may be assessed under certain
circumstances. Surrender charges are explained on page 45. All other charges are
described below.
SUMMARY OF DEDUCTIONS AND CHARGES
<TABLE>
<CAPTION>
CURRENT GUARANTEED
------- ----------
<S> <C> <C>
DEDUCTIONS FROM PREMIUMS
Sales Expense Charge
Policy Years 1-10 8% up to Target Premium 9% up to Target Premium
4% over Target Premium 6.5% over Target Premium
Policy Years 11+ 4% up to Target Premium 6.5% of all premiums
0% over Target Premium
Premium Tax Charge 2% may vary
Federal Tax Charge
Non-Qualified Policies 1.25% may vary
Qualified Policies N/A N/A
DEDUCTIONS FROM CASH VALUE
Monthly Contract Charge
Policy Year 1 $59 per month $62 per month
Policy Year 2+ $ 9 per month $12 per month
Charges for Cost of Insurance based on current rates based on guaranteed rates
Charge per $1,000 Initial Face Amount
Policy Years 1-3 $0.04/$1,000 per month $0.04/$1,000 per month
(min $10; max $100) (min $10; max $100)
Policy Years 4+ $0 $0
Rider Charges vary vary
SEPARATE ACCOUNT CHARGES
Mortality and Expense Risk Charge .60%* .90%*
Administrative Charge .10%* .10%*
FUND CHARGES
(see chart on page 44) vary vary
</TABLE>
* equivalent to an annual rate assessed on the average daily net asset
value in the Investment Divisions of the Separate Account.
DEDUCTIONS FROM PREMIUMS
When we receive a premium payment from you, whether planned or unplanned,
we will deduct a sales expense charge and a premium tax charge. If your Policy
is a Non-Qualified Policy we will also deduct a Federal tax charge.
SALES EXPENSE CHARGE
We deduct a sales expense charge from each premium you pay to partially
cover our expenses for selling the Policy to you. The amount of the sales
expense charge in a Policy Year is not necessarily related to our actual
expenses for that particular year. To the extent that sales expenses are not
covered by the sales expense charge and the surrender charge, they will be
recovered from NYLIAC surplus, including any amounts derived from the mortality
and expense risk charge, the charge for cost of insurance protection or the
charge per $1,000 of initial face amount. The sales expense charge we deduct is
a percentage of the premium you pay. This percentage varies depending on whether
the total
39
<PAGE> 40
premium you have paid in any given Policy Year is above or below the Target
Premium for your Policy.
TARGET PREMIUM
When your Policy is issued, we determine the initial Target Premium for
your Policy. Your Target Premium is based on the specific age, sex, and risk
class combination of the two insureds and the base Policy face amount. The
Target Premium is used for the purpose of calculating the sales expense charge
and the surrender charge. An increase in your Target Premium will generally
increase these charges. You can find your initial Target Premium on the Policy
Data Page of your Policy. If you increase or decrease the face amount of your
base Policy, we will make a corresponding increase or decrease to your Target
Premium.
CURRENT SALES EXPENSE CHARGE
During each of the first ten Policy Years, we currently deduct a sales
expense charge of 8% of any premiums paid up to the Target Premium. Once the
Target Premium for that Policy Year has been reached, we currently deduct a
sales expense charge of 4% from any additional premiums paid in that Policy
Year. Beginning in the eleventh Policy Year, we currently expect to deduct a
sales expense charge of 4% of any premiums paid up to the Target Premium for a
given Policy Year, with no charge for any premiums paid in excess of the Target
Premium.
GUARANTEED SALES EXPENSE CHARGE
We may change the sales expense charge at any time. During each of the
first ten Policy Years, we guarantee that any sales expense charge we deduct
will never exceed 9% of any premiums paid up to the Target Premium. Once the
Target Premium for that Policy Year has been reached, we will never deduct a
sales expense charge of more than 6.5% of any additional premiums paid in that
Policy Year. Beginning in the eleventh Policy Year, we guarantee that any sales
expense charge will never exceed 6.5% of any premiums paid.
PREMIUM TAX CHARGE
Some jurisdictions impose a tax on the premiums insurance companies receive
from their policyholders. We deduct 2% of each premium payment you make to cover
these premium taxes. We may increase the amount we deduct as a premium tax
charge to reflect changes in the law. Our right to increase this charge is
limited in some jurisdictions by law.
FEDERAL TAX CHARGE
The Federal government imposes limitations on our ability to deduct certain
expenses associated with Non-Qualified Policies. For Non-Qualified Policies, we
deduct 1.25% of each premium payment you make to cover the Federal tax that
results. We do not deduct this charge from Qualified Policies. We may increase
the amount we deduct as a Federal tax charge to reflect changes in the law.
DEDUCTIONS FROM CASH VALUE
Each month, we will deduct a monthly contract charge, a cost of insurance
charge, and a rider charge for the cost of any additional riders. During the
first three Policy Years, we
40
<PAGE> 41
will also deduct a charge per $1,000 of the initial face amount of your Policy
(not including riders).
We will deduct these charges from the cash value of your Policy on the
Monthly Deduction Day. The first Monthly Deduction Day will be the monthly
anniversary of your Policy Date on or following the Issue Date. If the Issue
Date and the Policy Date of your Policy are different, the charges we deduct on
the first Monthly Deduction Day will include the monthly charges we would have
deducted on each Monthly Deduction Day from the Policy Date to the Issue Date if
we had issued the Policy on the Policy Date.
You may instruct us on how to deduct these cash value charges from the
MainStay VP Cash Management Investment Division and/or the Fixed Account. If the
values in the MainStay VP Cash Management Investment Division and/or the Fixed
Account you have chosen are insufficient to pay these charges, we will deduct as
much of the charges as possible from these investment options. We will deduct
the remainder from the amounts in all of the Investment Divisions and the amount
not held as collateral for a loan in the Fixed Account in proportion to the
amounts in these investment options. If you do not provide us with any
instructions on how you would like your expenses allocated, we will deduct these
charges from the amount in the Investment Divisions and the amount not held as
collateral for a loan in the Fixed Account in proportion to these amounts.
MONTHLY CONTRACT CHARGE
On each Monthly Deduction Day, we will deduct a monthly contract charge to
cover our costs for providing certain administrative services including premium
collection, record keeping, processing claims and communicating to our
policyowners.
CURRENT MONTHLY CONTRACT CHARGE
Currently, we deduct a monthly contract charge of $59 per month from
Policies in their first Policy Year and we currently expect to deduct $9 per
month from Policies in later Policy Years.
GUARANTEED MONTHLY CONTRACT CHARGE
While we may change the monthly contract charge we deduct from your Policy
at any time, we guarantee that we will never charge you a monthly contract
charge that is more than $62 per month during the first Policy Year and $12 per
month in later Policy Years.
CHARGE FOR COST OF INSURANCE PROTECTION
On each Monthly Deduction Day, we will deduct a charge for cost of
insurance protection from the cash value of your Policy. This charge covers the
cost of providing Life Insurance Benefits to you.
The cost of insurance charge is calculated by multiplying the net amount at
risk on the Monthly Deduction Day by the monthly cost of insurance rate which
applies to the insureds at that time and then adding any applicable flat extra
charge. The net amount at risk is based on the difference between the current
Life Insurance Benefit of your Policy and the Policy's cash value.
41
<PAGE> 42
Your cost of insurance charge will vary from month to month depending upon
changes in the net amount at risk.
The monthly cost of insurance rate we apply to your Policy will be based on
our current monthly cost of insurance rates. We may change these rates from time
to time. However, the current rates will never be more than the guaranteed
maximum rates shown on the Policy Data Page of your Policy. The guaranteed rates
are based on the 1980 Commissioner's Standard Ordinary Mortality Tables
appropriate to each Insured's underwriting class if the insureds are a standard
underwriting class. The guaranteed rates for Policies that insure insureds in
substandard underwriting classes are based on different scales. The current
monthly cost of insurance rates are based on such factors as the sexes,
underwriting classes and issue ages of both insureds and the Policy Year.
CHARGE PER $1,000 OF INITIAL FACE AMOUNT
On each Monthly Deduction Day during the first three Policy Years, we will
deduct a charge of $0.04 per $1,000 of your Policy's initial face amount (not
including riders) from your Policy's cash value. However, this charge will
always be at least $10 per month and will never be more than $100 per month.
RIDER CHARGES
On each Monthly Deduction Day, we will deduct charges for any optional
rider benefits you have chosen from the cash value of your Policy.
SUPPLEMENTARY TERM RIDER CHARGE
If you choose this rider, we will deduct a charge equal to the cost of
insurance rate for your Policy multiplied by the term insurance death benefit
under this rider.
FIRST-TO-DIE MONTHLY DEDUCTION WAIVER RIDER CHARGE
If you choose this rider, we will deduct a charge based on the present
value of the charges that will be waived under this rider and the cost of
insurance rate for this rider.
LEVEL FIRST-TO-DIE TERM RIDER CHARGE
If you choose this rider, we will deduct a charge equal to the face amount
of this rider multiplied by the cost of insurance rate for this rider.
LIVING BENEFITS RIDER CHARGE
We do not deduct a charge for this rider.
SEPARATE ACCOUNT CHARGES
In addition to the deductions from premiums and the deductions from cash
value, we will also deduct certain charges from the Separate Account's
Investment Divisions. These deductions are made on a daily basis.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a mortality and expense risk charge daily from each Investment
Division to cover our mortality and expense risk. We assume a mortality risk
that the group of lives we have insured under our Policies will not live as long
as we expected. In addition, we
42
<PAGE> 43
assume an expense risk that the cost of issuing and administering the policies
we have sold will be greater than we estimated. We may use any profit derived
from this charge for any lawful purpose, including any distribution expenses not
covered by the sales expense charge.
CURRENT MORTALITY AND EXPENSE RISK CHARGE
We currently deduct a daily mortality and expense risk charge that is
equivalent to an annual rate of .60% of the average daily net asset value of the
Separate Account.
GUARANTEED MORTALITY AND EXPENSE RISK CHARGE
While we may change the mortality and expense risk charge we deduct, we
guarantee that this charge will never be more than an annual rate of .90% of the
average daily net asset value of each Investment Division.
ADMINISTRATIVE CHARGE
We deduct an administrative charge daily from each Investment Division to
cover the cost of providing administrative Policy services. We deduct a daily
administrative charge equivalent to an annual rate of .10% of the average daily
net asset value of the Separate Account to cover these costs. This charge is
designed not to produce a profit and is guaranteed not to increase.
OTHER CHARGES FOR FEDERAL INCOME TAXES
We do not currently deduct any charges from the Investment Divisions for
Federal income taxes attributable to them. We may choose to deduct such a charge
in the future in order to provide for any future income tax liability of the
Investment Divisions.
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 1997 fees and charges that are provided by the Funds or their agents,
which are based on 1997 expenses and may reflect estimated changes:
43
<PAGE> 44
<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>
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%(a) 0.13% 0.09% 0.17%(a)
Total Fund Annual Expenses..... 0.65% 0.54% 0.73%(a) 0.63% 0.59% 0.97%(a)
<CAPTION>
MAINSTAY VP
TOTAL MAINSTAY VP MAINSTAY VP
RETURN VALUE BOND
----------- ----------- -----------
<S> <C> <C> <C>
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>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP ALGER AMERICAN CALVERT FIDELITY VIP
GROWTH INDEXED SMALL SOCIAL FIDELITY VIP II EQUITY-
EQUITY EQUITY CAPITALIZATION BALANCED CONTRAFUND INCOME
----------- ----------- -------------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average net assets)
Advisory Fees.................. 0.25% 0.10% 0.85% 0.69%(b) 0.60% 0.50%
Administration Fees............ 0.20% 0.20% -- -- -- --
Other Expenses................. 0.05% 0.09% 0.04% 0.12%(b) 0.11% 0.08%
Total Fund Annual Expenses..... 0.50% 0.39% 0.89% 0.81%(b) 0.71%(c) 0.58%(c)
<CAPTION>
JANUS ASPEN
JANUS ASPEN SERIES MORGAN STANLEY
SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
----------- ----------- --------------
<S> <C> <C> <C>
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%(d) 0.74%(d) 1.75%(e)
</TABLE>
- ------------
(a) 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 MainStay VP International Equity
Portfolios, respectively.
(b) 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" are reduced by 0.03% under
an arrangement with the Fund's custodian whereby the custodian reduces the
Fund's custody expenses in connection with uninvested cash balances
maintained by the Fund with the bank. "Total Fund Annual Expenses" after
reductions for fees paid indirectly would have been 0.78%.
(c) 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.
(d) 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.
(e) 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.
44
<PAGE> 45
SURRENDER CHARGES
CHARGES IN POLICY YEARS 1-15
During the first fifteen Policy Years, we will deduct a surrender charge
from the cash value of your Policy if you:
- surrender your Policy; or
- decrease the face amount of your Policy (including a decrease in the
face amount that results from changing the Life Insurance Benefit
Option or from a partial withdrawal).
This surrender charge is in addition to the sales expense charge. The
surrender charge we will deduct if you surrender your entire Policy (assuming
you have not made any changes to your Policy) is equal to the percentage shown
in the table below multiplied by 20% of your Target Premium for the Policy Year
in which you surrender your Policy. See page 40 for an explanation of Target
Premium. The surrender charge we will deduct if you decrease your Policy's face
amount is described on page 46. Appendix C contains a table of maximum surrender
charges that could be assessed under a Policy.
<TABLE>
<CAPTION>
YOUNGER INSURED < ISSUE AGE 85 YOUNGER INSURED $ ISSUE AGE 85
---------------------------------- ----------------------------------
POLICY YEAR SURRENDER CHARGE POLICY YEAR SURRENDER CHARGE
----------- ---------------- ----------- ----------------
<S> <C> <C> <C>
1-6 100% 1-4 100%
7 90% 5 80%
8 80% 6 60%
9 70% 7 40%
10 60% 8 20%
11 50% 9+ 0%
12 40%
13 30%
14 20%
15 10%
16+ 0%
</TABLE>
The above percentages apply regardless of the years in which you make
premium payments.
Example: Assume that a Policy (a) has not had an increase in face amount, (b)
has a Target Premium of $12,662.14, (c) is issued when the younger
insured is under age 85 and (d) is surrendered in any Policy Year 1
through 6. The surrender charge for the Policy would be $2,532.43
(i.e., (20% of $12,662.14) multiplied by 100%).
ADDITIONAL CHARGE ON A SURRENDER IN THE FIRST POLICY YEAR
If you surrender your Policy during the first Policy Year, we will deduct
an additional contract charge when you surrender your Policy. This additional
charge equals the difference between a and b multiplied by c [i.e.,
(a - b) X c], where:
a = the monthly contract charge for the first Policy Year;
b = the monthly contract charge for subsequent Policy Years; and
c = the number of Monthly Deduction Days between the day you surrender your
Policy and the first anniversary of your Policy Date.
45
<PAGE> 46
SURRENDER CHARGES AFTER FACE AMOUNT INCREASES
If you increase your Policy's face amount (other than an increase that
results from a change in your Life Insurance Benefit Option), we will apply a
new surrender charge schedule to the amount of the increase in the face amount.
This schedule will start on the day we process your request. The original
surrender charge schedule will continue to apply to the original face amount of
your Policy.
If you have made multiple increases to the face amount of your Policy, and
later decide to decrease the face amount of your Policy or surrender it, we will
calculate the surrender charge in the following order:
1) based on the surrender charge associated with the last increase in face
amount;
2) based on each prior increase, in the reverse order in which the
increases occurred; and
3) based on the initial face amount.
SURRENDER CHARGES ON FACE AMOUNT DECREASES
If you decrease the face amount of your Policy, we will deduct a surrender
charge, if applicable. This charge will equal the difference between the
surrender charge that we would have charged if you had surrendered your entire
Policy before the decrease and the surrender charge that we would charge if you
surrendered your entire Policy after the decrease.
<TABLE>
<CAPTION>
EXAMPLE:
--------------------------------------------
<S> <C>
Face Amount prior to Decrease: $500,000
Amount of Decrease: $100,000
------------------------ --------
Face Amount after Decrease: $400,000
Surrender Charge on Face Amount
prior to Decrease ($500,000) $ 1,280
Less Surrender Charge on Face
Amount after Decrease
($400,000) $ 1,030
--------------------------------- --------
Surrender Charge on Decrease $ 250
</TABLE>
We will not impose a surrender charge on a decrease or termination of any
rider.
EXCEPTIONS TO SURRENDER CHARGE
We will not deduct a surrender charge for a surrender or a partial
withdrawal that results from:
-- our canceling the Policy;
-- payment of proceeds upon the death of the last surviving insured;
-- a required Internal Revenue Service minimum distribution; or
-- your exercise of the Policy Split Option.
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POLICY PROCEEDS
BENEFICIARY
The beneficiary is the person(s) or entity(ies) you have specified on our
records to receive insurance proceeds from your Policy.
-- You name the beneficiary when you apply for the Policy.
-- The beneficiary receives insurance proceeds after the last surviving
insured dies, or if there is a Level First-to-Die Term Rider, after
either insured dies.
-- You may elect to have different classes of beneficiaries, such as
primary and secondary, where these classes determine the order of
payment. You may have more than one beneficiary in a class.
-- You may name a different beneficiary to receive benefits under a Level
First-to-Die Term Rider than the beneficiary you name to receive
benefits under your base Policy.
-- You may change the beneficiary while at least one insured is living, by
writing to Variable Product Services (or another address we indicate to
you in writing). Generally, the change will take effect on the date you
sign the request.
-- If no beneficiary is living when the last surviving insured dies, we
will pay the Policy Proceeds to you or if you are deceased, to your
estate, unless you tell us to do otherwise.
WHEN WE PAY PROCEEDS
If your Policy is still in effect, we will pay any cash surrender value,
loan proceeds, or the Policy Proceeds generally within seven days after we
receive all of the necessary requirements at Variable Product Services (or any
other address we indicate to you in writing).
Situations where payment of proceeds may be delayed:
-- We may delay payment of any loan proceeds attributable to the Separate
Account, any partial withdrawal from the Separate Account, the cash
surrender value or the Policy Proceeds during any period that:
a) we are unable to determine the amount to be paid because the New
York Stock Exchange is closed (other than customary weekend and
holiday closings), trading is restricted by the Securities and
Exchange Commission ("SEC"), or the SEC declares that an emergency
exists; or
b) the SEC, by order, permits us to delay payment in order to protect
our policyowners.
-- We may delay payment of any portion of any loan or surrender request,
including requests for partial withdrawals, from the Fixed Account for
up to six months from the date we receive your request.
-- We may delay payment of the entire Policy Proceeds if we contest the
payment. We investigate all death claims that occur within the two year
contestable period. Upon
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receiving the information from a completed investigation we will make a
determination, generally within five days, as to whether the claim
should be authorized for payment. Payments are made promptly after
authorization.
We add interest at an annual rate of 3% (or at a higher rate if required by
law) if payment of a partial withdrawal or cash surrender value is delayed for
30 days or more.
We add interest to Policy Proceeds from the date of death to the date of
payment at the same rate as is paid under the Interest Payment Option (or at a
higher rate if required by law).
PAYMENT OPTIONS
We will pay your Policy Proceeds in one sum unless you choose otherwise.
There are three payment options you may choose from: an Interest Accumulation
Option, an Interest Payment Option, and a Life Income Option. If any payment
under these options is less than $100, we may pay any unpaid amount or present
value in one sum.
Any Policy Proceeds paid in one sum will be paid in cash and bear interest
compounded each year from the last surviving insured's death to the date of
payment. We set the interest rate each year. This rate will be at least 3% per
year (or a higher rate if required by law).
-- Interest Accumulation Option (Option 1A)
Under this option, the portion of the Policy Proceeds you choose to keep
with us will bear interest each year. You may make withdrawals from this
amount at any time in sums of $100 or more. We will pay interest on the sum
withdrawn up to the date of the withdrawal.
-- Interest Payment Option (Option 1B)
Under this option, we will pay interest on all or part of the Policy
Proceeds you choose to keep with us. You elect the frequency of the
interest payments we make: once each month, every three months, every six
months or each year.
-- Life Income Option (Option 2)
Under this option, we make equal monthly payments during the lifetime of
the payee or payees. We determine the amount of the monthly payment by
applying the Policy Proceeds to the purchase of a corresponding single
premium life annuity policy, which is issued when the first payment is due.
Payments remain the same and are guaranteed for ten years, even if the
specified payee dies sooner.
Payments are based on an adjusted annuity premium rate in effect at the
time the annuity policy is issued. This rate will not be less than the
corresponding minimum amount shown in the Option 2 table found in your
Policy. These minimum amounts are based on the 1983 Table "a" with
Projection Scale G and with interest compounded each year at 3%.
If you ask us, we will send you a statement of the minimum amount due with
respect to each monthly payment in writing. The minimum is based on the sex
and adjusted
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age of the payee(s). 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>
1997-2005 2006-2015 2016-2025 2026-2035 2036 AND LATER
- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C>
+1 0 -1 -2 -3
</TABLE>
Electing or changing a payment option:
While at least one of the insureds is living, you can elect or change your
payment option. You can also elect or change one or more of the beneficiaries
who will be the payee(s) under that option.
After the last surviving insured dies, any person who is entitled to
receive Policy Proceeds in one sum (other than an assignee) can elect a payment
option and name payees. The person who elects a payment option can also name one
or more successor payees to receive any amount remaining at the death of the
payees. Naming these payees cancels any prior choice of successor payees. A
payee who did not elect the payment option has the right to advance or assign
payments, take the payments in one sum, change the payment option, or make any
other change, only if the person who elects the payment option notifies us in
writing and we agree.
PAYEES
You can only name individuals who are able to receive payments on their own
behalf as payees or successor payees, unless we agree otherwise. We may require
proof of the age of the payee or proof that the payee is living. If we still
have an unpaid amount, or there are some payments which still need to be made
when the last surviving payee dies, 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. We will make this payment 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.
ADDITIONAL POLICY PROVISIONS
LIMITS ON OUR RIGHTS TO CHALLENGE YOUR POLICY
Generally, we must bring any legal action contesting the validity of your
Policy within two years of the Issue Date, including any action taken to contest
a face increase as a result of a change in the Life Insurance Benefit Option.
For any increase(s) in face amount other than one due to a change in the Life
Insurance Benefit Option, this two year period begins on the effective date of
the increase.
SUICIDE
While your Policy is in effect:
-- If the death of the first insured who dies is a result of suicide within
two years of the Issue Date, your Policy will continue to be in effect
on the last surviving insured.
-- If the suicide of both insureds at the same time, or of the last
surviving insured occurs within two years of the Issue Date, we will pay
a limited life insurance benefit in one sum to the beneficiary. The
limited life insurance benefit is the total amount of
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<PAGE> 50
premiums, less any outstanding loans (including accrued loan interest)
and/or amounts withdrawn. If the suicide(s) occurs within two years of
the effective date of a face amount increase, we will also pay the
limited life insurance benefit, or, if the limited life insurance
benefit is not payable, the monthly deductions from cash value made for
that increase.
MISSTATEMENT OF AGE OR SEX
If either or both of the insured's age or sex is misstated in the Policy
application, we will adjust the cash value, the cash surrender value, and the
Life Insurance Benefit to reflect the correct ages and sexes. We will adjust the
Policy Proceeds provided by your Policy based on the most recent mortality
charge for the correct dates of birth or correct sexes.
ASSIGNMENT
You may assign a Non-Qualified Policy as collateral for a loan or other
obligation. In order for this assignment to be binding on us, we must receive a
signed copy of it at Variable Product Services (or any other location we
indicate to you in writing). We are not responsible for the validity of any
assignment. If your Policy is a modified endowment contract, assigning your
policy may result in taxable income to you. For more information, please read
FEDERAL INCOME TAX CONSIDERATIONS on page 52. You may not assign Qualified
Policies.
FREE LOOK
You have a right to cancel your Policy, within certain limits. Under the
free look provision of your Policy, you generally have twenty days after you
receive your Policy to return the Policy to us and receive a refund. You may
cancel increases in the face amount of your Policy under the same time limits.
If you cancel your Policy, we will pay you the greater of your Policy's
cash value on the date you return the Policy or the total premium payments you
have made, less any loans and any partial withdrawals you have taken. We will
allocate premium payments you make during the free look period to the MainStay
VP Cash Management Investment Division until the end of the free look period, as
stated in your Policy.
If you cancel an increase in face amount of your Policy, we will refund the
premium payments you have paid in excess of the planned premiums which are
allocated to the increase in accordance with the surrender charge provision,
less any part of the excess premium payments which we have already paid you.
You may return the Policy to Variable Product Services or you may return it
to any of our agency offices or to the registered representative who sold you
the Policy.
EXCHANGE PRIVILEGE
Within the first twenty four months after the Issue Date of your Policy, if
you decide you do not want to own a variable Policy, you may either (1) transfer
all of the amounts you have invested in the Investment Divisions to the Fixed
Account of your Policy or (2) exchange your Policy for a new fixed premium
survivorship permanent plan of life insurance
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<PAGE> 51
that we (or one of our affiliates) offer for this purpose. The new policy will
have the same policy date, issue age, risk classification and initial face
amount as your original Policy, but will not offer variable investment options
such as the Investment Divisions.
In order to exchange your Policy:
-- your Policy must be in effect on the date of the exchange;
-- you must repay any unpaid loan (including any accrued loan interest);
and
-- you must submit a proper written request.
We will process your request for an exchange on the later of: (a) the date
you send in your written request along with your Policy or (b) the date we
receive the necessary payment for your exchange at Variable Product Services (or
any other location we indicate to you in writing). The exchange will be
effective on the later of these two dates. We will require you to make any
adjustment to the premiums and cash values of your Policy and the new policy, if
necessary.
When you exchange your Policy, all riders and benefits on that Policy will
end, unless required by law. The new policy will have the same Issue Date, issue
ages, and risk classifications as your original Policy.
During the first two years after any increase in the face amount of your
Policy you have the right to transfer amounts attributable to this increase from
the Investment Divisions to the Fixed Account. The maximum amount you may
request as a transfer from the Separate Account to the Fixed Account during this
two year period is the lesser of the premium payments you made after you
increased your Policy's face amount which are attributable to the increase in
face amount and the amount in the Separate Account.
ADDITIONAL PROVISIONS REGARDING THE SEPARATE ACCOUNT
YOUR VOTING RIGHTS
We will vote the shares that the Investment Divisions of the Separate
Account hold in the Funds at any regular and special shareholder meetings of the
Funds. We will vote these shares according to the instructions we receive from
our policyholders who have invested their premiums in Investment Divisions that
invest in the Fund. However, if the law changes to allow us to vote the shares
in our own right, we may decide to do so.
While your Policy is in effect, you hold a voting interest in each
Investment Division that you have amounts invested in. The number of votes you
are entitled to will be determined by dividing the amount you have invested in
an Investment Division by the net asset value per unit for the Eligible
Portfolio underlying that Investment Division.
We will determine the number of votes you are entitled to on the date
established by the underlying Fund for determining shareholders that are
eligible to vote at the meeting of the relevant Fund. We will send you written
voting instructions prior to the meeting according to the procedures established
by the Fund. We will send proxy material, reports and other materials relating
to the Fund to each person having a voting interest.
We will vote the Fund shares for which we do not receive timely
instructions in the same proportion as the shares for which we receive voting
instructions in a timely manner. Voting instructions to abstain from voting on
an item will be used to reduce the number of votes eligible to be cast.
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<PAGE> 52
OUR RIGHTS
We may take certain actions relating to our operations and the operations
of the Separate Account. We will take these actions 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 our
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 a management investment company under
the Investment Company Act of 1940 or in any other form permitted by
law;
-- deregister the Separate Account under the Investment Company Act of
1940;
-- 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.
We may also change the name 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.
FEDERAL INCOME TAX CONSIDERATIONS
OUR INTENT
Our intent in the discussion in this section is to provide general
information about Federal income tax considerations related to the Policies.
This is not an exhaustive discussion of all tax questions that might arise under
the Policies. This discussion is not intended to be tax advice for you. Tax
results may vary according to your particular circumstances, and you may need
tax advice in connection with the purchase or use of your Policy.
The discussion in this section is based on our understanding of the present
Federal income tax laws as they are currently interpreted by the Internal
Revenue Service ("IRS"). We have not included any information about applicable
state or other tax laws. Further, you should note that tax law changes from time
to time. We do not know whether the treatment of life insurance policies under
Federal income tax or estate or gift tax laws will continue. 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. You
should consult a tax advisor for information on the tax treatment of the
Policies, for the tax treatment under the laws of your state, or for information
on the impact of proposed or future changes in tax legislation, regulations or
interpretations.
The ultimate effect of Federal income taxes on values under the Policy and
on the economic benefit to you or the beneficiary depends upon NYLIAC's tax
status, upon the terms of the Policy and upon your circumstances.
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<PAGE> 53
TAX STATUS OF NYLIAC AND THE SEPARATE ACCOUNT
NYLIAC is taxed as a life insurance company under Subchapter L of the
Internal Revenue Code. The Separate Account is not a separate taxable entity
from NYLIAC and we take its operations into account in determining NYLIAC's
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
We impose a Federal tax charge on Non-Qualified Policies equal to 1.25% of
premiums received under the Policy to compensate us for taxes we have to pay
under Section 848 of the Internal Revenue Code in connection with our receipt of
premiums under Non-Qualified Policies. No other charge is currently made to the
Separate Account for our Federal income taxes that may be attributable to the
Separate Account. In the future, we may impose a charge for our Federal income
taxes that are attributable to the Separate Account. In addition, depending on
the method of calculating interest on amounts allocated to the Fixed Account, we
may impose a charge for the Policy's share of NYLIAC's Federal income taxes
attributable to the Fixed Account.
Under current laws, we 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, we reserve
the right to charge the Separate Account for the portion of such taxes, if any,
attributable to the Separate Account or the Policies.
DIVERSIFICATION STANDARDS AND CONTROL ISSUES
In addition to other requirements imposed by the Internal Revenue Code, a
Policy will qualify as life insurance under the Internal Revenue Code only if
the diversification requirements of Internal Revenue Code Section 817(h) are
satisfied by the Separate Account. We intend for the Separate Account to comply
with Internal Revenue Code Section 817(h) and related regulations. To satisfy
these diversification standards, the regulations generally require that on the
last day of each calendar quarter, no more than 55% of the value of a Separate
Account's assets can be represented by any one investment, no more than 70% can
be represented by any two investments, no more than 80% can be represented by
any three investments, and no more than 90% can be represented by any four
investments. For purposes of these rules, all securities of the same issuer
generally are treated as a single investment, but each U.S. Government agency or
instrumentality is treated as a separate issuer. Under a "look through" rule, we
are able to meet the diversification requirements by looking through the
Separate Account to the underlying Eligible Portfolio. Each of the Funds have
committed to us that the Eligible Portfolios will meet the diversification
requirements.
The Internal Revenue Service has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
he or she possesses incidents of ownership in those assets, such as the ability
to exercise investment control over the assets. In those circumstances, income
and gains from the separate account assets would be includable in the variable
policyowner's gross income. In connection with
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its issuance of temporary regulations under Internal Revenue 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 investment 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. The
ownership rights under your Policy are similar to, but different in certain
respects from, those described by the Internal Revenue Service in rulings in
which it was determined that policyowners were not owners of separate account
assets. For example, you have additional flexibility in allocating premium
payments and Policy cash values. These differences could result in your being
treated as the owner of your Policy's pro rata portion of the assets of the
Separate Account. In addition, we do not know what standards will be set forth,
if any, in the regulations or ruling which the Treasury Department has stated it
expects to issue. We therefore reserve the right to modify the Policy, as deemed
appropriate by us, to attempt to prevent you from being considered the owner of
your Policy's pro rata share of the assets of the Separate Account. Moreover, in
the event that regulations are adopted or rulings are issued, there can be no
assurance that the Eligible Portfolios will continue to be available, will be
able to operate as currently described in the Fund prospectuses, or that a Fund
will not have to change an Eligible Portfolio's investment objective or
investment policies.
LIFE INSURANCE STATUS OF POLICY
We believe that the Policy meets the statutory definition of life insurance
under Internal Revenue Code Section 7702 and that you and the beneficiary of
your Policy will receive the same Federal income tax treatment as that accorded
to owners and beneficiaries of fixed benefit life insurance policies.
Specifically, we believe that the Life Insurance Benefit under your Policy will
be excludable from the gross income of the beneficiary subject to the terms and
conditions of Section 101(a)(1) of the Internal Revenue Code. Pursuant to
Section 101(g) of the Internal Revenue Code, amounts received by the policyowner
may also be excludable from the policyowner's gross income when either insured
has a terminal illness. (Life insurance benefits under a "modified endowment
contract" as discussed below are treated in the same manner as life insurance
benefits under life insurance policies 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, we believe that 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.
The area of the tax law relating to the definition of life insurance does
not explicitly address all of the facts that are relevant for the Policies
(including, for example, the treatment of substandard risk policies, policies
with term insurance on the Insureds, and certain tax requirements relating to
joint survivorship life insurance policies). We reserve the right to make
changes to the Policy if we think appropriate to attempt to assure qualification
of the Policy as a life insurance contract. If a Policy were determined not to
qualify as life insurance, the Policy would not provide the tax advantages
normally provided by life insurance.
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MODIFIED ENDOWMENT CONTRACT STATUS
Internal Revenue Code Section 7702A defines a class of life insurance
policies referred to as modified endowment contracts. Under this provision, the
policies will be treated for tax purposes in one of two ways. Policies that are
not classified as modified endowment contracts will be taxed as conventional
life insurance policies, as described below. Taxation of pre-death distributions
from policies that are classified as modified endowment contracts and that are
entered into on or after June 21, 1988 is somewhat different, as described
below.
A life insurance policy becomes a "modified endowment contract" if, at any
time during the first seven years, the sum of actual premiums paid exceeds the
sum of the "seven-pay premium." Generally, the "seven-pay premium" is the level
annual premium, such that if paid for each of the first seven years, will fully
pay for all future life insurance and endowment benefits under a life insurance
policy. For example, if the "seven-pay premiums" were $1,000, the maximum
premiums that could be paid during the first seven years to avoid "modified
endowment" treatment would be $1,000 in the first year, $2,000 through the first
two years and $3,000 through the first three years, etc. Under this test, a
policy may or may not be a modified endowment contract, depending on the amount
of premiums paid during each of the policy's first seven years. 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.
Certain changes in the terms of a policy including a reduction in life
insurance benefits will require a policy to be retested to determine whether the
change has caused the policy to become a modified endowment contract. 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. A "material
change" generally includes increases in life insurance benefits, but does not
include an increase in life insurance benefits which is attributable to the
payment of premiums necessary to fund the lowest level of life insurance
benefits payable during the first seven policy 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 Life Insurance 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 policy 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 Internal Revenue Code, any distribution or loan made within two
Policy 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, you will
recognize ordinary income for Federal tax purposes to the extent that the cash
surrender value exceeds the investment in your Policy (the total of all premiums
paid but not previously recovered plus any other consideration paid for the
Policy). The tax consequences of a
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partial withdrawal from your Policy will depend upon whether the partial
withdrawal results in a reduction of future benefits under your Policy and
whether your Policy is a modified endowment contract.
If your 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 policy. An exception to this general rule
applies, however, if a reduction of future benefits occurs during the first
fifteen years after a policy is issued and there is a cash distribution
associated with that reduction. In such a case, the Internal Revenue Code
prescribes a formula under which you may be taxed on all or a part of the amount
distributed. After fifteen years, 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 policy. We suggest that you
consult with a tax advisor in advance of a proposed decrease in face amount or a
partial withdrawal. In addition, any amounts distributed under a "modified
endowment contract" (including proceeds of any loan) are taxable to the extent
of any accumulated income in the policy. In general, the amount that may be
subject to tax is the excess of the cash value (both loaned and unloaned) over
the previously unrecovered premiums paid.
For purposes of determining the amount of income received upon a
distribution (or loan) from a modified endowment contract, the Internal Revenue
Code requires the aggregation of all modified endowment contracts issued to the
same policyowner by an insurer and its affiliates within the same calendar year.
Therefore, loans and distributions from any one such policy are taxable to the
extent of the income accumulated in all the modified endowment contracts
required to be so aggregated.
If any amount is taxable as a distribution of income under a modified
endowment contract (as a result of a policy surrender, a partial withdrawal or a
loan), it may also be subject to a 10% penalty tax under Internal Revenue Code
Section 72(v). Limited exceptions from the additional penalty tax are available
for certain distributions to individuals who own policies. 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
We believe that under current law any loan received under your Policy will
be treated as policy debt to you and that, unless your Policy is a modified
endowment contract, no part of any loan under your Policy will constitute income
to you. If your 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% tax.
Internal Revenue Code Section 264 provides that interest paid or accrued on
a loan in connection with a Policy is generally nondeductible. Certain
exceptions apply, however, with respect to Policies covering key employees. In
addition, in the case of Policies not held by individuals, special rules may
limit the deductibility of interest on loans that are not made in connection
with a Policy. We suggest consultation with a tax advisor for further guidance.
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CORPORATE OWNERS
If you are a corporation, ownership of a Policy may affect your exposure to
the corporate alternative minimum tax. If you intend to use the Policies to fund
deferred compensation arrangements, you should consider the tax consequences of
these arrangements. You should consult your tax advisors on these matters.
EXCHANGES OR ASSIGNMENTS OF POLICIES
If you change the policyowner or exchange or assign your Policy it may have
significant tax consequences depending on the circumstances. For example, an
assignment or exchange of the Policy may result in taxable income to you.
Further, Internal Revenue Code Section 101(a) provides, subject to certain
exceptions, that where a policy has been transferred for value, only the portion
of the life insurance 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.
REASONABLENESS REQUIREMENT FOR CHARGES
Another provision of the tax law deals with allowable charges for mortality
costs and other expenses that are used in making calculations to determine
whether a policy qualifies as life insurance for Federal income tax purposes.
For life insurance policies entered into on or after October 21, 1988, these
calculations must be based upon reasonable mortality charges and other charges
reasonably expected to be actually paid. The Treasury Department has issued
proposed regulations and is expected to promulgate temporary or final
regulations governing reasonableness standards for mortality charges. Under the
proposed regulations, the standards applicable to joint survivor life insurance
policies are not entirely clear. While we believe under Internal Revenue Service
pronouncements currently in effect that the mortality costs and other expenses
used in making calculations to determine whether your Policy qualifies as life
insurance meet the current requirements, we cannot assure you that the Internal
Revenue Service would necessarily agree. It is possible that future regulations
will contain standards that would require us to modify the mortality charges
used for the purposes of the calculations in order to attempt to retain the
qualification of your Policy as life insurance for Federal income tax purposes,
and we reserve the right to make any such modifications.
LIVING BENEFITS RIDER (ALSO KNOWN AS ACCELERATED BENEFITS RIDER)
A Living Benefits Rider is available in connection with the Policy. Amounts
received under this rider will generally be excludable from your gross income
under Section 101(g) of the Internal Revenue Code. The exclusion from gross
income will not apply, however, if you are not one of the insureds or if you do
not have an insurable interest in the life of the surviving insured either
because the surviving insured is your director, officer or employee or because
the surviving insured has a financial interest in a business of yours.
In some cases, there may be a question as to whether a life insurance
Policy that has an accelerated living benefit rider can meet certain technical
aspects of the definition of "life insurance contract" under the Internal
Revenue Code. We reserve the right (but we are not obligated) to modify the
rider to conform with requirements the Internal Revenue Service may enact.
57
<PAGE> 58
POLICY SPLIT OPTION
This option permits a Policy to be split into two individual policies. A
Policy split could have adverse tax consequences. The Internal Revenue Service
has ruled privately that where the insured or insureds of an insurance policy
that is exchanged for a new policy are not identical to the insured or insureds
of the new policy, the exchange is taxable.
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
The Policies are intended to be used with plans qualified under Section
401(a) of the Internal Revenue Code. While these plans include profit sharing
plans, 401(k) plans, money purchase pension plans and defined benefit plans,
purchasers of these Policies should seek competent legal and tax advice
regarding the suitability of these Policies for all types of plans qualified
under Section 401(a). Generally, employer contributions to plans qualified under
Section 401(a) and earnings thereon are not taxed to participants until
distributed in accordance with plan provisions.
WITHHOLDING
Under Section 3405 of the Internal Revenue Code, withholding is generally
required with respect to certain taxable distributions under insurance policies.
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%. You can elect to have either non-periodic or periodic
payments made without withholding except where your tax identification number
has not been furnished to us, or where the Internal Revenue Service has notified
us that a tax identification number is incorrect.
Different withholding rules apply to payments made to U.S. citizens living
outside the United States and to non-U.S. citizens living outside of the United
States. U.S. citizens who live outside of the United States generally are not
permitted to elect not to have federal income taxes withheld from payments.
Payments to non-U.S. citizens who are not residents of the United States
generally are subject to 30% withholding, unless an income tax treaty between
their country of residence and the United States provides for a lower rate of
withholding or an exemption from withholding.
ABOUT NYLIAC
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's principal business
address is 51 Madison Avenue, New York, New York 10010.
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.
NYLIAC had total assets amounting to $21.1 billion at the end of 1997. New York
Life has invested in NYLIAC, and will, in order to maintain capital and surplus
in accordance with state requirements, occasionally make additional
contributions to NYLIAC.
58
<PAGE> 59
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.
DIRECTORS AND PRINCIPAL OFFICERS OF NYLIAC
<TABLE>
<CAPTION>
DIRECTORS: POSITIONS DURING LAST FIVE YEARS:
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
OFFICERS: POSITIONS DURING LAST FIVE YEARS:
<S> <C>
Howard I. Atkins Executive Vice President and Chief Financial Officer of New
York Life and New York Life Insurance and Annuity
Corporation from April 1996 to date; Chief Financial Officer
of Midlantic Corporation prior thereto.
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.
</TABLE>
59
<PAGE> 60
<TABLE>
<CAPTION>
OFFICERS: POSITIONS DURING LAST FIVE YEARS:
<S> <C>
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 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>
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 outstanding loans
(including accrued loan interest) 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 this same
information as of the end of the previous quarter. In addition to these reports,
you may request an illustration of your Policy at any time by contacting your
registered representative.
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.
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
Policy Year will not exceed 50% of the premiums paid up to a Policy's Target
Premium (8.0% in the second and subsequent Policy Years) plus 3.5% of premiums
paid in excess of such amount. 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.
60
<PAGE> 61
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 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 policyholders in that
State who excluded themselves from the nationwide class action was recently
reversed by an intermediate appellate court; plaintiffs filed a motion for
rehearing in the 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.
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 Irwin Don,
Associate 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.
61
<PAGE> 62
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 63
FINANCIAL STATEMENTS
F-1
<PAGE> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-10
<PAGE> 73
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> 74
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> 75
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> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
Separate Account I is charged for administrative services provided and
VL 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:
- --------------------------------------------------------------------------------
Separate Account I does not expect to declare dividends to Policyowners
VL 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> 77
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VL SEPARATE ACCOUNT I
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-15
<PAGE> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
APPENDIX A
ILLUSTRATIONS
The following tables demonstrate the way in which your Policy works. The
tables are based on the ages, sexes, underwriting classes, initial Life
Insurance Benefit and premium as follows:
The tables are for a Policy issued to a male with non-smoker underwriting
class and issue age 55, and a female with non-smoker underwriting class and
issue age 50 with a planned annual premium of $15,000, a Target Premium of
$12,662.14, an initial face amount of $1,000,000 and no riders.
The tables show how the cash value, cash surrender value and Life Insurance
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 Life Insurance Benefit, cash value
and cash surrender value of the Policy with other variable life insurance plans.
The Life Insurance 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 planned premium and the cash value at
their 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 planned premium 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. This total is based upon (a) 0.42% of average daily net assets,
which is an average of the management fees of each Investment Division; (b)
0.14% of average daily net assets of the Funds which is an average of actual
administrative fees for each Investment Division; 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 Investment Division.
"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,
1997 would have been 0.78% and 1.25% for the MainStay VP Convertible and
MainStay VP International Equity Portfolios, respectively.
A-1
<PAGE> 110
For the Calvert Social Balanced Portfolio, the Fund 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%.
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.
The advisory fees for the Janus Aspen Series Balanced Portfolio and Janus
Aspen Series Worldwide Growth Portfolio reflect a reduced fee schedule effective
July 1, 1997. "Other Expenses" are based on gross expenses of the Fund shares
before expense offset arrangements for the fiscal year ended December 31, 1997.
The advisory fees reflect the new rate applied to net assets on 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, 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 ages,
sexes and underwriting classifications of the insureds for any initial Life
Insurance Benefit and premium requested. In addition to an illustration assuming
Policy charges at their maximum, we will furnish an illustration assuming
current Policy charges and current cost of insurance rates.
A-2
<PAGE> 111
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE ISSUE AGE: 55, NON-SMOKER
FEMALE ISSUE AGE: 50, NON-SMOKER
PLANNED ANNUAL PREMIUM: $15,000
TARGET PREMIUM: $12,662.14
INITIAL FACE AMOUNT: $1,000,000
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID 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%
- ----------- -------------------- --------- --------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 15,750 1,000,000 1,000,000 1,000,000 12,004 12,768 13,534
2 32,288 1,000,000 1,000,000 1,000,000 24,389 26,692 29,088
3 49,652 1,000,000 1,000,000 1,000,000 36,569 41,223 46,257
4 67,884 1,000,000 1,000,000 1,000,000 49,016 56,874 65,711
5 87,029 1,000,000 1,000,000 1,000,000 61,234 73,189 87,169
6 107,130 1,000,000 1,000,000 1,000,000 73,217 90,189 110,837
7 128,237 1,000,000 1,000,000 1,000,000 84,958 107,896 136,938
8 150,398 1,000,000 1,000,000 1,000,000 96,459 126,342 165,732
9 173,668 1,000,000 1,000,000 1,000,000 107,625 145,466 197,414
10 198,102 1,000,000 1,000,000 1,000,000 118,456 165,297 232,294
15 339,862 1,000,000 1,000,000 1,000,000 170,221 279,489 472,269
20 520,789 1,000,000 1,000,000 1,496,793 213,546 418,662 865,199
30 1,046,412 1,000,000 1,045,050 3,328,493 227,408 779,888 2,483,950
<CAPTION>
END OF YEAR
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
VALUE(2) -----------------------------
POLICY YEAR 0% 6% 12%
- ----------- ------- ------- ---------
<S> <C> <C> <C>
1 9,471 10,236 11,002
2 21,857 24,160 26,556
3 34,037 38,691 43,725
4 46,484 54,342 63,179
5 58,701 70,656 84,637
6 70,685 87,657 108,305
7 82,679 105,617 134,659
8 94,433 124,316 163,706
9 105,852 143,693 195,641
10 116,937 163,778 230,775
15 169,968 279,236 472,015
20 213,546 418,662 865,199
30 227,408 779,888 2,483,950
</TABLE>
- ------------
(1) All premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no Policy loan or partial withdrawal has been made.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUNDS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO
REPRESENTATIONS CAN BE MADE BY NEW YORK LIFE INSURANCE AND ANNUITY COMPANY OR
THE SEPARATE ACCOUNTS OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
A-3
<PAGE> 112
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE UNIVERSAL LIFE INSURANCE POLICY
MALE ISSUE AGE: 55, NON-SMOKER
FEMALE ISSUE AGE: 50, NON-SMOKER
PLANNED ANNUAL PREMIUM: $15,000
TARGET PREMIUM: $12,662.14
INITIAL FACE AMOUNT: $1,000,000
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID 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%
- ----------- -------------------- --------- --------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 15,750 1,000,000 1,000,000 1,000,000 11,748 12,500 13,254
2 32,288 1,000,000 1,000,000 1,000,000 23,813 26,073 28,424
3 49,652 1,000,000 1,000,000 1,000,000 35,581 40,133 45,057
4 67,884 1,000,000 1,000,000 1,000,000 47,511 55,173 63,793
5 87,029 1,000,000 1,000,000 1,000,000 59,104 70,723 84,318
6 107,130 1,000,000 1,000,000 1,000,000 70,339 86,779 106,795
7 128,237 1,000,000 1,000,000 1,000,000 81,194 103,335 131,400
8 150,398 1,000,000 1,000,000 1,000,000 91,642 120,385 158,327
9 173,668 1,000,000 1,000,000 1,000,000 101,653 137,916 187,792
10 198,102 1,000,000 1,000,000 1,000,000 111,190 155,911 220,031
15 339,862 1,000,000 1,000,000 1,000,000 151,221 253,433 435,142
20 520,789 1,000,000 1,000,000 1,334,229 166,033 354,541 771,231
30 1,046,412 * 1,000,000 2,656,104 * 493,701 1,982,167
<CAPTION>
END OF YEAR
CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS
ANNUAL INVESTMENT RETURN OF
VALUE(2) -----------------------------
POLICY YEAR 0% 6% 12%
- ----------- ------- ------- ---------
<S> <C> <C> <C>
1 9,215 9,968 10,721
2 21,281 23,540 25,891
3 33,048 37,600 42,525
4 44,979 52,641 61,260
5 56,572 68,190 81,786
6 67,807 84,246 104,262
7 78,915 101,058 129,120
8 89,616 118,359 156,301
9 99,880 136,143 186,019
10 109,671 154,392 218,512
15 150,967 253,179 434,888
20 166,033 354,541 771,231
30 * 493,701 1,982,167
</TABLE>
- ------------
(1) All premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no Policy loan or partial withdrawal has been made.
* Without additional Premiums above the annual planned premium, the Policy
would lapse in this scenario.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN
ABOVE ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR
FUTURE INVESTMENT RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS
THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE
INVESTMENT ALLOCATIONS MADE BY AN OWNER AND THE INVESTMENT EXPERIENCE OF THE
PORTFOLIOS OF THE FUNDS. THE DEATH BENEFIT, CASH VALUE AND CASH SURRENDER VALUE
FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL
RATES OF RETURN AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. THEY WOULD
ALSO BE DIFFERENT IF ANY POLICY LOANS OR PARTIAL WITHDRAWALS WERE MADE. NO
REPRESENTATIONS CAN BE MADE BY NEW YORK LIFE INSURANCE AND ANNUITY COMPANY OR
THE SEPARATE ACCOUNTS OR THE FUNDS THAT THESE HYPOTHETICAL RATES OF RETURN CAN
BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER A PERIOD OF TIME.
A-4
<PAGE> 113
APPENDIX B
VARIATIONS BY JURISDICTION
The following lists by jurisdiction any variations to the statements made in
this Prospectus.
CALIFORNIA
- -- Free Look--If you cancel your policy, we will pay you your Policy's cash
value on the date you return the Policy, plus the charges which were deducted
from the premium payments you have made, less any loans and partial
withdrawals you have taken.
COLORADO
- -- Transfers to the Fixed Account--If there is a change in the investment
strategy of the Separate Account, you may make an unrestricted transfer from
the Separate Account to the Fixed Account, even if such change occurs after
the first two Policy Years.
- -- The Suicide Exclusion period is one year from the Issue Date.
CONNECTICUT
- -- Loan Interest Rate--Due to state regulation, the loan interest rate is fixed
at 8.0% and may not be lowered.
DISTRICT OF COLUMBIA
- -- Free Look Period--You have until the later of 20 days from the date you
receive your Policy, or 45 days from the date the application is signed, to
return the Policy and receive a refund. We will allocate the initial premium
and any other premium payments you make during the first 20 days after you
receive your Policy to the MainStay VP Cash Management Investment Division.
After this 20 day period, we will allocate your net premiums according to
your instructions.
FLORIDA
- -- Late Period--The late period is the 31 days following the Monthly Deduction
Day on which the cash surrender value is zero or less than zero. We will mail
a notice to the policyowner (and any known assignee) at least 30 days before
the end of the late period.
INDIANA
- -- Free Look--You may return the Policy to any of our registered
representatives.
MARYLAND
- -- Partial Withdrawals--We have the right to deny any partial withdrawal which
would cause the face amount of the Policy to drop below $100,000.
MASSACHUSETTS
- -- Transfers to the Fixed Account--If there is a change in the investment
strategy of the Separate Account, you may make an unrestricted transfer from
the Separate Account to the Fixed Account, even if such change occurs after
the first two Policy Years.
B-1
<PAGE> 114
MICHIGAN
- -- Living Benefits Rider--You may exercise the benefit under this rider if the
surviving insured has a life expectancy of six months or less.
NEW JERSEY
- -- Policy Date--You may not choose a Policy Date that is before your Policy's
Issue Date.
- -- Face Amount Increases--You are allowed to increase your Policy's face amount
only once each Policy Year.
- -- Face Amount Decreases--You are allowed to decrease your Policy's face amount
only once each Policy Year.
- -- Unplanned Premium--You are allowed a maximum of twelve unplanned premium
payments each Policy Year.
- -- Premium Tax Charge--We will not increase the charge above 2.0%.
- -- Transfers--After the first two Policy Years, you are allowed a maximum of
twelve transfers into the Fixed Account each Policy Year.
- -- Changes in Life Insurance Benefit Option--You may make only one change to
your Life Insurance Benefit Option each Policy Year.
- -- Partial Withdrawals--You may take only one partial withdrawal in the first
Policy Year, if Life Insurance Benefit Option 1 is in effect.
NEW YORK
- -- Face Amount Increases--You are allowed to increase your Policy's face amount
only once each Policy Year.
- -- Face Amount Decreases--You are allowed to decrease your Policy's face amount
only once each Policy Year.
- -- Unplanned Premium--You are allowed a maximum of twelve unplanned premium
payments each Policy Year.
- -- Transfers--After the first two Policy Years, you are allowed a maximum of
twelve transfers into the Fixed Account each Policy Year.
- -- Changes in Life Insurance Benefit Option--You may make only one change to
your Life Insurance Benefit Option each Policy Year.
- -- Policy Termination--Your Policy will end on the Policy anniversary the
younger insured is, or would have been, age 100. The cash surrender value
will be paid at that time.
- -- Free Look Period--You have ten days from the date you receive your policy. We
will allocate the initial premium and any other premium payments you make
during the first ten days after you receive your Policy to the MainStay VP
Cash Management Investment Division. After this ten day period, we will
allocate your net premiums according to your instructions.
- -- Change in Objective of an Investment Division--If there is a change in the
investment strategy of any Investment Division, you have the option of
converting, without evidence of insurability, your Policy within 60 days
after the effective date of such change or the
B-2
<PAGE> 115
date you receive notification of such change, whichever is later. You may
elect to convert your Policy to a new fixed benefit survivorship life
insurance policy, for an amount of insurance not greater than the Life
Insurance Benefit of the original Policy, on the date of conversion. The new
policy will be based on the same issue ages, sexes and underwriting classes
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.
- -- Policy Split Option--You must provide evidence of insurability for any
exercise of this option. Also, in addition to divorce and certain tax law
changes, the Policy may be split in the event of the annulment of the
insureds.
- -- Extended Term Insurance--On each Policy anniversary, you have the right to
transfer all of your money in the Separate Account to the Fixed Account and
obtain an extended term insurance benefit. See your Policy for details
regarding this option.
NORTH CAROLINA
- -- Free Look Period--You have until the later of 20 days from the date you
receive your Policy, or 45 days from the date the application is signed, to
return the Policy and receive a refund. We will allocate the initial premium
and any other premium payments you make during the first 20 days after you
receive your Policy to the MainStay VP Cash Management Investment Division.
After this 20 day period, we will allocate your net premiums according to
your instructions.
OREGON
- -- Premium Tax Charge--We will not deduct a Premium Tax Charge.
- -- Transfers--After the first two Policy Years, you are allowed a maximum of
twelve transfers into the Fixed Account each Policy Year.
PENNSYLVANIA
- -- Policy Split Option--Due to state regulations, the Policy cannot be split in
the event of the divorce of the insureds.
- -- Misstatement of Age or Sex--In the event of such misstatement, we will adjust
the Life Insurance Benefit provided by your Policy, but we will not adjust
the cash value.
- -- Transfers--After the first two Policy Years, you are allowed a maximum of
twelve transfers to the Fixed Account each Policy Year.
- -- Loan Repayment--Where we have sent a notice that your Policy is in danger of
terminating because the amount of your unpaid loan plus accrued loan interest
exceeds the cash surrender value of your Policy, we will only terminate your
Policy if you do not make the necessary payments within 61 days from the date
we mail the notice.
- -- Late Period--We will not terminate your Policy until 61 days after the date
we mail a notice to you informing you that the cash surrender value of your
Policy is insufficient to cover the required monthly deductions.
B-3
<PAGE> 116
TEXAS
- -- Face Amount Increases--You are allowed to increase your Policy's face amount
only once each Policy Year.
- -- Face Amount Decreases--You are allowed to decrease your Policy's face amount
only once each Policy Year.
- -- Changes in Life Insurance Benefit Option--You may make only one change in
your Life Insurance Benefit Option each Policy Year.
- -- Transfers--After the first two Policy Years, you are allowed a maximum of
twelve transfers to the Fixed Account each Policy Year.
- -- Unplanned Premium--You are allowed a maximum of twelve unplanned premium
payments each Policy Year.
- -- Partial Withdrawals--You may take only one partial withdrawal in the first
Policy Year, if Life Insurance Benefit Option 1 is in effect.
B-4
<PAGE> 117
APPENDIX C
MAXIMUM SURRENDER CHARGES
The following table shows the maximum surrender charges per $1,000 of initial
face amount which could be assessed under a Policy depending on issue ages and
assuming no changes have been made to the face amount. Columns 1 through 3 show
the calculation of surrender charges in all Policy Years for a Policy ("Policy
A") which insures 2 males, ages 90 and 84, in the standard underwriting
classification. Columns 4 through 6 show the calculation of surrender charges in
all Policy Years for a Policy ("Policy B") which insures 2 males, both of whom
are age 90, in the standard underwriting classification. Because the length of
the surrender charge schedule varies based on the issue age of the younger
insured, the absolute maximum (as shown in Column 7) that can be charged under a
Policy would, for Policy Years 5 through 15, be assessed under Policy A and
would, for Policy Years 1 through 4, be assessed under Policy B.
The surrender charges shown in the table apply only to Policies issued to male
insureds of the ages and underwriting classifications specified and are not
representative of the surrender charges which would be assessed under other
Policies. For surrender charges which would be applicable under your Policy,
please contact your registered representative.
TABLE OF MAXIMUM SURRENDER CHARGES
PER $1,000 OF INITIAL FACE AMOUNT
<TABLE>
<CAPTION>
POLICY A POLICY B
MALE AGE 90/MALE AGE 84 MALE AGE 90/MALE AGE 90
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$107.70 Target Premium/$1,000 of initial face amount $123.20
20% of Target Premium/$1,000 of initial face
$ 21.54 amount $ 24.64
</TABLE>
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5) (6) (7)
20% OF SURRENDER SURRENDER 20% OF SURRENDER SURRENDER MAXIMUM
POLICY TARGET CHARGE CHARGE TARGET CHARGE CHARGE SURRENDER
YEAR PREMIUM PERCENTAGE (3)=(1)X(2) PREMIUM PERCENTAGE (6)=(4)X(5) CHARGE*
------ ------- ---------- ----------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 21.54 100% 27.54** 24.64 100% 30.64** 30.64
2 21.54 100% 21.54 24.64 100% 24.64 24.64
3 21.54 100% 21.54 24.64 100% 24.64 24.64
4 21.54 100% 21.54 24.64 100% 24.64 24.64
5 21.54 100% 21.54 24.64 80% 19.71 21.54
6 21.54 100% 21.54 24.64 60% 14.78 21.54
7 21.54 90% 19.39 24.64 40% 9.86 19.39
8 21.54 80% 17.23 24.64 20% 4.93 17.23
9 21.54 70% 15.08 24.64 0% 0.00 15.08
10 21.54 60% 12.92 24.64 0% 0.00 12.92
11 21.54 50% 10.77 24.64 0% 0.00 10.77
12 21.54 40% 8.62 24.64 0% 0.00 8.62
13 21.54 30% 6.46 24.64 0% 0.00 6.46
14 21.54 20% 4.31 24.64 0% 0.00 4.31
15 21.54 10% 2.15 24.64 0% 0.00 2.15
16+ 21.54 0% 0.00
</TABLE>
- ---------------
* The greater of Columns 3 or 6.
** The surrender charge reflects a $600 per Policy additional charge in the
first year. Based on the initial face amount of $100,000, this would be
$6/$1,000. See "Additional Charge on a Surrender in the First Policy Year" on
page 45.
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