<PAGE> 1
As filed with the Securities and Exchange Commission on April 23, 1999
Registration No. 33-64410
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST-EFFECTIVE AMENDMENT NO. 7
FORM S-6
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FOR THE REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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A. Exact name of trust:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT - I
B. Name of depositor:
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
C. Complete address of depositor's principal executive office:
51 Madison Avenue
New York, New York 10010
D. Name and complete address of agent for service:
Carol Yee, Esq.
New York Life Insurance and
Annuity Corporation
51 Madison Avenue
New York, New York 10010
Copy to:
Jeffrey Puretz, Esq. Michael J. McLaughlin, Esq.
Dechert, Price & Rhoads Senior Vice President
1500 K Street, N. W. and General Counsel
Washington, D.C. 20036 New York Life Insurance Company
51 Madison Avenue
New York, New York 10010
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[x] on May 1, 1999 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on May 1, 1999 pursuant to paragraph (a)(1) of Rule 485.
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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E. Title of securities being registered:
Units of interest in a separate account under flexible premium variable
universal life insurance policies.
F. Approximate date of proposed public offering:
Not Applicable
G. Proposed maximum aggregate offering price to the public of the
securities being registered:
[ ] Check box if it is proposed that this filing will become effective on (date)
at (time) pursuant to Rule 487.
<PAGE> 3
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN A PROSPECTUS
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<CAPTION>
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
<S> <C>
1 Cover Page; Basic Questions and Answers About Us and
Our Policy
2 Cover Page
3 Not Applicable
4 Sales and Other Agreements
5 The Separate Account
6 The Separate Account
9 Legal Proceedings
10 General Provisions of
the Policy; Death
Benefit Under the
Policy; Free Look
Provision; Exchange
Privilege; Cash Value
and Cash Surrender
Value; Policy Loan
Privilege; The
Separate Account; The
Fixed Account; Charges
Under the Policy;
Sales and Other
Agreements; When We
Pay Proceeds; Payment
Options; Our Rights;
Your Voting Rights;
Basic Questions and
Answers About Us and
Our Policy
11 The Separate Account;
MainStay VP Series
Fund, Inc.; The Alger
American Fund; Calvert
Variable Series, Inc.;
Fidelity Variable
Insurance Products
Fund and Fidelity
Variable Insurance
Products Fund II;
Janus Aspen Series;
Morgan Stanley Dean Witter
Universal Funds, Inc.
12 The Separate Account; Sales and Other Agreements
13 The Separate Account;
Charges Under the
Policy; MainStay VP
Series Fund, Inc.; The
Alger American Fund;
Calvert Variable Series, Inc.;
Fidelity Variable Insurance
Products Fund and
Fidelity Variable
Insurance Products
Fund II; Janus Aspen
Series; Morgan Stanley Dean Witter
Universal Funds, Inc.
14 Basic Questions and Answers About Us and Our Policy;
The Separate Account; Sales and Other Agreements
15 Basic Questions and Answers About Us and Our Policy;
General Provisions of the Policy
16 The Separate Account;
Investment Return;
Basic Questions and
Answers About Us and
Our Policy; MainStay
VP Series Fund, Inc.;
The Alger American Fund;
Calvert Variable Series, Inc.;
Fidelity Variable Insurance
Products Fund and
Fidelity Variable
Insurance Products
Fund II; Janus Aspen
Series; Morgan Stanley Dean Witter
Universal Funds, Inc.
</TABLE>
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<TABLE>
<CAPTION>
Item of Form N-8B-2 Prospectus Caption
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<S> <C>
17 Cash Surrender Value; Policy Surrenders and Partial
Withdrawals; General Provisions of the Policy
18 The Separate Accounts;
MainStay VP Series
Fund, Inc.; The Alger
American Fund; Calvert
Variable Series, Inc.;
Fidelity Variable
Insurance Products
Fund and Fidelity
Variable Insurance
Products Fund II;
Janus Aspen Series;
Morgan Stanley Dean Witter
Universal Funds, Inc.;
Investment Return
19 Records and Reports
20 Not Applicable
21 Policy Loan Privilege
22 Not Applicable
23 Not Applicable
24 Additional Provisions of the Policy
25 What are NYLIAC and New York Life?
26 Not Applicable
27 What are NYLIAC and New York Life?
28 Directors and Principal Officers of NYLIAC
29 What are NYLIAC and New York Life?
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Not Applicable
37 Not Applicable
38 Sales and Other Agreements
39 Sales and Other Agreements
40 Not Applicable
41 Sales and Other Agreements
42 Not Applicable
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Item of Form N-8B-2 Prospectus Caption
- ------------------- ------------------
<S> <C>
43 Not Applicable
44 The Separate Account; Investment Return; General
Provisions of the Policy
45 Not Applicable
46 The Separate Account; Investment Return
47 The Separate Account;
MainStay VP Series
Fund, Inc.; The Alger
American Fund; Calvert
Variable Series, Inc.;
Fidelity Variable
Insurance Products
Fund and Fidelity
Variable Insurance
Products Fund II;
Janus Aspen Series;
Morgan Stanley Dean Witter
Universal Funds, Inc.
48 Not Applicable
49 Not Applicable
50 The Separate Account
51 Cover Page; Basic Questions and Answers About Us and
Our Policy
52 The Separate Accounts; Our Rights
53 Federal Income Tax Considerations
54 Not Applicable
55 Not Applicable
59 Financial Statements
</TABLE>
<PAGE> 6
NYLIAC VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
PROSPECTUS DATED MAY 1, 1999
FOR
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
OFFERED BY
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
PRINCIPAL OFFICE
C/O VARIABLE PRODUCTS SERVICE CENTER
51 MADISON AVENUE, ROOM 452
NEW YORK, NEW YORK 10010
This prospectus describes a flexible premium variable universal life
insurance policy which New York Life Insurance and Annuity Corporation
("NYLIAC") issues. The policy provides lifetime insurance protection for
individuals. The policy offers flexible premium payments, a choice of two death
benefit options, loan privileges, increases and decreases to the policy's face
amount of insurance and a choice of premium allocation alternatives, including a
guaranteed interest option and the following eighteen variable investment
divisions:
<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 Dean Witter Emerging
Markets Equity
</TABLE>
We do not guarantee the investment performance of these investment divisions.
Depending on current market conditions, you can make or lose money in any of the
investment divisions.
The death benefit may, and the cash surrender value of a policy will, go up
or down depending on the performance of the investment divisions. The policy
does not have a guaranteed minimum cash surrender value. While a policy is in
force, the policy's death benefit will never be less than its face amount, less
any outstanding policy debt. Although premiums are flexible, you may have to
make additional premiums to keep the policy in effect. The policy may terminate
if its cash surrender value is too small to pay the policy's monthly charges.
You can borrow against or withdraw money from the policy, within limits.
Loans and withdrawals will reduce the policy's death benefit and cash surrender
value. You can also surrender the policy. We will apply a surrender charge if
you surrender the policy during the first fifteen policy years. We may also
apply this charge if you request a reduction of the face amount or if the policy
terminates.
You may examine the policy for a limited period of time after it is
delivered and cancel it for a full refund of the greater of cash value or
premiums paid, less any loans and withdrawals. Replacing existing insurance with
this policy may not be to your advantage.
You should read this prospectus and keep it for future reference. It
contains information that you should know before investing. This prospectus is
valid only when attached to current prospectuses for the MainStay VP Series
Fund, Inc., The Alger American Fund, the Calvert Variable Series, Inc., the
Fidelity Variable Insurance Products Fund II, the Fidelity Variable Insurance
Products Fund, the Janus Aspen Series and the Morgan Stanley Dean Witter
Universal Funds, Inc. (the "Funds", each individually a "Fund").
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
DEFINITION OF TERMS................ 4
BASIC QUESTIONS AND ANSWERS ABOUT
US AND OUR POLICY................ 6
What are NYLIAC and New York
Life?......................... 6
What type of variable life
insurance policy does NYLIAC
offer?........................ 6
How is the policy available?..... 6
What is the Cash Value of the
policy?....................... 7
How is the value of an
Accumulation Unit
determined?................... 7
What is a net premium and how is
it applied?................... 7
What is the Fixed Account?....... 8
How long will the policy remain
in force?..................... 8
Is the amount of the death
benefit guaranteed?........... 8
Is the death benefit subject to
income taxes?................. 8
Does the policy have a Cash
Surrender Value?.............. 8
What is a modified endowment
contract?..................... 9
Can the policy become a modified
endowment contract?........... 9
What premiums are payable?....... 9
What are unscheduled premiums?... 9
When are premiums put into the
Fixed Account or the Separate
Account?...................... 10
How are net premiums allocated
among the Allocation
Alternatives?................. 10
Are there charges against the
policy?....................... 10
What is the loan privilege?...... 11
Do I have a right to cancel?..... 11
Can the policy be exchanged or
all amounts allocated to the
Fixed Account?................ 11
How is a person's age
calculated?................... 11
CHARGES UNDER THE POLICY........... 12
Deductions from Premiums......... 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Sales Expense Charge.......... 12
State Tax Charge.............. 12
Federal Tax Charge............ 12
Cash Value Charges............... 12
Expense Allocation............ 13
Monthly Contract Charge....... 13
Charge for Cost of Insurance
Protection................. 13
Separate Account Charges......... 14
Mortality and Expense Risk
Charge..................... 14
Administrative Charge......... 14
Other Charges for Federal
Income Taxes............... 14
Fund Charges..................... 14
Surrender Charges................ 17
Exceptions to Surrender
Charge..................... 18
How the policy works............. 19
THE SEPARATE ACCOUNT............... 19
MAINSTAY VP SERIES FUND, INC. ..... 20
THE ALGER AMERICAN FUND............ 20
CALVERT VARIABLE SERIES, INC. ..... 20
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND (VIP) AND FIDELITY
VARIABLE INSURANCE PRODUCTS FUND
II (VIP II)...................... 21
JANUS ASPEN SERIES................. 21
MORGAN STANLEY DEAN WITTER
UNIVERSAL FUNDS, INC. ........... 22
PORTFOLIOS......................... 22
Additions, Deletions or
Substitutions of
Investments................... 26
Reinvestment..................... 27
GENERAL PROVISIONS OF THE POLICY... 27
When Life Insurance Coverage
Begins........................ 27
Premiums......................... 27
Scheduled Premiums............... 27
Unscheduled Premiums............. 28
Termination...................... 28
Maturity Date.................... 28
DOLLAR COST AVERAGING.............. 29
AUTOMATIC ASSET REALLOCATION....... 30
INTEREST SWEEP..................... 30
</TABLE>
2
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<TABLE>
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PAGE
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<S> <C>
DEATH BENEFIT UNDER THE POLICY..... 31
Face Amount Changes.............. 33
Life Insurance Benefit Option
Changes....................... 33
CASH VALUE AND CASH SURRENDER
VALUE........................... 34
Cash Value....................... 34
Transfers........................ 34
Investment Return................ 34
Cash Surrender Value............. 35
Partial Withdrawals.............. 35
POLICY LOAN PRIVILEGE.............. 36
Source of Loan................... 36
Loan Interest.................... 36
Repayment........................ 37
Interest on Loaned Value......... 37
FREE LOOK PROVISION................ 37
EXCHANGE PRIVILEGE................. 38
Special New York Requirements.... 38
YOUR VOTING RIGHTS................. 38
OUR RIGHTS......................... 39
DIRECTORS AND PRINCIPAL OFFICERS OF
NYLIAC........................... 40
YEAR 2000 READINESS................ 42
THE FIXED ACCOUNT.................. 42
Interest Crediting............... 42
Transfers to Investment Divisions
and to the Fixed Account...... 43
Procedures for Telephone
Transfers..................... 43
FEDERAL INCOME TAX
CONSIDERATIONS................... 44
Tax Status of NYLIAC and the
Separate Account.............. 44
Charges for Taxes................ 44
Diversification Standards and
Control Issues................ 45
Life Insurance Status of
Policy........................ 46
Modified Endowment Contract
Status........................ 46
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Policy Surrenders and Partial
Withdrawals................... 47
Policy Loans and Interest
Deductions.................... 48
Corporate Alternative Minimum
Tax........................... 48
Exchanges or Assignments of
Policies...................... 48
STEP Program..................... 48
Other Tax Issues................. 49
Qualified Plans.................. 49
Withholding...................... 49
ADDITIONAL PROVISIONS OF THE
POLICY........................... 49
Reinstatement Option............. 49
Additional Benefits You Can Get
By Rider...................... 50
Payment Options.................. 52
Payees........................... 53
Proceeds at Interest Options
(Options 1A and 1B)........... 53
Life Income Option (Option 2).... 53
Beneficiary...................... 53
Assignment....................... 54
Limits on Our Rights to Challenge
the Policy.................... 54
Misstatement of Age or Sex....... 54
Suicide.......................... 54
When We Pay Proceeds............. 54
RECORDS AND REPORTS................ 55
SALES AND OTHER AGREEMENTS......... 55
LEGAL PROCEEDINGS.................. 56
INDEPENDENT ACCOUNTANTS............ 56
EXPERTS............................ 56
FINANCIAL STATEMENTS............... 56
FINANCIAL STATEMENTS............... F-1
APPENDIX A. Illustrations of Death
Benefits, Cash Surrender Values
and Accumulated Premiums......... A-1
</TABLE>
THIS PROSPECTUS IS NOT CONSIDERED AN OFFERING IN ANY JURISDICTION WHERE THE
SALE OF THIS POLICY CANNOT LAWFULLY BE MADE. NYLIAC DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING OTHER THAN AS DESCRIBED IN
THIS PROSPECTUS OR IN ANY ATTACHED SUPPLEMENT TO THIS PROSPECTUS OR IN ANY
SUPPLEMENTAL SALES MATERIAL NYLIAC PRODUCES.
IN CERTAIN JURISDICTIONS, DIFFERENT PROVISIONS MAY APPLY TO THE POLICY.
PLEASE REFER TO THE POLICY OR ASK YOUR REGISTERED REPRESENTATIVE FOR DETAILS
REGARDING YOUR PARTICULAR POLICY.
3
<PAGE> 9
DEFINITION OF TERMS
ACCUMULATION UNIT: An accounting unit used to calculate the values under the
policy held in the Separate Account.
ACCUMULATION VALUE: The value of Accumulation Units in the Investment Divisions
of the Separate Account. The Accumulation Value is equal to the sum of the
products of the current Accumulation Unit value(s) for each of the Investment
Divisions multiplied by the number of Accumulation Units held in the respective
Investment Divisions.
ALLOCATION ALTERNATIVES: The 18 Investment Divisions of the Separate Account
and the Fixed Account.
BENEFICIARY: The person(s) or entity(ies) you name to receive insurance
proceeds after the Insured dies.
BUSINESS DAY: Generally, any day on which NYLIAC is open and the New York Stock
Exchange ("NYSE") is open for trading. We are closed on national holidays,
Martin Luther King, Jr. Day and the Friday after Thanksgiving. In 1999, we are
closed the day after Independence Day and the day before Christmas. Our Business
Day ends at 4:00 p.m. Eastern Time or the closing of the NYSE, if earlier.
CASH SURRENDER VALUE: An amount payable to you upon surrender of the policy.
This amount is equal to the Cash Value less any surrender charges, any deferred
contract charges and any Policy Debt. However, for purposes of determining
whether the policy lapses, any deferred contract charge will not be considered
during the deferral period.
CASH VALUE: The sum of the Accumulation Value and the value in the Fixed
Account.
ELIGIBLE PORTFOLIOS ("PORTFOLIOS"): The mutual fund portfolios of the Funds
that are available for investment through the Investment Divisions of the
Separate Account.
FIXED ACCOUNT: The Allocation Alternative that credits interest at fixed rates
subject to a minimum guarantee. Amounts in the Fixed Account are part of
NYLIAC's general account, which is subject to the claims of its general
creditors.
GUIDELINE ANNUAL PREMIUM: On the Policy Date, it is the annual premium for the
benefits provided, based on guaranteed mortality and expense risk charges and an
interest rate of 4%. It is the same as "guideline level premium" as defined in
Section 7702 of the Internal Revenue Code.
INSURED: Person whose life the policy insures.
INVESTMENT DIVISION: A division of the Separate Account. Each Investment
Division invests exclusively in shares of a specified Eligible Portfolio.
ISSUE DATE: The day we approve and issue the policy.
MONTHLY DEDUCTION DAY: The date as of which we deduct your monthly contract
charge; cost of insurance charge; 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.
POLICY DATA PAGE: Page 2 of the policy, containing the policy specifications.
POLICY DATE: The date we use as the starting point for determining policy
anniversaries, Policy Years and Monthly Deduction Days. Your Policy Date will be
the same as your Issue Date, unless you request otherwise. Generally, you cannot
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.
4
<PAGE> 10
POLICY DEBT: The amount of the obligation from a policyowner to NYLIAC from
outstanding loans. This amount includes any loan interest accrued to date.
POLICY YEAR: The twelve-month period starting with the Policy Date, and each
twelve-month period thereafter.
SEPARATE ACCOUNT: NYLIAC Variable Universal Life Separate Account-I, a
segregated asset account NYLIAC established to receive and invest net premiums
paid under the policies.
SURRENDER CHARGE GUIDELINE ANNUAL PREMIUM: Same as Guideline Annual Premium,
except that the calculation assumes 5% interest rate, Life Insurance Benefit
Option 1, and assumes that there are no riders. It is used for purposes of
calculating surrender charges.
5
<PAGE> 11
BASIC QUESTIONS AND ANSWERS ABOUT US AND OUR POLICY
1. WHAT ARE NYLIAC AND NEW YORK LIFE?
New York Life Insurance and Annuity Corporation ("NYLIAC") is a stock life
insurance company incorporated in Delaware in 1980. NYLIAC is licensed to sell
life, accident and health insurance and annuities in the District of Columbia
and all states. In addition to the policies described in this prospectus, NYLIAC
offers other life insurance policies and annuities. This prospectus includes
NYLIAC's financial statements.
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 held assets of $25.117 billion at the end of 1998. New York Life has
invested in NYLIAC, and may, in order to maintain capital and surplus in
accordance with state requirements, occasionally make additional contributions
to NYLIAC.
2. WHAT TYPE OF VARIABLE LIFE INSURANCE POLICY DOES NYLIAC OFFER?
In this prospectus, we are offering a flexible premium variable universal
life insurance policy. The policy provides for a death benefit, Cash Surrender
Value, loan privileges and flexible premiums. It is called "flexible" because
you may select the timing and amount of premiums and adjust the death benefit by
increasing or decreasing the face amount (subject to certain restrictions). It
is called "variable" because the death benefit may, and the Cash Surrender Value
will, go up or down depending on the performance of the Investment Division(s)
to which Cash Value is allocated.
The policy is a legal contract between you and NYLIAC. The entire contract
consists of the policy, the application and any riders to the policy.
3. HOW IS THE POLICY AVAILABLE?
The policy is available as a non-qualified policy. This means that the
policy is not available as a qualified policy for use in connection with certain
employee retirement plans that qualify for special federal income tax treatment.
The policy may in the future be available as a qualified policy. The minimum
face amount of a policy is $50,000. Increases must be for at least $5,000 and
are subject to NYLIAC's maximum retention limits. In New Jersey and New York,
increases are allowed once each Policy Year. Generally, the Insured may not be
older than age 80 as of the Policy Date. Before we issue any policy or increase
the policy's face amount, you must give us satisfactory evidence of
insurability. For certain eligible groups under employer-sponsored plans, we may
issue the policy and face amount increases based on our simplified underwriting
rules and procedures.
In some states, policies may be purchased in connection with the Severance
Trust Executive Program ("STEP"), a non-qualified employee benefit plan. STEP
policies are issued on a unisex basis. In Massachusetts and Montana, we also
issue the policy only on a unisex basis. For policies issued on a unisex basis,
you should disregard any reference in this prospectus that makes a distinction
based on the gender of the Insured.
6
<PAGE> 12
4. WHAT IS THE CASH VALUE OF THE POLICY?
The Cash Value is determined by (1) the amount and timing of premiums, (2)
the investment experience of the Investment Divisions you selected, (3) the
interest credited to amounts in the Fixed Account, and (4) any partial
withdrawals and charges imposed on the policy. You bear the investment risk of
any depreciation in value of the assets underlying the Investment Divisions but
you also reap the benefit of any appreciation in their value.
5. HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED?
We calculate an Accumulation Unit each day the New York Stock Exchange
("NYSE") is open for business. We do this at the close of the NYSE (currently
4:00 p.m. Eastern Time). We determine the value of an Accumulation Unit by
multiplying the value of that unit on the prior day when the NYSE was open by
the net investment factor. The net investment factor we use to calculate the
value of an Accumulation Unit is equal to:
(a/b) - c
Where:a = the sum of:
(1) the net asset value of a Portfolio share held in the
Separate Account for that Investment Division determined at
the end of the current day on which we calculate the
Accumulation Unit value, plus
(2) the per share amount of any dividends or capital gain
distributions made by the Portfolio for shares held on the
Separate Account for that Investment Division if the
ex-dividend date occurs since the end of the immediately
preceding day on which we calculate an Accumulation Unit
value for that Investment Division.
b = the net asset value of a Portfolio share held in the Separate Account
for that Investment Division determined as of the end of the
immediately preceding day on which we calculated an Accumulation Unit
value for that Investment Division.
c = a factor representing the mortality and expense risk charges and the
administrative charges. This factor is deducted on a daily basis and
is currently equal, on an annual basis, to .70% (.60% for mortality
and expense risk and .10% for administrative charges) of the daily
net asset value of a Portfolio share in the Separate Account for that
Investment Division.
The net investment factor may be greater or less than one. Therefore, the
value of an Accumulation Unit may increase or decrease.
6. WHAT IS A NET PREMIUM AND HOW IS IT APPLIED?
When you give us a premium payment, we deduct the sales expense, state tax
and federal tax charges from your premium. We call the remainder the "net
premium". You may allocate this net premium among the 19 Allocation
Alternatives. The Allocation Alternatives consist of 18 Investment Divisions and
the Fixed Account. The 18 Investment Divisions are listed on the first page of
the prospectus.
7
<PAGE> 13
7. WHAT IS THE FIXED ACCOUNT?
As an alternative to the Investment Divisions, you may allocate or transfer
amounts to the Fixed Account. We will credit net premiums allocated to, and any
amounts transferred to, the Fixed Account with a fixed interest rate. We will
set the interest rate in advance at least annually. This rate will never be less
than 4% per year. Interest accrues daily and is credited on each Monthly
Deduction Day. All net premiums allocated or amounts transferred less amounts
withdrawn, transferred from or charged against the Fixed Account receive the
interest rate in effect at that time. Different rates may apply to loaned and
unloaned funds.
8. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The policy does not automatically terminate if you do not pay the scheduled
premiums. Payment of these premiums does not guarantee the policy will remain in
force. The policy terminates only when the Cash Surrender Value is insufficient
to pay the policy's monthly deductions or where there is any outstanding Policy
Debt that exceeds the Cash Value less surrender charges and deferred contract
charge, and a late period expires without sufficient payment. In New York,
policies issued on or after May 1, 1995 will terminate at the Insured's age 100.
Additional provisions apply to policies with a Guaranteed Minimum Death Benefit
rider. For details see ADDITIONAL PROVISIONS OF THE POLICY--Additional Benefits
You Can Get By Rider--Guaranteed Minimum Death Benefit Rider at page 50.
9. IS THE AMOUNT OF THE DEATH BENEFIT GUARANTEED?
As long as the policy remains in force, the death benefit will be equal to
the amount calculated under the applicable life insurance benefit option you
selected, plus any death benefit payable on the primary Insured under a rider,
and less any Policy Debt. See DEATH BENEFIT UNDER THE POLICY at page 31.
Additional provisions apply to policies with a Guaranteed Minimum Death Benefit
rider. For details see ADDITIONAL PROVISIONS OF THE POLICY--Additional Benefits
You Can Get By Rider--Guaranteed Minimum Death Benefit Rider at page 50.
10. IS THE DEATH BENEFIT SUBJECT TO INCOME TAXES?
The Beneficiary may generally exclude the death benefit paid under a policy
from his/her gross income for federal income tax purposes. For details see
FEDERAL INCOME TAX CONSIDERATIONS at page 44.
11. DOES THE POLICY HAVE A CASH SURRENDER VALUE?
You may surrender the policy at any time and receive its Cash Surrender
Value. We also allow partial withdrawals subject to certain restrictions. The
Cash Surrender Value of a policy fluctuates with the investment performance of
the Investment Divisions in which the policy has Accumulation Value and the
amount held in the Fixed Account. It may increase or decrease daily.
For federal income tax purposes, you are not usually taxed on increases in
the Cash Surrender Value until you actually surrender the policy. However, you
may be taxed on all or a part of the amount distributed for certain partial
withdrawals and policy loans. For details see CASH VALUE AND CASH SURRENDER
VALUE--Cash Surrender Value at page 35 and FEDERAL INCOME TAX CONSIDERATIONS at
page 44.
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<PAGE> 14
12. WHAT IS A MODIFIED ENDOWMENT CONTRACT?
A modified endowment contract is a life insurance policy under which the
cumulative premiums paid during the first seven Policy Years are greater than
the cumulative premiums payable under a hypothetical policy providing for
guaranteed benefits upon the payment of seven level annual premiums. Certain
changes to the policy can subject it to retesting for a new seven-year period.
If your policy is determined to be a modified endowment contract, any
distributions during your lifetime, including collateral assignments, loans and
partial withdrawals, are taxable if there is a gain in the policy. In addition,
you may also incur a penalty tax if the distribution occurs when you are not yet
age 59 1/2.
13. CAN THE POLICY BECOME A MODIFIED ENDOWMENT CONTRACT?
The policy may become a modified endowment contract. We currently test a
policy at issue to determine whether it will be classified as a modified
endowment contract. This at-issue test examines the policy for the first seven
contract years. We base the test on the benefits applied for in the policy
application and the initial premium requested, and on the assumption that there
are no increases in premiums or changes in benefit structure during the period.
We also have procedures to monitor whether a policy may become a modified
endowment contract after issue. For details see FEDERAL INCOME TAX
CONSIDERATIONS--Modified Endowment Contract Status at page 46.
14. WHAT PREMIUMS ARE PAYABLE?
The Policy Data Page shows the amount and interval of any scheduled
premiums. A scheduled premium does not have to be paid to keep the policy in
force if there is enough Cash Surrender Value to cover the charges made on the
Monthly Deduction Day. You may increase or decrease the amount of any scheduled
premium subject to the limits we set. However, you may not make a premium
payment that would exceed the guideline premium limitations under Section 7702
of the Internal Revenue Code and jeopardize the policy's qualification as "life
insurance". You may also change the frequency of premiums subject to our minimum
premium rules. Scheduled premiums end on the policy anniversary on which the
Insured is age 95.
15. WHAT ARE UNSCHEDULED PREMIUMS?
While the Insured is living, you may pay unscheduled premiums at any time
before the policy anniversary on which the Insured is age 95. Any unscheduled
premiums must equal at least $50. However, you may not make a premium payment
that would exceed the guideline premium limitations under Section 7702 of the
Internal Revenue Code and jeopardize the policy's qualification as "life
insurance". Unscheduled premiums also include the proceeds of an exchange made
in accordance with Section 1035 of the Internal Revenue Code. If an unscheduled
premium would result in an increase in the death benefit greater than the
increase in the Cash Value, we reserve the right to require proof of
insurability before accepting that premium and applying it to the policy. We
also reserve the right to limit the number and amount of any unscheduled
premiums. In certain states, an unscheduled premium may be made once each Policy
Year. For details see GENERAL PROVISIONS OF THE POLICY--Premiums at page 27.
9
<PAGE> 15
16. WHEN ARE PREMIUMS PUT INTO THE FIXED ACCOUNT OR THE SEPARATE ACCOUNT?
On the Business Day we receive a premium, we first deduct a sales expense
charge not to exceed the amount shown on the Policy Data Page. We also deduct
the state tax and federal tax charges. We then will apply the balance of the
premium (the net premium) to the Separate Account and the Fixed Account, in
accordance with your allocation election in effect at the time when the premium
is received. We will do this before any other deductions which may be due are
made. (Deductions are described in greater detail in Question 18, "Are there
charges against the policy?")
17. HOW ARE NET PREMIUMS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
You may allocate net premiums to any number of Allocation Alternatives. You
may also raise or lower the percentages of the net premium (which must be in
whole number percentages) allocated to each Allocation Alternative at the time
you make a premium payment. We will allocate net premiums to the MainStay VP
Cash Management Investment Division until the end of the free look period.
Thereafter, we will allocate net premiums in accordance with your instructions.
(In the District of Columbia we allocate the net premium entirely to the
MainStay VP Cash Management Investment Division upon issuance of the policy. On
the later of 20 days after the policy is delivered or 45 days after the
application is executed, we allocate the net premium according to the
policyowner's instructions.)
18. ARE THERE CHARGES AGAINST THE POLICY?
We deduct three charges from each premium, whether scheduled or
unscheduled. A sales expense charge not to exceed 5% is used to partially cover
sales expenses. We also deduct 2% and 1.25% for state tax and federal tax
charges, respectively. We allocate each premium, net of these charges, to the
Fixed Account or the Investment Divisions. Each becomes a part of the Cash
Value. For details see DEDUCTIONS FROM PREMIUMS at page 12.
On each Monthly Deduction Day, we make the following deductions from the
policy's Cash Value:
(a) A monthly contract charge not to exceed, on an annual basis, the
amount shown on the Policy Data Page. (In the first Policy Year, the excess
of the monthly charge over the amount of the monthly charge applicable in
renewal years is deferred to the earlier of the first policy anniversary or
surrender of the policy. However, if the policy is surrendered in the first
Policy Year, the full amount deferred is deducted).
(b) The monthly cost of insurance; and
(c) The monthly cost for any riders attached to the policy.
We may also make a deduction for any temporary flat extras as set forth on
the Policy Data Page. A temporary flat extra is a charge per $1,000 of the face
amount made against the Cash Value for the amount of time specified on the
Policy Data Page. It is designed to cover the risk of substandard mortality
experience which is not permanent in nature.
The Monthly Deduction Day is shown on the Policy Data Page. The first
Monthly Deduction Day will be the monthly anniversary of the Policy Date on or
following the
10
<PAGE> 16
Issue Date. Subsequent Monthly Deduction Days will be on each monthly
anniversary of the Policy Date.
Some deductions are made on a daily basis against the assets of the
Investment Divisions. We assess daily charges, calculated at an annual rate of
.60% and .10% of the value of the assets of each Investment Division, for
mortality and expense risks and administrative charges, respectively. We may
change the mortality and expense risk charge at our option subject to a maximum
charge of .90%. Similarly, we may calculate tax assessments daily. Currently, we
are not making any charges for income taxes, but we may make charges in the
future against the Investment Divisions for federal income taxes attributable to
them.
Additionally, the value of the shares of each Portfolio reflects advisory
fees, administration fees and other expenses deducted from the assets of each
Portfolio. Upon a surrender or requested decrease in the policy's face amount,
including decreases caused by a change in the life insurance benefit option, we
assess a surrender charge. A partial withdrawal or a change in the life
insurance benefit option may result in a decrease in face amount. We deduct the
surrender charge from the Cash Value at the time of surrender or decrease.
Partial withdrawals of Cash Value are also subject to a charge not to
exceed the lesser of $25 or 2% of the amount withdrawn. For details see CHARGES
UNDER THE POLICY at page 12 and FEDERAL INCOME TAX CONSIDERATIONS at page 44.
19. WHAT IS THE LOAN PRIVILEGE?
Using the policy as sole security, you can borrow any amount up to the loan
value of the policy. The loan value on any given date is equal to (i) 90% of the
Cash Value, less applicable surrender charges and less any deferred contract
charges, less (ii) any Policy Debt.
20. DO I HAVE A RIGHT TO CANCEL?
You have the right to cancel the policy at any time during the free look
period and receive a refund. The free look period begins on the date you receive
the policy. It ends 20 days later (or as otherwise required by state law). You
may return the policy to our Principal Office (address listed on the first page
of this prospectus), to any of our agency offices, or to the registered
representative who sold you the policy. For details see FREE LOOK PROVISION at
page 37.
21. CAN THE POLICY BE EXCHANGED OR ALL AMOUNTS ALLOCATED TO THE FIXED
ACCOUNT?
You have the right during the first two Policy Years to either (1) transfer
all of the policy's Accumulation Value to the Fixed Account, or (2) exchange the
policy for a permanent fixed benefit policy we offer for this purpose. Similar
rights are available during the first two years after an increase in the
policy's face amount. Policies issued in Colorado, Massachusetts and New York
have special rights when NYLIAC changes the objective of an Investment Division.
See your policy for additional details, as well as EXCHANGE PRIVILEGE at page 38
and OUR RIGHTS at page 39.
22. HOW IS A PERSON'S AGE CALCULATED?
When we refer to a person's age on any date, we mean his or her age on the
nearest birthday. However, the cost of insurance charges will be based on the
Insured's age on the birthday which is nearest to the prior policy anniversary.
11
<PAGE> 17
CHARGES UNDER THE POLICY
We deduct certain charges to compensate us for providing the insurance
benefits under the policy, for any riders, for administering the policy, for
assuming certain risks, and for incurring certain expenses in distributing the
policy.
DEDUCTIONS FROM PREMIUMS
When we receive a premium, whether scheduled or unscheduled, we will deduct
a sales expense charge not to exceed the amount shown on the Policy Data Page.
We will also deduct a state tax charge, which is an amount equal to the expected
average state tax, and a federal tax charge. The net premium will be applied to
the Separate Account and Fixed Account in accordance with your allocation
election in effect at that time, and before any other deductions which may be
due are made.
SALES EXPENSE CHARGE
We will deduct a sales expense charge which will not exceed 5% of any
premium and is in addition to the surrender charge (for a discussion of the
surrender charge, see SURRENDER CHARGES at page 17). The sales expense charge is
currently expected to be eliminated after the tenth Policy Year. We reserve the
right to impose this charge after Policy Year 10. The amount of the sales
expense charge in a Policy Year is not necessarily related to our actual sales
expenses for that particular year. To the extent that sales expenses are not
covered by the sales expense charge and the surrender charge, they will be
recovered from NYLIAC's surplus, including any amounts derived from the
mortality and expense risk charge or the cost of insurance charge. For a
discussion of the commissions paid under the policy, see SALES AND OTHER
AGREEMENTS at page 55.
STATE TAX CHARGE
Various states impose certain taxes on premiums insurance companies
receive. These taxes vary from state to state. We deduct a charge of 2% to cover
these taxes. We reserve the right to increase this charge (except in New Jersey)
consistent with changes in applicable law.
FEDERAL TAX CHARGE
NYLIAC's federal tax obligations will increase based upon premiums received
under the policies. We deduct 1.25% of each premium to cover this federal tax
charge. We reserve the right to increase this charge consistent with changes in
applicable law and subject to any required approval of the Securities and
Exchange Commission (the "SEC").
CASH VALUE CHARGES
On each Monthly Deduction Day, we deduct a monthly contract charge, a cost
of insurance charge, and a rider charge for the cost of any additional riders.
The first Monthly Deduction Day will be the monthly anniversary of your Policy
Date on or following the Issue Date. If the Policy Date is prior to the Issue
Date, the deductions made on the first Monthly Deduction Day will cover the
period from the Policy Date until the first Monthly Deduction Day. We deduct
these charges from the Accumulation Value and the value in the Fixed Account in
proportion to the non-loaned Cash Value in the Separate Account and the Fixed
Account.
12
<PAGE> 18
EXPENSE ALLOCATION
For policies where we receive the application on or after November 20,
1998, you can tell us how you want us to deduct the policy's monthly cash value
charges. You can instruct us to deduct these cash value charges from the
MainStay VP Cash Management Investment Division and/or the Fixed Account. If the
value in the MainStay VP Cash Management Investment Division and/or Fixed
Account you have chosen is insufficient to pay these charges, we will deduct as
much of the charges as possible from these investment options. We will then
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 the charges from the amount 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 Divisions.
MONTHLY CONTRACT CHARGE
In the first Policy Year, there is a charge currently equal to $300 on an
annual basis to compensate us for costs incurred in providing certain
administrative services including premium collection, recordkeeping, processing
claims and communicating with policyowners. In subsequent Policy Years, the
charge currently is equal to $72 on an annual basis. These charges are not
designed to produce a profit. These charges may increase or decrease, but they
will never exceed $324 on an annual basis in the first Policy Year and $96 in
each subsequent Policy Year. These charges are deducted on each Monthly
Deduction Day. In the first Policy Year, we will defer the deduction of the
excess of the annual charge over the amount of the annual charge applicable in
renewal years (currently $228) until the earlier of (1) the first policy
anniversary or (2) the date you surrender the policy.
CHARGE FOR COST OF INSURANCE PROTECTION
A charge for the cost of insurance protection is deducted on each Monthly
Deduction Day. The charge is based on such factors as the gender, duration,
underwriting class, and issue age of the Insured, the life insurance benefit
option in effect at that time, the face amount and the Cash Value of the policy.
This charge is also based on future expectations of such factors as investment
income, mortality, expenses and persistency. The charge varies monthly because
it is determined by adding the amount of any applicable flat extra charge to the
applicable cost of insurance rates and then multiplying by the amount at risk
each policy month. Any change in the cost of insurance rates will be in
accordance with the procedures and standards on file with all appropriate
officials, including the Superintendent of Insurance of the State of New York.
For the initial face amount, the monthly cost of insurance rates will be
reviewed whenever the rates for new issues on the same policy form or in the
same policy series change, but in any event, at least once every five years, and
not more frequently than annually. The cost of insurance rates will never exceed
the guaranteed rates shown in the policy. For increases in face amount, the cost
of insurance rates will vary based on the Insured's gender, underwriting class,
attained age as of the nearest birthday at the time of the increase and the
duration from the date of the increase, not the current
13
<PAGE> 19
attained age. The charge for cost of insurance protection and any charge for any
optional benefits added by rider are deducted from the Cash Value.
Under an increase in face amount, new cost of insurance rates apply to the
new coverage segment based on the underwriting classification and rating for the
increase. Elected decreases in face amount reduce or cancel prior segments and
their associated cost of insurance rates on a last-in-first-out basis.
SEPARATE ACCOUNT CHARGES
MORTALITY AND EXPENSE RISK CHARGE
We charge the Investment Divisions for the mortality and expense risks we
assume. We deduct a daily charge at an annual rate of .60% of the value of each
Investment Division's assets. We may change the mortality and expense risk
charge, subject to a maximum of .90%.
The mortality risk we assume is that the group of lives insured under our
policies may, on average, live for shorter periods of time than we estimated.
The expense risk we assume is that our costs of issuing and administering
policies may be more than we estimated.
If these charges are insufficient to cover assumed risks, the loss will be
deducted from NYLIAC's surplus. Conversely, if the charge proves more than
sufficient, any excess will be added to the NYLIAC surplus.
ADMINISTRATIVE CHARGE
We charge the Investment Divisions a daily charge for providing policy
administrative services equal, on an annual basis, to .10% of the average daily
net asset value of the Separate Account. This charge is not designed to produce
a profit and is guaranteed not to increase.
OTHER CHARGES FOR FEDERAL INCOME TAXES
We do not currently make any charge against the Investment Divisions for
federal income taxes attributable to them. However, we reserve the right to make
such a charge in order to provide for the future federal income tax liability of
the Investment Divisions. For more information on charges for federal income
taxes, see FEDERAL INCOME TAX CONSIDERATIONS at page 44.
FUND CHARGES
Each Investment Division of the Separate Account purchases shares of the
corresponding Portfolio at net asset value. The net asset value reflects the
investment advisory fees and other expenses that are deducted from the assets of
the Portfolio. The advisory fees and other expenses are not fixed or specified
under the terms of the policy, and they may vary from year to year. These fees
and expenses are described in the Funds' prospectuses. The following chart
reflects fees and charges that are provided by the Fund or its agents, which are
based on 1998 expenses, and may reflect estimated changes:
14
<PAGE> 20
The chart on the following two pages summarizes the 1998 Separate Account
charges applicable to a policy, as well as the charges at the Fund level:(a)
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY
------------ ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Charges(b).................... 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
Administrative Charges.......... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Total Separate Account Annual
Expenses...................... 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average net assets)
Advisory Fees................... 0.36% 0.25% 0.36% 0.30% 0.30% 0.60%
Administration Fees............. 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses.................. 0.08% 0.09% 0.16% 0.13% 0.08% 0.17%
Total Fund Annual Expenses...... 0.64% 0.54% 0.72%(c) 0.63% 0.58% 0.97%(c)
<CAPTION>
MAINSTAY VP
TOTAL MAINSTAY VP MAINSTAY VP
RETURN VALUE BOND
----------- ----------- -----------
<S> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Charges(b).................... 0.60% 0.60% 0.60%
Administrative Charges.......... 0.10% 0.10% 0.10%
Total Separate Account Annual
Expenses...................... 0.70% 0.70% 0.70%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average net assets)
Advisory Fees................... 0.32% 0.36% 0.25%
Administration Fees............. 0.20% 0.20% 0.20%
Other Expenses.................. 0.08% 0.09% 0.07%
Total Fund Annual Expenses...... 0.60% 0.65% 0.52%
</TABLE>
- ------------
(a) This chart does not reflect deductions from premiums and the Cash Value
charges which are described in the immediately preceding sections.
(b) This is the current fee. The maximum fee is 0.90%.
(c) "Other Expenses" and "Total Fund Annual Expenses" for the MainStay VP
Convertible and MainStay VP International Equity Portfolios reflect an
expense reimbursement agreement that ended December 31, 1998 limiting "Other
Expenses" to 0.17% annually. In the absence of the expense reimbursement
arrangement, the "Total Fund Annual Expenses" would have been 1.17% for the
MainStay VP International Equity Portfolio. (This figure is reflected in the
illustrations on pages A-3 and A-4.)
15
<PAGE> 21
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP ALGER AMERICAN CALVERT FIDELITY VIP
GROWTH INDEXED SMALL SOCIAL FIDELITY VIP II EQUITY-
EQUITY EQUITY CAPITALIZATION BALANCED CONTRAFUND INCOME
----------- ----------- -------------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Charges(b).................... 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%
Administrative Charges.......... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Total Separate Account Annual
Expenses...................... 0.70% 0.70% 0.70% 0.70% 0.70% 0.70%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average net assets)
Advisory Fees................... 0.25% 0.10% 0.85% 0.70%(d) 0.59% 0.49%
Administration Fees............. 0.20% 0.20% 0.00% 0.00% 0.00% 0.00%
Other Expenses.................. 0.06% 0.08% 0.04% 0.18%(d) 0.11% 0.09%
Total Fund Annual Expenses...... 0.51% 0.38% 0.89% 0.88%(d) 0.70%(e) 0.58%(e)
<CAPTION>
JANUS ASPEN MORGAN STANLEY
JANUS ASPEN SERIES DEAN WITTER
SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
----------- ----------- --------------
<S> <C> <C> <C>
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average net assets)
Mortality and Expense Risk
Charges(b).................... 0.60% 0.60% 0.60%
Administrative Charges.......... 0.10% 0.10% 0.10%
Total Separate Account Annual
Expenses...................... 0.70% 0.70% 0.70%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average net assets)
Advisory Fees................... 0.72% 0.65% 0.00%
Administration Fees............. 0.00% 0.00% 0.00%
Other Expenses.................. 0.02% 0.07% 1.95%
Total Fund Annual Expenses...... 0.74% 0.72%(f) 1.95%(g)
</TABLE>
- ------------
(d) These fees are based on expenses for the fiscal year 1998, and have been
restated to reflect the complete assessment of transfer agency expenses of
0.01% expected to be incurred in 1999. "Other Expenses" reflect an indirect
fee. "Total Fund Annual Expenses" after reductions for fees paid indirectly,
which are restated, would have been 0.86%.
(e) A portion of the brokerage commissions that these Portfolios pay was used
to reduce the Portfolios' expenses. In addition, these Portfolios have
entered into arrangements with their custodian whereby credits realized as
a result of uninvested cash balances were used to reduce custodian
expenses. Including these reductions, the "Total Fund Annual Expenses"
would have been 0.66% for the Fidelity VIP II Contrafund Portfolio and
0.57% for the Fidelity VIP Equity-Income Portfolio.
(f) The "Total Fund Annual Expenses" include a fee reduction to reduce the
"Advisory Fees" to the level of the corresponding Janus retail fund. Other
waivers, if applicable, are first applied against the "Advisory Fees" and
then against "Other Expenses". Janus Capital Corporation has agreed to
continue the other waivers and fee reductions until at least the next
annual renewal of the advisory agreement. Absent such waivers or
reductions, the "Total Fund Annual Expenses" would have been 0.74%.
(g) Morgan Stanley Dean Witter Investment Management Inc. has voluntarily waived
receipt of its "Advisory Fees" and agreed to reimburse the Portfolio, if
necessary, to the extent that the "Total Fund Annual Expenses" of the
Portfolio exceed 1.75% of average daily net assets. However, Morgan Stanley
Dean Witter has reflected under "Other Expenses" the Portfolio's interest
and foreign tax expenses incurred in 1998 which were equal to 0.20% of the
Portfolio's average daily net assets. The fee waivers and reimbursements
described above may be terminated by Morgan Stanley Dean Witter at any time
without notice. Absent such reductions, it is estimated that "Advisory
Fees", "Administration Fees" and "Total Fund Annual Expenses" would be
1.25%, 0.25% and 3.45%, respectively.
16
<PAGE> 22
SURRENDER CHARGES
During the first 15 Policy Years, a surrender charge will be assessed on a
complete surrender or decrease in face amount, including decreases caused by a
change in the life insurance benefit option or partial withdrawals on policies
with Life Insurance Benefit Option 1. This surrender charge is in addition to
the sales expense charge discussed on page 12.
The maximum surrender charge is equal to the applicable percentage shown in
the table below multiplied by 50% of the Surrender Charge Guideline Annual
Premium. The maximum surrender charge for your policy is shown on the Policy
Data Page. The maximum surrender charge will never exceed the amount of premiums
paid.
The surrender charge in the first Policy Year is equal to:
(A) 25% of premiums paid to date up to the Surrender Charge Guideline
Annual Premium for the first year; plus
(B) 5% of premiums paid in that year that are in excess of the
Surrender Charge Guideline Annual Premium for the first year but not in
excess of the sum of the Surrender Charge Guideline Annual Premium through
the sixth Policy Year.
The surrender charge in and after the second Policy Year is equal to the
applicable percentage shown in the table below multiplied by the Base Surrender
Charge. The Base Surrender Charge is equal to:
(A) 25% of the lesser of (i) the premiums paid to date or (ii) the
Surrender Charge Guideline Annual Premium for the first Policy Year; plus
(B) 5% of the lesser of (i) premiums paid in excess of the Surrender
Charge Guideline Annual Premium for the first Policy Year or (ii) the sum
of the Surrender Charge Guideline Annual Premiums for the first six Policy
Years minus the Surrender Charge Guideline Annual Premium for the first
Policy Year.
<TABLE>
<CAPTION>
YEAR SURRENDER CHARGE
---- ----------------
<S> <C>
2-6.................................................. 100%
7.................................................. 90%
8.................................................. 80%
9.................................................. 70%
10.................................................. 60%
11.................................................. 50%
12.................................................. 40%
13.................................................. 30%
14.................................................. 20%
15.................................................. 10%
16+................................................. 0%
</TABLE>
During the first two Policy Years, the surrender charge is further limited
to the sum of:
(A) 30% of all premiums paid during the first two Policy Years up to
one Surrender Charge Guideline Annual Premium; plus
(B) 10% of all premiums in the first two Policy Years in excess of one
Surrender Charge Guideline Annual Premium, but not more than two Surrender
Charge Guideline Annual Premiums; plus
17
<PAGE> 23
(C) 9% of all premium payments in the first two Policy Years in excess
of two Surrender Charge Guideline Annual Premiums; less
(D) any sales expense charges deducted from such premiums; less
(E) any surrender charge previously deducted.
Surrender charges and surrender charge periods are calculated separately
for the initial face amount and for each increase in the face amount, except
ones caused by a change in the life insurance benefit option. Premium payments
after an increase will be allocated between the initial face amount and the
increase based on the relative Surrender Charge Guideline Annual Premiums. A
decrease in face amount will result in the imposition of a surrender charge
equal to the difference between the surrender charge that would have been
payable on a complete surrender prior to the decrease and the surrender charge
which would be payable on a complete surrender after the decrease.
For example, assume a policy with a $100,000 face amount is to be decreased
to a $50,000 face amount. If a complete surrender of the policy prior to the
decrease would result in a surrender charge of $1,250 and a complete Surrender
of the $50,000 remaining face amount after the decrease would result in a
surrender charge of $750, the surrender charge imposed in connection with the
decrease will be $500 ($1,250-$750). Where, because of increases in face amount,
there are multiple schedules of surrender charges, the charge applied will be
based first on the surrender charge associated with the last increase in face
amount, then on each prior increase, in the reverse order in which the increases
occurred, and then to the initial face amount.
The percentages specified above and/or the Policy Year in which the
surrender charge is reduced may vary for individuals having a life expectancy of
less than 20 years either at the time that a policy is issued or the face amount
is increased.
EXCEPTIONS TO SURRENDER CHARGE
There are a number of exceptions to the imposition of a surrender charge,
including but not limited to, cancellation of a policy by us, the payment of
proceeds upon the death of the Insured, or a required Internal Revenue Code
minimum distribution for the policy.
18
<PAGE> 24
HOW THE POLICY WORKS
This example is based on the illustration from page A-1, assuming a 6%
hypothetical gross annual investment return and current charges in the first
Policy Year:
<TABLE>
<S> <C> <C>
Scheduled Annual Premium........................................ $3,000.00
less: Sales expense charge (5%).............................. 150.00
State tax charge (2%).................................. 60.00
Federal tax charge (1.25%)............................. 37.50
---------
equals: Net premium............................................ $2,752.50
plus: Net investment performance (varies daily).............. 112.43
less: Monthly contract charges ($6 per month currently)...... 72.00
less: Charges for cost of insurance (varies monthly)......... 384.68
---------
equals: Cash Value............................................. $2,408.25
less: Surrender charge (25% of premium up to Surrender Charge
Guideline Annual Premium plus 5% of excess premiums
paid).................................................. 750.00
less: Balance of first year monthly contract charge(1)....... 228.00
equals: Cash Surrender Value(at end of year 1)................. $1,430.25
</TABLE>
- ------------
(1) In the first Policy Year, the excess of the annual charge over the annual
charge applicable in renewal years is advanced to your Accumulation Value
and deduction is deferred to the earlier of the first policy anniversary or
surrender of the policy.
THE SEPARATE ACCOUNT
The Separate Account was established as of June 4, 1993, pursuant to
resolutions of the NYLIAC Board of Directors. The Separate Account is registered
as a unit investment trust with the SEC under the Investment Company Act of
1940, but such registration does not 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. The Separate Account's
assets are not chargeable with liabilities incurred in any of NYLIAC's other
business operations (except to the extent that assets in the Separate Account
exceed the reserves and other liabilities of the Separate Account). The income,
capital gains and capital losses incurred on the assets of the Separate Account
are credited to or are charged against the assets of the Separate Account,
without regard to the income, capital gains or capital losses arising out of any
other business NYLIAC may conduct. Therefore, the investment performance of the
Separate Account is entirely independent of both the investment performance of
NYLIAC's Fixed Account and the performance of any other separate account.
The Separate Account currently has 18 Investment Divisions which invest
premiums solely in the corresponding Eligible Portfolios of the Funds.
Investment Divisions may, subject to any required regulatory approvals, be added
or deleted at our discretion.
NYLIAC may accumulate in the Separate Account the charge for mortality and
expense risks, monthly charges assessed against the policy and investment
results applicable to those assets that are in excess of net assets supporting
the policies.
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MAINSTAY VP SERIES FUND, INC.
The Separate Account currently invests in eleven Portfolios of the MainStay
VP Series Fund, Inc., a diversified open-end management investment company.
MacKay-Shields, Monitor and Madison Square 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,
Inc. As compensation for such services, the MainStay VP Series Fund, Inc. pays
each investment adviser a fee. The Portfolios, their investment advisers and the
fees are listed in the table below.
<TABLE>
<CAPTION>
INVESTMENT ADVISERS PORTFOLIOS ADVISORY FEE
- ------------------------------------- ------------------------------------- ----
(AS A PERCENTAGE
OF THE AGGREGATE
DAILY NET
ASSETS)
<S> <C> <C>
MacKay-Shields Financial Corporation MainStay VP Capital Appreciation .36%
("MacKay-Shields") MainStay VP Cash Management .25%
MainStay VP Convertible .36%
MainStay VP Government .30%
MainStay VP High Yield Corporate Bond .30%
MainStay VP International Equity .60%
MainStay VP Total Return .32%
MainStay VP Value .36%
Monitor Capital Advisors, Inc.
("Monitor") MainStay VP Indexed Equity .10%
Madison Square Advisors, Inc. MainStay VP Bond .25%
("Madison Square") MainStay VP Growth Equity .25%
</TABLE>
See the prospectus for the MainStay VP Series Fund, Inc. 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 Portfolio available through
The Alger American Fund for investment by the Separate Account.
Fred Alger Management, Inc. ("FAM") provides investment advisory services
to the Alger American Small Capitalization Portfolio in accordance with the
policies, programs and guidelines established by the Board of Trustees of The
Alger American Fund. As compensation for such services, The Alger American Fund
pays FAM a fee in the form of a daily charge at an annual rate of .85% of the
average daily net assets of the Portfolio. See the prospectus for The Alger
American Fund which is attached to this prospectus.
CALVERT VARIABLE SERIES, INC.
The Separate Account currently invests in the Calvert Social Balanced
Portfolio of the Calvert Variable Series. Currently, the Calvert Social Balanced
Portfolio is the only
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<PAGE> 26
Portfolio available through the Calvert Variable Series for investment by the
Separate Account.
Calvert Asset Management Company, Inc. ("CAM") provides investment advisory
services to the Calvert Social Balanced Portfolio in accordance with the
policies, programs and guidelines established by the Board of Directors of the
Calvert Variable Series. As compensation for such services, the Calvert Variable
Series pays CAM a fee in the form of a daily charge at an annual rate of .70% of
the first $500 million of the average daily net assets of the Calvert Social
Balanced Portfolio, .65% of the next $500 million of average daily net assets of
the Portfolio, and .60% of the average daily net assets of the Portfolio in
excess of $1 billion. This fee may be reduced or increased by up to 0.15%,
depending on the performance of the Calvert Social Balanced Portfolio relative
to the Lipper Balanced Funds Index. See the prospectus for the Calvert Variable
Series which is attached to this prospectus.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP) AND
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (VIP II)
The Separate Account currently invests in the Fidelity VIP II Contrafund
Portfolio of the Variable Insurance Products Fund II trust, and the Fidelity VIP
Equity-Income Portfolio of the Variable Insurance Products Fund trust.
Currently, the Fidelity VIP II Contrafund and Fidelity VIP Equity-Income
Portfolios are the only Eligible Portfolios available through the Fidelity Funds
for investment by the Separate Account.
Fidelity Management and Research Company ("FMR") provides investment
advisory services to the Fidelity VIP II Contrafund Portfolio and Fidelity VIP
Equity-Income Portfolio in accordance with the policies, programs and guidelines
established by the Boards of Trustees of the Variable Insurance Products Fund
and the Variable Insurance Products Fund II. As compensation for such services,
the Fidelity Funds pay FMR a monthly fee in the form of a charge, calculated on
a monthly basis by adding a group fee rate to an individual Portfolio fee rate,
and multiplying the result by the Portfolios' average net assets. The group fee
rate is based on the average net assets of all the mutual fund assets advised by
FMR, and cannot rise above .52%. FMR pays, at its own expense, FMR U.K. and FMR
Far East an annual fee equal to 50% of its management fee rate with respect to
the Fidelity VIP II Contrafund Portfolio's investments that each sub-advisor
manages on a discretionary basis. See the prospectus for the Fidelity Variable
Insurance Products Funds which is attached to this prospectus.
JANUS ASPEN SERIES
The Separate Account currently invests in the Balanced and Worldwide Growth
Portfolios of the Janus Aspen Series. Currently, the Balanced and Worldwide
Growth Portfolios are the only Eligible Portfolios available through the Janus
Aspen Series for investment by the Separate Account.
Janus Capital Corporation ("JCC") provides investment advisory services to
the Janus Aspen Series Balanced and Janus Aspen Series Worldwide Growth
Portfolios in accordance with the policies, programs and guidelines established
by the Board of Trustees of the Janus Aspen Series. As compensation for such
services, the Janus
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<PAGE> 27
Aspen Series pays JCC a management fee in the form of a daily charge at an
annual rate of .75% for the first $300 million of the average daily net assets
of each Portfolio, .70% of the next $200 million of the average daily net assets
of each Portfolio, and .65% of an amount over $500 million of the average daily
net assets of each Portfolio. JCC has agreed to reduce the advisory fee for each
Portfolio to the extent that such fee exceeds the effective rate of the Janus
retail fund corresponding to such Portfolio. This fee reduction may be
terminated or renewed annually. See the prospectus for the Janus Aspen Series
which is attached to this prospectus.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
The Separate Account currently invests in the Emerging Markets Equity
Portfolio of the Morgan Stanley Dean Witter Universal Funds, Inc. (the "Morgan
Stanley Fund"). Currently, the Emerging Markets Equity Portfolio is the only
Eligible Portfolio available through the Morgan Stanley Fund for investment by
the Separate Account.
Morgan Stanley Dean Witter Investment Management Inc. ("MSDW Investment
Management") provides investment advisory services to the Emerging Markets
Equity Portfolio in accordance with the policies, programs and guidelines
established by the Board of Directors of the Morgan Stanley Fund. As
compensation for such services, the Morgan Stanley Fund pays MSDW Investment
Management a quarterly management fee in the form of a daily charge at an annual
rate of 1.25% for the first $500 million of the average daily net assets of the
Portfolio, 1.20% of the next $500 million of the average daily net assets of the
Portfolio, and 1.15% of the average daily net assets of the Portfolio in excess
of $1 billion. MSDW Investment Management has agreed to a reduction in their
management fees and to reimburse the Portfolio if such fees would cause the
total annual operating expenses of the Portfolio to exceed 1.75% of average
daily net assets. See the prospectus for the Morgan Stanley Fund which is
attached to this prospectus.
PORTFOLIOS
The assets of each Portfolio are separate from the others and each such
Portfolio has different investment objectives and policies. As a result, each
Portfolio operates as a separate investment fund and the investment performance
of one Portfolio has no effect on the investment performance of any other
Portfolio.
THE MAINSTAY VP CAPITAL APPRECIATION PORTFOLIO
The MainStay VP Capital Appreciation Portfolio seeks long-term growth of
capital. It seeks to achieve its primary investment objective by maintaining a
flexible approach towards investing in various types of companies as well as
types of securities depending upon the economic environment and the relative
attractiveness of the various securities markets. Generally, the Portfolio will
seek to invest in securities issued by companies with investment characteristics
such as participation in expanding markets, increasing unit sales volume, growth
in revenues and earnings per share superior to that of the average common stocks
comprising indices such as the Standard & Poor's 500 Composite Price Index ("S&P
500") and increasing return on investment. Dividend income, if any, is a
consideration incidental to the Portfolio's objective of growth of capital.
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<PAGE> 28
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 or the cash value of a
stock or a basket or index of equity securities. Certain of the Portfolio's
investments have speculative characteristics.
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. Capital appreciation is a secondary objective which will be
sought only when consistent with this Portfolio's primary objective.
THE MAINSTAY VP INTERNATIONAL EQUITY PORTFOLIO
The MainStay VP International Equity Portfolio seeks long-term growth of
capital by investing in a portfolio consisting primarily of non-U.S. equity
securities. Current income is a secondary objective. In pursuing its investment
objective, the Portfolio will seek to invest in securities that provide the
potential for strong return but that do not, in MacKay-Shields' judgment,
present undue or imprudent risk. The Portfolio pursues its objectives by
investing its assets in a diversified portfolio of common stocks, preferred
stocks, warrants and comparable equity securities.
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<PAGE> 29
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 potential for capital appreciation.
THE MAINSTAY VP INDEXED EQUITY PORTFOLIO
The MainStay VP Indexed Equity Portfolio seeks to provide investment
results that correspond to the total return performance (reflecting reinvestment
of dividends) of common stocks in the aggregate, as represented by the S&P 500.
Using a full replication method, the Portfolio invests in all 500 stocks in the
S&P 500 in the same proportion as their representation in the S&P 500. The S&P
500 is an unmanaged index considered representative of the U.S. stock market.
The MainStay VP Indexed Equity Portfolio is neither sponsored by or affiliated
with the S&P 500.
THE ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
The Alger American Small Capitalization Portfolio seeks long-term capital
appreciation. Except during temporary defensive periods, the Portfolio focuses
on small, fast-growing companies that offer innovative products, services or
technologies to a rapidly expanding marketplace. Under normal circumstances, the
Portfolio invests primarily in the equity securities of small capitalization
companies. A small capitalization company is one that has a market
capitalization within the range of the Russell 2000 Growth Index or the S&P
Small Cap 600 Index.
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<PAGE> 30
THE CALVERT SOCIAL BALANCED PORTFOLIO
The Calvert Social Balanced Portfolio seeks to achieve a competitive total
return through an actively managed portfolio of stocks, bonds and money market
instruments which offer income and capital growth opportunity and which satisfy
the investment and social criteria established for this Portfolio.
THE FIDELITY VIP II CONTRAFUND PORTFOLIO
The Fidelity VIP II Contrafund Portfolio seeks long-term capital
appreciation by investing primarily in common stocks. FMR invests in securities
of companies whose value it believes is not fully recognized by the public.
THE FIDELITY VIP EQUITY-INCOME PORTFOLIO
The Fidelity VIP Equity-Income Portfolio seeks reasonable income by
investing at least 65% of total assets in income-producing equity securities.
The Portfolio will also consider the potential for capital appreciation.
Secondarily, the Portfolio seeks a yield that exceeds the composite yield on the
securities comprising the S&P 500 Index.
THE JANUS ASPEN SERIES BALANCED PORTFOLIO
The Janus Aspen Series Balanced Portfolio seeks long-term capital growth,
consistent with preservation of capital and balanced by current income. It is a
diversified Portfolio that, under normal circumstances, pursues its objective by
investing 40 to 60% of its assets in securities selected primarily for their
growth potential and 40 to 60% of its assets in securities selected primarily
for their income potential. The Portfolio normally invests at least 25% of its
assets in fixed-income senior securities, which include debt securities and
preferred stock.
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. The Portfolio's investment approach combines top-down country
allocation with bottom-up stock selection. Investment selection criteria include
attractive growth characteristics, reasonable valuations and managements that
focus on shareholder value.
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<PAGE> 31
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services and charges can be found in
the current prospectus for the relevant Fund, each of which is attached to this
prospectus. The Funds' prospectuses should be read carefully before any decision
is made concerning the allocation of net premiums to an Investment Division
corresponding to a particular Portfolio.
The Funds' shares may also be available to certain separate accounts
funding variable annuity policies offered by NYLIAC. This is called "mixed
funding." Except for the MainStay VP Series Fund, shares of all other Funds may
also be available to separate accounts of insurance companies unaffiliated with
NYLIAC. This is called "shared funding." Although we do not anticipate any
inherent difficulties arising from mixed and shared funding, it is theoretically
possible that, due to differences in tax treatment or other considerations, the
interests of owners of various contracts participating in a certain Fund might
at some time be in conflict. The Board of Directors/Trustees of each Fund, each
Fund's investment advisers, and NYLIAC are required to monitor events to
identify any material conflicts that arise from the use of the Funds for mixed
and shared funding. For more information about the risks of mixed and shared
funding please refer to the relevant Fund prospectus.
We provide certain services to you in connection with the investment of
premiums in the Investment Divisions, which, in turn, invest in the Portfolios.
These services include, among others, providing information about the
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
NYLIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Portfolio shares held by any
Investment Division. NYLIAC reserves the right to eliminate the shares of any of
the Portfolios and to substitute shares of another portfolio of a Fund, or of
another registered open-end management investment company. We may do this if the
shares of the Portfolios are no longer available for investment or, if we
believe investment in any Portfolio would become inappropriate in view of the
purposes of the Separate Account. To the extent required by law, substitutions
of shares attributable to your interest in an Investment Division will not be
made until you have been notified of the change.
Nothing contained herein shall prevent the Separate Account from purchasing
other securities for other series or classes of policies, or from effecting a
conversion between series or classes of policies on the basis of requests made
by policyowners.
NYLIAC may also establish additional Investment Divisions for the Separate
Account. Each additional Investment Division will purchase shares in a new
portfolio of a Fund or in another mutual fund. New Investment Divisions may be
established when, in the sole discretion of NYLIAC, marketing, tax, investment
or other conditions so warrant. Any new Investment Divisions will be made
available to existing policyowners on a basis
26
<PAGE> 32
NYLIAC determines. NYLIAC may also eliminate one or more Investment Divisions,
if, in its sole discretion, marketing, tax, investment or other conditions
warrant.
In the event of any substitution or change, NYLIAC may, by appropriate
endorsement, change the policies to reflect such substitution or change. If
deemed to be in the best interests of persons having voting rights under the
policies, the Separate Account may be operated as a management company under the
Investment Company Act of 1940, may be deregistered under such Act in the event
such registration is no longer required, or may be combined with one or more
other separate accounts.
REINVESTMENT
All dividends and capital gain distributions from Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value on the payable date.
GENERAL PROVISIONS OF THE POLICY
This section of the prospectus describes the general provisions of the
policy, and is subject to the terms of the policy. You may review a copy of the
policy upon request.
WHEN LIFE INSURANCE COVERAGE BEGINS
If you have coverage under a conditional temporary coverage agreement and
if the policy is issued, the policy will replace the temporary coverage. Your
coverage under the policy will be deemed to have commenced on the Policy Date.
In all other cases, if the policy is issued, coverage under the policy will
take effect when we receive the premium payment that you are required to make
when the policy is delivered to you.
PREMIUMS
You may allocate a portion of each net premium to one or more Investment
Divisions or the Fixed Account. You may currently maintain Cash Value in any
number of the Allocation Alternatives. You select a premium payment schedule in
the application and are not bound by an inflexible premium schedule. However, in
no event may the premium be an amount that would exceed the guideline premium
limitations under Section 7702 of the Internal Revenue Code and jeopardize the
policy's qualification as "life insurance". Premiums must be sent to our
Principal Office or to the address indicated for payment on your notice. Two
premium concepts are very important under the policy: scheduled premiums and
unscheduled premiums.
SCHEDULED PREMIUMS
The amount of the scheduled premium is shown on the Policy Data Page.
There is no penalty if the scheduled premium is not paid. Payment of the
scheduled premium, however, does not guarantee coverage for any period of time.
Instead, the continuance of the policy depends upon the policy's Cash Surrender
Value. If the Cash Surrender Value becomes insufficient to pay certain monthly
charges and a late period expires without sufficient payment the policy will
terminate. For details see TERMINATION.
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<PAGE> 33
Policies that are maintained at Cash Surrender Values just sufficient to
cover fees and charges or that are otherwise minimally funded are more at risk
for not being able to maintain such Cash Surrender Values. The risk arises
because of market fluctuation and other performance-related risks. When
determining the amount of your scheduled premium payments, you should consider
funding your policy at a level that can maximize the investment opportunities
within your policy and minimize the risks associated with market fluctuations.
UNSCHEDULED PREMIUMS
While the Insured is living, you may make unscheduled premium payments of
at least $50 at any time prior to the policy anniversary on which the Insured is
age 95. Unscheduled premiums also include the proceeds of an exchange made in
accordance with Section 1035 of the Internal Revenue Code. If an unscheduled
premium would result in an increase in the life insurance benefit greater than
the increase in the Cash Value, we reserve the right to require proof of
insurability before we accept and apply the payment to the policy. We also
reserve the right to limit the number and amount of any unscheduled premiums. In
certain states, unscheduled premiums may be made only once each Policy Year.
TERMINATION
The policy does not terminate for failure to pay premiums since payments,
other than the initial premium, are not specifically required. Rather, if on a
Monthly Deduction Day, the Cash Surrender Value is less than the monthly
deduction charge for the next policy month, the policy will continue for a late
period of 62 days after that Monthly Deduction Day.
We allow a 62 day late period to pay any premium necessary to cover the
overdue monthly deduction and/or excess policy loan. We will mail a notice to
you at your last known address, and a copy to the last known assignee on our
records, if any, at least 31 days before the end of the late period which states
this amount. During the late period, the policy remains in force. If we do not
receive the required payment before the end of the late period, the policy will
end and there will be no Cash Value or death benefit. If the Insured dies during
the late period, we will pay the death benefit. However, these proceeds will be
reduced by the amount of any Policy Debt and monthly deduction charges for the
full policy month or months that run from the beginning of the late period
through the policy month in which the Insured dies.
MATURITY DATE
For all policies issued prior to May 1, 1995 (except in New Jersey), the
death benefit payable for all ages is based on the life insurance benefit option
in effect and any decreases or increases made in the policy face amount as shown
on the Policy Data Page. For all policies issued in New Jersey and for policies
issued on or after May 1, 1995 in all other states, a policy matures beginning
on the anniversary on which the Insured is age 95 and the face amount of the
policy, as shown on the Policy Data Page, will no longer apply. Instead, the
death benefit under the policy will equal the Cash Value of the policy less any
outstanding Policy Debt. You will be notified one year prior to maturity that,
upon reaching attained age 95, you may elect either to receive the Cash Value of
the policy at such time less any outstanding Policy Debt or to continue to hold
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<PAGE> 34
the policy. Please consult your tax adviser regarding the tax implications of
these options.
If the policy is held, any amounts in the Fixed Account will be credited
with interest at an annual rate of not less than 4%. No further monthly
deductions will be made for cost of insurance. You may surrender the policy for
an amount equal to the Cash Surrender Value of the policy by presenting to our
Principal Office a signed written request providing the information we request.
(In New York, when the Insured reaches attained age 100, you will automatically
receive the Cash Surrender Value of the policy.) If the policy is still in force
upon the death of the Insured, these proceeds will be paid to the Beneficiary.
Any insurance on an Other Covered Insured, provided by a rider attached to
the policy, which is still in effect will end on the policy anniversary when the
Insured is age 95. However, if an Other Covered Insured is younger than age 70
when the rider ends, that insured can convert the term insurance at that time as
provided in the rider.
DOLLAR COST AVERAGING
Dollar cost averaging is a systematic method of investing which allows you
to purchase units of the Investment Divisions at regular intervals in fixed
dollar amounts so that the cost of your units 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 unit during
volatile market conditions. Since the same dollar amount is transferred to an
Investment Division with each transfer, more units are purchased in the
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 may
be achieved if prices fluctuate over the long term. Similarly, for each transfer
out of an Investment Division, more units are sold in an Investment Division if
the value per unit is low and fewer units are sold if the value per unit is
high. Dollar cost averaging does not assure a profit or protect against a loss
in declining markets. Because it involves continuous investing regardless of
price levels, you should consider your financial ability to continue to make
purchases during periods of low price levels.
If you decide to use the dollar cost averaging feature, 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;
-- the date on which you want the transfers to be made, within the limits
indicated below; and
-- how often you would like the transfers made (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, except the 29th,
30th or 31st of a month. We will not process a dollar cost averaging transfer
unless we have
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<PAGE> 35
received a written request at our Principal Office. 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. NYLIAC will
automatically suspend this feature if the Cash Value is less than $4,500 on a
transfer date. Once the Cash Value equals or exceeds this amount, the dollar
cost averaging transfers will automatically resume as scheduled.
You may cancel the dollar cost averaging option at any time by written
request. You may not elect dollar cost averaging if you have chosen the
automatic asset reallocation option. However, you have the option of alternating
between these two options.
The dollar cost averaging option is available to you at no additional cost.
AUTOMATIC ASSET REALLOCATION
This option allows you to maintain the percentage allocated to each
Investment Division at a pre-set level. For example, you might specify that 50%
of the Accumulation Value be allocated to the MainStay VP Growth Equity
Investment Division and 50% of the Accumulation Value be allocated to the
MainStay VP Bond Investment Division. Over time, the fluctuations in each of
these Investment Division's investment results will shift the percentages. If
you elect the automatic asset reallocation option, NYLIAC will automatically
transfer your Accumulation Value back to the percentages you specify. You may
choose to have reallocations made quarterly, semi-annually or annually. We will
process automatic asset reallocations of less than $500. The minimum
Accumulation Value required to elect this option is $5,000. After your initial
election of this option, you must maintain a minimum Accumulation Value of
$4,500 in order to have subsequent reallocations made under this option. There
is no minimum amount which you must allocate among the Investment Divisions
under this option.
You may cancel the automatic asset reallocation option at any time in a
written request to our Principal Office. We will suspend this option
automatically if the Cash Value is less than $4,500. Once the Cash Value equals
or exceeds this amount, the automatic asset reallocations will automatically
resume. The automatic asset reallocation option may not be elected if you have
selected the dollar cost averaging option. However, you have the option of
alternating between these two options.
The automatic asset reallocation option is available to you at no
additional cost.
INTEREST SWEEP
This feature is available at no additional cost.
For policies where we receive the application on or after November 20,
1998, you can direct that the interest earned in the Fixed Account be
periodically transferred 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 percentage you want to be transferred to each Investment Division;
and
-- how often (monthly, quarterly, semi-annually or annually) you want us to
make these transfers.
30
<PAGE> 36
We will begin to make interest sweep transfers when the amount in the Fixed
Account is at least $5,000. You can 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 cannot choose the interest sweep feature if you have instructed us to
deduct any part of your policy expenses from the Fixed Account. If you want to
elect the interest sweep feature and you want to allocate your expenses, you
must allocate your expense deduction to the MainStay VP Cash Management
Investment Division.
You can 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 20% 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.
DEATH BENEFIT UNDER THE POLICY
The death benefit is the amount payable to the named Beneficiary when the
Insured dies prior to the Insured's maturity date. Upon receiving due proof of
death, we pay the Beneficiary the death benefit amount determined as of the date
the Insured dies. All or part of the death benefit can be paid in cash or
applied under one or more of our payment options described under ADDITIONAL
PROVISIONS OF THE POLICY--Payment Options at page 52.
The amount of the death benefit is determined by whether you have chosen
Life Insurance Benefit Option 1 or Life Insurance Benefit Option 2.
Life Insurance Benefit Option 1--Provides a death benefit equal to the
greater of (i) the face amount of the policy (ii) or a percentage of the
Cash Value equal to the minimum necessary for the policy to qualify as life
insurance under Section 7702 of the Internal Revenue Code. (See the
following table for these percentages.)
Life Insurance Benefit Option 2--Provides a death benefit equal to the
greater of (i) the face amount of the policy plus the Cash Value or (ii) a
percentage of the Cash Value equal to the minimum necessary for the policy
to qualify as life insurance under Section 7702 of the Internal Revenue
Code. (See the following table for these percentages.)
31
<PAGE> 37
<TABLE>
<CAPTION>
INSURED'S AGE INSURED'S AGE
ON POLICY IRC SECTION 7702 ON POLICY IRC SECTION 7702
ANNIVERSARY LIFE INSURANCE % ANNIVERSARY LIFE INSURANCE %
- ------------- ---------------- ------------- ----------------
<S> <C> <C> <C>
0-40 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75-90 105
55 150 91 104
56 146 92 103
57 142 93 102
58 138 94 101
59 134 95 & Over 100
60 130
</TABLE>
The value of any additional benefits provided by rider on the primary
Insured's life is added to the amount of the death benefit. We pay interest on
the death benefit from the date of death to the date the death benefit is paid
or a payment option becomes effective. The interest rate equals the rate
determined under the Interest Payment Option as described in ADDITIONAL
PROVISIONS OF THE POLICY--Payment Options. We subtract any outstanding Policy
Debt, and any unpaid monthly deductions if the death occurs during the 62-day
late period and then credit the interest. Under both life insurance benefit
options, negative investment experience in the Investment Divisions will never
result in a death benefit that will be less than the face amount, so long as the
policy remains in force.
EXAMPLE 1:
The following example shows how the death benefit varies as a result of
investment performance on a policy with Life Insurance Benefit Option 1 assuming
age at death is 45:
<TABLE>
<CAPTION>
POLICY A POLICY B
-------- --------
<S> <C> <C>
(1) Face amount....................................... $100,000 $100,000
(2) Cash Value on date of death (and no loans)........ $ 50,000 $ 40,000
(3) Internal Revenue Code ("IRC") Section 7702 Life
Insurance Percentage on date of death............. 215% 215%
(4) Cash Value multiplied by the IRC Percentage....... $107,500 $ 86,000
(5) Death benefit = greater of (1) and (4)............ $107,500 $100,000
</TABLE>
32
<PAGE> 38
EXAMPLE 2:*
The following example shows how the death benefit varies as a result of
investment performance on a policy assuming age at death is 97 (past maturity
date):
<TABLE>
<CAPTION>
POLICY A POLICY B POLICY C
-------- -------- --------
<S> <C> <C> <C>
(1) Face amount as shown on the Policy Data
Page................................... $100,000 $100,000 $200,000
(2) Cash Surrender Value on date of
death.................................. $ 50,000 $110,000 $110,000
(3) Death benefit after maturity = Cash
Surrender Value........................ $ 50,000 $110,000 $110,000
</TABLE>
- ---------------
* For all policies issued in New Jersey and for policies issued on or after May
1, 1995 in all other states.
FACE AMOUNT CHANGES
Certain states may impose limitations on increasing or decreasing the face
amount of your policy. Refer to your policy for details. You can apply in
writing to have the face amount increased or decreased.
The amount of an increase in face amount must be for at least $5,000 and is
subject to our maximum retention limits. Evidence of insurability satisfactory
to us is required for an increase. We reserve the right to limit increases, and
the number of increases may be limited by state law. Generally, the Insured may
not be older than age 90 as of the date of any increase in face amount. Any
increase will take effect on the next Monthly Deduction Day on or after we
approve the application for increase. An increase in face amount may affect the
net amount at risk, which may increase the cost of insurance charge. Face amount
increases incur new 15 year surrender charge periods on the amount of the
increase.
Decreases in coverage are allowed. The face amount will be reduced by
canceling insurance segments on a last purchased, first canceled basis and the
appropriate surrender charge will be deducted from the Cash Value. (For a
discussion of the charges associated with a decrease, see SURRENDER CHARGES at
page 17.) Consult your tax adviser regarding the tax consequences of decreasing
your coverage. A decrease in face amount is effective on the next Monthly
Deduction Day following the receipt of a written request. The face amount may
not be decreased to less than $50,000. We reserve the right to terminate the
option of decreasing the face amount, and the number of decreases may be limited
by state law.
LIFE INSURANCE BENEFIT OPTION CHANGES
You can change the life insurance benefit option of the policy. Any change
of option will take effect on the Monthly Deduction Day on or after the date we
receive your signed request at our Principal Office or such other location that
we indicate to you in writing. If you change from Option 1 to Option 2, the face
amount of the policy will be decreased by the Cash Value. In that case, a
surrender charge will be assessed if a surrender charge is then currently
applicable. If you change from Option 2 to Option 1, the face amount of the
policy will be increased by the Cash Value. A new schedule of surrender charges
will apply to the increase except for policies where we receive the application
on or after November 20, 1998.
33
<PAGE> 39
CASH VALUE AND CASH SURRENDER VALUE
CASH VALUE
The Cash Value of the policy is the sum of the Accumulation Value and the
value in the Fixed Account. Initially, the Cash Value equals the net amount of
the first premium paid under the policy. This amount is allocated among the
Fixed Account and the Investment Divisions according to the allocation
percentages requested in the application, or as subsequently changed by you.
TRANSFERS
All or part of the Cash Value may be transferred among Investment Divisions
or from an Investment Division to the Fixed Account. We reserve the right to
limit the number of transfers to the Fixed Account after the first two Policy
Years. (In New Jersey and New York, no more than twelve transfers per Policy
Year may be made from the Investment Divisions to the Fixed Account after the
first two Policy Years.) The minimum amount that may be transferred from one
Investment Division to another Investment Division, or to the Fixed Account, is
the lesser of (i) $500 or (ii) the total value of the Accumulation Units in the
Investment Division from which the transfer is being made. If, after an ordered
transfer, the value of the remaining Accumulation Units in an Investment
Division or the value in the Fixed Account would be less than $500, the entire
value will be transferred. There is no charge for the first twelve transfers in
any one Policy Year. We reserve the right to charge $30 for each transfer in
excess of twelve per year. Any transfer made in connection with the dollar cost
averaging and automatic asset reallocation options will not count as a transfer
toward the twelve-transfer limit. However, transfers made in connection with the
Interest Sweep option will count toward the twelve-transfer limit.
Transfers may also be made from the Fixed Account to the Investment
Divisions in certain situations. (See THE FIXED ACCOUNT at page 42.)
Transfer requests must be in writing and sent to our Principal Office on a
form we approve or by telephone in accordance with established procedures.
Transfers from Investment Divisions will be made based on the Accumulation Unit
values at the end of the Business Day on which NYLIAC receives the transfer
request. If, however, the date on which they are received is not a Business Day,
or if they are received other than through the mail after the closing of the New
York Stock Exchange, they are deemed received on the next Business Day. (See
ADDITIONAL PROVISIONS OF THE POLICY--When We Pay Proceeds at page 54.)
INVESTMENT RETURN
The investment return of a policy is based on:
-- The Accumulation Units held in each Investment Division,
-- The investment experience of each Investment Division as measured by its
actual net rate of return, and
-- The interest rate credited on Cash Values held in the Fixed Account.
The investment experience of an Investment Division 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
34
<PAGE> 40
the Investment Division. This investment experience is determined each Business
Day on which 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 Business Day to the end of the next Business Day.
CASH SURRENDER VALUE
The policy may be surrendered for its Cash Surrender Value at any time
before the Insured dies. Unless a later effective date is selected, the
surrender is effective on the date we receive the policy and a written request
in proper form at our Principal Office. The policy and written request for
surrender are deemed received on the date on which they are received by mail at
NYLIAC's Principal Office or such other location that we indicate to you in
writing. If, however, the date on which they are received is not a Business Day,
or if they are received other than through the mail after the closing of the New
York Stock Exchange, they are deemed received on the next Business Day.
Because the Cash Value of the policy fluctuates with the performance of the
Investment Divisions and the interest rate credited to the Fixed Account, and
because certain surrenders or partial withdrawals are subject to a surrender
charge, and because of charges made against the policy, the total amount paid
upon surrender of the policy (taking into account any prior withdrawals) may be
more or less than the total premiums.
PARTIAL WITHDRAWALS
The owner of a policy may make a partial withdrawal of the policy's Cash
Surrender Value at any time while the Insured is living, in writing or by
calling a service representative at (800) 598-2019. The minimum partial
withdrawal is $500 unless we agree otherwise. We will apply uniform rules in
agreeing to partial withdrawals under $500. The amount available for a partial
withdrawal is the policy's Cash Surrender Value at the end of the Business Day
during which we receive the request for the partial withdrawal at our Principal
Office. The partial withdrawal will be made on a pro-rata basis from the Fixed
Account and/or Investment Divisions, unless you indicate otherwise. If the
portion of your request for a partial withdrawal from the Fixed Account or
Investment Division is greater than the amount in the Fixed Account and/or
Investment Division, we will reduce the partial withdrawal by that amount and
pay you the entire value of that Fixed Account and/or Investment Division, less
any surrender charge which may apply. Partial withdrawals will cause a reduction
in the policy's face amount when Life Insurance Benefit Option 1 is in effect.
We reserve the right to limit the amount and frequency of partial withdrawals,
and state law limitations may also apply. Partial withdrawals and surrenders may
be subject to surrender charges. For details see CHARGES UNDER THE POLICY at
page 12.
We may charge a fee, not to exceed the lesser of $25 or 2% of the amount
withdrawn, for processing a partial withdrawal. This fee will be deducted from
the remaining balance of the Fixed Account and/or Investment Divisions based on
the withdrawal allocation, or if the fee amount exceeds the remaining balance,
it will be deducted from the Fixed Account and/or Investment Divisions on a pro
rata basis. When you make a partial withdrawal, the death benefit, the Cash
Value, and the Cash Surrender Value will be reduced by the amount of the
withdrawal proceeds you receive as of the date you receive the payment and any
applicable surrender charge.
35
<PAGE> 41
POLICY LOAN PRIVILEGE
Using the policy as sole security, you can borrow any amount up to the loan
value of the policy. The loan value on any given date is equal to (i) 90% of the
Cash Value, less applicable surrender charges and less any deferred contract
charges, less (ii) any Policy Debt. Certain of the provisions discussed below,
applicable to policy loans, differ considerably in the state of New Jersey. New
Jersey policyowners should review their policy for further details.
SOURCE OF LOAN
When a loan is requested, an amount necessary to increase the value in the
Fixed Account to 108% of the new loan amount, less the excess of the value in
the Fixed Account over any outstanding policy loan, is transferred from the
Separate Account to the Fixed Account. This transfer will be made on a pro-rata
basis from the various Investment Divisions. While a policy loan is outstanding,
no partial withdrawals or transfers which would reduce the value in the Fixed
Account below 108% of the outstanding loan are permitted. However, monthly
deductions, such as the cost of insurance charge, may reduce the Fixed Account
below the 108% threshold.
LOAN INTEREST
The effective annual loan interest rate is 8%, which is payable in arrears.
We reserve the right to set a lower rate which we will determine at least once
every twelve months, but not more frequently than once in any three month
period. Loan interest for the Policy Year in which a loan is taken will be due
on the next policy anniversary. Loan interest accrues each day and is payable on
the earliest of the policy anniversary, on the date of death, surrender, or
lapse, or on the date of a loan increase or loan repayment. Loan interest not
paid in cash as of the policy anniversary, or prior to the expiration of the
late period, will be charged as a new loan. An amount may need to be transferred
to the Fixed Account to cover this increased loan amount.
If we have set a loan interest rate lower than 8% per year, any subsequent
increase in the interest rate will be subject to the following conditions:
(1) The effective date of any increase in the interest rate will not
be earlier than one year after the effective date of the
establishment of the previous rate.
(2) The amount by which the interest rate may be increased will not
exceed one percent per year, but the rate of interest will in no
event ever exceed 8%.
(3) We will give notice of the interest rate in effect when a loan is
made and when sending notice of loan interest due.
(4) If a loan is outstanding 40 days or more before the effective date
of an increase in the interest rate, we will notify you of that
increase at least 30 days prior to the effective date of the
increase.
(5) We will give notice of any increase in the interest rate when a
loan is made during the 40 days before the effective date of the
increase.
36
<PAGE> 42
REPAYMENT
All or part of an unpaid loan can be repaid before the Insured's death or
before the policy is surrendered. Loan repayments are allocated to the
Investment Divisions and/or the Fixed Account in accordance with premium
allocations in effect at the time of the loan repayment, unless you indicate
otherwise. If a loan is outstanding when the life insurance or surrender
proceeds become payable, we will deduct the amount of any Policy Debt from these
proceeds. In addition, if any Policy Debt exceeds the policy's Cash Surrender
Value, we will mail a notice to you at your last known address and a copy to the
last known assignee on our records. All insurance will end 31 days after the
date on which we mail that notice to you if the excess amount is not paid within
that 31 days.
INTEREST ON LOANED VALUE
The amount of any loan is held in the Fixed Account and earns interest at a
rate we determine. Such rate will never be less than 2% less than the effective
annual loan interest rate and in no event less than 4%.
Currently, the amount in the Fixed Account which is collateral for an
outstanding loan is credited with interest at a rate that is 1% less than the
effective annual loan interest rate during the first 10 Policy Years and 0.5%
less than the effective rate in subsequent Policy Years. These rates are not
guaranteed and can change at any time.
That portion of the policy's Cash Value held in the Fixed Account is not
affected by the Separate Account's investment performance. The Cash Value is
affected because the portion of the Cash Value equal to the policy loan is
credited with an interest rate declared by us rather than a rate of return
reflecting the investment performance of the Separate Account. Any interest
credited on the loan amount in the Fixed Account remains in the Fixed Account
unless you transfer amounts no longer needed as security to the Separate
Account.
FREE LOOK PROVISION
The policy contains a provision that permits cancellation by returning it
to us, or to the registered representative through whom it was purchased, during
the free look period. The free look period begins on the date you receive the
policy and ends 20 days later (or the amount of time required by state law but
not less than 10 days). You may cancel increases in the face amount under the
same time limitations. Premiums will be allocated to the MainStay VP Cash
Management Division until the end of the free look period. (In the District of
Columbia, when the policy is issued, the premium is allocated entirely to the
MainStay VP Cash Management Investment Division. On the later of 20 days after
the policy is delivered or 45 days after the application is executed, the net
premium is allocated according to the policyowner's instructions.) Unless
otherwise required by state law, upon cancellation, you will receive from us the
greater of the policy's Cash Value as of the date the policy is returned or the
premiums paid, less loans and partial withdrawals. The policy will be void as of
the Issue Date. For canceled increases in the face amount, the refund equals the
amount of premiums that are in excess of scheduled premiums which are allocated
to the increase in accordance with the surrender charge provision, less any
portion of such amount previously paid to you.
37
<PAGE> 43
EXCHANGE PRIVILEGE
At any time within 24 months of the Issue Date or after an increase in the
face amount of the policy, you may request that the entire Accumulation Value of
the policy be transferred to the Fixed Account to acquire fixed benefit life
insurance protection on the life of the Insured. However, you may request such a
transfer within 24 months after an increase in the face amount of the policy
solely with respect to the lesser of that portion of the post-increase premiums
attributable to the increase in the face amount of the policy or the
Accumulation Value under the policy. The exchange will become effective when we
receive proper written request.
At any time within 24 months of the Issue Date, you may exchange the policy
for a policy on a permanent plan of life insurance which we offer for this
purpose. We will not require evidence of insurability. The date of exchange will
be the later of (a) the date you send us the policy along with a proper written
request; or (b) the date we receive the policy at our Principal Office, or such
other location that we indicate to you in writing, and the necessary payment for
the exchange. Upon an exchange of a policy, all riders and benefits will end
unless we agree otherwise or unless required under state law. The exchanged
policy will have the same Issue Date, issue age and risk classification as the
original policy. In order to exchange the policy, we will require: (a) that the
policy be in effect on the date of exchange; (b) repayment of any Policy Debt;
and (c) an adjustment, if any, for premiums and Cash Values of the policy and
any new policy.
SPECIAL NEW YORK REQUIREMENTS. In the event of a material change in the
investment policy of a Portfolio, you may convert your policy to a new flexible
premium life insurance policy for an amount of insurance not to exceed the
amount of the death benefit under your original policy on the date of
conversion. The new policy will be based on the same issue age, gender and class
of risk as your original policy but will not offer variable investment options
such as the Investment Divisions. We will not require that you provide evidence
of insurability in order to effect this conversion. You will have 60 days after
the later of (1) effective date of the change in the investment policy of the
Portfolio and (2) the date you receive notification of such change. All riders
attached to your original policy will end on the date of any such conversion.
YOUR VOTING RIGHTS
The Funds are not required to and typically do not hold annual stockholder
meetings. Special stockholder meetings will be called when necessary.
To the extent required by law, whenever a special stockholder meeting is
held, NYLIAC will vote the Portfolio shares held in the Separate Account in
accordance with instructions received from policyowners having voting interests
in the corresponding Investment Divisions. If, however, applicable laws or
regulations change, and as a result, we determine that we are allowed to vote
the Portfolio shares in our own right, we may elect to do so.
The number of votes which are available to a policyowner will be calculated
separately for each Investment Division and will be determined by applying the
policyowner's percentage interest in a particular Investment Division to the
total number of votes attributable to the Investment Division.
38
<PAGE> 44
The number of votes of the Portfolio which are available will be determined
as of the date established by that Portfolio for determining shareholders
eligible to vote at the meeting of the relevant Fund. Voting instructions will
be solicited by written communication prior to such meeting in accordance with
procedures established by the relevant Fund.
Fund shares as to which no timely instructions are received will be voted
in proportion to the voting instructions which are received with respect to all
policies participating in that Investment Division. Voting instructions to
abstain on any item to be voted upon will be applied on a pro rata basis to
reduce the votes eligible to be cast. Each person having a voting interest in an
Investment Division will receive proxy material, reports and other materials
relating to the appropriate Portfolio.
OUR RIGHTS
We reserve the right to take certain actions in connection with our
operations and the operations of the Separate Account. These actions will be
taken in accordance with applicable laws (including obtaining any required
approval of the SEC and any other required regulatory approvals). If necessary,
we will seek your approval.
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 or in
any other form permitted by law;
-- deregister the Separate Account;
-- manage the Separate Account under the direction of a committee or
discharge such committee at any time;
-- transfer the assets of the Separate Account to one or more other
separate accounts; and
-- restrict or eliminate any of the voting rights of policyowners or other
persons who have voting rights as to the Separate Account.
NYLIAC also reserves the right to change the names of the Separate Account.
39
<PAGE> 45
DIRECTORS AND PRINCIPAL OFFICERS OF NYLIAC
<TABLE>
<S> <C>
DIRECTORS: POSITIONS DURING LAST FIVE YEARS:
Seymour Sternberg......................... Chairman of the Board, Chief Executive Officer and
President of New York Life from April 1997 to date;
President and Chief Operating Officer of New York
Life from October 1995 to April 1997; Vice Chairman
and President Elect from February 1995 to October
1995; Executive Vice President prior thereto.
President of NYLIAC from November 1995 to May 1997.
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.
George J. Trapp........................... Executive Vice President of New York Life from June
1995 to date and Corporate Secretary of New York Life
from November 1995 to date; Senior Vice President of
New York Life from 1991 until June 1995. Member of
the Executive Management Committee of New York Life
since 1994.
Phillip J. Hildebrand..................... Executive Vice President of New York Life from March
1999 to date; Senior Vice President in charge of the
Agency Department of New York Life from 1996 to March
1999. Managing Partner of Dallas General Office of
New York Life from 1994 to 1996.
Frank M. Boccio........................... Senior Vice President in charge of Individual Policy
Services Department of New York Life since July 1995;
Vice President of New York Life from 1994 to July
1995.
</TABLE>
40
<PAGE> 46
<TABLE>
<S> <C>
Michael G. Gallo.......................... Senior Vice President in charge of the Individual
Life Department of New York Life from July 1995 to
date; Senior Vice President--Northeastern Agencies
from February 1994 to July 1995; Vice President prior
thereto. Senior Vice President of NYLIAC from August
1995 to date.
Solomon Goldfinger........................ Senior Vice President and Chief Financial Officer in
charge of the Financial Management Department 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.
Howard I. Atkins.......................... Executive Vice President and Chief Financial Officer
of New York Life and NYLIAC from April 1996 to date;
Chief Financial Officer of Midlantic Corporation
prior thereto.
OFFICERS:
Jay S. Calhoun, III....................... Senior Vice President and Treasurer of New York Life
from March 1997 to date; Vice President and Treasurer
from November 1992 to March 1997; Corporate Vice
President prior thereto. Senior Vice President and
Treasurer of NYLIAC from May 1997 to date; Vice
President and Treasurer of NYLIAC from January 1993
to May 1997.
Jean E. Hoysradt.......................... Senior Vice President in charge of the Investment
Department of New York Life from March 1992 to date;
Senior Vice President of NYLIAC from April 1992 to
date.
Maryann L. Ingenito....................... Vice President of New York Life from April 1990 to
date. Vice President and Controller (Principal
Accounting Officer) of NYLIAC from December 1994 to
date; Vice President and Assistant Controller prior
thereto.
Frank J. Ollari........................... Senior Vice President in charge of the Mortgage
Finance Department of New York Life from October 1989
to date. Senior Vice President of NYLIAC from April
1992 to date.
</TABLE>
41
<PAGE> 47
<TABLE>
<S> <C>
Joel M. Steinberg, FSA, MAAA.............. Vice President and Actuary of New York Life from
March 1998 to date; Corporate Vice President and
Actuary from March 1996 to March 1998. Actuary prior
to March 1996.
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>
YEAR 2000 READINESS
We rely upon various computer systems to process all policy transactions
and valuations. These systems are being adjusted to enable us to continue to
administer the policies in Year 2000 and later. As is the case with most systems
projects, risks and uncertainties exist, in part due to our reliance on systems
that belong to service providers who are not affiliated with NYLIAC.
We are devoting substantial resources to make all necessary systems
modifications, and have received assurances from our service providers that they
are taking all necessary steps to address Year 2000 modifications with respect
to the computer systems that they use. Although we cannot give you guarantees,
we expect that the necessary changes will be completed on time and in a way that
will result in no disruption to our policy servicing operations.
THE FIXED ACCOUNT
The Fixed Account is supported by the assets in NYLIAC's general account,
which includes all of NYLIAC's assets except those assets specifically allocated
to the Separate Account. NYLIAC has sole discretion to invest the assets of the
Fixed Account subject to applicable law. The Fixed Account is not registered
under the federal securities laws and is not generally subject to their
provisions. NYLIAC has been advised that the staff of the SEC has not reviewed
the disclosures in this prospectus relating to the Fixed Account. These
disclosures regarding the Fixed Account may be subject to certain applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
INTEREST CREDITING
NYLIAC guarantees that it will credit interest at an annual rate of at
least 4% to values in or transferred to the Fixed Account under the policies.
NYLIAC may, at its sole discretion, credit a higher rate of interest to the
Fixed Account, or to amounts allocated or transferred to the Fixed Account. The
interest rate will be set by NYLIAC and can change daily. The interest rate may
differ for loaned and non-loaned amounts in the Fixed Account.
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TRANSFERS TO INVESTMENT DIVISIONS AND TO THE FIXED ACCOUNT
Amounts may be transferred from the Fixed Account to the Investment
Divisions, subject to the following conditions.
1. Maximum Transfer. The maximum amount you are allowed to transfer from
the Fixed Account to the Investment Divisions during any Policy Year is
20% of the value in the Fixed Account at the beginning of the Policy
Year.
2. Minimum Transfer. The minimum amount that you may transfer from the
Fixed Account to the Investment Divisions is the lesser of (i) $500 or
(ii) the value in the Fixed Account. In most states, we will consider
transfers of amounts less than this minimum.
3. Minimum Remaining Value. If, after a contemplated transfer, the
remaining values in the Fixed Account would be less than $500, we have
the right to include that amount in the transfer.
We reserve the right to limit transfers from the Investment Divisions to
the Fixed Account after the first two Policy Years. In New Jersey and New York
after the first two Policy Years, you may not make more than 12 transfers to the
Fixed Account in any one Policy Year. You should review your policy for further
details.
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures.
See the policy for details and a description of the Fixed Account.
PROCEDURES FOR TELEPHONE TRANSFERS
You may effect telephone transfers in two ways. You may directly contact a
service representative at (800)598-2019. You may also request access to an
electronic service known as a Voice Response Unit (VRU). The VRU will permit the
unassisted transfer of monies among the Investment Divisions and/or the Fixed
Account and change of allocation of future payments. If you intend to conduct
telephone transfers through the VRU, you must complete a Telephone Authorization
Form. We reserve the right to temporarily discontinue the availability of the
VRU.
We will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Before a service representative accepts
any requests, callers will be asked for their social security number and
address. All calls will also be recorded. A Personal Identification Number (PIN)
will be assigned to all policyowners who request VRU access. The PIN is selected
by and known only to the policyowner. Proper entry of the PIN is required before
any transactions will be allowed through the VRU. Furthermore, we will confirm
all transactions performed over the VRU and all transactions effected with a
service representative, in writing. NYLIAC is not liable for any loss, cost or
expense for action on telephone instructions which are believed to be genuine in
accordance with these procedures. Telephone transfer requests must be received
no later than 4:00 p.m. Eastern Time to assure same-day processing. Requests
received after 4:00 p.m. will be processed at the end of the next Business Day.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is general in nature. It is not an exhaustive
discussion of all tax questions that might arise under the policy, and is not
intended as tax advice. No attempt is made to consider any applicable state or
other tax laws and no representation is made as to the likelihood of
continuation of current federal income tax laws and Treasury regulations or of
current interpretations of the Internal Revenue Service. Future legislation,
regulations or interpretations could adversely affect the tax treatment of life
insurance policies. Lastly, there are many areas of the tax law where minimal
guidance exists in the form of Treasury regulations or revenue rulings.
While we reserve the right to make changes in the policy to assure that it
continues to qualify as life insurance for tax purposes, we cannot make any
guarantee regarding the future tax treatment of any policy. For complete
information on the tax treatment of the policies, the tax treatment under the
laws of your state, or the impact of proposed or future changes in tax
legislation, regulations or interpretations, you should consult with a tax
advisor.
The ultimate effect of federal income taxes on values under the policy and
on the economic benefit to the policyowner or Beneficiary depends upon NYLIAC's
tax status, upon the terms of the policy and upon the tax status of the
individual concerned.
TAX STATUS OF NYLIAC AND THE SEPARATE ACCOUNT
NYLIAC is taxed as a life insurance company under Subchapter L of the
Internal Revenue Code of 1986. The Separate Account is not a separate taxable
entity from NYLIAC and its operation is taken into account by NYLIAC in
determining its income tax liability. All investment income and realized net
capital gains on the assets of the Separate Account are reinvested and taken
into account in determining 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 equal to 1.25% of premiums received under
the policy to compensate NYLIAC for the federal income tax liability it incurs
under Section 848 of the Internal Revenue Code by reason of its receipt of
premiums under the policy. We may increase the federal tax charge if the federal
government increases this charge. We believe that this charge is reasonable in
relation to the increased tax burden NYLIAC incurs as a result of Internal
Revenue Code Section 848. No other charge is currently made to the Separate
Account for federal income taxes of NYLIAC that may be attributable to the
Separate Account. Periodically, we review the appropriateness of charges to the
Separate Account for NYLIAC's federal income taxes, and in the future, a charge
may be made for federal income taxes incurred by NYLIAC that are attributable to
the Separate Account. In addition, depending on the method of calculating
interest credited to policy values allocated to the Fixed Account (see preceding
section), a charge may also be imposed for the policy's share of NYLIAC's
federal income taxes attributable to the Fixed Account.
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Under current laws, NYLIAC may incur state or local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, NYLIAC
reserves the right to charge the Separate Account for the portion of such taxes,
if any, attributable to the Separate Account.
DIVERSIFICATION STANDARDS AND CONTROL ISSUES
In addition to other requirements imposed by the Internal Revenue Code, a
policy will qualify as life insurance only if the diversification requirements
of Internal Revenue Code Section 817(h) are satisfied by the Separate Account.
To assure that each policy continues to qualify as life insurance for federal
income tax purposes, we intend to comply with Section 817(h) and its
regulations. To satisfy these diversification standards, the regulations
generally require that on the last day of each quarter of a calendar year no
more than 55% of the value of a Separate Account's assets can be represented by
any one investment, no more than 70% can be represented by any two investments,
no more than 80% can be represented by any three investments, and no more than
90% can be represented by any four investments. For purposes of these rules, all
securities of the same issuer generally are treated as a single investment, but
each U.S. Government agency or instrumentality is treated as separate issuer. In
addition a "look-through" rule applies to treat a pro-rata portion of each asset
of each Portfolio as an asset of the Separate Account holding an interest in
such Portfolio.
With respect to variable life insurance contracts, the general
diversification requirements of Section 817(h) are modified to the extent that
any of the assets of the Separate Account are direct obligations of the United
States Treasury. Even if the Separate Account invests only in United States
Treasury securities, it will be treated as adequately diversified under Section
817(h). In addition, for purposes of determining whether its holdings of assets
other than United States Treasury securities are adequately diversified, the
generally applicable percentage limitations are increased based on the value of
the Separate Account's investment in United States Treasury securities.
Notwithstanding this modification of the general diversification requirements,
however, the investments of the Separate Account will be structured to comply
with the general diversification standards because they serve as an investment
vehicle for certain variable annuity contracts which must comply with the
general standards.
In connection with its issuance of temporary regulations under 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
divisions of a separate account and that guidance on this issue would be
forthcoming. Regulations addressing this issue have not yet been issued or
proposed, and it is not clear, at this time, whether such regulations will ever
be issued or what such regulations might provide. If such regulations were to be
issued in the future, it is possible that the policy might need to be modified
to comply with such regulations. For these reasons, we reserve the right to
modify the policy, as necessary, to prevent the policyowner from being
considered the owner of the assets of the Separate Account.
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LIFE INSURANCE STATUS OF POLICY
NYLIAC believes that the policy meets the statutory definition of life
insurance under Internal Revenue Code Section 7702 and that the policyowner and
Beneficiary of any policy will receive the same federal income tax treatment as
that accorded to owners and beneficiaries of fixed benefit life insurance
policies. Specifically, the death benefit under the policy will be excludable
from the gross income of the Beneficiary subject to the terms and conditions of
Section 101(a)(1) of the Internal Revenue Code. Pursuant to Section 101(g),
amounts received after December 31, 1996, by the policyowner may also be
excludable from the policyowner's gross income when the Insured has a terminal
illness. (Death benefits under a "modified endowment contract" as discussed
below are treated in the same manner as death benefits under life insurance
contracts that are not so classified.)
In addition, unless the policy is a "modified endowment contract," in which
case the receipt of any loan under the policy may result in recognition of
income to the policyowner, the policyowner will not be deemed to be in
constructive receipt of the Cash Values, including increments thereon, under the
policy until proceeds of the policy are received upon a surrender of the policy
or a partial withdrawal.
MODIFIED ENDOWMENT CONTRACT STATUS
A policy will be a modified endowment contract if it satisfies the
definition of life insurance set out in the Internal Revenue Code, but it either
fails the additional "7-pay test" set forth in Internal Revenue Code Section
7702A or was received in exchange for a modified endowment contract. A policy
will fail the 7-pay test if the accumulated amount paid under the contract at
any time during the first seven contract years exceeds the total premiums that
would have been payable under a policy providing for guaranteed benefits upon
the payment of seven level annual premiums. A policy received in exchange for a
modified endowment contract will be taxed as a modified endowment contract even
if it would otherwise satisfy the 7-pay test.
While the 7-pay test is generally applied as of the time the policy is
issued, certain changes in the contractual terms of a policy will require a
policy to be retested to determine whether the change has caused the policy to
become a modified endowment contract. For example, a reduction in death benefits
during the first seven contract years will cause the policy to be retested as if
it had originally been issued with the reduced death benefit.
In addition, if a "material change" occurs at any time while the policy is
in force, a new 7-pay test period will start and the policy will need to be
retested to determine whether it continues to meet the 7-pay test. The term
"material change" generally includes increases in death benefits, but does not
include an increase in death benefits which is attributable to the payment of
premiums necessary to fund the lowest level of death benefits payable during the
first seven contract years, or which is attributable to the crediting of
interest with respect to such premiums.
Because the policy provides for flexible premiums, we have instituted
procedures to monitor whether, under our current interpretation of the law,
increases in death benefits or additional premiums cause either the start of a
new seven-year test period or the taxation of distributions and loans. All
additional premiums will be considered in these determinations.
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If a policy fails the 7-pay test, all distributions (including loans)
occurring in the year of failure and thereafter will be subject to the rules for
modified endowment contracts. A recapture provision also applies to loans and
distributions that are received in anticipation of failing the 7-pay test. Any
distribution or loan made within two years prior to the date that a policy fails
the 7-pay test is considered to have been made in anticipation of the failure.
POLICY SURRENDERS AND PARTIAL WITHDRAWALS
Upon a full surrender of a policy for its Cash Surrender Value you will
recognize ordinary income for federal tax purposes to the extent that the Cash
Value, less surrender charges and any deferred contract charges, exceeds the
investment in the contract (the total of all premiums paid but not previously
recovered plus any other consideration paid for the policy). The tax
consequences of a partial withdrawal from a policy will depend upon whether the
partial withdrawal results in a reduction of future benefits under the policy
and whether the policy is a modified endowment contract.
If the policy is not a modified endowment contract, the general rule is
that a partial withdrawal from a policy is taxable only to the extent that it
exceeds the total investment in the contract. An exception to this general rule
applies, however, if a reduction of benefits occurs during the first 15 years
after a policy is issued and there is a cash distribution associated with that
reduction. In such a case, Internal Revenue Code Section 7702(f)(7) overrides
the general rule and prescribes a formula under which the policyowner may be
taxed on all or a part of the amount distributed. After 15 years, the rule of
Internal Revenue Code Section 7702(f)(7) no longer applies so that cash
distributions from a policy that is not a modified endowment contract will not
be subject to federal income tax, except to the extent they exceed the total
investment in the contract. 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 which may be subject to tax is the
excess of the Cash Value (both loaned and unloaned) over the previously
unrecovered premiums paid.
Under certain circumstances, a distribution under a modified endowment
contract (including a loan) may be taxable even though it exceeds the amount of
accumulated income in the policy. This can occur because for purposes of
determining the amount of income received upon a distribution (or loan) from a
modified endowment contract, the 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 individual policyowners. The penalty tax will not
apply to distributions: (i) that are made on or after the date the taxpayer
attains age 59 1/2; or (ii) that are attributable to the taxpayer's becoming
disabled; or (iii) that are part of a series of substantially equal
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periodic payments (made not less frequently than annually) made for the life or
life expectancy of the taxpayer.
POLICY LOANS AND INTEREST DEDUCTIONS
We also believe that under current law any loan received under the policy
will be treated as Policy Debt and that, unless the policy is a modified
endowment contract, no part of any loan under a policy will constitute income to
the policyowner. If the policy is a modified endowment contract (see discussion
above) loans will be fully taxable to the extent of the income in the policy
(and in any other contracts with which it must be aggregated) and could be
subject to the additional 10% 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.
CORPORATE ALTERNATIVE MINIMUM TAX
Ownership of a policy by a corporation may affect the policyowner's
exposure to the corporate alternative minimum tax. In determining whether it is
subject to alternative minimum tax a corporate policyowner must make two
computations. First, the corporation must take into account a portion of the
current year's increase in the "inside build up" or income on the contract in
its corporate-owned policies. Second, the corporation must take into account a
portion of the amount by which the death benefits received under any policy
exceed the sum of (i) the premiums paid on that policy in the year of death, and
(ii) the corporation's basis in the policy (as measured for alternative minimum
tax purposes) as of the end of the corporation's tax year immediately preceding
the year of death.
EXCHANGES OR ASSIGNMENTS OF POLICIES
A change of the policyowner or the Insured or an exchange or assignment of
a policy may have significant tax consequences depending on the circumstances.
For example, an assignment or exchange of a policy may result in taxable income
to the transferring policyowner. Further, 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 death benefit which is equal to
the total consideration paid for the policy may be excluded from gross income.
For complete information with respect to policy assignments and exchanges, you
should consult with a qualified tax advisor.
STEP PROGRAM
The Severance Trust Executive Program ("STEP") is an employee welfare
benefit plan that provides severance benefits and life insurance coverage
through a ten-or-more employer trust as described in Section 419A(f)(6) of the
Internal Revenue Code. The tax consequences of participating in a STEP trust are
uncertain under current law. There is a reasonable possibility that
contributions to the STEP trust may not be deductible for income tax purposes.
Moreover, there is at least some risk that an employee or owner may be viewed by
the Internal Revenue Service as receiving gross income in the year
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contributions are made to the STEP trust. Prospective participants should have
their own qualified advisors review the legal and actuarial opinions applicable
to the STEP Program.
OTHER TAX ISSUES
Federal estate and state and local estate, inheritance, and other tax
consequences of ownership or receipt of policy proceeds depend on the
circumstances of each policyowner or Beneficiary.
QUALIFIED PLANS
In the future, we may make the policy available to certain tax-qualified
employee benefit plans. The rules governing such use are complex, and a
purchaser should not use the policy in conjunction with any such qualified plan
until he or she has consulted a competent tax advisor. The policy may not be
acquired by an Individual Retirement Account (IRA).
WITHHOLDING
Under Section 3405 of the Internal Revenue Code, withholding is generally
required with respect to certain taxable distributions under insurance
contracts. In the case of periodic payments (payments made as an annuity or on a
similar basis), the withholding is at graduated rates (as though the payments
were employee wages). With respect to non-periodic distributions, the
withholding is at a flat rate of 10%. A policyowner can elect to have either
non-periodic or periodic payments made without withholding except where the
policyowner's tax identification number has not been furnished to NYLIAC or the
Internal Revenue Service has notified us that the tax identification number
furnished by the policyowner is incorrect.
Different withholding rules apply to payments made to U.S. citizens living
outside the United States and to non-U.S. citizens living outside of the United
States. U.S. citizens who live outside of the United States generally are not
permitted to elect not to have federal income taxes withheld from payments.
Payments to non-U.S. citizens who are not residents of the United States
generally are subject to 30% withholding, unless an income tax treaty between
their country of residence and the United States provides for either a lower
rate of withholding or an exemption from withholding.
ADDITIONAL PROVISIONS OF THE POLICY
REINSTATEMENT OPTION
For a period of five (5) years after termination, you can request that we
reinstate the policy during the Insured's lifetime. We will not reinstate the
policy if it has been returned for its Cash Surrender Value. Note that a
termination and later reinstatement may cause the policy to become a modified
endowment contract.
Before we will reinstate the policy, we must receive the following:
-- A payment in an amount which is sufficient to keep the policy in force
for at least 3 months. If the policy lapses before and is reinstated
after the first policy anniversary, we must also receive an amount equal
to 150% of any deferred contract charge not previously deducted. This
payment will be in lieu of the payment of all premiums in arrears;
-- Any unpaid loan must be repaid or deducted from the Cash Value of the
reinstated policy, together with loan interest at 6% compounded once
each year
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from the end of the late period to the date of reinstatement. If a
policy loan interest rate of less than 6% is in effect when the policy
is reinstated, the interest rate for any unpaid loan at the time of
reinstatement will be the same as the policy loan interest rate; and
-- Evidence of insurability satisfactory to us if the reinstatement is
requested more than 30 days after termination.
If we do reinstate the policy, the face amount for the reinstated policy
will be the same as it would have been if the policy had not terminated. The
effective date of reinstatement will be the Monthly Deduction Day on or
following the date we approve the request for reinstatement.
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.
ADDITIONAL BENEFITS YOU CAN GET BY RIDER
The policy can include additional benefits that we approve based on our
standards and limits for issuing insurance and classifying risks. None of these
benefits depends on the investment performance of the Separate Account or the
Fixed Account. An additional benefit is provided by a rider and is subject to
the terms of both the policy and the rider. The following riders are available.
Guaranteed Minimum Death Benefit ("GMDB") Rider
This rider is subject to state regulatory approvals and may not be
available in all states. Please contact your registered representative to
determine if this rider is available in your state. In addition, the rider title
and requirements for this rider may vary by state. Please contact your
registered representative or refer to your rider for additional information.
This rider guarantees that the policy will not lapse even if the Cash
Surrender Value is not enough to cover the policy's current monthly deduction
charges. Generally, this rider is available with expiry dates of the Insured's
age 70, 80 and, except for policies issued with a substandard underwriting
class, 95. At issue, you can choose any one of the expiry dates, but the
coverage period for the rider must be at least 10 years.
In exchange for the guarantee provided by this rider, you are required to
pay a certain amount of premiums into the policy. The monthly GMDB premium is
calculated for the policy and is shown on the Policy Data Page. However,
premiums do not have to be paid on a monthly basis. On each Monthly Deduction
Day, a GMDB premium test is performed. The GMDB premium test is satisfied if the
total of all premiums paid to date under the policy, less any partial
withdrawals made, are at least equal to the sum of all monthly GMDB premiums
from the date this rider is issued up to that Monthly Deduction Day.
If on a Monthly Deduction Day, the policy does not satisfy the GMDB premium
test by more than the amount of one monthly GMDB premium, you will be notified
by letter that the rider will end unless you pay the amount necessary to pass
the test by the next Monthly Deduction Day. However, we will reinstate the rider
if the required payment is received before the next Monthly Deduction Day
following the date the rider ended.
The monthly GMDB premium can change if certain changes are made to the
policy.
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In addition to the premium requirement described above, policyowners must
pay a charge for the rider. The charge is $0.01 per $1000 of the sum of the
policy's base face amount plus any face amount provided by an Other Covered
Insured rider. This charge will be deducted from the policy's Cash Value on each
Monthly Deduction Day.
This rider will end if you take a policy loan during the first two Policy
Years. After the first two Policy Years, loans are permitted but are restricted.
In general, the Cash Surrender Value minus the requested loan must exceed the
total of the monthly GMDB premiums, accumulated at an annual effective interest
rate of 6%, as of that date. If you request a loan which would cause the GMDB
rider to end, we will delay processing the request until we receive your signed
authorization to terminate the rider. Once terminated under these circumstances,
the rider cannot be reinstated.
This rider will also end if the rider reaches its expiry date or if the
policy ends or is surrendered.
The GMDB rider also covers the monthly deduction charges due for any other
policy riders. However, if monthly deduction charges are being waived under
another policy rider, the GMDB rider is placed in an inactive status and no
benefit under the GMDB rider is in effect. While the rider is in an inactive
status, no charge for the rider is payable, and no GMDB premium testing will be
performed. However, once monthly deductions for the policy are no longer being
waived, the GMDB rider will automatically be restored. Beginning in the next
Monthly Deduction Day, the charge for this rider will be deducted and the GMDB
premium test must again be satisfied.
Children's Insurance Rider
This rider provides level term insurance coverage on the lives of children
of the Insured until the earlier of the policy anniversary on which the child is
age 25 or the policy anniversary on which the Insured is or would have been age
65. At that time, you may convert the rider coverage to a current-dated
permanent life insurance policy.
Term Insurance On Other Covered Insured Rider (also referred to as
Supplemental Insurance Benefit Rider)
This rider provides level term insurance coverage on one or more insureds
and is convertible up until the policy anniversary on which that insured is age
71 or on the death of the primary Insured, if earlier. This rider is currently
not available on the primary Insured.
Monthly Deduction Waiver Rider
This rider provides for the waiver of monthly deduction charges in the
event of total disability of the primary Insured.
Accidental Death Benefit Rider
This rider provides for an additional death benefit in the event the
Insured's death was caused by accidental bodily injury occurring within one year
of the Insured's death. No benefit is payable under this rider if the Insured
dies before his or her first birthday or after the policy anniversary when the
Insured is age 70.
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Guaranteed Insurability Rider
This rider allows you to increase the face amount of the policy or purchase
a new policy on the Insured for a specified option amount on specified dates,
without evidence of insurability.
Spouse Paid-Up Insurance Purchase Option Rider (not available in New York)
This rider allows the Insured's spouse or the spouse of an Other Covered
Insured to purchase a paid-up insurance policy on his or her life on the
Insured's or the Other Covered Insured's death. The amount that may be purchased
cannot exceed the death benefit on the policy, provided the spouse is the
Beneficiary under the policy or the applicable Term Insurance On Other Covered
Insured Rider.
Accelerated Benefits Rider
Generally, this rider allows you to receive 25% or more of the death
benefit up to $250,000, less an interest adjustment, when the Insured has a life
expectancy of twelve months or less. Amounts received under this rider after
December 31, 1996 will generally be excludable from your gross income under
Section 101(g) of the Internal Revenue Code. The exclusion from gross income
will not apply, however, if the policyowner is not the Insured and the
policyowner has an insurable interest in the life of the Insured either because
the Insured is a director, officer or employee of the policyowner or because the
Insured has a financial interest in a business of the policyowner.
When less than 100% of the death benefit is accelerated, the policy stays
in force, with the face amount and other policy values reduced proportionately.
PAYMENT OPTIONS
Death benefits will be paid in one sum, or if elected, all or part of the
death benefit can be placed under one or more of the options described in this
section. If we agree, the death benefit may be placed under some other method of
payment instead. Any death benefits paid in one sum will bear interest
compounded each year from the Insured's death to the date of payment. We set the
interest rate each year. This rate will be at least 3% per year, and will not be
less than required by law.
While the Insured is living, you can elect or change an option. You can
also elect or change one or more Beneficiaries who will be the payee or payees
under that option. After the Insured dies, any person who is to receive proceeds
in one sum (other than an assignee) can elect an option and name payees. The
person who elects an option can also name one or more successor payees to
receive any amount remaining at the death of the payee. Naming these payees
cancels any prior choice of successor payees. A payee who did not elect the
option does not have the right to advance or assign payments, take the payments
in one sum, or make any other change. However, the payees may be given the right
to do one or more of these things if the person who elects the option tells us
in writing and we agree.
If we agree, a payee who elects Option 1A, 1B, or 2 may later elect to have
any amount we still have, or the present value of any elected payments, placed
under some other option described in this section. When any payment under an
option would be less than $100, we may pay any unpaid amount or present value in
one sum.
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PAYEES
Only individuals who are to receive payments in their own behalf may be
named as payees or successor payees, unless we agree otherwise. We may require
proof of the age or the survival of a payee.
It may happen that when the last surviving payee dies, we still have an
unpaid amount, or there are some payments which remain to be made. If so, we
will pay the unpaid amount with interest to the date of payment, or pay the
present value of the remaining payments, to that payee's estate in one sum. The
present value of the remaining payments is based on the interest rate used to
compute them, and is always less than their sum.
PROCEEDS AT INTEREST OPTIONS (OPTIONS 1A AND 1B)
The policy proceeds may be left with us at interest. We will set the
interest rate each year. This rate will be at least 3% per year.
For the Interest Accumulation Option (Option 1A), we credit interest each
year on the amount we still have. This amount can be withdrawn at any time in
sums of $100 or more. We pay interest to the date of withdrawal on sums
withdrawn.
For the Interest Payment Option (Option 1B), we pay interest once each
month, every 3 months, every 6 months, or once each year, as chosen, based on
the amount we still have.
LIFE INCOME OPTION (OPTION 2) (NOT AVAILABLE IN MASSACHUSETTS AND MONTANA)
We make equal payments each month during the lifetime of the payee or
payees. We determine the amount of the monthly payment by applying the death
benefit to purchase a corresponding single premium life annuity policy which is
being issued when the first payment is due. Payments are based on the
appropriately adjusted annuity premium rate in effect at that time, but will not
be less than the corresponding minimum amount shown in the appropriate Option 2
table of your policy. These minimum amounts are based on the 1983 Table "a" with
Projection Scale G and with interest compounded each year at 3%.
When asked, we will state in writing what the minimum amount of each
monthly payment would be under these options. It is based on the gender and
adjusted 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>
1995 AND 2036 AND
EARLIER 1996-2005 2006-2015 2016-2025 2026-2035 LATER
- -------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
+2 +1 0 -1 -2 -3
</TABLE>
For Option 2, we make a payment each month while the payee is living.
Payments do not change, and are guaranteed for 10 years, even if both payees die
sooner.
BENEFICIARY
A Beneficiary is any person(s) and/or entity(ies) you name to receive the
death benefit after the Insured dies. You name the Beneficiary when you apply
for the policy. There may be different classes of beneficiaries, such as primary
and secondary. These classes set the order of payment. There may be more than
one Beneficiary in a class.
53
<PAGE> 59
The Beneficiary may be changed during the Insured's lifetime by writing to
our Principal Office or such other location that we indicate to you in writing.
Generally, the change will take effect as of the date the request is signed. If
no Beneficiary is living when the Insured dies, unless provided otherwise, the
Death Benefit is paid to the policyowner or, if deceased, the policyowner's
estate.
ASSIGNMENT
While the Insured is living, the policy may be assigned as collateral for a
loan or other obligation. For an assignment to be binding on us, we must receive
a signed copy of it at our Principal Office or such other location that we
indicate to you in writing. We are not responsible for the validity of any
assignment.
LIMITS ON OUR RIGHTS TO CHALLENGE THE POLICY
Except for any increases in face amount, other than one due solely to a
change in the life insurance benefit option, we must bring any legal action to
contest the validity of a policy within two years from its Issue Date (unless a
state has different requirements). After that we cannot contest its validity,
except for failure to pay premiums unless the Insured died within that two year
period. For any increase in the face amount, other than one due solely to a
change in the life insurance benefit option, we must bring legal action to
contest that increase within two years from the effective date of the increase.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex is misstated in the policy application, the
Cash Value (except in Pennsylvania), Cash Surrender Value and the death benefit
will be adjusted to reflect the correct age and sex. The death benefit will be
adjusted based on what the policy would provide according to the most recent
mortality charge for the correct date of birth or correct sex.
SUICIDE
If the Insured commits suicide within two years (or less where required by
law) from the Issue Date (or with respect to an increase in face amount, the
effective date of the increase), and while the policy is in force, we pay a
limited death benefit in one sum to the Beneficiary. The limited death benefit
is the amount of premiums, less any Policy Debt, or amounts withdrawn. For any
increases in the face amount, the limited death benefit will be the monthly
deductions made for that increase. If the limited death benefit for the entire
policy is payable, there will be no additional payment for the increase.
WHEN WE PAY PROCEEDS
If the policy has not terminated, payment of the Cash Surrender Value, loan
proceeds, partial withdrawals or the death benefit are made within 7 days after
we receive all requirements at our Principal Office or such other location that
we indicate to you in writing. But we can delay payment of the Cash Surrender
Value or any partial
54
<PAGE> 60
withdrawal from the Separate Account, loan proceeds attributable to the Separate
Account, or the death benefit during any period that:
-- It is not reasonably practicable to determine the amount because the
NYSE is closed (other than customary weekend and holiday closings),
trading is restricted by the SEC, or the SEC declares that an emergency
exists; or
-- The SEC, by order, permits us to delay payment in order to protect our
policyowners.
We may delay paying any surrender value or loan proceeds on the Fixed
Account for up to 6 months from the date the request is received at our
Principal Office. We can delay payment of the entire death benefit if payment is
contested. We investigate all death claims arising within the two-year
contestable period. Upon receiving the information from a completed
investigation, we generally make a determination within five days as to whether
the claim should be authorized for payment. Payments are made promptly after
authorization. If payment of a Cash Surrender Value or partial withdrawal value
is delayed for 30 days or more, we add interest at an annual rate of 3%. We add
interest to a death benefit from the date of death to the date of payment at the
same rate as is paid under the Interest Payment Option.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account and the Fixed
Account are maintained by New York Life or NYLIAC. Each year we will mail you a
report showing the Cash Value, Cash Surrender Value and any Policy Debt as of
the latest policy anniversary. This report contains any additional information
required by any applicable law or regulation. We will also mail you a report
each quarter showing you the same information as of the end of the previous
quarter.
Reports and promotional literature may contain the ratings New York Life
and NYLIAC have received from independent rating agencies. Both companies are
among only a few companies that have consistently received among the highest
possible ratings from the four major independent rating companies: A.M. Best and
Moody's Investor's Services Inc. (for financial strength and stability) and
Standard and Poor's and Duff & Phelps (for claims paying ability). However,
neither New York Life nor NYLIAC guarantees the investment performance of the
Investment Divisions.
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. NYLIFE Distributors is an indirect wholly-owned subsidiary of New York
Life.
The commissions paid to registered representatives of broker-dealers who
have entered into dealer agreements with NYLIFE Distributors during a policy's
first year will not exceed 50% of the premiums paid up to a policy's target
premium (6.5% 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.
55
<PAGE> 61
Registered representatives who meet certain productivity standards and/or
participate in certain programs may receive additional compensation. From time
to time, NYLIFE Distributors may enter into a special arrangement with a
broker-dealer, which provides for the payment of higher commissions to such
broker-dealer in connection with sales of the policies. Purchasers of policies
will be informed prior to purchase of any applicable special arrangement.
LEGAL PROCEEDINGS
NYLIAC is a defendant in individual and/or alleged class action suits
arising from its agency sales force, insurance (including variable contracts
registered under the federal securities law), investment, retail securities
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 which cannot be predicted, NYLIAC nevertheless believes that, after
provisions made in the financial statements, the ultimate liability that could
result from 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 of NYLIAC and the Separate Account have been
included in reliance on the reports of PricewaterhouseCoopers 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 Joel M.
Steinberg, FSA, MAAA, Vice President and Actuary. An opinion on actuarial
matters is filed with the SEC as an exhibit to the registration statements.
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report)
for the fiscal years ended December 31, 1998, 1997 and 1996, and of the Separate
Account (including the auditor's report) for the years ended December 31, 1998
and 1997 are included in this prospectus. The financial statements of NYLIAC
should be considered only as bearing upon the ability of NYLIAC to meet its
obligations under the policy.
56
<PAGE> 62
FINANCIAL STATEMENTS
F-1
<PAGE> 63
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
------------------------------------------------
ASSETS:
Investment at net asset value......................... $163,423,277 $ 14,427,260 $ 1,767,866
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation for mortality and expense risk
charges............................................. 286,941 21,376 2,883
------------ ------------ ------------
Total equity...................................... $163,136,336 $ 14,405,884 $ 1,764,983
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 6,276,880;
11,681,793; 144,001; 255,216; 1,289,258; 280,763;
1,755,850; 1,313,283; 422,955, respectively....... $163,136,336 $ 14,405,884 $ 1,764,983
============ ============ ============
Variable accumulation unit value.................... $ 25.99 $ 1.23 $ 12.26
============ ============ ============
Identified Cost of Investment........................... $125,394,305 $ 14,427,366 $ 1,871,711
============ ============ ============
</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......................... $ 39,541,038 $ 73,430,311 $ 5,008,191
LIABILITIES:
Liability to New York Life Insurance and Annuity
Corporation for mortality and expense risk
charges............................................. 68,028 115,060 15,066
------------ ------------ ------------
Total equity...................................... $ 39,473,010 $ 73,315,251 $ 4,993,125
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding: 1,550,865;
2,490,678; 407,312; 32,802; 1,069,446; 567,426;
389,811; 1,301,628; 297,232, respectively......... $ 39,473,010 $ 73,315,251 $ 4,993,125
============ ============ ============
Variable accumulation unit value.................... $ 25.45 $ 29.44 $ 12.26
============ ============ ============
Identified Cost of Investment........................... $ 34,682,376 $ 67,047,080 $ 4,785,793
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-2
<PAGE> 64
NYLIAC VUL 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>
---------------------------------------------------------------------------------------------------
$ 3,456,285 $ 18,833,581 $ 4,196,847 $ 35,746,673 $ 21,732,949 $ 5,925,571
5,781 30,939 7,731 61,966 38,464 10,056
------------ ------------ ------------ ------------ ------------ ------------
$ 3,450,504 $ 18,802,642 $ 4,189,116 $ 35,684,707 $ 21,694,485 $ 5,915,515
============ ============ ============ ============ ============ ============
$ 3,450,504 $ 18,802,642 $ 4,189,116 $ 35,684,707 $ 21,694,485 $ 5,915,515
============ ============ ============ ============ ============ ============
$ 13.52 $ 14.58 $ 14.92 $ 20.32 $ 16.52 $ 13.99
============ ============ ============ ============ ============ ============
$ 3,460,253 $ 20,569,981 $ 4,083,242 $ 26,625,614 $ 23,051,872 $ 5,986,931
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN SERIES EMERGING
SOCIAL VIP II VIP SERIES WORLDWIDE MARKETS
BALANCED CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
$ 450,480 $ 17,715,205 $ 8,320,381 $ 6,406,290 $ 20,826,369 $ 2,236,143
728 28,417 14,078 9,722 34,726 3,919
------------ ------------ ------------ ------------ ------------ ------------
$ 449,752 $ 17,686,788 $ 8,306,303 $ 6,396,568 $ 20,791,643 $ 2,232,224
============ ============ ============ ============ ============ ============
$ 449,752 $ 17,686,788 $ 8,306,303 $ 6,396,568 $ 20,791,643 $ 2,232,224
============ ============ ============ ============ ============ ============
$ 13.71 $ 16.54 $ 14.64 $ 16.41 $ 15.97 $ 7.51
============ ============ ============ ============ ============ ============
$ 452,614 $ 14,435,129 $ 7,836,366 $ 5,451,613 $ 19,057,190 $ 2,774,633
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-3
<PAGE> 65
STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
------------------------------------------------
INVESTMENT INCOME (LOSS):
Dividend income......................................... $ 144,794 $ 482,627 $ 83,153
Mortality and expense risk charges...................... (864,061) (65,776) (9,290)
------------- ------------- -------------
Net investment income (loss)........................ (719,267) 416,851 73,863
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments....................... 57,370,104 113,963,536 126,980
Cost of investments sold................................ (28,771,929) (113,963,362) (119,640)
------------- ------------- -------------
Net realized gain on investments.................... 28,598,175 174 7,340
Realized gain distribution received..................... 1,508,712 -- 50,288
Change in unrealized appreciation (depreciation)
on investments........................................ 12,462,126 (115) (85,229)
------------- ------------- -------------
Net gain (loss) on investments...................... 42,569,013 59 (27,601)
------------- ------------- -------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account.......................... (54,151) (576) (23)
------------- ------------- -------------
Net increase (decrease) in total equity resulting
from operations................................... $ 41,795,595 $ 416,334 $ 46,239
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
------------------------------------------------
INVESTMENT INCOME (LOSS):
Dividend income......................................... $ 286,865 $ 640,476 $ --
Mortality and expense risk charges...................... (207,777) (324,552) (34,358)
------------- ------------- -------------
Net investment income (loss)........................ 79,088 315,924 (34,358)
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments....................... 676,843 79,489,365 163,434,742
Cost of investments sold................................ (449,502) (68,772,611) (162,218,802)
------------- ------------- -------------
Net realized gain (loss) on investments............. 227,341 10,716,754 1,215,940
Realized gain distribution received..................... 2,916,300 557,191 374,506
Change in unrealized appreciation (depreciation)
on investments........................................ 3,898,766 282,888 128,347
------------- ------------- -------------
Net gain (loss) on investments...................... 7,042,407 11,556,833 1,718,793
------------- ------------- -------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account.......................... (10,255) (16,684) (1,817)
------------- ------------- -------------
Net increase (decrease) in total equity resulting
from operations................................... $ 7,111,240 $ 11,856,073 $ 1,682,618
============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE> 66
NYLIAC VUL 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>
---------------------------------------------------------------------------------------------------
$ 143,858 $ 1,701,259 $ 95,448 $ 648,813 $ 340,888 $ 306,186
(16,586) (110,896) (26,135) (203,043) (137,034) (35,304)
------------- ------------- ------------- ------------- ------------- -------------
127,272 1,590,363 69,313 445,770 203,854 270,882
------------- ------------- ------------- ------------- ------------- -------------
2,611,462 1,235,051 8,126,694 2,079,894 622,459 908,053
(2,573,576) (1,170,197) (7,727,138) (1,249,354) (455,953) (905,139)
------------- ------------- ------------- ------------- ------------- -------------
37,886 64,854 399,556 830,540 166,506 2,914
-- 47,406 -- 933,164 1,711,646 150,296
14,939 (1,498,958) 253,950 4,843,628 (3,245,087) (24,456)
------------- ------------- ------------- ------------- ------------- -------------
52,825 (1,386,698) 653,506 6,607,332 (1,366,935) 128,754
------------- ------------- ------------- ------------- ------------- -------------
(204) (61) (1,447) (9,150) 952 (496)
------------- ------------- ------------- ------------- ------------- -------------
$ 179,893 $ 203,604 $ 721,372 $ 7,043,952 $ (1,162,129) $ 399,140
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN SERIES EMERGING
SOCIAL VIP II VIP SERIES WORLDWIDE MARKETS
BALANCED CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------
$ 10,243 $ 44,727 $ 42,343 $ 145,260 $ 365,808 $ 12,161
(2,035) (72,691) (36,651) (22,831) (94,579) (13,414)
------------- ------------- ------------- ------------- ------------- -------------
8,208 (27,964) 5,692 122,429 271,229 (1,253)
------------- ------------- ------------- ------------- ------------- -------------
247,861 251,963 565,838 613,739 7,795,008 633,145
(232,500) (197,927) (479,953) (465,867) (6,407,431) (901,639)
------------- ------------- ------------- ------------- ------------- -------------
15,361 54,036 85,885 147,872 1,387,577 (268,494)
22,970 329,061 150,693 20,409 144,214 --
(1,990) 2,790,206 306,596 851,673 1,447,292 (242,047)
------------- ------------- ------------- ------------- ------------- -------------
36,341 3,173,303 543,174 1,019,954 2,979,083 (510,541)
------------- ------------- ------------- ------------- ------------- -------------
(57) (4,175) (991) (1,474) (4,965) 406
------------- ------------- ------------- ------------- ------------- -------------
$ 44,492 $ 3,141,164 $ 547,875 $ 1,140,909 $ 3,245,347 $ (511,388)
============= ============= ============= ============= ============= =============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-5
<PAGE> 67
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
------------------------------ ------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
------------------------------------------------------------------
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income (loss).................. $ (719,267) $ (557,168) $ 416,851 $ 250,887
Net realized gain on investments.............. 28,598,175 618,079 174 54
Realized gain distribution received........... 1,508,712 1,303,265 -- --
Change in unrealized appreciation
(depreciation) on investments............... 12,462,126 14,268,963 (115) 9
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account.... (54,151) (15,392) (576) (49)
------------ ------------ ------------ ------------
Net increase in total equity resulting
from operations........................... 41,795,595 15,617,747 416,334 250,901
------------ ------------ ------------ ------------
Contributions and withdrawals:
Return of equity contribution to New York Life
Insurance and Annuity Corporation........... -- -- -- --
Policyowners' premium payments................ 43,015,039 35,212,386 55,826,497 36,523,185
Cost of insurance............................. (15,632,087) (13,265,402) (2,030,838) (1,411,287)
Policyowners' surrenders...................... (5,755,421) (3,421,827) (350,776) (163,399)
Net transfers to Fixed Account................ (3,314,522) (2,119,635) (637,496) (737,645)
Transfers between Investment Divisions........ 6,185,530 5,279,916 (46,950,717) (32,758,497)
Policyowners' death benefits.................. (257,174) (69,600) (18,009) (10,139)
------------ ------------ ------------ ------------
Net contributions and withdrawals........... 24,241,365 21,615,838 5,838,661 1,442,218
------------ ------------ ------------ ------------
Increase (decrease) in total equity....... 66,036,960 37,233,585 6,254,995 1,693,119
TOTAL EQUITY:
Beginning of year............................. 97,099,376 59,865,791 8,150,889 6,457,770
------------ ------------ ------------ ------------
End of year................................... $163,136,336 $ 97,099,376 $ 14,405,884 $ 8,150,889
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
------------------------------ ------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
------------------------------------------------------------------
INCREASE (DECREASE) IN TOTAL EQUITY:
Operations:
Net investment income......................... $ 69,313 $ 196,843 $ 445,770 $ 368,244
Net realized gain on investments.............. 399,556 775,916 830,540 421,353
Realized gain distribution received........... -- -- 933,164 441,150
Change in unrealized appreciation
(depreciation) on investments............... 253,950 (823,782) 4,843,628 2,055,337
Increase (decrease) attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account.... (1,447) (382) (9,150) (3,477)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting
from operations........................... 721,372 148,595 7,043,952 3,282,607
------------ ------------ ------------ ------------
Contributions and withdrawals:
Return of equity contribution to New York
Life Insurance and Annuity Corporation...... -- (11,738,745) -- --
Policyowners' premium payments................ 1,534,922 1,521,928 9,007,541 8,153,659
Cost of insurance............................. (529,562) (500,492) (3,313,627) (3,111,363)
Policyowners' surrenders...................... (256,808) (47,748) (1,211,414) (866,926)
Net transfers to Fixed Account................ (141,464) (43,728) (772,143) (499,837)
Transfers between Investment Divisions........ (191,458) 242,651 524,899 344,132
Policyowners' death benefits.................. (98,515) (3,803) (122,817) (30,727)
------------ ------------ ------------ ------------
Net contributions and withdrawals........... 317,115 (10,569,937) 4,112,439 3,988,938
------------ ------------ ------------ ------------
Increase (decrease) in total equity....... 1,038,487 (10,421,342) 11,156,391 7,271,545
TOTAL EQUITY:
Beginning of year............................. 3,150,629 13,571,971 24,528,316 17,256,771
------------ ------------ ------------ ------------
End of year................................... $ 4,189,116 $ 3,150,629 $ 35,684,707 $ 24,528,316
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-6
<PAGE> 68
NYLIAC VUL SEPARATE ACCOUNT-I
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
------------------------------ ------------------------------ ------------------------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
$ 73,863 $ 29,105 $ 127,272 $ 95,958 $ 1,590,363 $ 690,431
7,340 13,374 37,886 6,231 64,854 2,020,482
50,288 46,486 -- -- 47,406 486,646
(85,229) (18,565) 14,939 35,959 (1,498,958) (1,969,535)
(23) (107) (204) (174) (61) (2,363)
------------ ------------ ------------ ------------ ------------ ------------
46,239 70,293 179,893 137,974 203,604 1,225,661
------------ ------------ ------------ ------------ ------------ ------------
-- -- -- -- -- (12,980,105)
737,857 416,058 766,789 565,639 7,559,778 5,209,882
(229,862) (111,682) (242,485) (224,791) (2,353,235) (1,602,404)
(23,416) (4,694) (50,424) (68,227) (463,485) (247,985)
(24,417) (13,050) (33,099) (41,442) (263,644) (80,517)
377,042 389,933 1,168,469 (115,412) 1,875,550 2,688,651
-- -- (27,512) -- (8,961) (4,740)
------------ ------------ ------------ ------------ ------------ ------------
837,204 676,565 1,581,738 115,767 6,346,003 (7,017,218)
------------ ------------ ------------ ------------ ------------ ------------
883,443 746,858 1,761,631 253,741 6,549,607 (5,791,557)
881,540 134,682 1,688,873 1,435,132 12,253,035 18,044,592
------------ ------------ ------------ ------------ ------------ ------------
$ 1,764,983 $ 881,540 $ 3,450,504 $ 1,688,873 $ 18,802,642 $ 12,253,035
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
------------------------------ ------------------------------ ------------------------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------
$ 203,854 $ 106,867 $ 270,882 $ 240,309 $ 79,088 $ 35,266
166,506 2,322,625 2,914 32,885 227,341 204,229
1,711,646 677,784 150,296 11,900 2,916,300 2,869,322
(3,245,087) (692,340) (24,456) 45,233 3,898,766 675,936
952 (2,689) (496) (431) (10,255) (4,349)
------------ ------------ ------------ ------------ ------------ ------------
(1,162,129) 2,412,247 399,140 329,896 7,111,240 3,780,404
------------ ------------ ------------ ------------ ------------ ------------
-- (7,345,155) -- -- -- --
9,730,766 6,236,512 1,746,262 1,629,051 12,186,740 7,565,076
(3,192,216) (2,115,916) (615,607) (499,972) (3,822,721) (2,621,057)
(713,023) (202,363) (215,276) (141,987) (927,793) (447,153)
(421,071) (134,401) (91,675) (92,777) (618,303) (287,713)
1,606,497 3,413,486 702,565 156,019 3,326,747 2,607,194
(144,245) (6,038) (271,589) (2,486) (27,376) (32,659)
------------ ------------ ------------ ------------ ------------ ------------
6,866,708 (153,875) 1,254,680 1,047,848 10,117,294 6,783,688
------------ ------------ ------------ ------------ ------------ ------------
5,704,579 2,258,372 1,653,820 1,377,744 17,228,534 10,564,092
15,989,906 13,731,534 4,261,695 2,883,951 22,244,476 11,680,384
------------ ------------ ------------ ------------ ------------ ------------
$ 21,694,485 $ 15,989,906 $ 5,915,515 $ 4,261,695 $ 39,473,010 $ 22,244,476
============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-7
<PAGE> 69
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1998
and December 31, 1997
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP SMALL
INDEXED EQUITY CAPITALIZATION
---------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
--------------------------------------------------------------
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)...................... $ 315,924 $ 229,108 $ (34,358) $ (6,663)
Net realized gain on investments.................. 10,716,754 647,604 1,215,940 2,566
Realized gain distribution received............... 557,191 701,766 374,506 27,734
Change in unrealized appreciation
(depreciation) on investments................... 282,888 4,086,848 128,347 94,168
Decrease attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account........ (16,684) (5,232) (1,817) (165)
----------- ----------- ----------- -----------
Net increase in total equity resulting
from operations............................... 11,856,073 5,660,094 1,682,618 117,640
----------- ----------- ----------- -----------
Contributions and withdrawals:
Policyowners' premium payments.................... 23,448,394 10,763,151 2,188,725 889,897
Cost of insurance................................. (7,501,864) (3,866,075) (772,586) (237,282)
Policyowners' surrenders.......................... (1,904,644) (696,971) (129,594) (17,688)
Net transfers to Fixed Account.................... (1,125,551) (527,396) (35,391) (20,195)
Transfers between Investment Divisions............ 17,788,953 5,609,822 131,223 1,079,383
Policyowners' death benefits...................... (46,244) (49,784) (213) (4,799)
----------- ----------- ----------- -----------
Net contributions and withdrawals............... 30,659,044 11,232,747 1,382,164 1,689,316
----------- ----------- ----------- -----------
Increase in total equity...................... 42,515,117 16,892,841 3,064,782 1,806,956
TOTAL EQUITY:
Beginning of year................................. 30,800,134 13,907,293 1,928,343 121,387
----------- ----------- ----------- -----------
End of year....................................... $73,315,251 $30,800,134 $ 4,993,125 $ 1,928,343
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS ASPEN
VIP SERIES
EQUITY-INCOME BALANCED
---------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
--------------------------------------------------------------
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)...................... $ 5,692 $ (2,922) $ 122,429 $ 23,665
Net realized gain (loss) on investments........... 85,885 5,300 147,872 11,307
Realized gain distribution received............... 150,693 19,970 20,409 1,077
Change in unrealized appreciation
(depreciation) on investments................... 306,596 177,716 851,673 103,207
Increase (decrease) attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account........ (991) (182) (1,474) (176)
----------- ----------- ----------- -----------
Net increase (decrease) in total equity
resulting
from operations............................... 547,875 199,882 1,140,909 139,080
----------- ----------- ----------- -----------
Contributions and withdrawals:
Policyowners' premium payments.................... 3,688,644 918,009 2,528,610 644,403
Cost of insurance................................. (969,176) (212,463) (658,423) (163,402)
Policyowners' surrenders.......................... (171,064) (6,862) (138,143) (7,064)
Net transfers to Fixed Account.................... (55,950) (7,728) (52,710) (11,645)
Transfers between Investment Divisions............ 2,915,659 1,357,221 2,191,093 787,770
Policyowners' death benefits...................... (328) -- (110,888) --
----------- ----------- ----------- -----------
Net contributions and withdrawals............... 5,407,785 2,048,177 3,759,539 1,250,062
----------- ----------- ----------- -----------
Increase in total equity...................... 5,955,660 2,248,059 4,900,448 1,389,142
TOTAL EQUITY:
Beginning of year................................. 2,350,643 102,584 1,496,120 106,978
----------- ----------- ----------- -----------
End of year....................................... $ 8,306,303 $ 2,350,643 $ 6,396,568 $ 1,496,120
=========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-8
<PAGE> 70
NYLIAC VUL SEPARATE ACCOUNT-I
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIAL VIP II
BALANCED CONTRAFUND
----------------------------- -----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
$ 8,208 $ 3,095 $ (27,964) $ (13,107)
15,361 2,858 54,036 21,286
22,970 8,046 329,061 14,890
(1,990) 821 2,790,206 488,379
(57) (16) (4,175) (592)
----------- ----------- ----------- -----------
44,492 14,804 3,141,164 510,856
----------- ----------- ----------- -----------
220,463 66,367 7,696,442 2,664,045
(66,198) (19,221) (2,146,703) (596,242)
(39,108) (987) (449,496) (42,541)
(4,614) (370) (154,308) (49,073)
121,446 89,506 3,975,127 2,995,348
(827) -- (114,379) --
----------- ----------- ----------- -----------
231,162 135,295 8,806,683 4,971,537
----------- ----------- ----------- -----------
275,654 150,099 11,947,847 5,482,393
174,098 23,999 5,738,941 256,548
----------- ----------- ----------- -----------
$ 449,752 $ 174,098 $17,686,788 $ 5,738,941
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
SERIES EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
----------------------------- -----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
-----------------------------------------------------------------
$ 271,229 $ 19,211 $ (1,253) $ 4,713
1,387,577 22,542 (268,494) 24,925
144,214 17,119 -- 50,836
1,447,292 319,287 (242,047) (296,932)
(4,965) (494) 406 134
----------- ----------- ----------- -----------
3,245,347 377,665 (511,388) (216,324)
----------- ----------- ----------- -----------
8,596,803 3,320,718 1,516,539 948,661
(2,591,821) (742,262) (393,054) (209,093)
(474,849) (39,211) (74,822) (14,813)
(198,761) (95,247) (25,939) (10,081)
4,521,415 4,680,102 77,823 1,114,525
(66,168) (869) (42,802) (2,744)
----------- ----------- ----------- -----------
9,786,619 7,123,231 1,057,745 1,826,455
----------- ----------- ----------- -----------
13,031,966 7,500,896 546,357 1,610,131
7,759,677 258,781 1,685,867 75,736
----------- ----------- ----------- -----------
$20,791,643 $ 7,759,677 $ 2,232,224 $ 1,685,867
=========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-9
<PAGE> 71
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-10
<PAGE> 72
NYLIAC VUL SEPARATE ACCOUNT-I
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
NYLIAC Variable Universal Life Separate Account-I ("VUL 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 VUL Separate Account-I funds Flexible Premium Variable Life
Insurance policies ("VUL policies"), and Survivorship Variable Universal Life
Policies ("SVUL policies"). VUL and SVUL policies were first offered on June 4,
1993 and May 6, 1998, respectively. Both policies are designed for individuals
who seek lifetime insurance protection and flexibility with respect to premium
payments and death benefits. In addition, SVUL policies offer life insurance
protection on two insureds. These 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. VUL Separate
Account-I is registered under the Investment Company Act of 1940, as amended,
as a unit investment trust.
The assets of VUL Separate Account-I are invested in the shares of the
MainStay VP Series Fund, Inc., the Alger American Fund, the Calvert Variable
Series, Inc. (formerly, "Acacia Capital Corporation"), the Fidelity Variable
Insurance Products Fund II, the Fidelity Variable Insurance Products Fund, the
Janus Aspen Series and the Morgan Stanley Universal Funds, Inc. (collectively,
"Funds"). These assets are clearly identified and distinguished from the other
assets and liabilities of New York Life Insurance and Annuity Corporation.
VUL 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 Social Balanced
(formerly, "Calvert Socially Responsible"), Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced, Janus Aspen Series Worldwide
Growth and Morgan Stanley Emerging Markets Equity. Each Investment Division of
VUL 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 VUL 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 VUL 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 VUL
Separate Account-I under current Federal income tax law.
Security Valuation--The investments are valued at the net asset value of
shares of the respective Fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
F-11
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1998, the investments of VUL 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........................................ 5,339 14,427 171
Identified cost*........................................ $125,394 $ 14,427 $ 1,872
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
-------------------------------------------------------
Number of shares........................................ 1,674 2,836 114
Identified cost*........................................ $ 34,682 $ 67,047 $ 4,786
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1998, was as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
<S> <C> <C> <C>
-------------------------------------------------------
Purchases............................................... $ 82,468 $120,228 $ 1,090
Proceeds from sales..................................... 57,370 113,964 127
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
<S> <C> <C> <C>
-------------------------------------------------------
Purchases............................................... $ 13,810 $111,069 $165,167
Proceeds from sales..................................... 677 79,489 163,435
</TABLE>
F-12
<PAGE> 74
NYLIAC VUL 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>
-----------------------------------------------------------------------------------------
337 1,725 338 1,788 1,557 448
$ 3,460 $ 20,570 $ 4,083 $ 26,626 $ 23,052 $ 5,987
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN SERIES EMERGING
SOCIAL VIP II VIP SERIES WORLDWIDE MARKETS
BALANCED CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
211 725 327 285 716 315
$ 453 $ 14,435 $ 7,836 $ 5,452 $ 19,057 $ 2,775
</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>
-----------------------------------------------------------------------------------------
$ 4,323 $ 9,229 $ 8,514 $ 7,582 $ 9,418 $ 2,586
2,611 1,235 8,127 2,080 622 908
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN SERIES EMERGING
SOCIAL VIP II VIP SERIES WORLDWIDE MARKETS
BALANCED CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
$ 511 $ 9,376 $ 6,140 $ 4,522 $ 18,015 $ 1,691
248 252 566 614 7,795 633
</TABLE>
F-13
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
VUL Separate Account-I is charged for administrative services provided and the
mortality and expense risks assumed by New York Life Insurance and Annuity
Corporation. These charges are made daily at an annual rate of .70% of the
daily net asset value of each Investment Division. New York Life Insurance and
Annuity Corporation may increase these charges in the future up to a maximum
annual rate of 1.00%. The amounts of these charges retained in the Investment
Divisions represent funds of New York Life Insurance and Annuity Corporation.
Accordingly, New York Life Insurance and Annuity Corporation participates in
the results of each Investment Division ratably with the Policyowners.
- --------------------------------------------------------------------------------
NOTE 4 --Distribution of Net Income:
- --------------------------------------------------------------------------------
VUL Separate Account-I does not expect to declare dividends to Policyowners
from accumulated net investment income and realized gains. The income and gains
are distributed to Policyowners as part of withdrawals of amounts (in the form
of surrenders, death benefits or transfers) in excess of the net premium
payments.
F-14
<PAGE> 76
NYLIAC VUL SEPARATE ACCOUNT-I
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-15
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1998, the cost to Policyowners for accumulation units
outstanding, with adjustments for net investment income (loss), 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)................ $150,710 $ 33,933 $ 2,107
Sales charges............................................ (12,180) (15,050) (116)
Cost of insurance........................................ (43,953) (5,365) (344)
Accumulated net investment income (loss)................. (1,531) 889 104
Accumulated net realized gain on investments and
realized gain distributions received................... 32,138 -- 118
Unrealized appreciation (depreciation) on investments.... 38,029 -- (104)
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (77) (1) --
-------- -------- --------
Net amount applicable to Policyowners.................... $163,136 $ 14,406 $ 1,765
======== ======== ========
</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)................ $ 37,977 $ 71,477 $ 4,505
Sales charges............................................ (2,705) (4,170) (299)
Cost of insurance........................................ (8,964) (14,128) (1,013)
Accumulated net investment income (loss)................. 202 772 (41)
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 8,121 13,005 1,621
Unrealized appreciation (depreciation) on investments.... 4,859 6,383 222
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account....................................... (17) (24) (2)
-------- -------- --------
Net amount applicable to Policyowners.................... $ 39,473 $ 73,315 $ 4,993
======== ======== ========
</TABLE>
F-16
<PAGE> 78
NYLIAC VUL 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>
-----------------------------------------------------------------------------------------------------------------
$ 4,159 $ 20,398 $ 3,234 $ 36,783 $ 25,689 $ 7,343
(275) (1,522) (410) (3,096) (1,896) (549)
(885) (4,714) (1,311) (11,110) (6,296) (1,806)
396 3,409 1,363 1,309 433 779
61 2,974 1,204 2,693 5,087 211
(4) (1,736) 114 9,121 (1,319) (61)
(1) (6) (5) (15) (4) (1)
-------- -------- -------- -------- -------- --------
$ 3,451 $ 18,803 $ 4,189 $ 35,685 $ 21,694 $ 5,916
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN SERIES EMERGING
SOCIAL VIP II VIP SERIES WORLDWIDE MARKETS
BALANCED CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------
$ 504 $ 17,779 $ 9,181 $ 6,242 $ 21,657 $ 3,803
(28) (998) (440) (303) (1,153) (241)
(86) (2,748) (1,183) (823) (3,340) (604)
12 (41) 3 147 292 4
50 420 262 181 1,572 (193)
(2) 3,280 484 955 1,769 (538)
-- (5) (1) (2) (5) 1
-------- -------- -------- -------- -------- --------
$ 450 $ 17,687 $ 8,306 $ 6,397 $ 20,792 $ 2,232
======== ======== ======== ======== ======== ========
</TABLE>
F-17
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the year ended December 31, 1998 and for
the year ended December 31, 1997, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
--------------------- -----------------
1998 1997 1998 1997
<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......... 2,003 2,026 46,217 31,570
Units redeemed on cost of insurance...... (727) (763) (1,679) (1,220)
Units redeemed on surrenders............. (266) (196) (289) (141)
Units redeemed on net transfers to
Fixed Account.......................... (177) (130) (569) (650)
Units issued (redeemed) on transfers
between
Investment Divisions................... 331 317 (38,887) (28,363)
Units redeemed on death benefits......... (12) (4) (15) (9)
------- ------- ------- -------
Net increase (decrease)................ 1,152 1,250 4,778 1,187
Units outstanding, beginning of year..... 5,125 3,875 6,904 5,717
------- ------- ------- -------
Units outstanding, end of year........... 6,277 5,125 11,682 6,904
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN
--------------------- -----------------
1998 1997 1998 1997
<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......... 113 125 509 547
Units redeemed on cost of insurance...... (39) (41) (187) (208)
Units redeemed on surrenders............. (19) (4) (68) (58)
Units redeemed on net transfers to
Fixed Account.......................... (11) (3) (50) (37)
Units issued (redeemed) on transfers
between
Investment Divisions................... (14) 20 35 28
Units redeemed on death benefits......... (7) -- (7) (2)
------- ------- ------- -------
Net increase (decrease)................ 23 (903) 232 270
Units outstanding, beginning of year..... 258 1,161 1,524 1,254
------- ------- ------- -------
Units outstanding, end of year........... 281 258 1,756 1,524
======= ======= ======= =======
</TABLE>
F-18
<PAGE> 80
NYLIAC VUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CONVERTIBLE GOVERNMENT CORPORATE BOND
----------------- ----------------- -----------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------
-- -- -- -- -- (1,000)
61 37 59 48 518 383
(19) (10) (19) (19) (162) (119)
(2) -- (4) (6) (32) (18)
(3) (1) (3) (3) (20) (5)
32 36 89 (10) 129 200
-- -- (2) -- (1) --
------- ------- ------- ------- ------- -------
69 62 120 10 432 (559)
75 13 135 125 857 1,416
------- ------- ------- ------- ------- -------
144 75 255 135 1,289 857
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
VALUE BOND GROWTH EQUITY
----------------- ----------------- -----------------
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------
-- (500) -- -- -- --
563 393 131 135 545 413
(184) (134) (46) (41) (171) (143)
(41) (13) (16) (12) (42) (24)
(26) (10) (8) (7) (30) (17)
88 219 53 12 151 146
(8) -- (21) -- (1) (2)
------- ------- ------- ------- ------- -------
392 (45) 93 87 452 373
921 966 330 243 1,099 726
------- ------- ------- ------- ------- -------
1,313 921 423 330 1,551 1,099
======= ======= ======= ======= ======= =======
</TABLE>
F-19
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP SMALL
INDEXED EQUITY CAPITALIZATION
--------------- ---------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
---------------------------------
Units issued on premium payments............ 900 516 202 87
Units redeemed on cost of insurance......... (289) (185) (71) (23)
Units redeemed on surrenders................ (73) (33) (12) (2)
Units redeemed on net transfers to
Fixed Account............................. (47) (26) (4) (2)
Units issued on transfers between
Investment Divisions...................... 667 270 112 108
Units redeemed on death benefits............ (2) (2) -- (1)
------ ------ ------ ------
Net increase.............................. 1,156 540 227 167
Units outstanding, beginning of year........ 1,335 795 180 13
------ ------ ------ ------
Units outstanding, end of year.............. 2,491 1,335 407 180
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS ASPEN
VIP SERIES
EQUITY-INCOME BALANCED
--------------- ---------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
---------------------------------
Units issued on premium payments............ 267 74 180 58
Units redeemed on cost of insurance......... (70) (17) (47) (14)
Units redeemed on surrenders................ (13) (1) (10) (1)
Units redeemed on net transfers to
Fixed Account............................. (5) (1) (4) (1)
Units issued (redeemed) on transfers between
Investment Divisions...................... 210 113 157 69
Units redeemed on death benefits............ -- -- (8) --
------ ------ ------ ------
Net increase.............................. 389 168 268 111
Units outstanding, beginning of year........ 178 10 122 11
------ ------ ------ ------
Units outstanding, end of year.............. 567 178 390 122
====== ====== ====== ======
</TABLE>
F-20
<PAGE> 82
NYLIAC VUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIAL VIP II
BALANCED CONTRAFUND
--------------- ---------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
---------------------------------
16 7 542 222
(5) (2) (151) (49)
(3) -- (31) (3)
-- -- (14) (4)
10 8 283 257
-- -- (8) --
------ ------ ------ ------
18 13 621 423
15 2 448 25
------ ------ ------ ------
33 15 1,069 448
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
SERIES EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
--------------- ---------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
---------------------------------
596 274 181 85
(179) (61) (46) (19)
(33) (3) (9) (1)
(17) (8) (4) (1)
317 395 10 97
(4) -- (4) --
------ ------ ------ ------
680 597 128 161
622 25 169 8
------ ------ ------ ------
1,302 622 297 169
====== ====== ====== ======
</TABLE>
F-21
<PAGE> 83
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and capital
changes (for an accumulation unit outstanding throughout each year) with
respect to each Investment Division of VUL Separate Account-I:
<TABLE>
<CAPTION>
MAINSTAY VP
CAPITAL APPRECIATION
-------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
-------------------------------------------
Unit value, beginning of year............................... $18.95 $15.45 $13.10 $ 9.72 $10.23
Net investment income (loss)................................ (0.12) (0.12) (0.09) -- 0.04
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 7.16 3.62 2.44 3.38 (0.55)
------ ------ ------ ------ ------
Unit value, end of year..................................... $25.99 $18.95 $15.45 $13.10 $ 9.72
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
GOVERNMENT
-------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
-------------------------------------------
Unit value, beginning of year............................... $12.49 $11.49 $11.31 $ 9.76 $10.01
Net investment income....................................... 0.71 0.71 0.76 0.93 1.46
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 0.32 0.29 (0.58) 0.62 (1.71)
------ ------ ------ ------ ------
Unit value, end of year..................................... $13.52 $12.49 $11.49 $11.31 $ 9.76
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
TOTAL RETURN
-------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
-------------------------------------------
Unit value, beginning of year............................... $16.10 $13.76 $12.37 $ 9.70 $10.18
Net investment income....................................... 0.27 0.26 0.26 0.32 0.52
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 3.95 2.08 1.13 2.35 (1.00)
------ ------ ------ ------ ------
Unit value, end of year..................................... $20.32 $16.10 $13.76 $12.37 $ 9.70
====== ====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(a) For the period May 2, 1994 (Commencement of Operations) through December
31, 1994.
(b) For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
(c) For the period October 1, 1996 (Commencement of Operations) through
December 31, 1996.
F-22
<PAGE> 84
NYLIAC VUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CASH MANAGEMENT CONVERTIBLE
----------------------------------------------- ---------------------------
1998 1997 1996 1995 1994 1998 1997 1996(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
$ 1.18 $ 1.13 $ 1.08 $ 1.03 $ 1.00 $11.81 $10.31 $10.00
0.05 0.05 0.04 0.05 0.03 0.68 0.64 0.16
-- -- 0.01 -- -- (0.23) 0.86 0.15
------ ------ ------ ------ ------ ------ ------ ------
$ 1.23 $ 1.18 $ 1.13 $ 1.08 $ 1.03 $12.26 $11.81 $10.31
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL
CORPORATE BOND EQUITY
------------------------------------- -------------------------------------
1998 1997 1996 1995(b) 1998 1997 1996 1995(b)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
$14.31 $12.75 $10.95 $10.00 $12.20 $11.69 $10.65 $10.00
1.46 0.67 0.61 0.36 0.26 0.33 0.58 0.46
(1.19) 0.89 1.19 0.59 2.46 0.18 0.46 0.19
------ ------ ------ ------ ------ ------ ------ ------
$14.58 $14.31 $12.75 $10.95 $14.92 $12.20 $11.69 $10.65
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
VALUE BOND
------------------------------------- -----------------------------------------------
1998 1997 1996 1995(b) 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------
$17.35 $14.22 $11.62 $10.00 $12.91 $11.85 $11.70 $ 9.96 $10.00
0.18 0.12 0.12 0.05 0.72 0.80 0.92 1.03 1.70
(1.01) 3.01 2.48 1.57 0.36 0.26 (0.77) 0.71 (1.74)
------ ------ ------ ------ ------ ------ ------ ------ ------
$16.52 $17.35 $14.22 $11.62 $13.99 $12.91 $11.85 $11.70 $ 9.96
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-23
<PAGE> 85
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
GROWTH EQUITY
-----------------------------------------------
1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C>
-----------------------------------------------
Unit value, beginning of year............................... $20.25 $16.09 $13.01 $10.14 $10.00
Net investment income (loss)................................ 0.06 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)............................................. 5.14 4.12 3.00 2.70 (0.16)
------ ------ ------ ------ ------
Unit value, end of year..................................... $25.45 $20.25 $16.09 $13.01 $10.14
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
CALVERT
SOCIAL
BALANCED
---------------------------
1998 1997 1996(c)
<S> <C> <C> <C>
---------------------------
Unit value, beginning of year............................... $11.88 $ 9.96 $10.00
Net investment income (loss)................................ 0.36 0.40 0.21
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.47 1.52 (0.25)
------ ------ ------
Unit value, end of year..................................... $13.71 $11.88 $ 9.96
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN
SERIES
BALANCED
---------------------------
1998 1997 1996(c)
<S> <C> <C> <C>
---------------------------
Unit value, beginning of year............................... $12.31 $10.15 $10.00
Net investment income (loss)................................ 0.52 0.35 0.17
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital shared
transactions)............................................. 3.58 1.81 (0.02)
------ ------ ------
Unit value, end of year..................................... $16.41 $12.31 $10.15
====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(a) For the period May 2, 1994 (Commencement of Operations) through December
31, 1994.
(c) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-24
<PAGE> 86
NYLIAC VUL SEPARATE ACCOUNT-I
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP AMERICAN
INDEXED EQUITY SMALL CAPITALIZATION
----------------------------------------------- ---------------------------
1998 1997 1996 1995 1994 1998 1997 1996(c)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------
$23.07 $17.49 $14.39 $10.58 $10.00 $10.69 $ 9.66 $10.00
0.17 0.22 0.24 0.34 0.49 (0.11) (0.07) (0.01)
6.20 5.36 2.86 3.47 0.09 1.68 1.10 (0.33)
------ ------ ------ ------ ------ ------ ------ ------
$29.44 $23.07 $17.49 $14.39 $10.58 $12.26 $10.69 $ 9.66
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP II VIP
CONTRAFUND EQUITY-INCOME
--------------------------- ---------------------------
1998 1997 1996(c) 1998 1997 1996(c)
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------
$12.81 $10.39 $10.00 $13.21 $10.38 $10.00
(0.04) (0.06) (0.01) 0.02 (0.04) (0.01)
3.77 2.48 0.40 1.41 2.87 0.39
------ ------ ------ ------ ------ ------
$16.54 $12.81 $10.39 $14.64 $13.21 $10.38
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN MORGAN STANLEY
SERIES EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
--------------------------- ---------------------------
1998 1997 1996(c) 1998 1997 1996(c)
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------
$12.48 $10.29 $10.00 $ 9.97 $10.01 $10.00
0.29 0.06 0.09 (0.01) 0.06 0.02
3.20 2.13 0.20 (2.45) (0.10) (0.01)
------ ------ ------ ------ ------ ------
$15.97 $12.48 $10.29 $ 7.51 $ 9.97 $10.01
====== ====== ====== ====== ====== ======
</TABLE>
F-25
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance and
Annuity Corporation and the Variable Universal Life Separate Account-I
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 MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Convertible, MainStay VP Government, MainStay VP High Yield Corporate Bond,
MainStay VP International Equity, MainStay VP Total Return, MainStay VP Value,
MainStay VP Bond, MainStay VP Growth Equity, MainStay VP Indexed Equity, Alger
American Small Capitalization, Calvert Social Balanced, formerly known as
Calvert Socially Responsible, Fidelity VIP II Contrafund, Fidelity VIP
Equity-Income, Janus Aspen Series Balanced, Janus Aspen Series Worldwide Growth,
and Morgan Stanley Emerging Markets Equity Investment Divisions (constituting
the NYLIAC Variable Universal Life Separate Account-I) at December 31, 1998, and
the results of each of their operations, the changes in each of their total
equity, and the selected per unit data for each of the periods presented in
conformity with generally accepted 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, 1998 with the
MainStay VP Series Fund, Inc., the Alger American Fund, the Calvert Variable
Series, Inc., the Fidelity Variable Insurance Products Fund II, the Fidelity
Variable Insurance Products Fund, the Janus Aspen Series, and the Morgan Stanley
Universal Funds, Inc., provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
February 19, 1999
F-26
<PAGE> 88
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value $13,081 $12,170
Held to maturity, at amortized cost 725 801
Equity securities 100 83
Mortgage loans 1,622 1,305
Real estate 116 151
Policy loans 491 481
Other long-term investments 26 20
------- -------
Total investments 16,161 15,011
Cash and cash equivalents 948 773
Deferred policy acquisition costs 859 688
Other assets 297 345
Separate account assets 6,852 4,315
------- -------
Total Assets $25,117 $21,132
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances $14,709 $13,716
Future policy benefits 315 276
Policy claims 60 55
Deferred taxes 101 93
Other liabilities 992 727
Separate account liabilities 6,792 4,303
------- -------
Total Liabilities 22,969 19,170
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
Accumulated other comprehensive income 201 157
Retained earnings 1,442 1,300
------- -------
Total stockholder's equity 2,148 1,962
------- -------
Total liabilities and stockholder's equity $25,117 $21,132
======= =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 89
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees $ 293 $ 271 $ 236
Net investment income 1,115 1,066 1,048
Investment gains, net 56 126 65
Other income 122 78 56
------ ------ ------
Total revenues 1,586 1,541 1,405
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances 784 748 723
Policyholder benefits 175 141 117
Operating expenses 405 352 299
------ ------ ------
Total expenses 1,364 1,241 1,139
------ ------ ------
Income before Federal income taxes 222 300 266
Federal income taxes:
Current 97 114 121
Deferred (17) (1) (24)
------ ------ ------
Total Federal income taxes 80 113 97
------ ------ ------
Net income $ 142 $ 187 $ 169
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 90
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Net Income $142 $187 $ 169
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising during period 79 -- --
Unrealized holding gains arising during period,
including reclassification adjustments -- 89 (159)
Less: reclassification adjustment for gains included
in net income 35 -- --
---- ---- -----
Other comprehensive income 44 89 (159)
---- ---- -----
Comprehensive income $186 $276 $ 10
==== ==== =====
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 91
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Stockholder's equity, beginning of year $1,962 $1,686 $1,676
Net Income 142 187 169
Other comprehensive income 44 89 (159)
------ ------ ------
Stockholder's equity, end of year $2,148 $1,962 $1,686
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 92
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 142 $ 187 $ 169
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2 (43) (18)
Net capitalization of deferred policy acquisition costs (192) (85) (44)
Universal life and annuity fees (198) (202) (188)
Interest credited to policyholders' account balances 784 748 723
Net realized investment gains (56) (126) (65)
Deferred income taxes (17) (1) (24)
(Increase) decrease in net separate account assets (42) 30 6
Increase (decrease) in loaned securities 425 -- --
(Increase) decrease in other assets and other
liabilities (90) 126 (127)
Increase (decrease) in policy claims 4 (2) (24)
Increase (decrease) in future policy benefits 39 25 18
------- -------- -------
Net cash provided by operating activities 801 657 426
------- -------- -------
Cash Flows from Investing Activities:
Proceeds from sale of available for sale fixed maturities 5,325 13,378 5,787
Proceeds from maturity of available for sale fixed
maturities 1,610 1,137 1,505
Proceeds from sale of held to maturity fixed securities -- 3 --
Proceeds from maturity of held to maturity fixed
maturities 102 112 141
Proceeds from sale of equity securities 77 140 47
Proceeds from repayment of mortgage loans 238 220 143
Proceeds from sale of real estate and other invested
assets 47 40 59
Cost of available for sale fixed maturities acquired (7,670) (14,391) (7,447)
Cost of held to maturity fixed maturities acquired (49) (281) (95)
Cost of equity securities acquired (83) (163) (43)
Cost of mortgage loans acquired (558) (413) (280)
Cost of real estate and other invested assets acquired (20) (29) (43)
Policy loans (10) (17) (29)
Securities sold under agreements to repurchase (net) (45) 134 (37)
------- -------- -------
Net cash used in investing activities (1,036) (130) (292)
------- -------- -------
Cash Flows from Financing Activities:
Policyholders' account balances:
Deposits 1,493 1,189 929
Withdrawals (1,151) (1,235) (1,188)
Net transfers from the separate accounts 67 58 33
------- -------- -------
Net cash provided (used) by financing activities 409 12 (226)
------- -------- -------
Effect of exchange rate changes on cash and cash equivalents 1 (2) 2
------- -------- -------
Net increase (decrease) in cash and cash equivalents 175 537 (90)
------- -------- -------
Cash and cash equivalents, beginning of year 773 236 326
------- -------- -------
Cash and cash equivalents, end of year $ 948 $ 773 $ 236
======= ======== =======
</TABLE>
See accompanying notes to financial statements.
F-31
<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, 1998 AND 1997
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.
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the current year presentation.
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 maturity and
equity securities are 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. 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 that have maturities of between 91-365 days at date of purchase are
included in fixed maturities on the balance sheet and are carried at amortized
cost, which approximates fair value.
Derivative financial instruments hedging exposure to interest rate
fluctuation on available for sale securities are accounted for at fair market
value. Unrealized gains and losses are reported in stockholder's equity, net of
deferred taxes and related adjustments. Amounts payable or receivable under
interest rate 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. Realized gains and losses are recognized in net income upon
termination or maturity of the contracts.
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
F-32
<PAGE> 94
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
DEFERRED POLICY ACQUISITION COSTS -- (CONTINUED)
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 comprehensive income.
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 expenses 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 NYLIAC is allocated its
share of the consolidated tax provision or benefit determined generally 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
insurance subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate ("DER") (the actual rate will be announced at a later
date by the Internal Revenue Service ("IRS")) used to compute the equity base
tax.
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 includes interest credited to the policies.
F-33
<PAGE> 95
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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/or 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.
ACCOUNTING CHANGES
During 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
130, "Reporting Comprehensive Income" which establishes standards for the
reporting and display of comprehensive income and its components. Comprehensive
income is defined as net income adjusted for changes in stockholder's equity
resulting from events other than net income.
This Statement was adopted for the 1998 NYLIAC financial statements. The
1997 and 1996 financial statements were not restated to report the
reclassification adjustments separately from unrealized gains (losses) which
arose during the period. Adoption of this Statement had no effect on reported
net income or stockholder's equity.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (Statement). This Statement establishes new
GAAP accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
This Statement is effective for the 2000 financial statements of the Company.
NYLIAC is currently evaluating what impact, if any, this Statement will have on
its financial results.
This Statement requires that derivatives be reported in the balance sheet
at their fair value, regardless of any hedging relationship that may exist.
Accounting for the gains or losses resulting from changes in the values of those
derivatives would depend on the use of the derivative and whether it qualifies
for hedge accounting. Changes in fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria will be
reported in earnings.
F-34
<PAGE> 96
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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 generally
based upon the assumption such securities will be held to maturity, or a
proprietary matrix pricing model.
At December 31, 1998 and 1997, the maturity distribution of fixed
maturities was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE COST FAIR VALUE
- ------------------ --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 518 $ 521 $ 480 $ 482
Due after one year through five years 3,473 3,533 3,053 3,099
Due after five years through ten years 1,804 1,885 2,156 2,230
Due after ten years 3,028 3,235 2,425 2,608
Asset-backed securities:
Government or government agency 2,080 2,121 2,271 2,324
Other 1,740 1,786 1,411 1,427
------- ------- ------- -------
Total Available for Sale $12,643 $13,081 $11,796 $12,170
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
HELD TO MATURITY
- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $ 27 $ 28 $ 30 $ 30
Due after one year through five years 225 291 225 239
Due after five years through ten years 219 228 226 240
Due after ten years 193 207 224 238
Asset-backed securities 61 62 96 97
------- ------- ------- -------
Total Held to Maturity $ 725 $ 816 $ 801 $ 844
======= ======= ======= =======
</TABLE>
At December 31, 1998 and 1997, the distribution of gross unrealized gains
and losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1998
---------------------------------------------------
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 $ 1,006 $ 45 $ 1 $ 1,050
U.S. agencies, state and municipal 1,927 39 4 1,962
Foreign governments 234 22 -- 256
Corporate 7,736 338 47 8,027
Other 1,740 48 2 1,786
------- ---- --- -------
Total Available for Sale $12,643 $492 $54 $13,081
======= ==== === =======
HELD TO MATURITY
Corporate $ 664 $ 91 $ 1 $ 754
Other 61 1 -- 62
------- ---- --- -------
Total Held to Maturity $ 725 $ 92 $ 1 $ 816
======= ==== === =======
</TABLE>
F-35
<PAGE> 97
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
FIXED MATURITIES -- (CONTINUED)
<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>
EQUITY SECURITIES
Estimated fair value of equity securities has been determined using quoted
market prices for publicly traded securities and a matrix pricing model for
private placement securities. At December 31, 1998 and 1997, 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>
1998 $76 $27 $3 $100
1997 $66 $25 $8 $ 83
</TABLE>
MORTGAGE LOANS
NYLIAC's mortgage loans are diversified by property type, location and
borrower, and are generally collateralized by the related property.
The fair market value of the mortgage loan portfolio at December 31, 1998
and 1997 is estimated to be $1,728 million and $1,408 million, respectively.
Market values are determined by discounting the projected cash flows for each
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, 1998 and 1997, contractual commitments to extend credit
under commercial and residential mortgage loan agreements amounted to
approximately $76 million and $108 million, respectively, 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 $1 million and $14 million
at December 31, 1998 and 1997, respectively. The activity in the specific and
general reserves as of December 31, 1998 and 1997 is summarized below (in
millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Beginning Balance $14 $20
Reductions credited to operations (5) (1)
Recoveries of amounts previously written-down (8) (5)
--- ---
Ending Balance $ 1 $14
=== ===
</TABLE>
F-36
<PAGE> 98
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
MORTGAGE LOANS -- (CONTINUED)
Impaired mortgage loans along with specific provisions for losses as of
December 31, 1998 and 1997, were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Impaired mortgage loans with provisions for losses $-- $19
Provision for losses -- (8)
-- ---
Net impaired mortgage loans $-- $11
== ===
</TABLE>
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, 1998 and 1997, the distribution of the mortgage loan
portfolio by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Property Type:
Office building $ 753 $ 601
Retail 330 255
Apartments 187 187
Residential 247 172
Other 105 90
------ ------
Total $1,622 $1,305
====== ======
Geographic Region:
Central $ 359 $ 250
Pacific 211 145
Middle Atlantic 451 426
South Atlantic 418 362
New England 121 73
Other 62 49
------ ------
Total $1,622 $1,305
====== ======
</TABLE>
REAL ESTATE
At December 31, 1998 and 1997, NYLIAC's real estate portfolio consisted of
the following (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Investment $105 $103
Acquired through foreclosures 11 19
Real estate joint ventures and limited partnerships -- 29
---- ----
Total real estate $116 $151
==== ====
</TABLE>
Accumulated depreciation on real estate at December 31, 1998 and 1997, was
$12 million and $8 million, respectively. Depreciation expense totaled $3
million in 1998, 1997 and 1996.
F-37
<PAGE> 99
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
The components of net investment income for the years ended December 31,
1998, 1997 and 1996, were as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Fixed maturities $ 972 $ 961 $ 920
Equity securities 7 6 3
Mortgage loans 116 96 93
Real estate 15 18 21
Policy loans 40 39 37
Other 9 1 6
------ ------ ------
Gross investment income 1,159 1,121 1,080
Investment expenses (44) (55) (32)
------ ------ ------
Net investment income $1,115 $1,066 $1,048
====== ====== ======
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, realized investment
gains computed under the specific identification method are as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- --------------------- --------------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturities $ 87 $(29) $172 $ (83) $100 $ (64)
Equity securities 7 (7) 9 (4) 22 (1)
Mortgage loans 16 (8) 12 (8) 15 (19)
Real estate 6 (2) 3 (2) 6 (3)
Derivative instruments -- -- 80 (71) 46 (41)
Other 3 (17) 19 (1) 7 (3)
---- ---- ---- ----- ---- -----
Subtotal $119 $(63) $295 $(169) $196 $(131)
---- ---- ---- ----- ---- -----
Investment gains, net $56 $126 $65
=== ==== ===
</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.
Stockholder's equity at December 31, 1998 and 1997 includes net unrealized
gains as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net unrealized gains on investments before adjustments $472 $382
---- ----
Related adjustments
Deferred policy acquisition costs (169) (148)
Policyholder liabilities 6 7
Deferred Federal income taxes (108) (84)
---- ----
(271) (225)
---- ----
Net unrealized gains on investments included in
Stockholder's equity $201 $157
==== ====
</TABLE>
F-38
<PAGE> 100
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES -- (CONTINUED)
Changes in net unrealized gains and losses on investments were as follows
(in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Unrealized gains (losses) on investments:
Beginning of year $382 $163
End of year 472 382
---- ----
Net change 90 219
Change in related adjustments of balance sheet accounts:
Deferred policy acquisition costs (21) (88)
Policyholder liabilities (1) 5
Deferred Federal income taxes (24) (47)
---- ----
Change in unrealized gains on investments 44 89
Net unrealized gains on investments at beginning of year 157 68
---- ----
Net unrealized gains on investments at end of year $201 $157
==== ====
</TABLE>
NOTE 5 -- INSURANCE LIABILITIES
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, 1998 and 1997, was $6,905 million and $7,150 million,
respectively.
NOTE 6 -- SEPARATE ACCOUNTS
NYLIAC maintains eight non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products. NYLIAC maintains
investments in the registered separate accounts of $54 million and $12 million
at December 31, 1998 and 1997, 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 non-proprietary
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. At December 31, 1998, no policies had yet been issued for one of these
separate accounts.
NOTE 7 -- DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs (DAC) for the years ended
December 31, 1998, 1997 and 1996 is as follows (in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Balance at beginning of year before adjustment for
unrealized gains on investments $ 836 $ 751 $ 707
Current year additions 286 200 151
Amortized during year (94) (115) (107)
Balance at end of year before adjustment for
unrealized gains on investments 1,028 836 751
Adjustment for unrealized gains on investments (169) (148) (60)
------ ----- -----
Balance at end of year $ 859 $ 688 $ 691
====== ===== =====
</TABLE>
F-39
<PAGE> 101
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 8 -- FEDERAL INCOME TAXES
The components of the net deferred tax liability as of December 31, 1998
and 1997 are as follows (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Future policyholder benefits $196 $153
Employee and agents' benefits 53 49
Other -- 6
---- ----
Gross deferred tax assets 249 208
==== ====
Deferred tax liabilities:
Deferred policy acquisition costs 168 147
Investments 174 149
Other 8 5
---- ----
Gross deferred tax liabilities 350 301
---- ----
Net deferred tax liability $101 $ 93
==== ====
</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.
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Equity base tax 1.7 3.3 3.2
Tax exempt income (.5) (.5) (.7)
Other (.2) (.1) (.9)
---- ---- ----
Effective tax rate 36.0% 37.7% 36.6%
==== ==== ====
</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
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.
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
NYLIAC uses derivative financial instruments to manage interest rate,
commodity and market risk. These derivative financial instruments include
interest rate floors and interest rate and commodity swaps. NYLIAC has not
engaged in derivative financial instrument transactions for speculative
purposes.
F-40
<PAGE> 102
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT -- (CONTINUED)
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 and 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>
1998 1997
-------------------- --------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps $125,000 $9,125 $125,000 $2,973
Floors $150,000 $ 748 $150,000 $ 251
</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, 1998 are between six years, eight months
and nineteen years in maturity. At December 31, 1997 such contracts were between
seven years, eight months and twenty years in maturity. NYLIAC does not act as
an intermediary or broker in interest rate swaps.
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Receive - fixed swaps - Notional amount (in thousands) $125,000 $125,000
Average receive rate 6.64% 6.64%
Average pay rate 5.65% 5.70%
</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 $9,125,000 and $2,973,000 at December 31, 1998 and 1997, 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, 1998 and 1997, unamortized premiums on interest rate floors
amounted to $372,000 and $447,000, respectively. Fair values of such agreements
were $748,000 and $251,000 at December 31, 1998 and 1997, respectively, based on
quoted market prices.
F-41
<PAGE> 103
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
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 in both 1998 and 1997. The credit exposure of these swaps was $1,290,000
and $3,021,000 at December 31, 1998 and 1997, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
NYLIAC is a defendant in individual and/or alleged class action suits
arising from its agency sales force, insurance (including variable contracts
registered under the federal securities law), investment, retail securities
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 which cannot be predicted, NYLIAC nevertheless believes that, after
provisions made in the financial statements, the ultimate liability that could
result from 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, 1998 and 1997, $571 million
and $659 million, respectively, of NYLIAC's fixed maturities and equity
securities were on loan to others, but were fully collateralized in an account
held in trust for NYLIAC. Such assets reflect the extent of NYLIAC's involvement
in securities lending, not NYLIAC's risk of loss.
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, 1998 of $139 million ($184 million at December 31, 1997)
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 $342 million for the year ended December 31,
1998 ($247 million for 1997 and $191 million for 1996) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
In 1998, NYLIAC sold a Corporate Owned Life (COLI) policy to its parent,
New York Life Insurance Company, for $250 million in premium. The policy was
sold on the same basis as policies sold to unrelated customers.
F-42
<PAGE> 104
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 13 -- ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated Other Comprehensive Income is as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
----- ----- ------
<S> <C> <C> <C>
Unrealized gains on securities:
Beginning balance $157 $ 68 $ 227
Current period change 44 89 (159)
---- ---- -----
Ending balance $201 $157 $ 68
==== ==== =====
</TABLE>
The related tax effects allocated to Other Comprehensive Income are as
follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
AMOUNT OR BENEFIT AMOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period $123 $(44) $79
Less: reclassification adjustment for gains
(losses) in net income 54 (19) 35
---- ---- ---
Other Comprehensive Income $ 69 $(25) $44
==== ==== ===
</TABLE>
NOTE 14 -- SUPPLEMENTAL CASH FLOW INFORMATION
Federal income taxes paid were $67 million, $126 million, and $146 million
during 1998, 1997 and 1996, respectively.
Total interest paid was $27 million, $35 million and $10 million during
1998, 1997 and 1996, respectively.
NOTE 15 -- 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,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory Surplus $1,095 $1,089 $ 998
------ ------ ------
Adjustments:
Deferred policy acquisition costs 859 688 691
Investment related 458 377 151
Asset valuation reserve 197 165 164
Interest maintenance reserve 120 105 35
Non-admitted assets 66 59 31
Policyholder liabilities (447) (330) (263)
Deferred taxes (101) (94) (47)
Employee benefit liabilities (79) (74) (72)
Other (20) (23) (2)
------ ------ ------
Total adjustments 1,053 873 688
------ ------ ------
Total GAAP Stockholder's Equity $2,148 $1,962 $1,686
====== ====== ======
</TABLE>
F-43
<PAGE> 105
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTE 15 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP -- (CONTINUED)
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,
------------------------
1998 1997 1996
------ ----- -----
<S> <C> <C> <C>
Statutory Net Income $ 10 $134 $148
----- ---- ----
Adjustments:
Deferred policy acquisition costs 192 63 44
Investment related 19 7 2
Interest maintenance reserve 15 70 9
Policyholder liabilities (110) (84) (62)
Deferred taxes 17 1 24
Other (1) (4) 4
----- ---- ----
Total Adjustments 132 53 21
----- ---- ----
GAAP Net Income $ 142 $187 $169
===== ==== ====
</TABLE>
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 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; (7) deferred
federal income taxes are not provided for as they are under GAAP; and (8)
certain assets are considered non-admitted and are excluded from assets in the
balance sheet, whereas they are included under GAAP.
The Delaware 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
Delaware 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, 1998 and 1997 on a statutory basis, admitted assets were
$23,351 million and $20,059 million respectively, and total liabilities were
$22,256 million and $18,970 million, respectively, which included policy
reserves of $14,626 million and $13,666 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 statutory surplus funds which is derived from net operating profits
and realized capital gains. Such available and accumulated funds at December 31,
1998 were $590 million.
F-44
<PAGE> 106
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 and comprehensive 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, 1998 and 1997, and
the results of its operations and its cash flows for the three years in the
period ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York 10036
March 9, 1999
F-45
<PAGE> 107
APPENDIX A
ILLUSTRATIONS
The following tables demonstrate the way your policy works. The tables are
based on the age, initial death benefit and premium as follows:
The tables are for a policy issued to a male, preferred, age 35 with a
scheduled annual premium of $3,000 and an initial death benefit of $250,000.
The tables show how the Cash Value, Cash Surrender Value and death benefit
would vary over an extended period of time assuming hypothetical gross rates of
return equivalent to a constant annual rate of 0%, 6% or 12%. The tables will
assist in the comparison of the death benefit, Cash Value and Cash Surrender
Value of the policy with other variable life insurance plans.
The death benefit, Cash Value and Cash Surrender Value for a policy would
be different from the amounts shown if the actual gross rates of return averaged
0%, 6% or 12%, but varied above and below those averages for the period. They
would also be different depending on the allocation of the Cash Value among the
Investment Divisions 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. It assumes that the
cost of insurance charges are based on our current cost of insurance rates and
reflects the deduction of all charges from scheduled premium and the Cash Value
at the current levels. It also reflects a daily mortality and expense risk
charge assessed against the Separate Account equivalent to an annual charge of
0.60% (on a current basis) of the assets in the Separate Account and a daily
asset based administrative charge assessed against the Separate Account
equivalent to an annual charge of 0.10% on the assets in each Investment
Division.
The second table reflects all charges under the policy. It assumes that the
cost of insurance charges are based on our guaranteed maximum cost of insurance
rates and reflects the deduction of all charges from scheduled premiums and the
Cash Value at their guaranteed maximum levels. It also reflects a daily
mortality and expense risk charge assessed against the Separate Account
equivalent to an annual charge of 0.90% (on a guaranteed basis) of the assets in
the Separate Account and a daily asset based administrative charge assessed
against the Separate Account equivalent to an annual charge of 0.10% on the
assets in each Investment Division attributable to the policies.
The tables also reflect total assumed investment advisory fees together
with the expenses incurred by the Funds of 0.74% of the average daily net assets
of the Funds. The total is based upon (a) 0.41% of average daily net assets,
which is an average of the management fees of each Portfolio; (b) 0.12% of
average daily net assets of the Funds which is an average of actual
administrative fees for each Portfolio; and (c) 0.21% of average daily net
assets of the Funds which is an average of the other expenses after expense
reimbursement for each Portfolio.
"Other Expenses" and "Total Fund Annual Expenses" for the MainStay VP
Convertible and MainStay VP International Equity Portfolios reflect an expense
reimbursement agreement that ended December 31, 1998 limiting "Other Expenses"
to 0.17% annually. In the absence of the expense reimbursement arrangement, the
"Total Fund Annual Expenses" would have been 1.17% for the MainStay VP
International Equity Portfolio.
A-1
<PAGE> 108
For the Calvert Social Balanced Portfolio, the fees are based on expenses
for fiscal year 1998, and have been restated to reflect the complete assessment
of transfer agency expenses of 0.01% expected to be incurred in 1999. "Other
Expenses" reflect an indirect fee. "Total Fund Annual Expenses" after reductions
for fees paid indirectly, which are restated, would have been 0.86%.
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'
expenses. In addition, these Portfolios have entered into arrangements with
their custodian whereby credits realized as a result of uninvested cash balances
were used to reduce custodian expenses. Including these reductions, the "Total
Fund Annual Expenses" would have been 0.66% for the Fidelity VIP II Contrafund
Portfolio and 0.57% for the Fidelity VIP Equity-Income Portfolio.
The "Total Fund Annual Expenses" for the Janus Aspen Series Worldwide
Growth Portfolio include a fee reduction to reduce the "Advisory Fees" to the
level of the corresponding Janus retail fund. Other waivers, if applicable, are
first applied against the "Advisory Fees" and then against "Other Expenses".
Janus Capital Corporation has agreed to continue the other waivers and fee
reductions until at least the next annual renewal of the advisory agreement.
Absent such waivers or reductions, the "Total Fund Annual Expenses" for the
fiscal year ended December 31, 1998 would have been 0.74% for the Portfolio.
Morgan Stanley Dean Witter Investment Management Inc. has voluntarily
waived receipt of its "Advisory Fees" and agreed to reimburse the Portfolio, if
necessary, to the extent that the "Total Fund Annual Expenses" of the Portfolio
exceed 1.75% of average daily net assets. However, Morgan Stanley Dean Witter
has reflected under "Other Expenses" the Portfolio's interest and foreign tax
expenses incurred in 1998 which were equal to 0.20% of the Portfolio's average
daily net assets. The fee waivers and reimbursements described above may be
terminated by Morgan Stanley Dean Witter at any time without notice. Absent such
reductions, it is estimated that "Advisory Fees", "Administration Fees" and
"Total Fund Annual Expenses" would be 1.25%, 0.25% and 3.45%, 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 each table shows 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.
We will furnish upon request a comparable illustration using the age, sex
and underwriting classification of an Insured for any initial death benefit and
premium requested. In addition to an illustration assuming policy charges at
their maximum, we will furnish an illustration assuming current policy charges
and current cost of insurance rates.
A-2
<PAGE> 109
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE: 35, PREFERRED
SCHEDULED ANNUAL PREMIUM: $3,000
INITIAL FACE AMOUNT: $250,000
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
END OF YEAR
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2) CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
VALUE(2) PLUS INTEREST AT 5% ------------------------------ ----------------------------- -----------------------------
POLICY YEAR AS OF END OF YEAR(1) 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- -------------------- -------- -------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 250,000 250,000 250,000 2,260 2,408 2,557 1,282 1,430 1,579
2 6,458 250,000 250,000 250,000 4,237 4,660 5,101 3,330 3,753 4,194
3 9,931 250,000 250,000 250,000 6,385 7,225 8,136 5,328 6,168 7,079
4 13,578 250,000 250,000 250,000 8,477 9,881 11,462 7,270 8,674 10,255
5 17,407 250,000 250,000 250,000 10,544 12,661 15,142 9,187 11,304 13,785
6 21,427 250,000 250,000 250,000 12,585 15,572 19,212 11,078 14,065 17,705
7 25,648 250,000 250,000 250,000 14,573 18,590 23,685 13,207 17,224 22,319
8 30,080 250,000 250,000 250,000 16,508 21,722 28,605 15,294 20,508 27,391
9 34,734 250,000 250,000 250,000 18,420 25,002 34,048 17,358 23,940 32,986
10 39,621 250,000 250,000 250,000 20,282 28,409 40,044 19,371 27,499 39,134
15 67,974 250,000 250,000 250,000 29,488 48,368 81,600 29,337 48,216 81,448
20 104,160 250,000 250,000 250,000 36,848 72,242 149,605 36,848 72,242 149,605
30 209,287 250,000 250,000 540,861 44,366 135,727 443,328 44,366 135,727 443,328
</TABLE>
- ------------
(1) All Premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no policy loan or partial withdrawal has been made.
THE ILLUSTRATION IS HYPOTHETICAL AND MAY NOT BE USED TO PROJECT OR PREDICT
INVESTMENT RESULTS. THE INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY
AND ARE BASED ON A HYPOTHETICAL LEVEL ANNUAL RATE OF RETURN. EVEN IF YOUR
AVERAGE RATE OF RETURN IS THE SAME AS THE HYPOTHETICAL RATE, YOUR ACTUAL RESULTS
WILL DIFFER DUE TO ANNUAL FLUCTUATIONS ABOVE OR BELOW THE HYPOTHETICAL AVERAGE
RATE OF RETURN.
A-3
<PAGE> 110
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE ISSUE AGE: 35, PREFERRED
SCHEDULED ANNUAL PREMIUM: $3,000
INITIAL FACE AMOUNT: $250,000
LIFE INSURANCE BENEFIT OPTION 1
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
END OF YEAR
END OF YEAR DEATH BENEFIT(2) END OF YEAR CASH VALUE(2) CASH SURRENDER VALUE
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
TOTAL PREMIUMS PAID ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF ANNUAL INVESTMENT RETURN OF
VALUE(2) PLUS INTEREST AT 5% ---------------------------- ---------------------------- ----------------------------
POLICY YEAR AS OF END OF YEAR(1) 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------- -------------------- ------- ------- -------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,150 250,000 250,000 250,000 2,082 2,224 2,367 1,104 1,246 1,389
2 6,458 250,000 250,000 250,000 3,879 4,279 4,696 2,972 3,372 3,789
3 9,931 250,000 250,000 250,000 5,844 6,632 7,486 4,787 5,575 6,429
4 13,578 250,000 250,000 250,000 7,723 9,030 10,504 6,516 7,823 9,297
5 17,407 250,000 250,000 250,000 9,546 11,505 13,805 8,189 10,148 12,447
6 21,427 250,000 250,000 250,000 11,286 14,034 17,389 9,779 12,527 15,882
7 25,648 250,000 250,000 250,000 12,945 16,618 21,288 11,579 15,252 19,922
8 30,080 250,000 250,000 250,000 14,497 19,234 25,508 13,283 18,020 24,294
9 34,734 250,000 250,000 250,000 15,972 21,914 30,114 14,910 20,852 29,052
10 39,621 250,000 250,000 250,000 17,345 24,633 35,122 16,434 23,722 34,211
15 67,974 250,000 250,000 250,000 22,669 38,888 67,923 22,517 38,736 67,771
20 104,160 250,000 250,000 250,000 24,733 53,805 119,642 24,733 53,805 119,642
30 209,287 250,000 250,000 413,506 11,059 80,100 338,939 11,059 80,100 338,939
</TABLE>
- ------------
(1) All premiums are illustrated as if made at the beginning of the Policy Year.
(2) Assumes no policy loan or partial withdrawal has been made.
THE ILLUSTRATION IS HYPOTHETICAL AND MAY NOT BE USED TO PROJECT OR PREDICT
INVESTMENT RESULTS. THE INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY
AND ARE BASED ON A HYPOTHETICAL LEVEL ANNUAL RATE OF RETURN. EVEN IF YOUR
AVERAGE RATE OF RETURN IS THE SAME AS THE HYPOTHETICAL RATE, YOUR ACTUAL RESULTS
WILL DIFFER DUE TO ANNUAL FLUCTUATIONS ABOVE OR BELOW THE HYPOTHETICAL AVERAGE
RATE OF RETURN.
A-4
<PAGE> 111
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 112
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934 , the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Reference is made to Article VIII of the Depositor's By-Laws.
New York Life maintains Directors and Officers Liability/Company
Reimbursement ("D&O") insurance which covers directors, officers and trustees of
New York Life, its subsidiaries, and its subsidiaries and certain affiliates
including the Depositor while acting in their capacity as such. The total annual
aggregate of D&O coverage is $150 million applicable to all insureds under the
D&O policies. There is no assurance that such coverage will be maintained by New
York Life or for the Depositor in the future as, in the past, there have been
large variances in the availability of D&O insurance for financial institutions.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Depositor pursuant to the foregoing provisions, or otherwise, the Depositor
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Depositor of expenses incurred
or paid by a director, officer or controlling person of the Depositor in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Depositor will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION AS TO THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
New York Life Insurance and Annuity Corporation ("NYLIAC"), the
sponsoring insurance company of the NYLIAC Variable Universal Life Separate
Account-I, hereby represents that the fees and charges deducted under the
Flexible Premium Variable Universal Life Insurance Policies are reasonable in
relation to the services rendered, the expenses expected to be incurred and the
risks assumed by NYLIAC.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 105 pages.
The undertaking to file reports.
The undertaking pursuant to Rule 484.
II-1
<PAGE> 113
The representation as to the reasonableness of aggregate fees and charges.
The signatures.
Written consents of the following persons (filed herewith):
(a) Jonathan E. Gaines, Esq.
(b) Joel M. Steinberg, Vice President and Actuary
(c) PricewaterhouseCoopers LLP
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B- 2:
(1) Resolution of the Board of Directors of NYLIAC establishing
the Separate Account - Previously filed as Exhibit (1) to
Registrant's initial Registration Statement on Form S-6,
re-filed in accordance with Regulation S-T, 17 CFR 232.102(e)
as Exhibit (1) to Registrant's Post-Effective Amendment No. 4
on Form S-6, and incorporated herein by reference.
(2) Not applicable.
(3)(a)(1) Distribution Agreement between NYLIFE Securities Inc. and
NYLIAC - Previously filed as Exhibit (3)(a) to Post-Effective
Amendment No. 1 to the registration statement on Form S-6 for
NYLIAC MFA Separate Account-I (File No. 2-86084), re-filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit
(3)(a)(1) to Registrant's Post-Effective Amendment No. 4 on
Form S-6, and incorporated herein by reference.
(3)(a)(2) Distribution Agreement between NYLIFE Distributors Inc. and
NYLIAC - Previously filed as Exhibit (3)(a)(2) to Registrant's
Post-Effective Amendment No. 3 on Form S-6, and incorporated
herein by reference.
(3)(b) Not applicable.
(3)(c) Not applicable.
(4) Not applicable.
(5) Form of Policy - Previously filed as Exhibit (5) to
Registrant's initial Registration Statement, re-filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit
(5) to Registrant's Post-Effective Amendment No. 4 on Form
S-6, and incorporated herein by reference. Rider to the Policy
- Previously filed as Exhibit (5) to Registrant's Post-
Effective Amendment No. 5 on Form S-6 and incorporated herein
by reference.
(6)(a) Certificate of Incorporation of NYLIAC - Previously filed as
Exhibit (6)(a) to the registration statement on Form S-6 for
NYLIAC MFA Separate Account-I (File No. 2-86083), re-filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit
(6)(a) to the initial registration statement on Form S-6 for
NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I (File No. 333-07617), and incorporated herein by
reference.
II-2
<PAGE> 114
(6)(b)(1) By-Laws of NYLIAC - Previously filed as Exhibit (6)(b) to the
registration statement on Form S-6 for NYLIAC MFA Separate
Account-I (File No. 2-86083), re-filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (6)(b) to the
initial registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(6)(b)(2) Amendments to By-Laws of NYLIAC - Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (6)(b) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Variable
Universal Life Separate Account-I (File No. 333-39157), and
incorporated herein by reference.
(7) Not applicable.
(8) Not applicable.
(9)(a) Stock Sale Agreement between NYLIAC and MainStay VP Series
Fund, Inc. (formerly New York Life MFA Series Fund, Inc.) -
Previously filed as Exhibit (9) to Registrant's Pre-Effective
Amendment No. 1 on Form S-6, re-filed as Exhibit (9)(a) to
Pre-Effective Amendment No. 1 to the registration statement on
Form S-6 for NYLIAC Corporate Sponsored Variable Universal
Life Separate Account-I (File No. 333-07617), and incorporated
herein by reference.
(9)(b) Powers of Attorney for the Directors and Officers of NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(c) to Pre-Effective Amendment No. 2
to the registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617) for the following, and incorporated herein by
reference:
Jay S. Calhoun, Vice President, Treasurer and Director
(Principal Financial Officer)
Richard M. Kernan, Jr., Director
Robert D. Rock, Senior Vice President and Director
Frederick J. Sievert, President and Director
(Principal Executive Officer)
Stephen N. Steinig, Senior Vice President, Chief
Actuary and Director
Seymour Sternberg, Director
(9)(c) Power of Attorney for Maryann L. Ingenito, Vice President and
Controller (Principal Accounting Officer) - Previously filed
in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(d) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617), and incorporated herein by reference.
(9)(d) Power of Attorney for Howard I. Atkins, Executive Vice
President (Principal Financial Officer) - Previously filed as
Exhibit 8(d) to Registrant's Pre-Effective Amendment No. 1 on
Form S-6 (File No. 333-39157), and incorporated herein by
reference.
(9)(e) Memorandum describing NYLIAC's issuance, transfer and
redemption procedures for the Policies - Previously filed as
Exhibit (11) to Registrant's Pre-Effective Amendment No. 1 on
Form S-6, refiled in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(d) to Registrant's Post-Effective
Amendment No. 4 on Form S-6, and incorporated herein by
reference.
(9)(f) Participation Agreement among Acacia Capital Corporation,
Calvert Asset Management Company, Inc. and NYLIAC, as amended
- Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(1) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
II-3
<PAGE> 115
(9)(g) Participation Agreement among The Alger American Fund, Fred
Alger and Company, Incorporated and NYLIAC - Previously filed
in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(b)(2) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617), and incorporated herein by reference.
(9)(h) Participation Agreement between Janus Aspen Series and NYLIAC
- Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(3) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(9)(i) Participation Agreement among Morgan Stanley Universal Funds,
Inc., Morgan Stanley Asset Management Inc. and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(4) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(9)(j) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (9)(b)(5) to Pre-Effective Amendment No.
1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I
(File No. 333-07617), and incorporated herein by reference.
(9)(k) Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and NYLIAC - Previously
filed in accordance with Regulation S-T, 17 CFR 232.102(e) as
Exhibit (9)(b)(6) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Corporate
Sponsored Variable Universal Life Separate Account-I (File No.
333-07617), and incorporated herein by reference.
(9)(l) Power of Attorney for Certain Directors of NYLIAC -
Previously filed as Exhibit 10(e) to Post-Effective Amendment
No. 6 to the registration statement on Form N-4 for NYLIAC
Variable Annuity Separate Account - III (File No. 33-87382),
and incorporated herein by reference for the following:
George J. Trapp, Director
Frank M. Boccio, Director
Phillip J. Hildebrand, Director
Michael G. Gallo, Director
Solomon Goldfinger, Director
Howard I. Atkins, Director
(10) Form of Application - Previously filed as Exhibit (10) to
Registrant's initial Registration Statement on Form S-6,
re-filed in accordance with Regulation S-T, 17 CFR 232.102(e)
as Exhibit (10) to Registrant's Post-Effective Amendment No. 4
on Form S-6, and incorporated herein by reference.
2. Opinion and Consent of Jonathan E. Gaines, Esq. - Filed
herewith.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Opinion and Consent of Joel M. Steinberg, Vice President and
Actuary - Filed herewith.
7. Consent of PricewaterhouseCoopers LLP - Filed herewith.
II-4
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
NYLIAC Variable Universal Life Separate Account-I, certifies that it has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, in the City and State of New York
on the 19th day of April, 1999.
NYLIAC VARIABLE UNIVERSAL LIFE
SEPARATE ACCOUNT-I
(Registrant)
By /s/ MELVIN J. FEINBERG
-------------------------------------
Melvin J. Feinberg
Vice President and Actuary
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
(Depositor)
By /s/ MELVIN J. FEINBERG
-------------------------------------
Melvin J. Feinberg
Vice President and Actuary
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Howard I. Atkins* Executive Vice President and Director
(Principal Financial Officer)
Frank M. Boccio* Director
Michael G. Gallo* Director
Solomon Goldfinger* Director
Phillip J. Hildebrand* Director
Maryann L. Ingenito* Vice President and Controller (Principal
Accounting Officer)
Richard M. Kernan, Jr.* Director
Robert D. Rock* Senior Vice President and Director
Frederick J. Sievert* President and Director (Principal Executive
Officer)
Seymour Sternberg* Director
George J. Trapp* Director
*By /s/ MELVIN J. FEINBERG
-------------------------------------
Melvin J. Feinberg
Attorney-in-Fact
April 19, 1999
II-5
<PAGE> 117
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
2. Opinion and Consent of Jonathan E. Gaines, Esq.
6. Opinion and Consent of Joel M. Steinberg, Vice President
and Actuary
7. Consent of PricewaterhouseCoopers LLP
<PAGE> 1
[NEW YORK LIFE LOGO] The Company You Keep NEW YORK LIFE INSURANCE COMPANY
51 Madison Avenue,
New York, NY 10010
(212) 576-3763
JONATHAN E. GAINES
Vice President and
Associate General Counsel
April 19, 1999
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
RE: NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
INVESTMENT COMPANY ACT FILE NUMBER: 811-07798
SECURITIES ACT FILE NUMBER: 33-64410
Ladies and Gentlemen:
This opinion is furnished in connection with the filing by New York
Life Insurance and Annuity Corporation ("NYLIAC") of Post-Effective Amendment
No. 7 to the registration statement on Form S-6 ("Registration Statement") under
the Securities Act of 1933, as amended, of NYLIAC Variable Universal Life
Separate Account-I ("Separate Account-I"). Separate Account-I receives and
invests premiums allocated to it under a flexible premium variable universal
life policy ("Policy"). The Policy is offered in the manner described in the
Registration Statement.
In connection with this opinion, I have made such examination of the
law and have examined such corporate records and such other documents as I
consider appropriate as a basis for the opinion hereinafter expressed. On the
basis of such examination, it is my opinion that:
1. NYLIAC is a corporation duly organized and validly
existing under the laws of the State of Delaware.
2. Separate Account-I is a separate account established and
maintained by NYLIAC pursuant to Section 2932 of the
Delaware Insurance Code, under which the income, gains
and losses, realized or unrealized, from assets
allocated to Separate Account-I shall be credited to or
charged against Separate Account-I, without regard to
other income, gains or losses of NYLIAC.
<PAGE> 2
Securities and Exchange Commission
April 19, 1999
Page 2
3. The Policies have been duly authorized by NYLIAC and,
when sold in jurisdictions authorizing such sales, in
accordance with the Registration Statement, will
constitute validly issued and binding obligations of
NYLIAC in accordance with their terms.
4. Each owner of a Policy will not be subject to any
deductions, charges, or assessments imposed by NYLIAC
other than those provided in the Policy.
I consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ JONATHAN E. GAINES
Jonathan E. Gaines
Vice President and
Associate General Counsel
<PAGE> 1
[NEW YORK LIFE LETTERHEAD]
April 19, 1999
Re: NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE UNIVERSAL LIFE SEPARATE ACCOUNT-I
INVESTMENT COMPANY ACT FILE NUMBER: 811-07798
SECURITIES ACT FILE NUMBER 33-64410
-----------------------------------
Ladies and Gentlemen:
This opinion is furnished in connection with the referenced registration
statement filed by New York Life Insurance and Annuity Corporation ("NYLIAC")
under the Securities Act of 1933 (the "Registration Statement"). The prospectus
included in the Registration Statement on Form S-6 describes flexible premium
variable universal life insurance policies (the "Policies"). I am familiar with
the Registration Statement and Exhibits thereto.
In my opinion, the illustrations of benefits under the Policies included in the
Section entitled "Illustrations" in Appendix A of the prospectus, based on the
assumptions stated in the illustrations, are consistent with the provisions of
the respective forms of the Policies. The age selected in the illustrations is
representative of the manner in which the Policies operate.
In addition, I have reviewed the discount rate used in calculating the present
value of NYLIAC's future tax deductions resulting from the amortization of its
deduction for certain acquisition costs. In my opinion, the DAC tax charge is
reasonable in relation to NYLIAC's increased federal tax burden under section
848 resulting from the receipt of premiums; the targeted rate of return used in
calculating such charges is reasonable; and the factors taken into account by
NYLIAC in determining the targeted rate of return are appropriate.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Sincerely,
/s/ JOEL STEINBERG
- -------------------
Vice President and Actuary
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 7 to registration statement on Form S-6 (the
"Registration Statement") of our report dated March 9, 1999, relating to the
financial statements of New York Life Insurance and Annuity Corporation, and of
our report dated February 19, 1999, relating to the financial statements and
selected per unit data of New York Life Insurance and Annuity Corporation
Variable Universal Life Separate Account-I. We also consent to the reference to
us under the heading "Independent Accountants" which appears in such
Prospectus.
PRICEWATERHOUSECOOPERS LLP
1177 Avenue of the Americas
New York, New York
April 16, 1999
