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NYLIAC LIFESTAGES/SM/ ANNUITY SEPARATE ACCOUNT
PROSPECTUS
FOR
LIFESTAGES/SM/-A VARIABLE ANNUITY
FROM
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
This prospectus ("Prospectus") describes the LifeStagesSM Annuity Policies
("Policies" or individually, "Policy") offered by New York Life Insurance and
Annuity Corporation ("NYLIAC"). The Policies are flexible premium policies
which are primarily designed to assist individuals in their retirement
planning regardless of whether the individual is covered under a plan which
qualifies for special federal income tax treatment.
Premium payments ("Premium Payments") may be allocated in whole or in part
to the NYLIAC LifeStagesSM Annuity Separate Account (the "Separate Account").
Prior to the Annuity Commencement Date, the Owner may direct that Premium
Payments accumulate on a completely variable basis, a completely fixed basis,
or a combination variable and fixed basis. Premium Payments allocated to the
Separate Account will accumulate on a variable basis. Although the assets of
the Separate Account belong to NYLIAC, these assets are held separately from
the other assets of NYLIAC, and are not chargeable with liabilities incurred
in any other business operations of NYLIAC (except to the extent that assets
in the Separate Account exceed the reserves and other liabilities of the
Separate Account). Premium Payments accumulating on a fixed basis belong to
the general assets of NYLIAC and as such are subject to claims of NYLIAC's
general creditors. The Owner also has significant flexibility in determining
the frequency and amount of each Premium Payment and the Annuity Commencement
Date on which Annuity payments ("Income Payments") are scheduled to commence.
The Accumulation Value can be withdrawn in whole or in part before the Annuity
Commencement Date, although in certain circumstances withdrawals are subject
to a surrender charge and/or tax penalty. The Separate Account invests its
assets in shares of the New York Life MFA Series Fund, Inc. (the "MFA Series
Fund"), a mutual fund registered under the Investment Company Act of 1940, and
in Acacia Capital Corporation (the "Acacia Fund," and collectively with MFA
Series Fund, the "Funds"). The MFA Series Fund has available to the Separate
Account ten investment portfolios (the "Eligible Portfolios" or the
"Portfolios"): the Capital Appreciation Portfolio, the Cash Management
Portfolio, the Government Portfolio, the High Yield Corporate Bond Portfolio,
the International Equity Portfolio, the Total Return Portfolio, the Value
Portfolio, the Bond Portfolio, the Growth Equity Portfolio and the Indexed
Equity Portfolio. The Acacia Fund has available to the Separate Account one
investment series: the Calvert Responsibly Invested Balanced Portfolio (the
"Socially Responsible Portfolio"). The Accumulation Value will vary in
accordance with the investment performance of the Portfolios selected by the
Owner, and the Owner bears the entire investment risk for any amounts
allocated to the Separate Account.
This Prospectus sets forth the information that a prospective investor
should know before investing. A Statement of Additional Information about the
Policies and the Separate Account dated May 1, 1996 is available free by
writing NYLIAC at the address above or by calling (212) 576-7538. The
Statement of Additional Information, which has the same date as this
Prospectus, has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The table of contents for the Statement of
Additional Information is included at the end of this Prospectus.
THIS PROSPECTUS MUST BE ATTACHED TO A CURRENT PROSPECTUS
FOR THE NEW YORK LIFE MFA SERIES FUND, INC. AND ACACIA CAPITAL CORPORATION
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
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<S> <C>
DEFINITIONS................................................................ 4
OWNER AND FUND EXPENSES.................................................... 7
QUESTIONS AND ANSWERS ABOUT LIFESTAGESSM................................... 10
FINANCIAL STATEMENTS....................................................... 15
CONDENSED FINANCIAL INFORMATION............................................ 15
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION AND THE SEPARATE ACCOUNT... 16
New York Life Insurance and Annuity Corporation........................... 16
The Separate Account...................................................... 16
NEW YORK LIFE MFA SERIES FUND, INC. ....................................... 17
ACACIA CAPITAL CORPORATION................................................. 18
THE PORTFOLIOS ............................................................ 18
The Capital Appreciation Portfolio........................................ 18
The Cash Management Portfolio............................................. 18
The Government Portfolio.................................................. 19
The High Yield Corporate Bond Portfolio................................... 19
The International Equity Portfolio........................................ 19
The Total Return Portfolio................................................ 19
The Value Portfolio....................................................... 19
The Bond Portfolio........................................................ 20
The Growth Equity Portfolio............................................... 20
The Indexed Equity Portfolio.............................................. 20
The Socially Responsible Portfolio........................................ 20
Additions, Deletions or Substitutions of Investments...................... 21
Reinvestment.............................................................. 21
THE POLICIES............................................................... 21
Purpose of Policies....................................................... 21
Types of Policies......................................................... 22
Policy Application and Premium Payments................................... 22
Issue Ages................................................................ 23
Transfers................................................................. 23
</TABLE>
<TABLE>
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<S> <C>
Procedures for Telephone Transfers........................................ 24
Dollar Cost Averaging..................................................... 24
Automatic Asset Reallocation.............................................. 25
Interest Sweep ........................................................... 25
Accumulation Period....................................................... 26
(a) Crediting of Premium Payments........................................ 26
(b) Valuation of Accumulation Units...................................... 26
Owner Inquiries........................................................... 27
CHARGES AND DEDUCTIONS..................................................... 27
Surrender Charges......................................................... 27
Amount of Surrender Charge................................................ 27
Exceptions to Surrender Charges........................................... 28
Other Charges............................................................. 28
Group and Sponsored Arrangements.......................................... 29
Taxes..................................................................... 29
DISTRIBUTIONS UNDER THE POLICY............................................. 30
Surrenders and Withdrawals................................................ 30
(a) Surrenders........................................................... 31
(b) Partial Withdrawals.................................................. 31
(c) Periodic Partial Withdrawals......................................... 31
(d) Hardship Withdrawals................................................. 32
Required Minimum Distribution Option...................................... 32
Cancellations............................................................. 32
Annuity Commencement Date................................................. 32
Death Before Annuity Commencement......................................... 32
Income Payments........................................................... 34
(a) Election of Income Payment Options................................... 34
(b) Other Methods of Payment............................................. 34
(c) Legal Developments Regarding Income Payments......................... 34
(d) Proof of Survivorship................................................ 34
Delay of Payments......................................................... 35
Designation of Beneficiary................................................ 35
Restrictions Under Internal Revenue Code Section 403(b)(11)............... 35
</TABLE>
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<TABLE>
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<S> <C>
Loans..................................................................... 36
Riders.................................................................... 37
(a) Living Needs Benefit Rider........................................... 37
(b) Unemployment Benefit Rider........................................... 37
THE FIXED ACCOUNT.......................................................... 37
(a) Interest Crediting................................................... 38
(b) Transfers to Investment Divisions.................................... 38
(c) Fixed Account Initial Premium Guarantee.............................. 38
FEDERAL TAX MATTERS........................................................ 39
Introduction.............................................................. 39
Taxation of Annuities in General.......................................... 39
</TABLE>
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<S> <C>
Qualified Plans........................................................... 41
(a) Section 403(b) Plans................................................. 41
(b) Individual Retirement Annuities...................................... 41
(c) Deferred Compensation Plans.......................................... 41
DISTRIBUTOR OF THE POLICIES................................................ 41
VOTING RIGHTS.............................................................. 42
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION.............. 43
</TABLE>
3
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DEFINITIONS
ACCUMULATION PERIOD--The period before the Annuity Commencement Date and
during the lifetime of the Annuitant.
ACCUMULATION UNIT--An accounting unit used to calculate the Variable
Accumulation Value prior to the Annuity Commencement Date. Each Investment
Division of the Separate Account has a distinct Variable Accumulation Unit
value.
ACCUMULATION VALUE--The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of a Policy for any Valuation Period.
AGE--Age on the nearest birthday.
ALLOCATION ALTERNATIVES--The Investment Divisions of the Separate Account and
the Fixed Account constitute the Allocation Alternatives.
ANNUITANT--The person named in the Application and whose life determines the
Income Payments, and upon whose death, prior to the Annuity Commencement Date
benefits under the Policy may be paid.
ANNUITY COMMENCEMENT DATE--The date on which the first Income Payment under
the Policy is to be made.
BENEFICIARY--The person or entity having the right to receive the death
benefit set forth in the Policy and who is the "designated beneficiary" for
purposes of Section 72(s) of the Internal Revenue Code in the event of the
Annuitant's or the Owner's death.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange is open
for trading except for the Friday after Thanksgiving and Christmas Eve. Our
Business Day ends at 4:00 p.m. Eastern Time or the closing of the New York
Stock Exchange, if earlier.
CORPORATION--("NYLIAC, WE, US, OUR")--New York Life Insurance and Annuity
Corporation, which is a wholly-owned Delaware subsidiary of New York Life
Insurance Company.
ELIGIBLE PORTFOLIOS ("PORTFOLIOS")--The available mutual fund Portfolios of
the MFA Series Fund and Acacia Fund. The MFA Series Fund currently has ten
Portfolios available for investment by the Investment Divisions of the
Separate Account: the Capital Appreciation Portfolio, the Cash Management
Portfolio, the Government Portfolio, the High Yield Corporate Bond Portfolio,
the International Equity Portfolio, the Total Return Portfolio, the Value
Portfolio, the Bond Portfolio, the Growth Equity Portfolio and the Indexed
Equity Portfolio. The Acacia Fund currently has one Portfolio available for
investment by the Investment Divisions of the Separate Account: the Socially
Responsible Portfolio.
FIXED ACCOUNT--Assets in the Fixed Account are not part of the Separate
Account. The Accumulation Value of the Fixed Account is supported by assets in
the General Account of the Corporation, which are subject to the claims of its
general creditors.
FIXED ACCUMULATION VALUE--The sum of premiums and transfers allocated to the
Fixed Account, plus interest credited on those Premium Payments and transfers,
less transfers and
4
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any Partial Withdrawals from the Fixed Account, and less any surrender charges
and the Policy Fee that may have already been assessed from the Fixed Account.
FIXED INCOME PAYMENTS--Income Payments having a guaranteed amount.
INCOME PAYMENTS--Periodic payments made by NYLIAC to the Payee, generally
after the Annuity Commencement Date.
INVESTMENT DIVISION ("DIVISION")--A division of the Separate Account. Each
Investment Division invests exclusively in shares of a specified Eligible
Portfolio.
ISSUE DATE--The date the Policy is executed.
NON-QUALIFIED POLICIES--Policies that do not qualify for special federal
income tax treatment.
OWNER ("YOU, YOUR")--The person(s) or entity designated as the owner in the
Policy (or surviving spouse of the Owner who is named as Beneficiary, and who
becomes the new Owner), or as subsequently changed, and upon whose death prior
to the Annuity Commencement Date benefits under the Policy may be paid.
Generally, NYLIAC will not issue a Policy to joint Owners, unless there is a
spousal relationship. However, if NYLIAC makes an exception and issues a
jointly owned Policy, ownership rights and privileges under the Policy must be
exercised jointly.
PARTIAL WITHDRAWAL--Any part of the Accumulation Value paid to you, at your
request, in accordance with the terms of the Policy.
PAYEE--A recipient of payments under the Policy.
PAYMENT YEAR(S)--With respect to any Premium Payment, the year(s) commencing
on the date of such Premium Payment.
POLICY ANNIVERSARY--An anniversary of the Policy Date displayed on the Policy
Data Page.
POLICY DATA PAGE--Page 2 of the Policy, containing the Policy specifications.
POLICY DATE--The date from which Policy Years, quarters, months and
anniversaries are measured. It is shown on the Policy Data Page.
POLICY YEAR--A year commencing on the Policy Date. Subsequent Policy Years
begin on each Policy Anniversary, unless otherwise indicated.
PREMIUM PAYMENT--An amount paid to the Corporation as consideration for the
benefits provided by the Policy.
PURCHASE DATE--The Business Day on which a Premium Payment is received by us
and credited under the Policy.
QUALIFIED POLICIES--Policies issued under plans that qualify for special
federal income tax treatment.
REQUIRED MINIMUM DISTRIBUTION--An amount the Internal Revenue Service requires
the Owners of certain Qualified Policies to withdraw each year commencing with
the year the
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Owner reaches age 70 1/2. For IRA and TSA Owners, NYLIAC offers a Required
Minimum Distribution Option. Under this Option, NYLIAC will calculate and
process the annual Required Minimum Distribution for such Policies beginning
at age 70 1/2.
SEPARATE ACCOUNT--NYLIAC LifeStagesSM Annuity Separate Account, a segregated
asset account established by NYLIAC to receive and invest Premium Payments
paid under the Policies and into which assets are placed for the purchasers of
the Policies.
SURRENDER CHARGE--An amount charged by the Corporation during the first six
(6) Payment Years after any Premium Payment is made, when a Partial Withdrawal
of the Accumulation Value is made or when the Policy is surrendered for its
Accumulation Value.
VALUATION PERIOD--The period from the close of the immediately preceding
Business Day to the close of the current Business Day.
VARIABLE ACCUMULATION VALUE--The sum of the products of the current
Accumulation Unit value(s) for each of the Investment Divisions multiplied by
the number of Accumulation Units held in the respective Investment Division.
6
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OWNER AND FUND EXPENSES
NYLIAC LIFESTAGESSM ANNUITY SEPARATE ACCOUNT
<TABLE>
<CAPTION>
HIGH YIELD
CAPITAL CASH CORPORATE INTERNATIONAL
APPRECIATION MANAGEMENT GOVERNMENT BOND EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred
Sales Load* (as a % of amount
withdrawn .......................... 7% 7% 7% 7% 7%
Transfer Fee......................... NYLIAC reserves the right to charge up to $30 for each
transfer in excess of 12 transfers per Policy Year.
Annual Policy Fee.................... Lesser of $30 per Policy or 2% of the Accumulation Value,
for Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees...... 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees.................. .15% .15% .15% .15% .15%
Total Separate Account Annual
Expenses............................ 1.40% 1.40% 1.40% 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average account value)
Advisory Fees....................... .36% .25% .30% .30% .60%
Administration Fees................. .20% .20% .20% .20% .20%
Other Expenses...................... .17% .17% .17% .17% .17%
Total Portfolio Annual Expenses**... .73% .62% .67% .67% .97%
<CAPTION>
TOTAL GROWTH INDEXED SOCIALLY
RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred
Sales Load* (as a % of amount
withdrawn ......................... 7% 7% 7% 7% 7% 7%
Transfer Fee........................ NYLIAC reserves the right to charge up to $30 for each
transfer in excess of 12 transfers per Policy Year.
Annual Policy Fee................... Lesser of $30 per Policy or 2% of the Accumulation Value,
for Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees..... 1.25% 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees................. .15% .15% .15% .15% .15% .15%
Total Separate Account Annual
Expenses........................... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
FUND ANNUAL EXPENSE REIMBURSEMENT
(as a % of average value)
Advisory Fees....................... .32% .36% .25% .25% .10% .70%***
Administration Fees................. .20% .20% .20% .20% .20% --
Other Expenses...................... .17% .17% .17% .17% .17% .13%***
Total Portfolio Annual Expenses**... .69% .73% .62% .62% .47% .83%
</TABLE>
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* The contingent deferred sales load percentage applicable to any amount
withdrawn declines by 1% each Payment Year from 7% during the first three
Payment Years to 4% in the sixth Payment Year, with no charge thereafter.
See "Surrender Charges" on page 27.
** This number reflects an expense reimbursement agreement effective through
December 31, 1996, limiting "Other Expenses" to .17% annually for the MFA
Series Fund. In the absence of the expense reimbursement agreement, the
total annual expenses for the year ended December 31, 1995 would have been
.90%, .94%, .82%, 1.25%, 2.51%, .81%, 1.45%, .91%, .91% and .62% for the
Capital Appreciation, Cash Management, Government, High Yield Corporate
Bond, International Equity, Total Return, Value, Bond, Growth Equity and
Indexed Equity Portfolios, respectively. Numbers for the High Yield
Corporate Bond, International Equity and Value Portfolios have been
annualized based on the period from May 1, 1995 (the date of inception) to
December 31, 1995.
*** Commencing on July 1, 1996, this fee may be reduced or increased by up to
0.15%, depending on the performance of the Socially Responsible Portfolio
relative to the Lipper Balanced Funds Index. See "Acacia Capital
Corporation" at page 18 and the prospectus for the Acacia Capital
Corporation which is attached to this Prospectus. Calvert Asset Management
Company, Inc. pays, at its own expense, NCM Capital Management Group, Inc.
an annual fee equal to 0.25% of one-half of the average net assets of the
Portfolio. "Other Expenses" reflects a fee of 0.02% paid pursuant to an
expense offset arrangement between the Socially Responsible Portfolio and
its custodian bank. Net Total Portfolio Annual Expenses are 0.81%.
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The purpose of this Table is to assist the Owner in understanding the
various costs and expenses that an Owner will bear directly and indirectly.
The Table reflects charges and expenses of the Separate Account as well as the
Funds; charges and expenses may be higher or lower in future years. For more
information on the charges described in this Table see Charges and Deductions
at page 27 and the Fund Prospectuses which accompany this Prospectus. NYLIAC
may, where premium taxes are imposed by state law, deduct premium taxes on
surrender of the Policy or on the Annuity Commencement Date.
EXAMPLES/1/
An Owner would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:
1. If you surrender your Policy at the end of the applicable time
period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio........... $89.49 $144.50 $181.93 $279.27
Cash Management Portfolio................ $88.45 $141.35 $176.58 $268.05
Government Portfolio..................... $88.93 $142.78 $179.01 $273.16
High Yield Corporate Bond Portfolio...... $88.93 $142.78 $179.01 $273.16
International Equity Portfolio........... $91.79 $151.35 $193.51 $303.31
Total Return Portfolio................... $89.11 $143.36 $179.98 $275.20
Value Portfolio.......................... $89.49 $144.50 $181.93 $279.27
Bond Portfolio........................... $88.45 $141.35 $176.58 $268.05
Growth Equity Portfolio.................. $88.45 $141.35 $176.58 $268.05
Indexed Equity Portfolio................. $87.01 $137.05 $169.25 $252.55
Socially Responsible Portfolio........... $90.46 $147.37 $186.78 $289.36
2. If you annuitize your Policy at the end of the applicable time
period:
Capital Appreciation Portfolio........... $89.49 $ 76.64 $131.00 $279.27
Cash Management Portfolio................ $88.45 $ 73.27 $125.37 $268.05
Government Portfolio..................... $88.93 $ 74.80 $127.93 $273.16
High Yield Corporate Bond Portfolio...... $88.93 $ 74.80 $127.93 $273.16
International Equity Portfolio........... $91.79 $ 83.97 $143.18 $303.31
Total Return Portfolio................... $89.11 $ 75.42 $128.95 $275.20
Value Portfolio.......................... $89.49 $ 76.64 $131.00 $279.27
Bond Portfolio........................... $88.45 $ 73.27 $125.37 $268.05
Growth Equity Portfolio.................. $88.45 $ 73.27 $125.37 $268.05
Indexed Equity Portfolio................. $87.01 $ 68.66 $117.65 $252.55
Socially Responsible Portfolio........... $90.46 $ 79.71 $136.10 $289.36
</TABLE>
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/1/For purposes of calculating these Examples, the annual policy fee has been
expressed as an annual percentage of assets based on the average size of
Policies having an Accumulation Value of less than $20,000 on December 31,
1995. This calculation method reasonably estimates annual policy fees
applicable to Policies having an Accumulation Value of less than $20,000 but
does not reflect that no annual policy fees are applicable to Policies having
an Accumulation Value of $20,000 or greater. This means that the fees would
be slightly less if your Policy has an Accumulation Value of $20,000 or
greater on the Policy Anniversary or date of surrender. Conversely, the fees
would be slightly more if your Policy has an Accumulation Value of less than
$20,000.
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3. If you do not surrender your Policy:
---
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Capital Appreciation Portfolio........... $24.91 $76.64 $131.00 $279.27
Cash Management Portfolio................ $23.80 $73.27 $125.37 $268.05
Government Portfolio..................... $24.31 $74.80 $127.93 $273.16
High Yield Corporate Bond Portfolio...... $24.31 $74.80 $127.93 $273.16
International Equity Portfolio........... $27.37 $83.97 $143.18 $303.31
Total Return Portfolio................... $24.51 $75.42 $128.95 $275.20
Value Portfolio.......................... $24.91 $76.64 $131.00 $279.27
Bond Portfolio........................... $23.80 $73.27 $125.37 $268.05
Growth Equity Portfolio.................. $23.80 $73.27 $125.37 $268.05
Indexed Equity Portfolio................. $22.26 $68.66 $117.65 $252.55
Socially Responsible Portfolio........... $25.94 $79.71 $136.10 $289.36
</TABLE>
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE
PERFORMANCE OR EXPENSES. THE ACTUAL EXPENSES PAID OR PERFORMANCE ACHIEVED MAY
BE GREATER OR LESS THAN THOSE SHOWN.
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QUESTIONS AND ANSWERS ABOUT LIFESTAGES/SM/
NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT
LIFESTAGES/SM/. REFERENCE SHOULD BE MADE TO THE BODY OF THIS PROSPECTUS FOR MORE
DETAILED INFORMATION. ALSO, "YOU" OR "YOUR" REFERS TO THE OWNER; "NYLIAC,"
"WE," "US" OR "OUR" REFERS TO NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION.
1. WHAT IS LIFESTAGES/SM/?
LifeStages/SM/, a Variable Annuity issued by NYLIAC, is a flexible premium
variable retirement annuity policy. Premium Payments may be allocated to one
or more of the Investment Divisions of the Separate Account or to the Fixed
Account. The Separate Account in turn invests in shares of the Eligible
Portfolios of the Funds. The Accumulation Value will vary in amount according
to the investment results of the Investment Divisions selected and the
interest credited on the Fixed Accumulation Value.
2. WHAT ARE THE AVAILABLE ALLOCATION ALTERNATIVES?
As selected by the Owner, Premium Payments are allocated to one or more of
the following Allocation Alternatives:
(a) SEPARATE ACCOUNT
The Separate Account consists of eleven Investment Divisions.
The Investment Divisions of the Separate Account invest exclusively
in shares of the Funds, each a diversified, open-end management
investment company. The MFA Series Fund has ten portfolios available
for investment through the Investment Divisions of the Separate
Account: the Capital Appreciation Portfolio, the Cash Management
Portfolio, the Government Portfolio, the High Yield Corporate Bond
Portfolio, the International Equity Portfolio, the Total Return
Portfolio, the Value Portfolio, the Bond Portfolio, the Growth Equity
Portfolio and the Indexed Equity Portfolio. The Acacia Fund has one
Portfolio available for investment through the Investment Divisions of
the Separate Account: the Socially Responsible Portfolio. Each
Investment Division of the Separate Account will invest exclusively in
the corresponding Eligible Portfolio.
(b) FIXED ACCOUNT
Each Premium Payment, or portion thereof, allocated to the Fixed
Account will reflect a fixed interest rate. (See "The Fixed Account" at
page 37.)
3. CAN AMOUNTS BE TRANSFERRED AMONG THE ALLOCATION ALTERNATIVES?
Prior to 30 days before the Annuity Commencement Date, transfers of the
value of Accumulation Units in one Investment Division to another Investment
Division, or to the Fixed Account, are permitted. The minimum amount which may
be transferred generally is $500, unless we agree otherwise. Unlimited
transfers are permitted each Policy Year, although NYLIAC reserves the right
to charge up to $30 per transfer for each transfer after the first twelve in a
given Policy Year. (See "Transfers" at page 23.)
For transfers made from the Fixed Account to the Investment Divisions, see
"The Fixed Account" at page 37. In addition, Owners can request transfers
through the Dollar Cost
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Averaging, Automatic Asset Reallocation, or Interest Sweep options described
at pages 24 and 25 of this Prospectus.
4. WHAT ARE THE CHARGES OR DEDUCTIONS?
During the Accumulation Period for the Policies, a charge for Policy
administration expenses will be made once each year on the Policy Anniversary
or upon Policy surrender if on that date the Accumulation Value does not equal
or exceed $20,000. This charge will be the lesser of $30 or 2% of the
Accumulation Value at the end of the Policy Year or on the date of surrender.
All Policies are subject to a daily charge for policy administration expenses
equal, on an annual basis, to .15% of the daily net asset value of the
Separate Account. (See "Other Charges" at page 28.)
All Policies are subject to a daily charge for certain mortality and expense
risks assumed by NYLIAC. This charge is equal, on an annual basis, to 1.25% of
the daily net asset value of the Separate Account. (See "Other Charges" at
page 28.)
Although there is no deduction from Premium Payments for sales charges, a
contingent deferred sales charge ("Surrender Charge") may be imposed on
certain partial withdrawals or surrenders of the Policies up to the amount of
Premium Payments made. This charge is imposed as a percentage of the amount
withdrawn during the first six Payment Years following the applicable Premium
Payment. Unless required otherwise by state laws, the applicable percentage is
7% at the onset and then declines after the first three Payment Years
following such Premium Payment by 1% per year to 4% in the sixth Payment Year,
with no charge thereafter. The percentage of the applicable Surrender Charge
varies, depending upon the length of time elapsed between NYLIAC's receipt of
a Premium Payment and the withdrawal attributable to such Premium Payment--
that is, the number of Payment Years elapsed since the applicable Premium
Payment was made. For purposes of calculating the applicable Surrender Charge,
Premium Payments will be deemed to be withdrawn on a first-in, first-out
("FIFO") basis, i.e., in the order in which they are received. For all
Policies, the Surrender Charge will only be applied to any amounts withdrawn
in any Policy Year which, when added to all other surrender charge free
withdrawals in that Policy Year, exceed 10% of the Accumulation Value at the
time of surrender ("10% Window"). In addition, for Policies with accumulated
Premium Payments of $100,000 or more, the greater of (a) the 10% Window, or
(b) the Accumulation Value of the Policy less the accumulated Premium Payments
can be withdrawn in any Policy Year without charge. (See "Surrender Charges"
at page 27 and "Exceptions to Surrender Charges" at page 28.)
Finally, the value of the MFA Series Fund shares reflects management fees
and other expenses deducted from the assets of the MFA Series Fund. (See the
MFA Series Fund Prospectus.) Similarly, the value of the Acacia Fund shares
reflects management fees and other expenses deducted from the assets of the
Acacia Fund. MacKay-Shields Financial Corporation ("MacKay-Shields"), Monitor
Capital Advisors, Inc. ("Monitor") and New York Life Insurance Company ("New
York Life") advise the Portfolios of MFA Series Fund. Calvert Asset Management
advises the Socially Responsible Portfolio of the Acacia Fund.
5. WHAT ARE THE MINIMUM INITIAL AND MAXIMUM ADDITIONAL PREMIUM PAYMENTS?
Unless we permit otherwise, the minimum initial Premium Payment is $2,000
for Qualified Policies and $5,000 for Non-Qualified Policies. Premium Payments
on any Policy
11
<PAGE>
(of at least $500 each or such lower amount as we may permit) can be made at
any interval or by any method we make available. The available methods of
payment are direct payments to NYLIAC, pre-authorized monthly deductions from
banks, credit unions or similar accounts and any other method agreed to by us.
The maximum aggregate amount of Premium Payments is $1,000,000, without our
prior approval.
Premium Payments under Qualified Policies may not be more than the amount
permitted by law for the plan indicated in the application for the Policy. We
reserve the right to limit the dollar amount of any Premium Payment.
6. HOW ARE PREMIUM PAYMENTS ALLOCATED AMONG THE ALLOCATION ALTERNATIVES?
Initial Premium Payments allocated to the Investment Divisions of the
Separate Account are held in the Cash Management Division for 15 days after
the Policy Issue Date. Initial Premium Payments allocated to the Fixed Account
are deposited immediately into the Fixed Account. You may currently maintain
Accumulation Value in up to ten Allocation Alternatives. Moreover, you may
raise or lower the percentages of the Premium Payment (which must be in whole
number percentages) allocated to each Allocation Alternative at the time you
make a Premium Payment. The minimum amount which may be allocated to any one
Allocation Alternative is $25, or such lower amount as we may permit. We
reserve the right to limit the amount of a Premium Payment that may be
allocated to any one Allocation Alternative.
7. WHAT HAPPENS IF PREMIUM PAYMENTS ARE NOT MADE?
In the event that no Premium Payment is received for two or more years in a
row and both (a) the total Premium Payments for the Policy, less any Partial
Withdrawals and any Surrender Charges, and (b) the Accumulation Value, are
less than $2,000, we reserve the right, subject to any applicable state
insurance law or regulation, to terminate the Policy by paying you the
Accumulation Value in one sum. We will notify you of our intention to exercise
this right and give you 90 days to make a Premium Payment. Unless the Policy
is terminated, it can be continued until the Annuity Commencement Date.
8. CAN MONEY BE WITHDRAWN FROM THE POLICY PRIOR TO THE ANNUITY COMMENCEMENT
DATE?
Yes, withdrawals ($500 minimum, unless we agree otherwise or as part of a
Periodic Partial Withdrawal or a Required Minimum Distribution) may be made,
subject to certain limitations. We will pay you all or part of the
Accumulation Value when we receive your written request before the Annuity
Commencement Date and while the Annuitant is living. However, a withdrawal or
surrender may be subject to a Surrender Charge if the Policy, or any portion
thereof, is surrendered during the first six Payment Years after a Premium
Payment is made, as explained under Question 4 at page 11, may be a taxable
transaction, and may be subject to a 10% penalty tax if the Owner is under age
59 1/2. (See "Distributions Under the Policy" at page 30 and "Federal Tax
Matters" at page 39.)
9. HOW WILL INCOME PAYMENTS BE DETERMINED ON THE ANNUITY COMMENCEMENT DATE?
Income Payments under Qualified and Non-Qualified Policies will be on a
fixed basis. We do not currently offer a variable income payment option.
Payments under the Life Income
12
<PAGE>
Payment Option will always be in the same specified amount and will be paid
over the life of the Annuitant with a guarantee of 10 years of payments, even
if the Annuitant dies sooner. (See "Income Payments" at page 34.)
10. WHAT IS A LIFE INCOME PAYMENT OPTION?
A retirement annuity provides payments for the life of an Annuitant (or if
Annuitant and another person, the "Joint Annuitant") with a guaranteed number
of Income Payments or for an ascertainable sum. Income Payments which remain
the same throughout the payment period are referred to in this Prospectus as
"Fixed Income Payments." Fixed Income Payments will always be the same
specified amount. (See "Income Payments" at page 34.)
11. WHAT HAPPENS IF THE OWNER OR ANNUITANT DIES BEFORE THE ANNUITY
COMMENCEMENT DATE?
In the event that an Owner or Annuitant dies before the Annuity Commencement
Date, we will pay the Beneficiary named in the Policy an amount equal to the
greater of (a) the Accumulation Value, less any outstanding loan balance under
the Policy, (b) the sum of all Premium Payments made, less any outstanding
loan balance, less any partial withdrawals and Surrender Charges previously
imposed, or (c) the "reset value" (as described on page 33 of this Prospectus)
plus any additional Premium Payments made since the most recent "reset date,"
less any outstanding loan balance, less any withdrawals and applicable
Surrender Charges since the most recent "reset date." However, if the
Beneficiary is the spouse of the Annuitant or Owner, see Question 12. (Also
see "Death Before Annuity Commencement" at page 32 and "Federal Tax Matters"
at page 39.)
12. WHAT HAPPENS IF YOUR SPOUSE IS THE BENEFICIARY?
If your spouse is the Beneficiary and you die before the Annuity
Commencement Date, the Policy may be continued with your spouse as the new
Owner and, if you are also the Annuitant, your spouse will be the new
Annuitant. If you are not the Annuitant and the Annuitant dies, you may
continue the Policy with you as the new Annuitant if you are the Annuitant's
spouse and the Beneficiary. If you or your spouse chooses to continue the
Policy, no death benefit proceeds will be paid as a consequence of your death,
or the Annuitant's death.
13. CAN THE POLICY BE RETURNED AFTER IT IS DELIVERED?
The Policy contains a provision which permits cancellation by returning it
to us, or to the registered representative through whom it was purchased,
within 10 days of delivery of the Policy or such longer period as required
under state law. The Owner will then receive from us the greater of (i) the
initial Premium Payment; or (ii) the Accumulation Value on the date the Policy
is received by us, without any deduction for Premium Taxes or a Surrender
Charge.
14. WHAT ABOUT VOTING RIGHTS?
You may instruct NYLIAC how to vote shares of the Funds held by you in the
Separate Account. (See "Voting Rights" at page 42.)
13
<PAGE>
15. HOW WILL INVESTMENT PERFORMANCE OF THE SEPARATE ACCOUNT BE CALCULATED?
YIELDS. The yield of the Cash Management Investment Division refers to the
annualized income generated by an investment in that Investment Division over
a specified seven-day period. The yield is calculated by assuming that the
income generated for that seven-day period is generated each seven-day period
over a 52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income
earned by an investment in that Investment Division is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment. For the seven-day
period ended December 31, 1995, the Cash Management Investment Division's
yield and effective yield were 4.22% and 4.31%, respectively.
The yield of the Government, High Yield Corporate Bond or Bond Investment
Divisions refers to the annualized income generated by an investment in that
Investment Division over a specified thirty-day period. The yield is
calculated by assuming that the income generated by the investment during that
thirty-day period is generated each thirty-day period over a 12-month period
and is shown as a percentage of the investment. For the 30-day period ended
December 31, 1995, the annualized yields for the Government, High Yield
Corporate Bond and Bond Investment Divisions were 4.43%, 7.79% and 4.54%,
respectively.
The yield calculations do not reflect the effect of any Surrender Charge
that may be applicable to a particular Policy. To the extent that the
Surrender Charge is applicable to a particular Policy, the yield of that
Policy will be reduced. Past performance is no indication of future
performance. For additional information regarding the yields described above,
please refer to the Statement of Additional Information.
TOTAL RETURN CALCULATIONS. The table below presents performance data for the
Capital Appreciation, Government, Total Return, Bond, Growth Equity, Indexed
Equity and Socially Responsible Investment Divisions for various periods of
time. The data reflect all Separate Account and Fund annual expenses shown in
the "Owner and Fund Expenses" table which appears on page 7. The annual policy
fee, which is charged to Policies with less than $20,000 of Accumulation
Value, is not reflected. This fee, if applicable, would effectively reduce the
rates of return credited to a particular Policy. All rates of return presented
include the reinvestment of investment income, including interest and
dividends.
The Separate Account had no operations prior to May 1, 1995. The
calculations of investment performance shown below for periods prior to May 1,
1995 are based on the actual investment results of the Portfolios of the Fund,
from which certain fees and charges applicable to the Policies have been
deducted. Performance data for periods commencing on May 1, 1995 reflect
actual Separate Account investment experience. The results shown are not an
estimate or guarantee of future investment performance.
The average annual total return data in the following table are calculated
by two methods. The first method is prescribed by the SEC for use when we
advertise the performance of the Separate Account and assumes the surrender of
the Policy at the end of each period shown. The second method assumes that the
Policy is not surrendered and, therefore, does not reflect the deduction of
any applicable surrender charges.
The cumulative total return data in the following table reflect performance
over the stated periods, and assume that the Policy is not surrendered at the
end of the periods shown.
14
<PAGE>
<TABLE>
<CAPTION>
CAPITAL TOTAL GROWTH INDEXED SOCIALLY
APPRECIATION GOVERNMENT RETURN BOND EQUITY EQUITY RESPONSIBLE
------------ ---------- ------- ------- ------- ------- -----------
(INCEPTION DATE)
---------------- 1/29/93 1/29/93 1/29/93 1/23/84 1/23/84 1/29/93 9/2/86
<S> <C> <C> <C> <C> <C> <C> <C>
SEC AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year
(1/1/95-12/31/95)...... 26.90% 8.10% 19.55% 9.67% 20.37% 27.99% 20.97%
5 Years
(1/1/91-12/31/95)...... N/A N/A N/A 7.37% 14.59% N/A 8.63%
10 Years
(1/1/86-12/31/95)...... N/A N/A N/A 8.18% 10.64% N/A N/A
Since Inception......... 13.11% 3.06% 9.14% 9.20% 10.53% 11.30% 8.69%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year
(1/1/95-12/31/95)...... 33.90% 15.10% 26.55% 16.67% 27.37% 34.99% 27.97%
5 Years
(1/1/91-12/31/95)...... N/A N/A N/A 8.37% 15.39% N/A 9.62%
10 Years
(1/1/86-12/31/95)...... N/A N/A N/A 8.18% 10.64% N/A N/A
Since Inception......... 14.97% 5.27% 11.13% 9.20% 10.53% 13.23% 8.69%
CUMULATIVE TOTAL RETURN (NO SURRENDERS)
1995.................... 33.90% 15.10% 26.55% 16.67% 27.37% 34.99% 27.97%
1994.................... -5.72% -3.21% -5.33% -4.74% -0.20% -0.65% -4.58%
1993.................... 18.99% 4.28% 13.56% 9.85% 12.17% 7.13% 6.50%
</TABLE>
For additional information regarding the total return calculations described
above, please refer to the Statement of Additional Information.
16. ARE POLICY LOANS AVAILABLE?
If you have purchased your Policy in connection with a tax-sheltered annuity
"TSA" (Section 403(b)) Plan, you may be able to borrow some of your
Accumulation Value subject to certain conditions. (See "Loans" at page 36.)
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report
thereon) for the fiscal years ended December 31, 1995, 1994 and 1993, and of
the Separate Account (including the auditor's report thereon) for the period
ended December 31, 1995 are included in the Statement of Additional
Information.
CONDENSED FINANCIAL INFORMATION
The following accumulation unit values and the number of accumulation units
outstanding for each Investment Division for the period beginning from May 1,
1995 (commencement of operations) through December 31, 1995 have been audited
by Price Waterhouse LLP, independent accountants, whose report on the related
financial statements appears in the Statement of Additional Information. This
information should be read in conjunction with the Separate Account financial
statements and notes thereto which appear in the Statement of Additional
Information. Per unit data is based on average monthly units outstanding
during the period.
15
<PAGE>
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD INTERNATIONAL
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND EQUITY
------------ ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value
(beginning of period).. $ 10.00 $ 1.00 $ 10.00 $ 10.00 $10.00
Accumulation unit value
(end of period)........ $ 11.89 $ 1.03 $ 10.57 $ 10.83 $10.90
Number of units
outstanding (in 000s)
as of 12/31/95......... 951,325 13,190,133 177,665 647,997 66,642
</TABLE>
<TABLE>
<CAPTION>
TOTAL GROWTH INDEXED SOCIALLY
RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
(beginning of period)..... $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $10.00
Accumulation unit value
(end of period)........... $ 11.36 $ 11.32 $ 10.57 $ 11.42 $ 11.58 $11.22
Number of units outstanding
(in 000s) as of 12/31/95.. 664,961 431,785 172,659 241,119 358,149 16,669
</TABLE>
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
AND THE SEPARATE ACCOUNT
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
New York Life Insurance and Annuity Corporation ("NYLIAC") is a stock life
insurance company incorporated in Delaware in 1980. NYLIAC is licensed to sell
life, accident and health insurance and annuities in the District of Columbia
and all states. In addition to the Policies described in this Prospectus,
NYLIAC offers other life insurance policies and annuities. NYLIAC's Financial
Statements are found in the Statement of Additional Information.
NYLIAC is a wholly-owned subsidiary of New York Life Insurance Company ("New
York Life"), a mutual life insurance company founded in New York in 1845. New
York Life had consolidated total assets amounting to $74.3 billion at the end
of 1995, and is authorized to do business in all states, the District of
Columbia and the Commonwealth of Puerto Rico. New York Life has invested in
NYLIAC, and will, in order to maintain capital and surplus in accordance with
state requirements, occasionally make additional contributions to NYLIAC.
THE SEPARATE ACCOUNT
The Separate Account was established as of November 30, 1994, pursuant to
resolutions of the NYLIAC Board of Directors. The Separate Account is
registered as a unit investment trust with the Securities and Exchange
Commission under the Investment Company Act of 1940, but such registration
does not signify that the Securities and Exchange Commission supervises the
management, or the investment practices or policies, of the Separate Account.
The Separate Account meets the definition of "separate account" under the
federal securities laws.
16
<PAGE>
Although the assets of the Separate Account belong to NYLIAC, these assets
are held separately from the other assets of NYLIAC, and are not chargeable
with liabilities incurred in any other business operations of NYLIAC (except
to the extent that assets in the Separate Account exceed the reserves and
other liabilities of that 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 eleven Investment Divisions which invest
Premium Payments solely in the corresponding Eligible Portfolios of the
relevant Fund. The Eligible Portfolios are: the Capital Appreciation
Portfolio, the Cash Management Portfolio, the Government Portfolio, the High
Yield Corporate Bond Portfolio, the International Equity Portfolio, the Total
Return Portfolio, the Value Portfolio, the Bond Portfolio, the Growth Equity
Portfolio, the Indexed Equity Portfolio and the Socially Responsible
Portfolio.
Additional Investment Divisions may be added at the discretion of NYLIAC.
NEW YORK LIFE MFA SERIES FUND, INC.
The Separate Account currently invests in the MFA Series Fund, a diversified
open-end management investment company.
MacKay-Shields is the investment adviser to the Capital Appreciation, Cash
Management, Government, High Yield Corporate Bond, International Equity, Total
Return and Value Portfolios, Monitor is the investment adviser to the Indexed
Equity Portfolio, and New York Life is the investment adviser to the Bond and
Growth Equity Portfolios. MacKay-Shields, Monitor and New York Life provide
investment advisory services to the Portfolios in accordance with the
policies, programs and guidelines established by the Board of Directors of MFA
Series Fund. As compensation for such services, MFA Series Fund pays MacKay-
Shields a fee in the form of a daily charge at an annual rate of .36%, .25%,
.30%, .30%, .60%, .32% and .36% of the aggregate average daily net assets of
the Capital Appreciation Portfolio, the Cash Management Portfolio, the
Government Portfolio, the High Yield Corporate Bond Portfolio, the
International Equity Portfolio, the Total Return Portfolio, and the Value
Portfolio, respectively. MFA Series Fund pays Monitor a fee in the form of a
daily charge at an annual rate of .10% of the average daily net assets of the
Indexed Equity Portfolio. MFA Series Fund pays New York Life a fee in the form
of a daily charge at an annual rate of .25% of the aggregate average daily net
assets of the Bond and Growth Equity Portfolios.
MFA Series Fund currently has ten Eligible Portfolios: the Capital
Appreciation Portfolio, the Cash Management Portfolio, the Government
Portfolio, the High Yield Corporate Bond Portfolio, the International Equity
Portfolio, the Total Return Portfolio, the Value Portfolio, the Bond
Portfolio, the Growth Equity Portfolio and the Indexed Equity Portfolio.
The assets of each Eligible Portfolio of the MFA Series Fund are separate
from the others and each such Portfolio has different investment objectives
and policies. As a result,
17
<PAGE>
each Eligible Portfolio operates as a separate investment fund and the
investment performance of one Portfolio has no effect on the investment
performance of any other Portfolio.
ACACIA CAPITAL CORPORATION
The Separate Account currently invests in the Socially Responsible Portfolio
of Acacia Capital Corporation. Currently, the Socially Responsible Portfolio
is the only Eligible Portfolio available through the Acacia Fund for
investment by the Separate Accounts.
Calvert Asset Management provides investment advisory services to the
Socially Responsible Portfolio in accordance with the policies, programs and
guidelines established by the Board of Directors of the Acacia Fund. As
compensation for such services, the Acacia Fund pays Calvert Asset Management
a fee in the form of a daily charge at an annual rate of 0.70% of the first
$500 million of the average daily net assets of the Socially Responsible
Portfolio, 0.65% of the next $500 million of average daily net assets of the
Portfolio, and 0.60% of the average daily net assets of the Portfolio in
excess of $1 billion. Commencing on July 1, 1996, this fee may be reduced or
increased by up to 0.15%, depending on the performance of the Socially
Responsible Portfolio relative to the Lipper Balanced Funds Index. See the
prospectus for the Acacia Capital Corporation which is attached to this
Prospectus.
THE PORTFOLIOS
THE CAPITAL APPRECIATION PORTFOLIO
The Capital Appreciation Portfolio seeks long-term growth of capital. It
seeks to achieve its primary investment objective by maintaining a flexible
approach towards investing in various types of companies as well as types of
securities depending upon the economic environment and the relative
attractiveness of the various securities markets. Generally, the Portfolio
will seek to invest in securities issued by companies with investment
characteristics such as participation in expanding markets, increasing unit
sales volume, growth in revenues and earnings per share superior to that of
the average common stocks comprising indices such as the Standard & Poor's 500
Composite Price Index ("S&P 500") and increasing return on investment.
Dividend income, if any, is a consideration incidental to the Portfolio's
objective of growth of capital.
THE CASH MANAGEMENT PORTFOLIO
The 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
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.
18
<PAGE>
THE GOVERNMENT PORTFOLIO
The 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 HIGH YIELD CORPORATE BOND PORTFOLIO
The High Yield Corporate Bond Portfolio seeks maximum current income through
investment in a diversified portfolio of high yield, high risk debt
securities. This Portfolio seeks to achieve its primary objective by
investment in a diversified portfolio of high yield debt securities which are
ordinarily in the lower rating categories of recognized rating agencies that
is, rated Baa to B by Moody's Investors Services, Inc. ("Moody's") or BBB to B
by Standard & Poor's ("S&P"). Securities rated lower than Baa by Moody's or
BBB by S&P, or, if not rated, of equivalent quality, are sometimes referred to
as "high yield" securities or "junk bonds." The potential for high yield is
accompanied by higher risk. Certain of the Portfolio's investments have
speculative characteristics, as further discussed in the MFA Series Fund
Prospectus. Capital appreciation is a secondary objective which will be sought
only when consistent with this Portfolio's primary objective.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio seeks long-term growth of capital by
investing in a portfolio consisting primarily of non-U.S. equity securities.
Current income is a secondary objective. In pursuing its investment objective,
the Portfolio will seek to invest in securities that provide the potential for
strong return but that do not, in MacKay-Shields' judgment, present undue or
imprudent risk. The Portfolio pursues its objectives by investing its assets
in a diversified portfolio of common stocks, preferred stocks, warrants and
comparable equity securities. Foreign investing involves certain risks which
are discussed in greater detail in the MFA Series Fund Prospectus.
THE TOTAL RETURN PORTFOLIO
The 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 VALUE PORTFOLIO
The 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.
19
<PAGE>
THE BOND PORTFOLIO
The 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 GROWTH EQUITY PORTFOLIO
The Growth Equity Portfolio seeks long-term growth of capital, with income
as a secondary consideration. It will invest principally in common stock (and
securities convertible into, or with rights to purchase, common stock) of
well-established, well-managed companies which appear to have better than
average growth potential.
THE INDEXED EQUITY PORTFOLIO
The 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 Indexed Equity Portfolio is neither sponsored by nor affiliated
with the S&P 500.
THE SOCIALLY RESPONSIBLE PORTFOLIO
The Socially Responsible Portfolio seeks to achieve a total return above the
rate of inflation through an actively managed portfolio of common and
preferred stocks, bonds and money market instruments which offer income and
capital growth opportunity and which satisfy the social concern criteria
established for this Portfolio.
THERE IS NO ASSURANCE THAT ANY OF THE ELIGIBLE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES.
Additional information concerning the investment objectives and policies of
the Eligible Portfolios and the investment advisory services and charges can
be found in the current prospectus for the relevant Fund, which is attached to
this Prospectus. The Funds' prospectuses should be read carefully before any
decision is made concerning the allocation of Premium Payments to an
Investment Division corresponding to a particular Eligible Portfolio.
The Funds' shares may also be available to certain separate accounts funding
variable life insurance policies offered by NYLIAC. This is called "mixed
funding." Shares of the Acacia Fund 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 the Funds might at some time be in
conflict. The Board of Directors 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.
20
<PAGE>
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS
NYLIAC retains the right, subject to any applicable law, to make additions
to, deletions from, or substitutions for, the Eligible Portfolio shares held
by any Investment Division. NYLIAC reserves the right to eliminate the shares
of any of the Eligible Portfolios and to substitute shares of another
portfolio of a Fund, or of another registered open-end management investment
company, if the shares of the Eligible Portfolios are no longer available for
investment, or if in NYLIAC's judgment, investment in any Eligible Portfolio
would become inappropriate in view of the purposes of the Separate Account. To
the extent required by the Investment Company Act of 1940, substitutions of
shares attributable to an Owner's interest in an Investment Division will not
be made until the Owner has been notified of the change. Nothing contained
herein shall prevent the Separate 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 Owners.
The Separate Account currently has eleven Investment Divisions which invest
Premium Payments solely in the corresponding Eligible Portfolios of the Funds.
NYLIAC may also establish additional Investment Divisions for the Separate
Account. Each additional Investment Division will purchase shares in a new
portfolio of a Fund or in another mutual fund. New Investment Divisions may be
established when, in the sole discretion of NYLIAC, marketing, tax, investment
or other conditions so warrant. Any new Investment Divisions will be made
available to existing Owners on a basis to be determined by NYLIAC. NYLIAC may
also eliminate one or more Investment Divisions, if, in its sole discretion,
marketing, tax, investment or other conditions warrant.
In the event of any such substitution or change, NYLIAC may, by appropriate
endorsement, make such changes in the Policies as may be necessary or
appropriate to reflect such substitution or change. If deemed to be in the
best interests of persons having voting rights under the Policies, the
Separate Account may be operated as a management company under the Investment
Company Act of 1940, may be deregistered under such Act in the event such
registration is no longer required, or may be combined with one or more other
separate accounts.
REINVESTMENT
All dividends and capital gain distributions from Eligible Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value on the payable date.
THE POLICIES
PURPOSE OF POLICIES
The Policies described in this Prospectus are designed to establish
retirement benefits for two types of purchasers.
The first type of purchaser is one who is eligible to participate in, and
purchases a Policy for use with, any one of the following: (1) annuity plans
qualified under Section 403(a) of the Internal Revenue Code (the "Code"); (2)
annuity purchase plans adopted by certain private tax exempt organizations and
certain state supported educational institutions under certain circumstances
under Section 403(b) of the Code; (3) individual retirement annuities ("IRAs")
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meeting the requirements of Section 408(b) or 408(k) of the Code; or (4)
deferred compensation plans with respect to service for state and local
governments (and certain other entities) under Section 457 of the Code.
Policies purchased by these individuals for use with these plans are referred
to as "Qualified Policies." (See "Federal Tax Matters" at page 39.)
The second type of purchaser is one, other than those described above, who
purchases a Policy to provide supplemental retirement income. Policies
purchased by these individuals are referred to as "Non-Qualified Policies."
The Accumulation Value will fluctuate based on the investment experience of
the Investment Divisions selected by the Owner and the interest credited on
the Fixed Accumulation Value. NYLIAC does not guarantee the investment
performance of the Separate Account or of the Funds, and the Owner bears the
entire investment risk with respect to amounts allocated to the Investment
Divisions of the Separate Account. There is no assurance that the investment
objectives will be achieved. Accordingly, amounts allocated to the Investment
Divisions of the Separate Account are subject to the risks inherent in the
securities markets and, specifically, to price fluctuations of the shares of
the Funds.
TYPES OF POLICIES
The Policies are only offered on the lives of individual Annuitants. Only
Flexible Premium Policies are available (for which additional Premium Payments
can be made). They may be either Qualified Policies or Non-Qualified Policies.
POLICY APPLICATION AND PREMIUM PAYMENTS
Individuals wishing to purchase a Policy must complete an application and
provide an initial Premium Payment which will be sent to NYLIAC. If the
application can be accepted in the form received, the initial Premium Payment
will be credited within two Business Days after receipt. If the initial
Premium Payment cannot be credited within five Business Days after receipt by
NYLIAC because the application is incomplete, NYLIAC will contact the
applicant and explain the reason for the delay and will offer to refund the
initial Premium Payment immediately, unless the applicant consents to NYLIAC's
retaining the initial Premium Payment and crediting it as soon as the
necessary requirements are fulfilled. Acceptance is subject to NYLIAC's rules
and NYLIAC reserves the right to reject any application or initial Premium
Payment. NYLIAC's rules generally require that only one Owner be named.
However, there are exceptions to these rules, such as when the application is
related to certain exchanges of in-force annuities in accordance with Section
1035 of the Internal Revenue Code.
Initial Premium Payments allocated to the Fixed Account will be allocated
immediately. Initial Premium Payments designated to Investment Divisions of
the Separate Account will be allocated to the Cash Management Investment
Division until 15 days after the Policy Issue Date. Thereafter, Premium
Payments will be allocated in accordance with the Owner's instructions.
Subsequent Premium Payments are credited to the Policy at the close of the
Business Day on which they are received at NYLIAC, P.O. Box 19289, Newark, New
Jersey 07195-0289.
Unless we provide otherwise, the minimum initial Premium Payment is $2,000
for Qualified Policies and $5,000 for Non-Qualified Policies. Premium Payments
(of at least $500
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each or such lower amount as we may permit) may be made at any interval or by
any method NYLIAC makes available. The currently available methods of payment
are direct payments to NYLIAC, pre-authorized monthly deductions from bank,
credit union or similar accounts and any other method agreed to by us. Premium
Payments may be made at any time before the Annuity Commencement Date and
while the Annuitant and the Owner are living provided that the aggregate
amount of Premium Payments may not be more than $1,000,000, without our prior
approval.
For Qualified Policies, the Premium Payments made in any Policy Year may not
be more than the amount permitted by the plan or by law for the plan indicated
in the application for the Policy.
NYLIAC reserves the right to limit the dollar amount of any Premium Payment.
NYLIAC also reserves the right in its discretion to accept Premium Payments
less than $500, provided such discretion is exercised in a non-discriminatory
manner. If no Premium Payments are made under a Policy for two or more Policy
Years in a row, and both (a) the total Premium Payments made, less any partial
withdrawals and any surrender charges, and (b) the Accumulation Value, are
less than $2,000, then NYLIAC may, in its sole discretion, subject to any
applicable state insurance law or regulation, cancel the Policy and pay the
Owner the Accumulation Value. (See "Cancellations" at page 32.)
ISSUE AGES
Non-Qualified Policies can be issued if both the Owner and the Annuitant are
not older than age 85 (age 78 in Pennsylvania and age 75 in New York) and we
will accept additional Premium Payments until either the Owner or the
Annuitant reaches the age of 85, unless we agree otherwise. Qualified Policies
can be issued if both the Owner and the Annuitant are between the ages of 18-
75 (ages 21-75 for SEP arrangements) and we will accept additional Premium
Payments until either the Owner or the Annuitant reaches the age of 75, unless
otherwise limited by the terms of a particular plan or unless we agree
otherwise.
TRANSFERS
Prior to 30 days before the Annuity Commencement Date, amounts may be
transferred between Investment Divisions of the Separate Account or to the
Fixed Account. Except in connection with transfers made pursuant to the Dollar
Cost Averaging, Automatic Asset Reallocation or Interest Sweep options, the
minimum value of Accumulation Units that may be transferred from one
Investment Division to another Investment Division within the Separate
Account, or to the Fixed Account, is the lesser of (i) $500 or (ii) the total
value of the Accumulation Units in the Investment Division. Except in
connection with the Dollar Cost Averaging, Automatic Asset Reallocation or
Interest Sweep options, if, after an ordered transfer, the value of the
remaining Accumulation Units in an Investment Division or Fixed Account would
be less than $500, the entire value will be transferred unless NYLIAC in its
discretion determines otherwise. There is no charge for the first twelve
transfers in any one Policy Year. NYLIAC reserves the right to charge up to
$30 for each transfer in excess of twelve, subject to any applicable state
insurance law requirements. In addition to transfers made in connection with
the Interest Sweep option, transfers may be made from the Fixed Account to the
Investment Divisions in certain other situations. (See "The Fixed Account" at
page 37.)
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Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. (See "Procedures for
Telephone Transfers" below.) Transfers from Investment Divisions will be made
based on the Accumulation Unit values at the end of the Valuation Period
during which NYLIAC receives the transfer request. (See "Delay of Payments" at
page 35.)
PROCEDURES FOR TELEPHONE TRANSFERS
Owners may effect telephone transfers in two ways. All Owners may directly
contact a service representative. Owners may also request access to an
electronic service known as a Voice Response Unit (VRU). The VRU permits the
transfer of monies among the Investment Divisions and/or the Fixed Account and
change of the allocation of future payments. All Owners intending to conduct
telephone transfers through the VRU will be asked to complete a Telephone
Authorization Form.
NYLIAC will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Before a service representative accepts
any request, the caller will be asked for his or her social security number
and address. All calls will also be recorded. A Personal Identification Number
(PIN) will be assigned to all Owners who request VRU access. The PIN is
selected by and known only to the Owner. Proper entry of the PIN is required
before any transactions will be allowed through the VRU. Furthermore, all
transactions performed over the VRU, as well as with a service representative,
will be confirmed by NYLIAC through a written letter. Moreover, all VRU
transactions will be assigned a unique confirmation number which will become
part of the Policy's history. NYLIAC is not liable for any loss, cost or
expense for action on telephone instructions which are believed to be genuine
in accordance with these procedures.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a systematic method of investing in which
securities are purchased at regular intervals in fixed dollar amounts so that
the cost of the securities is averaged over time and over various market
cycles. The Owner may specify, prior to the Annuity Commencement Date, a
specific dollar amount to be transferred from any Investment Divisions to any
combination of Investment Divisions and/or the Fixed Account. The Owner will
specify the Investment Divisions to transfer money from, the Investment
Divisions and/or Fixed Account to transfer money to, the amounts to be
transferred, the date on which transfers will be made, subject to our rules,
and the frequency of the transfers, either monthly, quarterly, semi-annually
or annually. This process is called Dollar Cost Averaging. Dollar Cost
Averaging transfers are not available from the Fixed Account, but these
transfers may be made into the Fixed Account. All Dollar Cost Averaging
transfers to or from an Investment Division or to the Fixed Account made on
the same date will count as one transfer for purposes of determining whether
the transfer is free or may be subject to a charge. A minimum of $100 must
change Investment Divisions (for each Investment Division and the Fixed
Account) with each transfer. The minimum Accumulation Value required to elect
this option is $5,000. The minimum transfer amount and minimum Accumulation
Value may be reduced at NYLIAC's discretion.
The main objective of Dollar Cost Averaging is to achieve an average cost
per share that is lower than the average price per share in a fluctuating
market. Since the same dollar
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<PAGE>
amount is transferred to an Investment Division with each transfer, more units
are purchased in an Investment Division if the value per unit is low and fewer
units are purchased if the value per unit is high. Therefore, a lower than
average cost per unit will be achieved if prices fluctuate over the long term.
Similarly, for each transfer out of an Investment Division, more units are
sold in an Investment Division if the value per unit is low and fewer units
are sold if the value per unit is high. Dollar Cost Averaging does not assure
a profit or protect against a loss in declining markets.
NYLIAC will make all Dollar Cost Averaging transfers on the day of each
calendar month specified by the Owner, or on the next Business Day. The Owner
may specify any day of the month with the exception of the 29th, 30th or 31st
of a month. In order to process a Dollar Cost Averaging transfer, NYLIAC must
have received a request in writing no later than one week prior to the date
Dollar Cost Averaging transfers are to commence.
The Dollar Cost Averaging option may be canceled at any time by the Owner in
a written request or by NYLIAC if the Accumulation Value is less than $5,000,
or such lower amount as we may determine. The Dollar Cost Averaging option may
not be elected if you have selected the Automatic Asset Reallocation option.
AUTOMATIC ASSET REALLOCATION
Selection of this option allows an Owner to maintain the percentage of the
Owner's Variable Accumulation Value allocated to each Separate Account
Investment Division at a pre-set level. For example, an Owner might specify
that 50% of the Variable Accumulation Value of a Policy be allocated to the
Bond Portfolio and 50% of the Variable Accumulation Value be allocated to the
Growth Equity Portfolio. Over time, the variations in each such Investment
Division's investment results will shift this balance. If you elect this
reallocation option, NYLIAC will automatically transfer your Variable
Accumulation Value back to the percentages you specify. You may choose to have
reallocations made quarterly, semi-annually or annually. NYLIAC will process
Automatic Asset Reallocations of less than $500. Each time that NYLIAC
automatically reallocates your Variable Accumulation Value among the Separate
Account Investment Divisions under this option will be counted as one
transfer. NYLIAC reserves the right to charge up to $30 for each transfer in
excess of twelve, subject to any applicable state insurance law requirements.
The minimum Variable Accumulation Value required to elect this option is
$5,000. There is no minimum amount which you must allocate among the Separate
Account Investment Divisions pursuant to this option.
The Automatic Asset Reallocation option may be canceled at any time by the
Owner in a written request or by NYLIAC if the Accumulation Value is less than
$5,000, or such a lower amount as we may determine. The Automatic Asset
Reallocation option may not be elected if you have selected the Dollar Cost
Averaging option.
INTEREST SWEEP
Commencing on July 1, 1996, the Owner may request, prior to the Annuity
Commencement Date, for the interest earned on monies allocated to the Fixed
Account to be transferred from the Fixed Account to any combination of
Investment Divisions. The Owner will specify the Investment Divisions to
transfer money to, the frequency of the transfers (either monthly, quarterly,
semi-annually or annually), and the day of each calendar month to make the
transfers (any day except the 29th, 30th or 31st of a month). This process
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<PAGE>
is called Interest Sweep. Each Interest Sweep transfer will count as one
transfer for purposes of determining whether the transfer is free or may be
subject to a charge. The minimum Fixed Accumulation Value required to elect
this option is $5,000, but may be reduced at NYLIAC's discretion.
The Interest Sweep may be requested in addition to either the Dollar Cost
Averaging or Automatic Asset Reallocation options. If an Interest Sweep
transfer is scheduled for the same day as a Dollar Cost Averaging or Automatic
Asset Reallocation transfer, the Interest Sweep transfer will be processed
first.
An amount NOT GREATER THAN 20% of the Fixed Accumulation Value at the
beginning of the Policy Year may be transferred from the Fixed Account to the
Investment Divisions during a Policy Year. (See "The Fixed Account--Transfers
to Investment Divisions" at page 38.) If an Interest Sweep would cause more
than 20% of the Fixed Accumulation Value at the beginning of the Policy Year
to be transferred from the Fixed Account, the transfer will not be processed
and the Interest Sweep will be canceled. Participation in the Interest Sweep
option will not affect the applicability of the Fixed Account Initial Premium
Guarantee described on page 38. The Interest Sweep option may be canceled at
any time by written request, or if the Fixed Accumulation Value is less than
$5,000, or such a lower amount as we may determine.
ACCUMULATION PERIOD
(a) Crediting of Premium Payments
The Owner may allocate a portion of each Premium Payment to one or more
Investment Divisions or the Fixed Account. Owners may currently maintain
Accumulation Value in up to ten Allocation Alternatives. The minimum amount
that may be allocated to any one Investment Division or the Fixed Account is
$25 (or such lower amount as we may permit). The initial Premium Payment,
except any initial Premium Payment allocated to the Fixed Account, will be
placed in the Cash Management Investment Division until 15 days after the
Policy Issue Date. Subsequently, the allocation percentages for the first and
any later premiums will be as requested in the application, unless
subsequently changed by the Owner.
That portion of each Premium Payment allocated to a designated Investment
Division of the Separate Account is credited to the Policy in the form of
Accumulation Units. The number of Accumulation Units credited to a Policy is
determined by dividing the amount allocated to each Investment Division by the
Accumulation Unit value for that Investment Division for the Valuation Period
during which the Premium Payment and documentation is received at NYLIAC at
P.O. Box 19289, Newark, New Jersey 07195-0289. The value of an Accumulation
Unit will vary in accordance with the investment experience of the Portfolio
in which the Investment Division invests. The number of Accumulation Units
credited to a Policy will not, however, change as a result of any fluctuations
in the value of an Accumulation Unit. (See "The Fixed Account" at page 37 for
a description of interest credited thereto.)
(b) Valuation of Accumulation Units
The value of Accumulation Units is expected to increase or decrease from
Valuation Period to Valuation Period. The value of Accumulation Units in each
Investment Division will change daily to reflect the investment experience of
the corresponding Portfolio as well as
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the daily deduction of the risk charges (and any charges or credits for
taxes). The Statement of Additional Information contains a detailed
description of how the Accumulation Units are valued.
OWNER INQUIRIES
Owner inquiries should be addressed to NYLIAC, Variable Product Service
Center, P.O. Box 354, Haddam, Connecticut 06438-0354, or made by calling
(800) 598-2019.
CHARGES AND DEDUCTIONS
SURRENDER CHARGES
Since no deduction for a sales charge is made from Premium Payments, a
Surrender Charge (sometimes referred to as a contingent deferred sales charge)
is imposed on certain partial withdrawals and surrenders of the Policies, up
to the amount of Premium Payments made, to cover certain expenses relating to
the sale of the Policies, including commissions to registered representatives
and other promotional expenses. The Surrender Charge is measured as a
percentage of the amount withdrawn or surrendered. The Surrender Charge may
apply to amounts applied under certain Income Payment options.
In the case of a surrender, the Surrender Charge is deducted from the amount
paid to the Owner. In the case of a partial withdrawal, the Owner directs
NYLIAC to take Surrender Charges either from the remaining value of the
Allocation Alternatives from which the Owner directs NYLIAC to make partial
withdrawals, or from the amount paid to the Owner. If the remaining value in
an Allocation Alternative is less than the necessary Surrender Charge, the
remainder of the charge will be deducted from the amount withdrawn from that
Allocation Alternative.
The maximum Surrender Charge will be 7% of the amount withdrawn, up to the
amount of Premium Payments made. The percentage of the Surrender Charge
varies, depending upon the length of time elapsed between NYLIAC's receipt of
a Premium Payment and the withdrawal attributable to such Premium Payment--
that is, the number of Payment Years elapsed since the applicable Premium
Payment was made. For purposes of calculating the applicable Surrender Charge,
Premium Payments will be deemed to be withdrawn on a FIFO basis. Unless
required otherwise by state laws, the Surrender Charge with respect to amounts
withdrawn or surrendered during the first three Payment Years following the
Premium Payment to which such withdrawal or surrender is attributable is 7% of
the amount withdrawn or surrendered. This charge then declines by 1% per year
for each additional Payment Year, until the sixth Payment Year, after which no
charge is made, as shown in the following chart:
AMOUNT OF SURRENDER CHARGE
<TABLE>
<CAPTION>
PAYMENT YEAR CHARGE
------------ ------
<S> <C>
1-3................................................................ 7%
4.................................................................. 6%
5.................................................................. 5%
6.................................................................. 4%
7 and later........................................................ 0%
</TABLE>
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EXCEPTIONS TO SURRENDER CHARGES
There are a number of exceptions to the imposition of a Surrender Charge.
First, for all Policies, the Surrender Charge will only be applied to any
amounts withdrawn in any Policy Year which, when added to all other surrender
charge free withdrawals in that Policy Year, exceed 10% of the Accumulation
Value at the time of surrender (the 10% Window). Second, for Policies with
accumulated Premium Payments of $100,000 or more, no Surrender Charge will be
applied if the total amount withdrawn in any Policy Year is less than or equal
to the greater of (a) the 10% Window or (b) the Accumulation Value of the
Policy less accumulated Premium Payments. Third, no Surrender Charge will be
applied if NYLIAC cancels the Policy. (See "Cancellations" at page 32.)
Fourth, no Surrender Charge will be applied when proceeds are paid on the
death of the Owner or the Annuitant. Fifth, no Surrender Charge will be
applied when an Income Payment Option is selected in any Policy Year after the
first Policy Year. Sixth, no Surrender Charge will be applied when the
Policy's Required Minimum Distribution option is selected. However, amounts
withdrawn under the Required Minimum Distribution option will count against
the first exception described above. (See "Periodic Partial Withdrawals" at
page 31.) Seventh, no Surrender Charge will be applied for any withdrawals at
age 59 1/2 or older if the Policy is tax-qualified and if funds withdrawn from
the Policy were acquired as the result of a transfer or rollover of a NYLIAC
tax-deferred annuity policy. Finally, no surrender charge will be imposed in
connection with withdrawals made in accordance with the terms of the Living
Needs Benefit Rider or Unemployment Benefit Rider. (See "Riders" at page 37 of
this Prospectus for additional information.)
OTHER CHARGES
During the Accumulation Period, NYLIAC imposes certain charges which have
been set at a level to recover no more than the cost for providing Policy
administration services. All Policies are subject to a daily charge equal, on
an annual basis, to .15% of the average daily net asset value of the Separate
Account. A charge for Policy administration expenses will be made once each
Policy Year on the Policy Anniversary or upon Policy surrender if on that date
the Accumulation Value does not equal or exceed $20,000. This charge will be
the lesser of $30 or 2% of the Accumulation Value at the end of the Policy
Year or on the date of surrender, whichever is applicable. It will be deducted
from each Allocation Alternative in proportion to its percentage of the
Accumulation Value on the Policy Anniversary. These charges are intended to
offset the administrative expenses associated with the Policies, e.g., the
costs of collecting, processing, and confirming Premium Payments. They are
also intended to offset the cost of establishing and maintaining the available
methods of payment.
NYLIAC also imposes risk charges to compensate it for bearing certain
mortality and expense risks under the Policies. The Policies contain
guaranteed minimum monthly fixed Income Payment amount tables. NYLIAC promises
to continue to make Income Payments to each Annuitant determined according to
those tables and other provisions contained in the Policy regardless of how
long the Annuitant lives and regardless of how long all Annuitants as a group
live. Thus neither an Annuitant's own longevity nor a greater improvement in
life expectancy than that anticipated in those tables will have an adverse
effect on the Income Payments received under the Policy. Therefore the
Annuitant is relieved of the risk of outliving the funds accumulated for
retirement. That risk is NYLIAC's. A risk also arises from NYLIAC's guarantee
of a minimum death benefit during the Accumulation Period. (See "Death Before
Annuity Commencement" at page 32). In addition, NYLIAC assumes the risk
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<PAGE>
that the annual charges may be insufficient to cover the actual costs incurred
by NYLIAC for providing Policy administration services to Owners and
Annuitants. Moreover NYLIAC does not anticipate that the Surrender Charges on
withdrawals and surrenders will generate sufficient funds to pay the
distribution expenses. If these charges are insufficient to cover the
expenses, the deficiency will be met from NYLIAC's general corporate funds
including the amount derived from the risk charge. For assuming these risks
NYLIAC makes a daily charge equal to a percentage of the value of the net
assets in the Separate Account. This charge is equal, on an annual basis, to
1.25% (of which .75% is attributable to mortality risks and .50% to expense
risks) of the daily net asset values. If these charges are insufficient to
cover actual costs and assumed risks the loss will fall on NYLIAC. Conversely,
if the charge proves more than sufficient any excess will be added to the
NYLIAC surplus. NYLIAC guarantees that these charges will not be increased.
The value of the assets in the Separate Account will reflect the value of
Fund shares and therefore the fees and expenses paid by the Funds, which are
described in the relevant Fund's prospectus.
GROUP AND SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the Surrender
Charge and the administrative charge or change the minimum initial Premium
Payment, and the minimum additional Premium Payment requirements. Group
arrangements include those in which a trustee or an employer, for example,
purchases Policies covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows us to sell Policies to
its employees or retirees on an individual basis.
Our costs for sales, administration, and mortality generally vary with the
size and stability of the group among other factors. We take all these factors
into account when reducing charges. To qualify for reduced charges, a group or
sponsored arrangement must meet certain requirements, including our
requirements for size and number of years in existence. Group or sponsored
arrangements that have been set up solely to buy Policies or that have been in
existence less than six months will not qualify for reduced charges.
We will make any reductions according to our rules in effect when an
application or enrollment form for a Policy is approved. We may change these
rules from time to time. Any variation in the Surrender Charge or
administrative charge will reflect differences in costs or services and will
not be unfairly discriminatory.
TAXES
NYLIAC may, where such taxes are imposed by state law, deduct premium taxes
relative to the Policy either (i) when a surrender or cancellation occurs, or
(ii) at the Annuity Commencement Date. Applicable premium tax rates depend
upon such factors as the Owner's current state of residency, and the insurance
laws and the status of NYLIAC in states where premium taxes are incurred.
Current premium tax rates range from 0% to 3.5%. Applicable premium tax rates
are subject to change by legislation, administrative interpretations or
judicial acts.
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<PAGE>
Under present laws, NYLIAC will incur state and local taxes (in addition to
the premium taxes described above) in several states. At present, these taxes
are not significant. If they increase, however, NYLIAC may make charges for
such taxes.
NYLIAC does not expect to incur any federal income tax liability
attributable to investment income or capital gains retained as part of the
reserves under the Policies. (See "Federal Tax Matters" at page 39.) Based
upon these expectations, no charge is being made currently to the Separate
Account for corporate federal income taxes which may be attributable to the
Separate Account.
NYLIAC will review the question of a charge to the Separate Account for
corporate federal income taxes periodically. Such a charge may be made in
future years for any federal income taxes incurred by NYLIAC. This might
become necessary if the tax treatment of NYLIAC is ultimately determined to be
other than what NYLIAC currently believes it to be, if there are changes made
in the federal income tax treatment of annuities at the corporate level, or if
there is a change in NYLIAC's tax status. In the event that NYLIAC should
incur federal income taxes attributable to investment income or capital gains
retained as part of the reserves under the Policies, the Accumulation Value of
the Policies would be correspondingly adjusted by any provision or charge for
such taxes.
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS AND WITHDRAWALS
The Owner may make a Partial Withdrawal, Periodic Partial Withdrawal,
Hardship Withdrawal or surrender the Policy to receive part or all of the
Accumulation Value at any time before the Annuity Commencement Date and while
the Annuitant is living, by sending a written request to NYLIAC. The amount
available for withdrawal is the Accumulation Value at the end of the Valuation
Period during which the surrender or withdrawal request is received at NYLIAC,
P.O. Box 354, Haddam, Connecticut 06438-0354, less any outstanding loan
balance, any Surrender Charges and any premium taxes which we may deduct, less
the charge for Policy administration expenses, if applicable. The Policy
administration expense charge will be the lesser of $30 or 2% of the
Accumulation Value at the end of the Policy Year or on the date of surrender,
whichever is applicable. If at the time the Owner makes a withdrawal or
surrender request, he or she has not provided NYLIAC with a written election
not to have federal income taxes withheld, NYLIAC must by law withhold such
taxes from the taxable portion of any surrender or withdrawal, and remit that
amount to the federal government. In addition, some states have enacted
legislation requiring withholding. All surrenders or withdrawals will be paid
within seven days of receipt of all documents (including documents necessary
to comply with federal and state tax law), subject to postponement in certain
circumstances. (See "Delay of Payments" at page 35.)
Since the Owner assumes the investment risk with respect to amounts
allocated to the Separate Account and because certain surrenders or
withdrawals are subject to a Surrender Charge and premium tax deduction, the
total amount paid upon surrender of the Policy (taking into account any prior
withdrawals) may be more or less than the total Premium Payments made.
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<PAGE>
Surrenders and withdrawals may be taxable transactions, and the Internal
Revenue Code provides that a 10% penalty tax may be imposed on certain early
surrenders or withdrawals. (See "Federal Tax Matters--Taxation of Annuities in
General" at page 39.)
(a) Surrenders
A Surrender Charge and any premium tax, if applicable, less any outstanding
loan balance, and less the charge for Policy administration expenses, if
applicable, may be deducted from the amount paid. The Policy administration
expense charge will be the lesser of $30 or 2% of the Accumulation Value at
the end of the Policy Year or on the date of surrender, whichever is
applicable. The proceeds will be paid in a lump sum to the Owner unless the
Owner elects a different Income Payment method. (See "Income Payments" at page
34.) Surrenders may be taxable transactions and the 10% penalty tax may be
applicable. (See "Federal Tax Matters--Taxation of Annuities in General" at
page 39.)
(b) Partial Withdrawals
The minimum amount that can be withdrawn is $500, unless we agree otherwise.
The amount will be withdrawn from the Allocation Alternatives in accordance
with the Owner's request. If the Owner does not specify how to allocate a
Partial Withdrawal among the Allocation Alternatives, NYLIAC will allocate the
Partial Withdrawal on a pro-rata basis. Partial Withdrawals may be taxable
transactions and the 10% penalty tax may be applicable. (See "Federal Tax
Matters--Taxation of Annuities in General" at page 39.)
If the value in any of the Allocation Alternatives from which the Partial
Withdrawal is being made is less than or equal to the amount requested from
that Allocation Alternative, NYLIAC will pay the entire value of that
Allocation Alternative, less any Surrender Charge that may apply, to the
Owner. NYLIAC will not process Partial Withdrawal requests if honoring such
requests would result in an Accumulation Value of less than $2,000.
(c) Periodic Partial Withdrawals
The Owner may elect to receive regularly scheduled withdrawals from the
Policy. These withdrawals may be paid on a monthly, quarterly, semi-annual, or
annual basis. The Owner elects the frequency of the withdrawals, and the day
of the month for the withdrawals to be made (may not be the 29th, 30th, or
31st of a month). The Owner specifies which Investment Divisions and/or Fixed
Account to make the withdrawals from. The minimum withdrawal under this
program is $100, or such lower amount as we may permit. Periodic Partial
Withdrawals may be taxable transactions and the 10% penalty tax provisions may
be applicable. (See "Federal Tax Matters--Taxation of Annuities in General" at
page 39.) If the Owner does not specify otherwise, NYLIAC will withdraw money
on a pro-rata basis from each Investment Division and/or the Fixed Account.
Commencing on July 1, 1996, the Owner may elect to receive "Interest Only"
Periodic Partial Withdrawals for the interest earned on monies allocated to
the Fixed Account. If this option is chosen, the $100 minimum for Periodic
Partial Withdrawals will be waived. However, there must be at least $5,000 in
the Fixed Account at the time of each Periodic Partial Withdrawal, unless we
agree otherwise. This option will void the Fixed Account Initial Premium
Guarantee, described at page 38.
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(d) Hardship Withdrawals
Under certain Qualified Policies, the Plan Administrator may allow, in its
sole discretion, certain withdrawals it determines to be "Hardship
Withdrawals." The Surrender Charge, 10% penalty tax and provisions applicable
to Partial Withdrawals apply to Hardship Withdrawals. For all Policies, the
Surrender Charge will only be applied to any amounts withdrawn in any Policy
Year which, when added to all other surrender charge free withdrawals in that
Policy Year, exceed the 10% Window. For Policies with accumulated Premium
Payments of $100,000 or more, the Surrender Charge will not apply if the
amount of the Hardship Withdrawal is less than or equal to the gain in the
Policy which is measured as the Accumulation Value of the Policy less
accumulated Premium Payments.
REQUIRED MINIMUM DISTRIBUTION OPTION
For IRAs, SEPs and TSAs, NYLIAC will provide a Required Minimum Distribution
Option for calculating and processing the annual Required Minimum Distribution
for this Policy beginning at age 70 1/2. No Surrender Charge will be applied.
For IRAs, the Owner is not required to elect the Required Minimum Distribution
Option until April 1st of the year following the Policy Year he or she attains
age 70 1/2. The Owner may elect to receive distributions pursuant to the
Required Minimum Distribution Option as a Periodic Partial Withdrawal.
CANCELLATIONS
NYLIAC may, in its sole discretion, subject to any applicable state
insurance law or regulation, cancel a Policy if no Premium Payments are made
for two or more Policy Years in a row, and both (a) the total Premium Payments
made, less any Partial Withdrawals and any Surrender Charges, and (b) the
Accumulation Value, are less than $2,000. If such a cancellation occurs,
NYLIAC will pay the Owner the Accumulation Value. We will notify you of our
intention to exercise this right and give you 90 days to make a Premium
Payment.
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date is the date specified on the Policy Data Page.
The Annuity Commencement Date is the day that Income Payments are scheduled to
commence under the Policy unless the Policy has been surrendered or an amount
has been paid as proceeds to the designated Beneficiary prior to that date.
The Owner may change the Annuity Commencement Date to an earlier date by
providing written notice to NYLIAC. The Owner may defer the Annuity
Commencement Date to a later date agreed to by NYLIAC, provided that written
notice of the request is received by NYLIAC at least one month before the last
selected Annuity Commencement Date. The Annuity Commencement Date and Income
Payment method for Qualified Policies may also be controlled by endorsements,
the plan, or applicable law. The Surrender Charge will be waived if the Life
Income Payment Option is selected after the first policy anniversary.
DEATH BEFORE ANNUITY COMMENCEMENT
If an Owner or Annuitant dies prior to the Annuity Commencement Date, an
amount will be paid as proceeds to the designated Beneficiary, as of the date
proof of death and all requirements necessary to make the payment are
received. That amount will be the greater of (a) the Accumulation Value, less
any outstanding loan balance, (b) the sum of all Premium Payments made less
any outstanding loan balance, less any Partial Withdrawals and
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Surrender Charges on those withdrawals or (c) the "reset value" plus any
additional Premium Payments made since the most recent "reset date," less any
outstanding loan balance, less any withdrawals made since the most recent
"reset date" and any Surrender Charges applicable to such withdrawals. The
Reset Value, with respect to any Policy, is recalculated every three years
(six years in Texas) from the date of the initial Premium Payment ("Reset
Anniversary") until the Owner or Annuitant reaches age 85, unless required
otherwise by applicable state laws. The Reset Value is calculated on the Reset
Anniversary and is based on a comparison between (a) the current Reset
Anniversary's Accumulation Value, and (b) the prior Reset Anniversary's value,
plus any premiums since the prior Reset Anniversary date, less any Partial
Withdrawals and surrender charges on those withdrawals since the last Reset
Anniversary date. The greater of the compared values will be the new Reset
Value. The formula guarantees that the amount paid will at least equal the sum
of all Premium Payments (less any outstanding loan balance, Partial
Withdrawals and Surrender Charges on such Partial Withdrawals), independent of
the investment experience of the Separate Account. The Beneficiary may receive
the amount payable in a lump sum or under any life income payment option which
is then available.
If an Owner or Annuitant dies before the Annuity Commencement Date, the
Policy will no longer be in force and we will pay as proceeds to the
Beneficiary an amount which is the greater of "(a)," "(b)," or "(c)" as they
are described in the preceding paragraph. Payment will be made in a lump sum
to the Beneficiary unless the Owner has elected or the Beneficiary elects
otherwise in a signed written notice which gives us the facts that we need. If
such an election is properly made, all or part of these proceeds will be:
(i) applied under the Life Income Payment Option to provide an immediate
annuity for the Beneficiary who will be the Owner and Annuitant; or
(ii) applied under another Income Payment option we may offer at the
time. Payments under the annuity or under any other method of payment we
make available must be for the life of the Beneficiary, or for a number of
years that is not more than the life expectancy of the Beneficiary at the
time of the Owner's death (as determined for federal tax purposes), and
must begin within one year after the Owner's death. (See "Income Payments"
at page 34.)
If the Owner's spouse is the Beneficiary, the proceeds can be paid to the
surviving spouse if the Owner dies before the Annuity Commencement Date or the
Policy can continue with the Owner's surviving spouse as the new Owner, and,
if the Owner was the Annuitant, as the Annuitant. Generally, NYLIAC will not
issue a Policy to joint owners. However, if NYLIAC makes an exception and
issues a jointly owned policy, ownership rights and privileges under the
Policy must be exercised jointly and benefits under the Policy will be paid
upon the death of any joint owner. (See "Federal Tax Matters--Taxation of
Annuities in General" at page 39.)
If the Annuitant and, where applicable under another Income Payment option,
the Joint Annuitant, if any, die after the Annuity Commencement Date, NYLIAC
will pay the sum required by the Income Payment option in effect.
Any distribution or application of Policy proceeds will be made within 7
days after NYLIAC receives all documents (including documents necessary to
comply with federal and state tax law) in connection with the event or
election that causes the distribution to take
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place, subject to postponement in certain circumstances. (See "Delay of
Payments" at page 35.)
INCOME PAYMENTS
(a) Election of Income Payment Options
Income Payments will be made under the Life Income Payment Option or under
such other option we may offer at that time. We will require that a single sum
payment be made if the Accumulation Value is less than $2,000. At any time
before the Annuity Commencement Date, the Owner may change the Income Payment
option or request any other method of payment agreeable to NYLIAC. If the Life
Income Payment Option is chosen, proof of birth date may be required before
Income Payments begin. For Income Payment options involving life income, the
actual age of the Annuitant will affect the amount of each payment. Since
payments to older annuitants are expected to be fewer in number, the amount of
each annuity payment shall be greater. Payments under the Life Income Payment
Option will always be in the same specified amount and will be paid over the
life of the Annuitant with a guarantee of 10 years of payments, even if the
Annuitant dies sooner. NYLIAC does not currently offer variable Income Payment
Options.
Under Income Payment options involving life income, the Payee may not
receive Income Payments equal to the total Premium Payments if the Annuitant
dies before the actuarially predicted date of death.
(b) Other Methods of Payment
If NYLIAC agrees, the Owner (or the Beneficiary upon the death of the
Annuitant or the Owner prior to the Annuity Commencement Date) may choose to
have Income Payments made under some other method of payment or in a single
sum.
(c)Legal Developments Regarding Income Payments
Income Payment options involving life income are based on annuity tables
that provide the same benefit payments to men and women of the same age. In
some states, however, the use of such tables is restricted to Policies
affected by the 1983 Supreme Court decision in Arizona Governing Committee v.
Norris. In those states, Income Payment options involving life income will be
based on annuity tables that provide different benefit payments to men and
women of the same age, unless NYLIAC is requested to endorse the policy to use
unisex actuarial tables in order to comply with the intent of the Norris
decision. If a Policy is to be used in connection with an employment-related
retirement or benefit plan, consideration should be given, in consultation
with legal counsel, to whether the Policy should be endorsed to use unisex
actuarial tables.
In addition, legislation was introduced in Congress which, had it been
enacted, would have required the use of tables that do not vary on the basis
of sex for some or all annuities. Currently, several states have enacted such
laws.
(d) Proof of Survivorship
Satisfactory proof of survival may also be required, from time to time
before any Income Payments or other benefits will be paid. The proof will be
requested at least 30 days prior to the next scheduled benefit payment date.
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DELAY OF PAYMENTS
Payment of any amounts due from the Separate Account under the Policy will
occur within seven days of the date NYLIAC receives all documents (including
documents necessary to comply with federal and state tax law) in connection
with a request unless:
1. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the Exchange is otherwise restricted;
2. An emergency exists as defined by the Securities and Exchange
Commission;
3. The Securities and Exchange Commission permits a delay for the
protection of security holders; or
4. The check used to pay the premium has not cleared through the banking
system. This may take up to 15 days.
For the same reasons, transfers from the Separate Account to the Fixed
Account may be delayed.
Payments of any amount due from the Fixed Account may also be delayed. When
permitted by law, we may defer payment of any partial or full surrender
request for up to six months from the date of surrender from the Fixed
Account. Interest of at least 3.5% per year will be paid on any amount
deferred for 30 days or more.
DESIGNATION OF BENEFICIARY
The Owner may select one or more Beneficiaries and name them in the
application. Thereafter, before the Annuity Commencement Date and while the
Annuitant is living, the Owner may change the Beneficiary by written notice to
NYLIAC. If before the Annuity Commencement Date, the Annuitant dies before the
Owner and no Beneficiary for the proceeds or for a stated share of the
proceeds survives, the right to the proceeds or shares of the proceeds passes
to the Owner. If the Owner is the Annuitant, the proceeds pass to the Owner's
estate. However, if the Owner who is not the Annuitant dies before the Annuity
Commencement Date, and no Beneficiary for the proceeds or for a stated share
of the proceeds survives, the right to the proceeds or shares of the proceeds
passes to the Owner's estate.
RESTRICTIONS UNDER INTERNAL REVENUE CODE SECTION 403(B)(11)
Distributions attributable to salary reduction contributions made in years
beginning after December 31, 1988 (including the earnings on these
contributions), as well as to earnings in such years on salary reduction
accumulations held as of the end of the last year beginning before January 1,
1989, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. The plan may also provide for distribution
in the case of hardship. However, hardship distributions are limited to
amounts contributed by salary reduction; the earnings on such amounts may not
be withdrawn. Even though a distribution may be permitted under these rules
(e.g. for hardship or after separation from service), it may nonetheless be
subject to a 10% additional income tax as a premature distribution. To the
extent that these limitations on distributions conflict with the redeemability
provisions of the Investment Company Act, NYLIAC relies upon the November 28,
1988 SEC "No-Action" letter for exemptive relief.
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Under the terms of your plan you may have the option to invest in other
403(b) funding vehicles, including 403(b)(7) custodial accounts. You should
consult your plan document to make this determination.
LOANS
Under your 403(b) Policy, you may borrow against your Policy's Accumulation
Value after the first Policy Year and prior to the Annuity Commencement Date.
Unless we agree otherwise, only one loan may be outstanding at a time,
however, an existing loan balance from an inforce LifeStages/SM/ Policy may be
"rolled" into a new, larger loan for the same policy. A minimum Accumulation
Value of $5,000 must remain in the Policy. The minimum loan amount is $500.
The maximum loan that may be taken is the lesser of: (a) 50% of the Policy's
Accumulation Value on the date of the loan or (b) $50,000. A loan processing
fee of $25 will be withdrawn from the Accumulation Value on a pro rata basis,
unless prohibited by applicable state law or regulation. If on the date of the
loan you do not have a Fixed Accumulation Value equal to at least 125% of the
loan amount, sufficient Accumulation Value will be transferred from the
Investment Divisions on a pro rata basis so that the Fixed Accumulation Value
equals 125% of the loan amount. While a loan is outstanding no partial
withdrawals or transfers may be made which would reduce the Fixed Accumulation
Value to an amount less than 125% of the outstanding loan balance.
For plans not subject to the Employee Retirement Income Security Act of 1974
("ERISA"), the interest rate paid by the Owner of the loan will equal 5%. The
assets being held in the Fixed Account to secure the loan will be credited
with the minimum guaranteed interest rate of 3%. For plans subject to ERISA,
the interest charged on the loan will be applied at the then current Prime
Rate plus 1%. The money being held in the Fixed Account to secure the loan
will be credited with a rate of interest that is the Prime Rate less 1%, but
will always be at least equal to the minimum guaranteed interest rate of 3%.
For all plans, interest will be assessed in arrears as part of the periodic
loan repayments.
The loan must be repaid on a periodic basis at a frequency not less
frequently than quarterly and over a period no greater than five years from
the date it is taken. If a loan repayment is in default we will withdraw the
amount in default from the Fixed Accumulation Value to the extent permitted by
Federal Income Tax rules. Such a repayment will be taken on a FIFO basis from
amounts allocated to the Fixed Account.
Loans to acquire a principal residence are permitted under the same terms
described above, except that:
(a) the minimum loan amount is $5,000; and
(b) repayment of the loan amount may be extended to a maximum of twenty-
five years.
Any outstanding loan balance will be deducted from the Fixed Accumulation
Value prior to payment of a surrender or the commencement of the annuity
benefits. On death of the Owner or Annuitant, any outstanding loan balance
will be deducted from the Fixed Accumulation Value as a Partial Withdrawal as
of the date the notice of death is received.
Loans are subject to the terms of the Policy, your 403(b) Plan and the Code,
which may impose restrictions upon them. We reserve the right to suspend,
modify, or terminate the
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availability of loans under this Policy at any time. However, any action taken
by us will not affect already outstanding loans.
RIDERS
For no additional Premium Payment, two riders are included: an Unemployment
Benefit Rider, available on Non-Qualified and IRA Policies, and a Living Needs
Benefit Rider, available for all types of Policies. Both riders provide for an
increase in the amount that can be withdrawn from your Policy which will not
be subject to the imposition of a Surrender Charge upon the occurrence of
certain qualifying events. The riders are only available in those states where
they have been approved.
(a) Living Needs Benefit Rider
If the Annuitant enters a nursing home, becomes terminally ill or disabled
you, as Owner, may be eligible to receive all or a portion of the accumulated
value without paying a Surrender Charge. There is no additional charge for
this, and as the Owner you are automatically entitled to this benefit if it is
approved by your state. The Policy must have been inforce for at least one
year and have a minimum cash value of $5,000. Withdrawals may be taxable
transactions and, prior to age 59 1/2, may be subject to a 10% IRS penalty.
This rider is in effect in all states where approved.
(b) Unemployment Benefit Rider
For all Non-Qualified Policies and IRAs, if you as Owner of the Policy
become unemployed, you may be eligible to increase the amount that can be
withdrawn from your Policy up to 50% without paying contract Surrender
Charges. There is no additional charge for this, and as Owner you are
automatically entitled to this benefit if it is approved by your state. This
rider can only be used once. The Policy must have been inforce for at least
one year and have a minimum cash value of $5,000. Withdrawals may be taxable
transactions and, prior to age 59 1/2, may be subject to a 10% IRS penalty.
This rider is in effect in all states where approved.
THE FIXED ACCOUNT
The Fixed Account is supported by the assets in NYLIAC's general account,
which includes all of NYLIAC's assets except those assets specifically
allocated to NYLIAC's separate accounts. NYLIAC has sole discretion to invest
the assets of the Fixed Account subject to applicable law. An interest in the
Fixed Account is not registered under the Securities Act of 1933, and the
Fixed Account is not registered as an investment company under the Investment
Company Act of 1940. Accordingly neither the Fixed Account nor any interests
therein are generally subject to the provisions of these statutes, and NYLIAC
has been advised that the staff of the Securities and Exchange Commission has
not reviewed the disclosures in this Prospectus relating to the Fixed Account.
These disclosures regarding the Fixed Account may, however, be subject to
certain applicable provisions of the Federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
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(a) Interest Crediting
NYLIAC guarantees that it will credit interest at an effective rate of at
least 3% to amounts allocated or transferred to the Fixed Account under the
Policies. NYLIAC may, AT ITS SOLE DISCRETION, credit a higher rate or rates of
interest to amounts allocated or transferred to the Fixed Account. Interest
rates will be set on the anniversary of each payment or transfer and all
Premium Payments and additional amounts (including transfers from other
Investment Divisions) allocated to the Fixed Account, plus prior interest
earned on such amounts, will receive their applicable interest rate for one
year periods from the anniversary on which the allocation or transfer was
made.
(b) Transfers to Investment Divisions
Amounts may be transferred from the Fixed Account to the Investment
Divisions up to 30 days prior to the Annuity Commencement Date, subject to the
following conditions.
1. An amount NOT GREATER THAN 20% of the Fixed Accumulation Value at the
beginning of the Policy Year may be transferred during that Policy Year
from the Fixed Account to the Investment Divisions.
2. Transfers of at least the minimum amount are permitted. The minimum
amount that may be transferred from the Fixed Account to the Investment
Divisions is the lesser of (i) $500 or (ii) the Fixed Accumulation Value,
unless we agree otherwise. (Additionally, the remaining values in the Fixed
Account must be at least $500. If, after a contemplated transfer, the
remaining values in the Fixed Account would be less than $500, that amount
must be included in the transfer, unless NYLIAC in its discretion
determines otherwise. Amounts transferred from the Fixed Account will be
determined on a FIFO basis, for purposes of determining the rate at which
interest will be credited on monies remaining in the Fixed Account.)
Except as part of an existing Dollar Cost Averaging request, money may not
be transferred into the Fixed Account if a transfer was made out of the Fixed
Account during the previous six-month period. Unlimited transfers are
permitted each Policy Year, although we reserve the right to impose a charge
of up to $30 per transfer for each transfer in excess of twelve transfers in
any Policy Year.
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. For a more detailed
discussion of procedures that may be used for requesting transfers by
telephone, please see "Procedures for Telephone Transfers" at page 24 of this
Prospectus.
Partial withdrawals will be deducted and any Surrender Charges will be
applied to the Fixed Account on a FIFO basis (i.e., from any value in the
Fixed Account attributable to Premium Payments or transfers from Investment
Divisions in the same order in which such payments or transfers were allocated
to the Fixed Account during the life of the Policy). NYLIAC will also
determine such partial withdrawals on a FIFO basis, for purposes of
determining the rate at which interest will be credited on any monies
remaining in the Fixed Account.
(c) Fixed Account Initial Premium Guarantee
NYLIAC guarantees that upon any surrender of a Policy which occurs within
the first three Policy Years, the Owner will receive an amount equal to at
least that portion of the initial
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Premium Payment which was initially allocated to the Fixed Account. However,
this guarantee will not apply if the Owner transfers money out of the Fixed
Account (except transfers made under the Interest Sweep option) or makes any
Partial Withdrawals, including any Partial Withdrawals from the Separate
Account, during such period.
See the Policy itself for details and a description of the Fixed Account.
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. The
Qualified Policies are designed for use by individuals in retirement plans
which are intended to qualify as plans qualified for special income tax
treatment under Sections 219, 403, 408 or 457 of the Code. The ultimate effect
of federal income taxes on the Accumulation Value, on Income Payments and on
the economic benefit to the Owner, the Annuitant or the Beneficiary depends on
the type of retirement plan for which the Qualified Policy is purchased, on
the tax and employment status of the individual concerned and on NYLIAC's tax
status. The following discussion assumes that Qualified Policies are used in
retirement plans that qualify for the special federal income tax treatment
described above. This discussion is not intended to address the tax
consequences resulting from all of the situations in which a person may be
entitled to or may receive a distribution under a Policy. Any person concerned
about these tax implications should consult a competent tax adviser before
making a Premium Payment. This discussion is based upon NYLIAC's understanding
of the present federal income tax laws as they are currently interpreted by
the Internal Revenue Service. No representation is made as to the likelihood
of continuation of the present federal income tax laws or of the current
interpretations by the Internal Revenue Service. Moreover, no attempt has been
made to consider any applicable state or other tax laws except with respect to
the imposition of any state premium taxes.
TAXATION OF ANNUITIES IN GENERAL
The following discussion assumes that the Policies will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional
Information discusses such qualifications.
Section 72 of the Code governs taxation of annuities in general. NYLIAC
believes that an annuity contract owner generally is not taxed on increases in
the value of a policy until distribution occurs either in the form of a lump
sum received by withdrawing all or part of the Accumulation Value (i.e.,
surrenders or Partial Withdrawals) or as Income Payments under the Income
Payment option elected. The exception to this rule is that generally, an Owner
of any deferred annuity Policy who is not a natural person must include in
income any increase in the excess of the Owner's Accumulation Value over the
Owner's investment in the contract during the taxable year. However, there are
some exceptions to this exception and you may wish to discuss these with your
tax counsel. The taxable portion of a distribution (in the form of an annuity
or lump sum payment) is generally taxed as ordinary income. For this purpose,
the assignment, pledge, or agreement to assign or pledge any portion of the
Accumulation Value generally will be treated as a distribution.
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In the case of a withdrawal or surrender distributed to a participant or
Beneficiary under a Qualified Policy (other than a Qualified Policy used in a
retirement plan that qualifies for special federal income tax treatment under
Section 457 of the Code as to which there are special rules), a ratable
portion of the amount received is taxable, generally based on the ratio of the
investment in the contract to the total policy value. The "investment in the
contract" generally equals the portion, if any, of any Premium Payments paid
by or on behalf of an individual under a Policy which is not excluded from the
individual's gross income. For Policies issued in connection with qualified
plans, the "investment in the contract" can be zero.
Generally, in the case of a withdrawal under a Non-Qualified Policy before
the Annuity Commencement Date, amounts received are first treated as taxable
income to the extent that the Accumulation Value immediately before the
withdrawal exceeds the "investment in the contract" at that time. Any
additional amount withdrawn is not taxable.
Although the tax consequences may vary depending on the Income Payment
option elected under the Policy, in general, only the portion of the Income
Payment that represents the amount by which the Accumulation Value exceeds the
"investment in the contract" will be taxed; after the investment in the Policy
is recovered, the full amount of any additional Income Payments is taxable.
For Fixed Income Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Income Payments for the term of the
payments; however, the remainder of each Income Payment is taxable until the
recovery of the investment in the contract, and thereafter the full amount of
each annuity payment is taxable. If death occurs before full recovery of the
investment in the contract, the unrecovered amount may be deducted on the
annuitant's final tax return.
In the case of a distribution pursuant to any Policy, there may be imposed a
penalty tax equal to 10% of the amount treated as taxable income. The penalty
tax is not imposed in certain circumstances, including, generally,
distributions: (1) made on or after the date on which the taxpayer is actual
age 59 1/2, (2) made as a result of the Owner's or Annuitant's death or
disability, or (3) received in substantially equal installments paid at least
annually as a life annuity. Other tax penalties may apply to certain
distributions pursuant to a Qualified Policy.
All non-qualified, deferred annuity contracts issued by NYLIAC (or its
affiliates) to the same Owner during any calendar year are to be treated as
one annuity contract for purposes of determining the amount includable in an
individual's gross income. In addition, there may be other situations in which
the Treasury Department may conclude (under its authority to issue
regulations) that it would be appropriate to aggregate two or more annuity
contracts purchased by the same Owner. Accordingly, an Owner should consult a
competent tax adviser before purchasing more than one Policy or other annuity
contract.
A transfer of ownership of a Policy, or designation of an Annuitant or other
Beneficiary who is not also the Owner, may result in certain income or gift
tax consequences to the Owner that are beyond the scope of this discussion. An
Owner contemplating any transfer or assignment of a Policy should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.
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QUALIFIED PLANS
The Qualified Policy is designed for use with several types of qualified
plans. The tax rules applicable to participants and beneficiaries in such
qualified plans vary according to the type of plan and the terms and
conditions of the plan itself. Special favorable tax treatment may be
available for certain types of contributions and distributions (including
special rules for certain lump sum distributions). Adverse tax consequences
may result from contributions in excess of specified limits, distributions
prior to age 59 1/2 (subject to certain exceptions), distributions that do not
conform to specified minimum distribution rules, aggregate distributions in
excess of a specified annual amount, and in certain other circumstances.
Therefore, NYLIAC makes no attempt to provide more than general information
about use of the Policies with the various types of qualified plans. Owners
and participants under qualified plans as well as Annuitants and Beneficiaries
are cautioned that the rights of any person to any benefits under qualified
plans may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Policy issued in connection
therewith. Purchasers of Policies for use with any qualified plan should seek
competent legal and tax advice regarding the suitability of the Policy
therefor.
(a) Section 403(b) Plans. Under Section 403(b) of the Code, payments made
by public school systems and certain tax exempt organizations to purchase
annuity policies for their employees are excludable from the gross income
of the employee, subject to certain limitations. However, such payments may
be subject to FICA (Social Security) taxes.
(b) Individual Retirement Annuities. Sections 219 and 408 of the Code
permit individuals or their employers to contribute to an individual
retirement program known as an "Individual Retirement Annuity" or "IRA",
including an employer-sponsored Simplified Employee Pension or "SEP".
Individual Retirement Annuities are subject to limitations on the amount
which may be contributed and deducted and the time when distributions may
commence. In addition, distributions from certain other types of qualified
plans may be placed into Individual Retirement Annuities on a tax-deferred
basis.
(c) Deferred Compensation Plans. Section 457 of the Code, while not
actually providing for a qualified plan as that term is normally used,
provides for certain deferred compensation plans with respect to service
for state governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities and tax exempt
organizations which enjoy special treatment. The Policies can be used with
such plans. Under such plans, a participant may specify the form of
investment in which his or her participation will be made. All such
investments, however, are owned by, and are subject to, the claims of the
general creditors of the sponsoring employer.
DISTRIBUTOR OF THE POLICIES
NYLIFE Distributors Inc. ("NYLIFE Distributors"), 51 Madison Avenue, New
York, New York 10010, is the principal underwriter and the distributor of the
Policies and is an indirect wholly-owned subsidiary of New York Life. The
maximum commission paid to registered representatives of broker-dealers who
have entered into dealer agreements with NYLIFE Distributors is 4%. 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.
41
<PAGE>
VOTING RIGHTS
The Funds are not required to hold routine annual stockholder meetings. Each
Fund's Board of Directors has decided not to hold routine annual stockholder
meetings. Special stockholder meetings will be called when necessary. Not
holding routine annual meetings will result in Owners having a lesser role in
governing the business of the Funds.
To the extent required by law, the Eligible Portfolio shares held in the
Separate Account will be voted by NYLIAC at special shareholder meetings of
the Funds in accordance with instructions received from persons having voting
interests in the corresponding Investment Division. If, however, the
Investment Company Act of 1940 or any regulation thereunder should be amended,
or if the present interpretation thereof should change, and as a result,
NYLIAC determines that it is allowed to vote the Eligible Portfolio shares in
its own right, NYLIAC may elect to do so.
The number of votes which are available to an Owner will be calculated
separately for each Investment Division of the Separate Account. That number
will be determined by applying his or her percentage interest, if any, in a
particular Investment Division to the total number of votes attributable to
the Investment Division.
Prior to the Annuity Commencement Date, the Owner holds a voting interest in
each Investment Division to which Policy Value is allocated. The number of
votes which are available to an Owner will be determined by dividing the
Accumulation Value attributable to an Investment Division by the net asset
value per share of the applicable Eligible Portfolios.
The number of votes of the Eligible Portfolio which are available will be
determined as of the date coincident with the date established by that
Portfolio for determining shareholders eligible to vote at the meeting of the
relevant Fund. Voting instructions will be solicited by written communication
prior to such meeting in accordance with procedures established by the
relevant Fund.
Fund shares as to which no timely instructions are received will be voted in
proportion to the voting instructions which are received with respect to all
Policies participating in that Investment Division. Voting instructions to
abstain on any item to be voted upon will be applied on a pro rata basis to
reduce the votes eligible to be cast. Each person having a voting interest in
an Investment Division will receive proxy material, reports and other
materials relating to the appropriate Eligible Portfolio.
42
<PAGE>
TABLE OF CONTENTS FOR THE STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is
the Table of Contents for that Statement:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES............................................................... 2
INVESTMENT PERFORMANCE CALCULATIONS........................................ 2
NEW YORK LIFE MFA SERIES FUND, INC......................................... 6
GENERAL MATTERS............................................................ 6
FEDERAL TAX MATTERS........................................................ 7
DISTRIBUTOR OF THE POLICIES................................................ 8
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS..................................... 8
STATE REGULATION........................................................... 9
RECORDS AND REPORTS........................................................ 9
LEGAL PROCEEDINGS.......................................................... 9
INDEPENDENT ACCOUNTANTS.................................................... 9
OTHER INFORMATION.......................................................... 9
FINANCIAL STATEMENTS....................................................... F-1
</TABLE>
43
<PAGE>
LIFESTAGES/SM/--A VARIABLE ANNUITY FROM
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
<PAGE>
NYLIAC LIFESTAGES/SM/ ANNUITY SEPARATE ACCOUNT
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1996
FOR LIFESTAGES/SM/--A
VARIABLE ANNUITY
FROM
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
This Statement of Additional Information is not a prospectus. Much of the
information contained in this Statement of Additional Information expands upon
subjects discussed in the current LifeStages/SM/ Prospectus. Accordingly this
Statement should be read in conjunction with the current LifeStages/SM/
Prospectus dated May 1, 1996, which may be obtained by calling New York Life
Insurance and Annuity Corporation ("NYLIAC") at (212) 576-7538 or writing to
NYLIAC at 51 Madison Avenue, New York, New York 10010. Terms used in the
current LifeStagesSM Prospectus are incorporated in this Statement.
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES (21)......................................................... 2
Valuation of Accumulation Units (26).................................... 2
INVESTMENT PERFORMANCE CALCULATIONS....................................... 2
Cash Management Investment Division..................................... 2
Government, High Yield Corporate Bond and Bond Investment Division
Yields................................................................. 3
Total Return Calculations............................................... 4
NEW YORK LIFE MFA SERIES FUND, INC. (17).................................. 6
GENERAL MATTERS........................................................... 6
FEDERAL TAX MATTERS (39).................................................. 7
Taxation of New York Life Insurance and Annuity Corporation............. 7
Tax Status of the Policies.............................................. 7
DISTRIBUTOR OF THE POLICIES (41).......................................... 8
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS.................................... 8
STATE REGULATION.......................................................... 9
RECORDS AND REPORTS....................................................... 9
LEGAL PROCEEDINGS......................................................... 9
INDEPENDENT ACCOUNTANTS................................................... 9
OTHER INFORMATION......................................................... 9
FINANCIAL STATEMENTS...................................................... F-1
</TABLE>
* (Numbers in parentheses refer to page numbers of corresponding sections of
the current LifeStages/SM/ Prospectus.)
<PAGE>
THE POLICIES
The following provides additional information about the Policies, to supple-
ment the description in the Prospectus, which may be of interest to some Own-
ers.
VALUATION OF ACCUMULATION UNITS
Accumulation Units are valued separately for each Investment Division of the
Separate Account. The method used for valuing Accumulation Units in each In-
vestment Division is the same. The value of each Accumulation Unit was arbi-
trarily set as of the date operations began for the Investment Division.
Thereafter, the value of an Accumulation Unit of an Investment Division for
any Valuation Period equals the value of an Accumulation Unit in that Invest-
ment Division as of the immediately preceding Valuation Period multiplied by
the "Net Investment Factor" for that Investment Division for the current Valu-
ation Period.
The Net Investment Factor for each Investment Division for any Valuation Pe-
riod is determined by dividing (a) by (b) and subtracting (c) from the result,
where:
(a) is the result of:
(1) the net asset value per share of the Eligible Portfolio shares
held in the Investment Division determined at the end of the current
Valuation Period, plus
(2) the per share amount of any dividend or capital gain distribution
made by the Eligible Portfolio for shares held in the Investment Divi-
sion if the "ex-dividend" date occurs during the current Valuation Pe-
riod;
(b) is the net result of the net asset value per share of the Eligible
Portfolio shares held in the Investment Division determined as of the end
of the immediately preceding Valuation Period; and
(c) is a factor representing the charges deducted from the applicable In-
vestment Division on a daily basis. Such factor is equal, on an annual ba-
sis, to 1.40% of the daily net asset value of the Separate Account and rep-
resents the 1.25% charge for mortality and expense risks (of which .75% is
attributable to mortality risks and .50% to expense risks), and the .15%
charge for policy administration expenses. (See "Other Charges" at page 24
of the Prospectus.)
The Net Investment Factor may be greater or less than one. Therefore, the
value of an Accumulation Unit in an Investment Division may increase or de-
crease from Valuation Period to Valuation Period.
INVESTMENT PERFORMANCE CALCULATIONS
CASH MANAGEMENT INVESTMENT DIVISION
In accordance with regulations adopted by the Securities and Exchange Com-
mission, if NYLIAC discloses the Cash Management Investment Division's current
annualized yield for a seven-day period, it is required to do so in a manner
which does not take into consideration any realized or unrealized gains or
losses on shares of the Cash Management Portfolio of the Fund or on its port-
folio securities. This current annualized yield is computed by determining the
net change (exclusive of realized gains and losses on the sale of securities
and
2
<PAGE>
unrealized appreciation and depreciation) in the value of a hypothetical ac-
count having a balance of one unit of the Cash Management Investment Division
at the beginning of such seven-day period, dividing such net change in account
value by the value of the account at the beginning of the period to determine
the base period return and annualizing this quotient on a 365-day basis. The
net change in account value reflects the deductions for administrative serv-
ices and the mortality and expense risk charge and income and expenses accrued
during the period. Because of these deductions, the yield for the Cash Manage-
ment Division will be lower than the yield for the Cash Management Portfolio
of the Fund.
The Securities and Exchange Commission also permits NYLIAC to disclose the
effective yield of the Cash Management Investment Division for the same seven-
day period, determined on a compounded basis. The effective yield is calcu-
lated by compounding the unannualized base period return by adding one to the
base period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result.
The yield on amounts held in the Cash Management Investment Division nor-
mally will fluctuate on a daily basis. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. The Cash Management Investment Division's actual yield is af-
fected by changes in interest rates on money market securities, average port-
folio maturity of the Cash Management Portfolio, the types and quality of
portfolio securities held by the Cash Management Portfolio, and its operating
expenses.
For the 7-day period ended December 31, 1995 the Cash Management Investment
Division's yield and effective yield were 4.22% and 4.31%, respectively.
GOVERNMENT, HIGH YIELD CORPORATE BOND AND BOND INVESTMENT DIVISION YIELDS
The current annualized yield of the Government, High Yield Corporate Bond
and Bond Investment Divisions refers to the income generated by these Invest-
ment Divisions over a specified 30-day period. Because the yield is
annualized, the yield generated by an Investment Division during the 30-day
period is assumed to be generated each 30-day period. The yield is computed by
dividing the net investment income per accumulation unit earned during the pe-
riod by the price per unit on the last day of the period, according to the
following formula:
a - b
YIELD = 2[( ------- + 1)/6/ - 1]
cd
Where: a = net investment income earned during the period by the Portfolio
attributable to shares owned by the Government, High Yield Corporate
Bond or Bond Investment Division.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of accumulation units outstanding during
the period.
d = the maximum offering price per accumulation unit on the last day of
the period.
Net investment income will be determined in accordance with rules estab-
lished by the Securities and Exchange Commission. Accrued expenses will in-
clude all recurring fees that
3
<PAGE>
are charged to all Owner accounts. The yield calculations do not reflect the
effect of any Surrender Charges that may be applicable to a particular Policy.
Surrender Charges range from 7% to 0% of the Premium Payments withdrawn de-
pending on the elapsed time since the relevant Premium Payment was made.
Because of the charges and deductions imposed by the Separate Account the
yield for the Investment Divisions will be lower than the yield for the corre-
sponding Portfolio of the Fund. The yield on amounts held in the Investment
Divisions normally will fluctuate over time. Therefore, the disclosed yield
for any given past period is not an indication or representation of future
yields or rates of return. The Government, High Yield Corporate Bond or Bond
Investment Division's actual yield will be affected by the types and quality
of portfolio securities held by the Government, High Yield Corporate Bond and
Bond Portfolios of the Fund and their operating expenses.
For the 30-day period ended December 31, 1995, the annualized yields for the
Government, High Yield Corporate Bond and Bond Investment Divisions were
4.43%, 7.79% and 4.54%, respectively.
TOTAL RETURN CALCULATIONS
This section presents performance data for the Capital Appreciation, Govern-
ment, Total Return, Bond, Growth Equity, Indexed Equity and Socially Responsi-
ble Investment Divisions for various periods of time.
The data reflect all Separate Account and Fund annual expenses shown in the
"Owner and Fund Expenses" table which appears on page 7 of the prospectus. The
annual policy fee, which is charged to Policies with less than $20,000 of Ac-
cumulation Value, is not reflected. This fee, if applicable, would effectively
reduce the rates of return credited to a particular Policy. All rates of re-
turn presented include the reinvestment of investment income, including inter-
est and dividends.
The Separate Account had no operations prior to May 1, 1995. The calcula-
tions of investment performance shown below for periods prior to May 1, 1995
are based on the actual investment results of the Portfolios of the Fund, from
which certain fees and charges applicable to the Policies have been deducted.
Performance data for periods commencing on May 1, 1995 reflect actual Separate
Account investment experience. The results shown are not an estimate or guar-
antee of future investment performance.
Average Annual Total Return. The average annual total return data in the
following table are calculated by two methods. The first method is prescribed
by the SEC for use when we advertise the performance of the Separate Account
and assumes the surrender of the Policy at the end of each period shown. The
second method assumes that the Policy is not surrendered and, therefore, does
not reflect the deduction of any applicable surrender charges.
Average annual total return quotations under both calculation methods are
computed by finding the average annual compounded rates of return over the pe-
riods shown that would
4
<PAGE>
equate the initial amount invested to the ending redeemable value, according
to the following formula:
P(1 + T)/n/ = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one, five, or ten-year period or the inception
date, at the end of the one, five or ten-year period (or fractional
portion thereof).
Cumulative Total Return. The cumulative total return data in the following
table reflect performance over the stated periods, and assume that the Policy
is not surrendered at the end of those periods. Cumulative total return data
are calculated using the following formula:
CTR = ERV/P - 1
Where: CTR = the cumulative total return net of an Investment Division's re-
curring charges for the period.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the period shown, at the end of the period shown.
P = a hypothetical initial payment of $1,000.
<TABLE>
<CAPTION>
CAPITAL TOTAL GROWTH INDEXED SOCIALLY
APPRECIATION GOVERNMENT RETURN BOND EQUITY EQUITY RESPONSIBLE
------------ ---------- ------- ------- -------- -------- -----------
(INCEPTION DATE) 1/29/93 1/29/93 1/29/93 1/23/84 1/23/84 1/29/93 9/2/86
----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEC AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/95-12/31/95)........................ 26.90% 8.10% 19.55% 9.67% 20.37% 27.99% 20.97%
5 Years (1/1/91-12/31/95)....................... N/A N/A N/A 7.37% 14.59% N/A 8.63%
10 Years (1/1/86-12/31/95)...................... N/A N/A N/A 8.18% 10.64% N/A N/A
Since Inception................................. 13.11% 3.06% 9.14% 9.20% 10.53% 11.30% 8.69%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/95-12/31/95)........................ 33.90% 15.10% 26.55% 16.67% 27.37% 34.99% 27.97%
5 Years (1/1/91-12/31/95)....................... N/A N/A N/A 8.37% 15.39% N/A 9.62%
10 Years (1/1/86-12/31/95)...................... N/A N/A N/A 8.18% 10.64% N/A N/A
Since Inception................................. 14.97% 5.27% 11.13% 9.20% 10.53% 13.23% 8.69%
CUMULATIVE TOTAL RETURN (NO SURRENDERS)
1995............................................ 33.90% 15.10% 26.55% 16.67% 27.37% 34.99% 27.97%
1994............................................ -5.72% -3.21% -5.33% -4.74% -0.20% -0.65% -4.58%
1993............................................ 18.99% 4.28% 13.56% 9.85% 12.17% 7.13% 6.50%
</TABLE>
5
<PAGE>
Performance data for the Investment Divisions may be compared, in advertise-
ments, sales literature and reports to shareholders, to: (i) the investment
returns on various mutual funds, stocks, bonds, certificates of deposit, tax
free bonds, or common stock and bond indexes; and (ii) other groups of vari-
able annuity separate accounts or other investment products tracked by Lipper
Analytical Services, a widely used independent research firm which ranks mu-
tual funds and other investment companies by overall performance, investment
objectives, and assets, or tracked by other services, companies, publications,
or persons who rank such investment companies on overall performance or other
criteria.
Reports and promotional literature may also contain the ratings New York
Life and NYLIAC have received from independent rating agencies. New York Life
and NYLIAC are among only a few companies that have consistently received the
highest possible ratings from the four major independent rating companies:
A.M. Best and Moody's (for financial stability and strength) 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.
NEW YORK LIFE MFA SERIES FUND, INC.
The New York Life MFA Series Fund, Inc. (the "Fund") is registered with the
Securities and Exchange Commission as a diversified open-end management in-
vestment company, but such registration does not signify that the Commission
supervises the management, or the investment practices or policies, of the
Fund. The Fund currently issues its shares only to the separate accounts of
NYLIAC. Shares are sold and redeemed at the net asset value of the respective
Portfolios of the Fund.
GENERAL MATTERS
NON-PARTICIPATING. The Policies are non-participating; no dividends are pay-
able.
MISSTATEMENT OF AGE OR SEX. If the Annuitant's stated age, sex or both in
the Policy are incorrect, NYLIAC will change the benefits payable to those
which the Premium Payments would have purchased for the correct age and sex.
Sex is not a factor when annuity benefits are based on unisex annuity payment
rate tables. (See "Income Payments--Legal Developments Regarding Income Pay-
ments" at page 29 of the Prospectus.) If payments were made based on incorrect
age or sex, we will increase or reduce a later payment or payments to adjust
for the error. Any adjustment will include interest, at 3.5% per year, from
the date of the wrong payment to the date the adjustment is made.
ASSIGNMENTS. If permitted by the plan or by law for the plan indicated in
the application for the Policy, a Non-Qualified Policy or any interest in it
may be assigned by the Owner prior to the Annuity Commencement Date and during
the Annuitant's lifetime. NYLIAC will not be deemed to know of an assignment
unless it receives a copy of a duly executed instrument evidencing such as-
signment. Further, NYLIAC assumes no responsibility for the validity of any
assignment. (See "Federal Tax Matters--Taxation of Annuities in General" at
page 33 of the Prospectus.)
MODIFICATION. NYLIAC may not modify the Policy without the consent of the
Owner except to make the Policy meet the requirements of the Investment Com-
pany Act of 1940, or
6
<PAGE>
to make the Policy comply with any changes in the Internal Revenue Code or as
required by the Code in order to continue treatment of the Policy as an annui-
ty, or by any other applicable law.
INCONTESTABILITY. We rely on statements made in the application. They are
representations, not warranties. The Policy will not be contested after it has
been in force during the lifetime of the annuitant for two years from the Pol-
icy Date.
FEDERAL TAX MATTERS
TAXATION OF NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
NYLIAC is taxed as a life insurance company. Since the Separate Account is
not an entity separate from NYLIAC, and its operations form a part of NYLIAC,
it will not be taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized net capital gains on
the assets of the Separate Account are reinvested and are taken into account
in determining the Accumulation Value. As a result, such investment income and
realized net capital gains are automatically retained as part of the reserves
under the Policy. Under existing federal income tax law, NYLIAC believes that
Separate Account investment income and realized net capital gains should not
be taxed to the extent that such income and gains are retained as part of the
reserves under the Policy.
TAX STATUS OF THE POLICIES
Section 817(h) of the Code requires that the investments of the Separate Ac-
count must be "adequately diversified" in accordance with Treasury regulations
in order for the Policies to qualify as annuity contracts under Section 72 of
the Code. The Separate Account intends to comply with the diversification re-
quirements prescribed by the Treasury under Treasury Regulation Section 1.817-
5.
To comply with regulations under Section 817(h) of the Code, the Separate
Account is required to diversify its investments, so that on the last day of
each quarter of a calendar year, no more than 55% of the value of its assets
is represented by any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any three investments, and
no more than 90% is represented by any four investments. For this purpose, se-
curities of a single issuer are treated as one investment and each U.S. Gov-
ernment agency or instrumentality is treated as a separate issuer. Any secu-
rity issued, guaranteed, or insured (to the extent so guaranteed or insured)
by the U.S. Government or an agency or instrumentality of the U.S. Government
is treated as a security issued by the U.S. Government or its agency or in-
strumentality, whichever is applicable.
Although the Treasury Department has issued regulations on the diversifica-
tion requirements, such regulations do not provide guidance concerning the ex-
tent to which Owners may direct their investments to particular subaccounts of
a separate account, or the permitted number of such subaccounts. It is unclear
whether additional guidance in this regard will be issued in the future. It is
possible that if such guidance is issued, the Policy may need to be modified
to comply with such additional guidance. For these reasons, NYLIAC reserves
the right to modify the Policy as necessary to attempt to prevent the Owner
from being considered the owner of the assets of the Separate Account or oth-
erwise to qualify the Policy for favorable tax treatment.
7
<PAGE>
The Code also requires that non-qualified annuity contracts contain specific
provisions for distribution of the policy proceeds upon the death of any Own-
er. In order to be treated as an annuity contract for federal income tax pur-
poses, the Code requires that such Policies provide that (a) if any Owner dies
on or after the Annuity Commencement Date and before the entire interest in
the Policy has been distributed, the remaining portion must be distributed at
least as rapidly as under the method in effect on the Owner's death; and (b)
if any Owner dies before the Annuity Commencement Date, the entire interest in
the Policy must generally be distributed within 5 years after the Owner's date
of death. These requirements will be considered satisfied if the entire inter-
est of the Policy is used to purchase an immediate annuity under which pay-
ments will begin within one year of the Owner's death and will be made for the
life of the Beneficiary or for a period not extending beyond the life expec-
tancy of the Beneficiary. The Owner's Beneficiary is the person to whom owner-
ship of the Policy passes by reason of death. If the Beneficiary is the Own-
er's surviving spouse, the Policy may be continued with the surviving spouse
as the new Owner. Non-Qualified Policies contain provisions intended to comply
with these requirements of the Code. No regulations interpreting these re-
quirements of the Code have yet been issued and thus no assurance can be given
that the provisions contained in these Policies satisfy all such Code require-
ments. The provisions contained in these Policies will be reviewed and modi-
fied if necessary to assure that they comply with the Code requirements when
clarified by regulation or otherwise.
Withholding of federal income taxes on the taxable portion of all distribu-
tions may be required unless the recipient elects not to have any such amounts
withheld and properly notifies NYLIAC of that election. Different rules may
apply to United States citizens or expatriates living abroad. In addition,
some states have enacted legislation requiring withholding.
Even if a recipient elects no withholding, special rules may require NYLIAC
to disregard the recipient's election if the recipient fails to supply NYLIAC
with a "TIN" or taxpayer identification number (social security number for in-
dividuals) or if the Internal Revenue Service notifies NYLIAC that the TIN
provided by the recipient is incorrect.
DISTRIBUTOR OF THE POLICIES
NYLIFE Distributors Inc. ("NYLIFE Distributors"), the distributor of the
Policies, will offer the Policies on a continuous basis. NYLIFE Distributors
is registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National Asso-
ciation of Securities Dealers, Inc. The maximum commission payable to regis-
tered representatives of broker-dealers who have entered into dealer agree-
ments with NYLIFE Distributors is set forth in the prospectus. From time to
time, NYLIFE Distributors may enter into a special arrangement with a broker-
dealer, which provides for the payment of higher commissions to such broker-
dealer in connection with sales of the Policies. Purchasers of Policies will
be informed prior to purchase of any applicable special arrangement.
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS
Title to assets of the Separate Account is held by NYLIAC. The assets are
kept physically segregated and held separate and apart from NYLIAC's general
corporate assets. Rec-
8
<PAGE>
ords are maintained of all purchases and redemptions of Eligible Portfolio
shares held by each of the Investment Divisions.
STATE REGULATION
NYLIAC is a stock life insurance company organized under the laws of Dela-
ware, and is subject to regulation by the Delaware State Insurance Department.
An annual statement is filed with the Delaware Commissioner of Insurance on or
before March 1 of each year covering the operations and reporting on the fi-
nancial condition of NYLIAC as of December 31 of the preceding calendar year.
Periodically, the Delaware Commissioner of Insurance examines the financial
condition of NYLIAC, including the liabilities and reserves of the Separate
Account.
In addition, NYLIAC is subject to the insurance laws and regulations of all
the states where it is licensed to operate. The availability of certain policy
rights and provisions depends on state approval and/or filing and review
processes. Where required by state law or regulation, the Policies will be
modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by NYLIAC. As presently required by the Investment Company Act of 1940 and
regulations promulgated thereunder, NYLIAC will mail to all Owners at their
last known address of record, at least semi-annually after the first Policy
Year, reports containing such information as may be required under that Act or
by any other applicable law or regulation.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or
to which the assets of the Separate Account are subject. No litigation is
pending against NYLIAC which is likely to have a material adverse effect in
relation to its total assets.
INDEPENDENT ACCOUNTANTS
The annual financial statements of the Separate Account and NYLIAC will be
audited by Price Waterhouse LLP, independent accountants, 1177 Avenue of the
Americas, New York, New York. The NYLIAC financial statements included in this
Statement of Additional Information have been included in reliance on the re-
ports of Price Waterhouse LLP, given on the authority of said firm as experts
in auditing and accounting.
OTHER INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Policies discussed in this Statement of Additional Information. Not all of the
information set forth in the registration statement, amendments and exhibits
thereto has been included in this Statement of Additional Information. State-
ments contained in this Statement of Additional Information concerning the
content of the Policies and other legal instruments are intended to be summa-
ries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange Com-
mission.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
---------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost:
$11,079,502; $13,556,856;
$1,967,026; $7,163,883;
$726,528; $7,567,412;
$4,761,478; $1,891,506;
$2,928,382; $4,192,936;
$197,265, respectively).. $11,330,106 $13,556,856 $ 1,880,605 $ 7,031,548
LIABILITIES:
Liability for mortality and
expense risk charges..... 23,029 24,753 3,197 13,190
----------- ----------- ----------- -----------
Total equity............. $11,307,077 $13,532,103 $ 1,877,408 $ 7,018,358
=========== =========== =========== ===========
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units
outstanding: 951,325;
13,190,133; 177,665;
647,997; 66,642; 664,961;
431,785; 172,659; 241,119;
358,149; 16,669,
respectively............. $11,307,077 $13,532,103 $ 1,877,408 $ 7,018,358
=========== =========== =========== ===========
Variable accumulation
unit value............... $ 11.89 $ 1.03 $ 10.57 $ 10.83
=========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-1
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 727,724 $ 7,565,623 $ 4,898,069 $ 1,828,352 $ 2,757,549 $ 4,153,560 $ 187,565
1,567 14,338 9,608 3,323 5,084 7,969 515
----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 726,157 $ 7,551,285 $ 4,888,461 $ 1,825,029 $ 2,752,465 $ 4,145,591 $ 187,050
=========== =========== =========== =========== =========== =========== ===========
$ 726,157 $ 7,551,285 $ 4,888,461 $ 1,825,029 $ 2,752,465 $ 4,145,591 $ 187,050
=========== =========== =========== =========== =========== =========== ===========
$ 10.90 $ 11.36 $ 11.32 $ 10.57 $ 11.42 $ 11.58 $ 11.22
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-2
<PAGE>
STATEMENT OF OPERATIONS
For the period May 1, 1995 (Commencement of Operations)
through December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
----------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividend income........... $ 44,584 $ 117,375 $ 129,551 $ 245,619
Mortality and expense risk
charges.................. (26,854) (31,339) (3,737) (15,473)
--------- ----------- --------- ---------
Net investment income ... 17,730 86,036 125,814 230,146
--------- ----------- --------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS):
Proceeds from sale of
investments.............. 349,481 9,196,614 89,958 151,737
Cost of investments sold.. (321,484) (9,196,674) (88,520) (143,443)
--------- ----------- --------- ---------
Net realized gain (loss)
on investments.......... 27,997 (60) 1,438 8,294
Realized gain distribution
received................. -- -- -- 41,412
Change in unrealized
appreciation/depreciation
on investments........... 250,604 -- (86,421) (132,335)
--------- ----------- --------- ---------
Net gain (loss) on
investments............. 278,601 (60) (84,983) (82,629)
--------- ----------- --------- ---------
Decrease attributable to
funds of New York Life
Insurance and Annuity
Corporation retained by
Separate Account......... (466) (176) (63) (277)
--------- ----------- --------- ---------
Net increase in total
equity resulting from
operations.............. $ 295,865 $ 85,800 $ 40,768 $ 147,240
========= =========== ========= =========
</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>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 34,017 $ 176,041 $ 39,559 $ 110,674 $ 30,311 $ 76,780 $ 11,293
(1,926) (16,539) (11,315) (3,765) (5,750) (9,047) (564)
--------- --------- --------- --------- --------- --------- ---------
32,091 159,502 28,244 106,909 24,561 67,733 10,729
--------- --------- --------- --------- --------- --------- ---------
95,014 86,754 149,616 61,228 193,860 115,626 1,904
(91,887) (80,739) (140,003) (60,223) (181,072) (102,252) (1,739)
--------- --------- --------- --------- --------- --------- ---------
3,127 6,015 9,613 1,005 12,788 13,374 165
-- -- -- -- 215,561 109,107 5,463
1,196 (1,789) 136,591 (63,154) (170,833) (39,376) (9,699)
--------- --------- --------- --------- --------- --------- ---------
4,323 4,226 146,204 (62,149) 57,516 83,105 (4,071)
--------- --------- --------- --------- --------- --------- ---------
(62) (266) (292) (67) (179) (239) (13)
--------- --------- --------- --------- --------- --------- ---------
$ 36,352 $ 163,462 $ 174,156 $ 44,693 $ 81,898 $ 150,599 $ 6,645
========= ========= ========= ========= ========= ========= =========
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE>
STATEMENT OF CHANGES IN TOTAL EQUITY
For the period May 1, 1995 (Commencement of Operations)
through December 31, 1995
<TABLE>
<CAPTION>
CAPITAL CASH
APPRECIATION MANAGEMENT GOVERNMENT
-------------------------------------
<S> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income ................... $ 17,730 $ 86,036 $ 125,814
Net realized gain (loss) on investments.. 27,997 (60) 1,438
Realized gain distribution received...... -- -- --
Change in unrealized
appreciation/depreciation
on investments.......................... 250,604 -- (86,421)
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account............ (466) (176) (63)
----------- ----------- ----------
Net increase in total equity resulting
from operations........................ 295,865 85,800 40,768
----------- ----------- ----------
Contributions and withdrawals:
Policyowners' premium payments........... 613,994 52,879,690 34,988
Policyowners' surrenders................. (19,258) 3 (5,368)
Net transfers from (to) Fixed Account.... 33,040 (40,722) 160
Transfers between Investment Divisions... 10,383,436 (39,392,668) 1,806,860
----------- ----------- ----------
Total contributions and withdrawals
(net).................................. 11,011,212 13,446,303 1,836,640
----------- ----------- ----------
Increase in total equity............... 11,307,077 13,532,103 1,877,408
TOTAL EQUITY:
Beginning of period...................... -- -- --
----------- ----------- ----------
End of period............................ $11,307,077 $13,532,103 $1,877,408
=========== =========== ==========
</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>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 230,146 $ 32,091 $ 159,502 $ 28,244 $ 106,909 $ 24,561 $ 67,733 $ 10,729
8,294 3,127 6,015 9,613 1,005 12,788 13,374 165
41,412 -- -- -- -- 215,561 109,107 5,463
(132,335) 1,196 (1,789) 136,591 (63,154) (170,833) (39,376) (9,699)
(277) (62) (266) (292) (67) (179) (239) (13)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
147,240 36,352 163,462 174,156 44,693 81,898 150,599 6,645
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
283,469 34,022 270,670 115,567 122,959 76,948 148,405 231
(18,337) (1,851) (12,611) (10,880) (484) (498) (2,608) --
132 (91) 44,775 201 -- (552) 2,000 --
6,605,854 657,725 7,084,989 4,609,417 1,657,861 2,594,669 3,847,195 180,174
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
6,871,118 689,805 7,387,823 4,714,305 1,780,336 2,670,567 3,994,992 180,405
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
7,018,358 726,157 7,551,285 4,888,461 1,825,029 2,752,465 4,145,591 187,050
-- -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$7,018,358 $ 726,157 $7,551,285 $4,888,461 $1,825,029 $2,752,465 $4,145,591 $ 187,050
========== ========== ========== ========== ========== ========== ========== ==========
</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>
NOTES TO FINANCIAL STATEMENTS
NOTE 1--Organization and Accounting Policies:
- -------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation LifeStages/SM/ Annuity Separate
Account ("Separate Account") was established on November 30, 1994, under
Delaware law by New York Life Insurance and Annuity Corporation, a wholly-
owned subsidiary of New York Life Insurance Company. This account was
established to receive and invest premium payments under Qualified and Non-
Qualified Flexible Premium Variable Retirement Annuity Policies issued by New
York Life Insurance and Annuity Corporation. The qualified policies are
designed to establish retirement benefits for individuals who participate in
qualified pension, profit sharing or annuity plans. The non-qualified policies
are designed to establish retirement benefits to provide individuals with
supplemental retirement income. The policies are offered by NYLIFE
Distributors Inc. and sold by registered representatives of NYLIFE Securities
Inc. and certain banking institutions which have entered into a distribution
agreement with New York Life Insurance Company. NYLIFE Securities Inc. and
NYLIFE Distributors Inc. are wholly-owned subsidiaries of NYLIFE Inc. and are
indirect wholly-owned subsidiaries of New York Life Insurance Company. The
Separate Account is registered under the Investment Company Act of 1940, as
amended, as a unit investment trust. The assets of the Separate Account are
invested in the shares of the New York Life MFA Series Fund, Inc. (the "MFA
Fund"), a diversified open-end management investment company, and in Acacia
Capital Corporation (the "Acacia Fund"). These assets are clearly identified
and distinguished from the other assets and liabilities of New York Life
Insurance and Annuity Corporation.
There are ten Investment Divisions within the Separate Account which invest
solely in the corresponding Portfolios of the MFA Fund: the Capital
Appreciation, Cash Management, Government, High Yield Corporate Bond,
International Equity, Total Return, Value, Bond, Growth Equity and Indexed
Equity Portfolios. There is one Investment Division within the Separate
Account which invests solely in the Acacia Fund's Responsibly Invested
Balanced Portfolio. Premium payments received, except those received for the
Fixed Account, are allocated to the Cash Management Investment Division until
15 days after the policy issue date. Thereafter, premium payments will be
allocated to the Investment Divisions of the Separate Account in accordance
with the Policyowner's instructions. In addition, the Policyowner has the
option to transfer amounts between the Investment Divisions of the Separate
Account 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 the
Separate Account under current Federal income tax law.
Security Valuation--The investments in the MFA Fund and Acacia Fund are
valued at the net asset value of shares of the respective fund portfolios.
Security Transactions--Realized gains and losses from security transactions
are reported on the identified cost basis. Security transactions are accounted
for as of the date the securities are purchased or sold (trade date).
Distributions Received--Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding
portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
F-7
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- -------------------------------------------------------------------------------
At December 31, 1995, the investment in the MFA Fund and Acacia Fund by the
respective Investment Divisions of the Separate Account is as follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------
<S> <C> <C> <C> <C>
Number of Shares.............. 731 13,557 188 666
Identified Cost*.............. $11,080 $13,557 $1,967 $7,164
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Transactions in MFA Fund and Acacia Fund shares for the period May 1, 1995
(Commencement of Operations) through December 31, 1995 were as follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------
<S> <C> <C> <C> <C>
Purchases..................... $11,401 $22,754 $2,056 $7,307
Proceeds from Sales........... 349 9,197 90 152
</TABLE>
F-9
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
71 571 423 136 160 307 110
$727 $7,567 $4,761 $1,892 $2,928 $4,193 $197
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$818 $7,648 $4,901 $1,952 $3,109 $4,295 $199
95 87 150 61 194 116 2
</TABLE>
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- -------------------------------------------------------------------------------
The Separate Account is charged for administrative services provided and the
mortality and expense risks assumed by New York Life Insurance and Annuity
Corporation. These charges are made at an annual rate of 1.40% of the daily
net asset value of each Investment Division. The amounts of these charges
retained in the Investment Divisions represent funds of New York Life
Insurance and Annuity Corporation. Accordingly, New York Life Insurance and
Annuity Corporation participates in the results of each Investment Division
ratably with the Policyowners.
- -------------------------------------------------------------------------------
NOTE 4--Distribution of Net Income:
- -------------------------------------------------------------------------------
The Separate Account 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, transfers, or annuity payments) in excess of the
net premium payments.
F-11
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Cost to Policyowners (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1995, the cost to Policyowners for accumulation units outstand-
ing, with adjustments for net investment income, market
appreciation/depreciation and deduction for expenses is as follows:
<TABLE>
<CAPTION>
CAPITAL CASH HIGH YIELD
APPRECIATION MANAGEMENT GOVERNMENT CORPORATE BOND
-------------------------------------------------
<S> <C> <C> <C> <C>
Cost to Policyowners (net of
withdrawals)................ $11,010 $13,446 $ 1,836 $ 6,870
Accumulated net investment
income...................... 18 86 126 230
Accumulated net realized gain
on investments and realized
gain distributions received. 28 -- 1 50
Unrealized
appreciation/depreciation on
investments................. 251 -- (86) (132)
------- ------- ------- -------
Net amount applicable to
Policyowners and New York
Life Insurance and Annuity
Corporation................. $11,307 $13,532 $ 1,877 $ 7,018
======= ======= ======= =======
</TABLE>
F-13
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 690 $ 7,387 $ 4,713 $ 1,780 $ 2,670 $ 3,995 $ 180
32 160 28 107 25 68 11
3 6 10 1 228 122 6
1 (2) 137 (63) (171) (39) (10)
------- ------- ------- ------- ------- ------- -------
$ 726 $ 7,551 $ 4,888 $ 1,825 $ 2,752 $ 4,146 $ 187
======= ======= ======= ======= ======= ======= =======
</TABLE>
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the period May 1, 1995 (Commencement of
Operations) through December 31, 1995, were as follows:
<TABLE>
<CAPTION>
CAPITAL CASH
APPRECIATION MANAGEMENT GOVERNMENT
----------------------------------
<S> <C> <C> <C>
Units issued on premium payments............ 53 51,863 3
Units redeemed on surrenders................ (2) -- (1)
Units issued (redeemed) on net transfers to
Fixed Account.............................. 3 (40) --
Units issued (redeemed) on transfers between
Investment Divisions....................... 897 (38,633) 176
------ ------- -----
Net increase............................... 951 13,190 178
Units outstanding, beginning of period...... -- -- --
------ ------- -----
Units outstanding, end of period............ 951 13,190 178
====== ======= =====
</TABLE>
F-15
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
27 3 24 11 12 7 13 --
(2) -- (1) (1) -- -- -- --
-- -- 4 -- -- -- -- --
623 64 638 422 161 234 345 17
------ ------ ------ ------ ------ ------ ------ -----
648 67 665 432 173 241 358 17
-- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ -----
648 67 665 432 173 241 358 17
====== ====== ====== ====== ====== ====== ====== =====
</TABLE>
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and capital
changes (for an accumulation unit outstanding throughout the period) for the
period May 1, 1995 (Commencement of Operations) through December 31, 1995, with
respect to each Investment Division of the Separate Account:
<TABLE>
<CAPTION>
CAPITAL CASH
APPRECIATION MANAGEMENT GOVERNMENT
----------------------------------
<S> <C> <C> <C>
Unit value, beginning of period............. $10.00 $ 1.00 $10.00
Net investment income....................... 0.06 0.02 2.49
Net realized and unrealized gains (losses)
on security transactions and
realized capital gain distributions
received (includes the effect of capital
share transactions)........................ 1.83 0.01 (1.92)
------ ------ ------
Unit value, end of period.................. $11.89 $ 1.03 $10.57
====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the period.
F-17
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
LIFESTAGES/SM/ ANNUITY
SEPARATE ACCOUNT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH YIELD INTERNATIONAL TOTAL GROWTH INDEXED SOCIALLY
CORPORATE BOND EQUITY RETURN VALUE BOND EQUITY EQUITY RESPONSIBLE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
1.15 1.36 0.79 0.20 2.16 0.35 0.62 1.60
(0.32) (0.46) 0.57 1.12 (1.59) 1.07 0.96 (0.38)
------ ------ ------ ------ ------ ------ ------ ------
$10.83 $10.90 $11.36 $11.32 $10.57 $11.42 $11.58 $11.22
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
To the Board of Directors of New York Life Insurance
and Annuity Corporation and the LifeStages/SM/ Annuity Policyowners:
In our opinion, the accompanying statements of assets and liabilities and the
related statements of operations and of changes in total equity and the se-
lected per unit data present fairly, in all material respects, the financial
position of the New York Life Insurance and Annuity Corporation LifeStages/SM/
Annuity Separate Account comprised of the Capital Appreciation Investment Di-
vision, the Cash Management Investment Division, the Government Investment Di-
vision, the High Yield Corporate Bond Investment Division, the International
Equity Investment Division, the Total Return Investment Division, the Value
Investment Division, the Bond Investment Division, the Growth Equity Invest-
ment Division, the Indexed Equity Investment Division and the Socially Respon-
sible Investment Division at December 31, 1995, the results of its operations,
the changes in its total equity and the selected per unit data for the period
May 1, 1995 (commencement of operations) through December 31, 1995, in confor-
mity with generally accepted accounting principles. These financial statements
and selected per unit data (hereafter referred to as "financial statements")
are the responsibility of management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our au-
dit of these financial statements in accordance with generally accepted audit-
ing standards which require that we plan and perform the audit to obtain rea-
sonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence support-
ing the amounts and disclosures in the financial statements, assessing the ac-
counting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of investments at December 31, 1995 with
New York Life MFA Series Fund, Inc. and Acacia Capital Corporation, provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 15, 1996
F-19
<PAGE>
STATEMENT OF FINANCIAL POSITION
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
--------------
(IN MILLIONS)
<S> <C> <C>
ASSETS:
Bonds..................................................... $12,262 $11,141
Mortgage loans............................................ 1,062 969
Preferred and common stocks............................... 64 69
Real estate............................................... 141 119
Policy loans.............................................. 445 420
Cash and short-term investments........................... 343 580
Investment income due and accrued......................... 181 175
Separate account assets................................... 1,444 971
Other assets.............................................. 35 55
------- -------
Total assets............................................. $15,977 $14,499
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY:
LIABILITIES:
Policy reserves........................................... $12,821 $12,100
Deposit funds............................................. 7 --
Policy proceeds deposited with the Company................ 88 70
Policy claims............................................. 79 67
Payable to parent......................................... 202 41
Securities sold under agreements to repurchase............ 86 254
Separate account liabilities.............................. 1,396 905
Other liabilities......................................... 256 92
Interest maintenance reserve.............................. 26 20
Asset valuation reserve................................... 138 105
------- -------
Total liabilities....................................... 15,099 13,654
------- -------
STOCKHOLDER'S EQUITY:
Capital stock--par value $10,000 (20,000 shares autho-
rized, 2,500 issued and outstanding)..................... 25 25
Additional paid-in capital................................ 480 480
Surplus................................................... 373 340
------- -------
Total stockholder's equity............................... 878 845
------- -------
Total liabilities and stockholder's equity.............. $15,977 $14,499
======= =======
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF OPERATIONS ANNUITY CORPORATION
(Prepared from the Annual Statement filed (A WHOLLY OWNED SUBSIDIARY
with the Delaware Insurance Department) OF NEW YORK LIFE INSURANCE
COMPANY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
----------------------
(IN MILLIONS)
<S> <C> <C> <C>
INCOME:
Premiums............................................. $ 1,348 $ 1,203 $ 1,321
Net investment income................................ 1,037 1,020 1,025
Policy proceeds deposited with the Company........... 121 118 97
Other income......................................... 41 39 16
------- ------- -------
Total income........................................ 2,547 2,380 2,459
------- ------- -------
BENEFITS AND EXPENSES:
Benefit payments:
Death benefits....................................... 117 117 88
Annuity benefits..................................... 324 276 194
Health and disability insurance benefits............. 23 20 18
Surrender benefits................................... 650 718 802
Payments of amounts previously deposited with the
Company............................................. 111 107 72
------- ------- -------
1,225 1,238 1,174
Additions to policy reserves......................... 522 442 603
Additions to other insurance reserves................ 369 183 172
Operating expenses................................... 276 250 215
------- ------- -------
Total benefits and expenses......................... 2,392 2,113 2,164
------- ------- -------
Gain from operations before federal income taxes...... 155 267 295
Federal income taxes.................................. 60 105 129
------- ------- -------
Net gain from operations.............................. 95 162 166
Net realized capital gains (losses), after transfer-
ring $23 million, ($25) million and $44 million of
net realized capital gains (losses) to the interest
maintenance reserve for 1995, 1994 and 1993,
respectively......................................... -- 4 (61)
------- ------- -------
Net income............................................ $ 95 $ 166 $ 105
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
STATEMENT OF CHANGES IN SURPLUS
(Prepared from the Annual Statement filed
with the Delaware Insurance Department)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
-----------------------
(IN MILLIONS)
<S> <C> <C> <C>
Surplus, beginning of year........................... $ 340 $ 275 $ 206
Net income........................................... 95 166 105
Net unrealized (losses) gains on investments......... (1) (1) 41
(Increase) decrease in asset valuation reserve....... (33) (27) 3
Dividend to stockholder.............................. -- (70) (71)
Other adjustments, net............................... (28) (3) (9)
------- ------- -------
Surplus, end of year................................. $ 373 $ 340 $ 275
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
NEW YORK LIFE
INSURANCE AND
STATEMENT OF CASH FLOWS ANNUITY CORPORATION
(Prepared from the Annual Statement filed (A WHOLLY OWNED SUBSIDIARY
with the Delaware Insurance Department) OF NEW YORK LIFE INSURANCE
COMPANY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
-----------------------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATIONS:
Premiums received..................................... $1,339 $1,195 $1,338
Net investment income received........................ 978 959 950
Other................................................. 347 350 113
------ ------ ------
Total received....................................... 2,664 2,504 2,401
------ ------ ------
Benefits and other payments........................... 1,207 1,228 1,173
Operating expenses.................................... 279 249 206
Other................................................. 323 315 285
------ ------ ------
Total paid........................................... 1,809 1,792 1,664
------ ------ ------
Net cash provided from operations...................... 855 712 737
------ ------ ------
Proceeds from investments sold......................... 2,415 3,137 2,839
Proceeds from investments matured or repaid............ 1,307 1,579 2,669
Securities sold under agreements to repurchase......... 3,029 1,938 1,632
Securities repurchased................................. (3,196) (1,833) (1,483)
Cost of investments acquired........................... (4,846) (4,925) (6,320)
------ ------ ------
Net cash used for investments.......................... (1,291) (104) (663)
------ ------ ------
Dividend paid to stockholder........................... -- (70) (71)
------ ------ ------
Other, net............................................. 199 (151) (85)
------ ------ ------
Net change in cash and short-term investments.......... (237) 387 (82)
Cash and short-term investments, beginning of year..... 580 193 275
------ ------ ------
Cash and short-term investments, end of year........... $ 343 $ 580 $ 193
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
NEW YORK LIFE
NOTES TO FINANCIAL STATEMENTS INSURANCE AND
December 31, 1995 and 1994 ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY
OF NEW YORK LIFE INSURANCE
COMPANY)
NOTE 1--Nature of Operations:
- -------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation ("NYLIAC"), a direct, wholly
owned subsidiary of New York Life Insurance Company ("New York Life"), is a
stock life insurance company. NYLIAC offers a wide variety of interest sensi-
tive insurance and annuity products to a large cross section of the total in-
surance market. NYLIAC markets its products in all 50 of the United States,
the District of Columbia and Taiwan, primarily through its agency force. In
addition, NYLIAC markets Corporate Owned Life Insurance through independent
brokers and brokerage general agents.
The following companies are also direct, wholly owned subsidiaries of New
York Life: New York Life and Health Insurance Company, NYLIFE Insurance
Company of Arizona and NYLIFE Inc.
- -------------------------------------------------------------------------------
NOTE 2--Significant Accounting Policies:
- -------------------------------------------------------------------------------
Basis of Presentation--The accompanying financial statements have been prepared
on the basis of accounting practices prescribed or permitted by the Delaware
Insurance Department ("statutory accounting practices"). Statutory accounting
practices are currently considered generally accepted accounting principles
for mutual life insurance companies and their stock life subsidiaries, such as
NYLIAC. The Financial Accounting Standards Board has issued an Interpretation
which establishes a different definition of generally accepted accounting
principles for mutual life insurance companies. Under that Interpretation, fi-
nancial statements of mutual life insurance companies for periods beginning
after December 15, 1995 which are prepared on the basis of statutory account-
ing practices will no longer be characterized as in conformity with generally
accepted accounting principles. Financial statements prepared in conformity
with statutory accounting practices will continue to be required by insurance
regulatory authorities.
Management of NYLIAC has not yet determined the effect on its December 31,
1995 financial statements of applying the new Interpretation nor whether it
will continue to present its general purpose financial statements in
conformity with the statutory basis of accounting or adopt the accounting
changes required in order to continue to present its financial statements in
conformity with generally accepted accounting principles. If NYLIAC chooses to
adopt the accounting changes required, the effect of the changes would be
reported retroactively through restatement of all previously issued financial
statements presented for comparative purposes. The cumulative effect of
adopting these changes would be included in the earliest year restated.
Investments--Investments are carried in accordance with methods and values
prescribed by the National Association of Insurance Commissioners ("NAIC").
Bonds are generally stated at amortized cost. Preferred stocks are generally
stated at cost. Common stocks are stated at market value. Mortgage loans on
real estate are stated at cost or amortized cost, but at no time stated at
more than the appraised value of the underlying collateral. Real estate is
stated at the lower of cost less accumulated depreciation and encumbrances or
market value, except for real estate joint ventures which are stated on an eq-
uity basis. Depreciation of real estate (excluding foreclosed properties which
are not depreciated) is calculated using the straight-line method over the es-
timated lives of the assets (generally 30 years). Policy loans are stated at
the aggregate balance due (which approximates fair value). Limited partnership
investments (included in other assets) are stated on the equity basis. The
value of invested assets has been adjusted for impairments that are other than
temporary. Investment income is recorded on the accrual basis, except where
collection is 90 days past due or is considered uncertain.
Prepayment assumptions for loan-backed bonds were developed internally using
a proprietary model; outside services were used for structured securities. The
prospective adjustment method is used to adjust the amortization of premiums
and discounts on such securities.
F-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Derivative financial instruments used by NYLIAC to hedge exposure to
interest rate and foreign currency fluctuations are accounted for on an
accrual basis. Gains and losses related to contracts that are effective hedges
on specific assets are deferred and recognized in income in the same period as
gains and losses on the hedged asset.
The Asset Valuation Reserve ("AVR") is required by insurance regulators to
stabilize surplus from fluctuations in the market value of bonds, stocks,
mortgage loans, real estate and other invested assets. Changes in the reserve
are accounted for as direct increases or decreases in surplus. The Interest
Maintenance Reserve ("IMR"), also required by insurance regulators, captures
interest related realized gains and losses (net of taxes) on fixed income
investments (bonds, preferred stocks and mortgage loans) which are amortized
into net investment income over the expected years to maturity of the
investments sold using the seriatim method for bonds and the grouped method
for mortgage loans and preferred stock.
Amounts payable or receivable under interest rate swap, commodity swap and
interest rate floor agreements are recognized as investment income or expense
when earned. Premiums paid for interest rate floor agreements are amortized
into interest expense over the life of the agreement. Unamortized premiums are
included in other assets in the Statement of Financial Position.
Unrealized gains and losses on foreign exchange forward contracts are
reported as other assets or liabilities, as appropriate. Realized gains and
losses are recognized in net income upon termination of the contracts.
Premiums and Related Expenses--Premiums are taken into income over the pre-
mium-paying period of the policies. Commissions and other costs associated
with acquiring new business are charged to operations as incurred.
Policy Reserves--Policy reserves are based on mortality tables and valuation
interest rates which are consistent with statutory requirements and are de-
signed to be sufficient to provide for contractual benefits.
Federal Income Taxes--Provision is made for federal income taxes estimated
to be payable to New York Life under a tax allocation agreement, including an
allocation of the equity base tax. Adjustments to such estimates, including
those related to the true-up or true-down of the equity base tax, are recorded
in gain from operations when known. Realized gains and losses are reported af-
ter adjustment for the associated federal income tax.
Change in Accounting Policy for the Equity Base Tax--Each year, an estimated
Differential Earnings Rate (DER) is used to determine the equity base tax
reported in the annual statement as part of gain from operations for that
year. When the final DER is known, NYLIAC records a true-up or true-down
adjustment for the difference between the estimated and final DER.
Based on recent NAIC discussions of this item, NYLIAC changed that policy to
accelerate the recognition of the DER adjustment by one year and to record DER
adjustments through net gain. Previously, NYLIAC recorded such adjustments
directly to surplus. The effect of this change, including $18,000,000 for the
effect of adjusting for prior years, was an increase to net gain of
$12,000,000, and a decrease to surplus of $15,000,000.
Separate Accounts--NYLIAC has established separate accounts with varying in-
vestment objectives which are segregated from NYLIAC's general account and are
maintained for the benefit of separate account contractholders and NYLIAC.
Separate account assets are generally stated at market value. The liability
for separate accounts represents contractholders'
F-25
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY
OF NEW YORK LIFE INSURANCE
COMPANY)
interests in the separate account assets, including accumulated net investment
income and realized and unrealized gains and losses on those assets. Separate
account liabilities generally reflect market value.
Nonadmitted Assets--Under statutory accounting practices, certain assets are
designated as "nonadmitted assets" and are not included in the Statement of
Financial Position.
Fair Values of Financial Instruments--Fair values of various assets and lia-
bilities are included throughout the notes to financial statements. Specifi-
cally, fair value disclosure of bonds, mortgage loans, and cash and short-term
investments is reported in Note 3. Fair values for insurance liabilities (pol-
icy reserves) are reported in Note 7. Fair values for derivative financial in-
struments are included in Note 12.
Permitted Statutory Accounting Practices--NYLIAC prepares its statutory fi-
nancial statements in accordance with accounting principles and practices pre-
scribed or permitted by the Delaware Insurance Department. Prescribed statu-
tory accounting practices include state laws and regulations along with NAIC
regulations. Permitted statutory accounting practices encompass accounting
practices that are not prescribed; such practices differ from state to state,
may differ from company to company within a state, and may change in the fu-
ture. Furthermore, the NAIC has started a project to codify statutory account-
ing practices, the result of which is expected to constitute the only source
of "prescribed" statutory accounting practices. Accordingly, that project,
which is expected to be completed in 1997, will likely change the definition
of what comprises prescribed versus permitted statutory accounting practices,
and may result in changes to the accounting policies that insurance enter-
prises use to prepare their statutory financial statements. NYLIAC has no ma-
terial permitted statutory accounting practices.
Business Risks and Uncertainties--The preparation of financial statements of
life insurance enterprises requires management to make estimates and assump-
tions that affect the reported amounts of assets and liabilities at the date
of the financial statements. As a provider of life insurance and annuity prod-
ucts, NYLIAC's operating results in any given period depend on estimates of
policy reserves required to provide for future policyowner benefits.
The development of policy reserves for NYLIAC's products requires management
to make estimates and assumptions regarding mortality, morbidity, lapse,
expense and investment experience. Such estimates are primarily based on
historical experience and, in many cases, state insurance laws require
specific mortality, morbidity and investment assumptions to be used by NYLIAC.
Actual results could differ materially from those estimates. Management
monitors actual experience, and where circumstances warrant, revises its
assumptions and the related reserve estimates.
NYLIAC regularly invests in mortgage backed securities and other securities
subject to prepayment and call risk. Significant changes in prevailing
interest rates may adversely affect the timing and amount of cash flows on
such securities. In addition, the amortization of market discount and
accretion of market premium for mortgage backed securities is based on
historical experience and estimates of future payment speeds on the underlying
mortgage loans. Actual prepayment speeds will differ from original estimates
and may result in material adjustments to amortization or accretion recorded
in future periods.
NYLIAC distributes a Corporate Owned Life Insurance product to targeted
corporate customers, primarily banks, through individual brokers and brokerage
general agents. Sales of this product by one broker generated $270,000,000 of
premium income in 1995, which represents 20% of NYLIAC's total premium income.
F-26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As a subsidiary of a mutual insurance company, NYLIAC is subject to a tax on
its equity base. The rates applied to NYLIAC's equity base are determined
annually by the Internal Revenue Service 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 must be
made by management. The ultimate amounts of equity base tax incurred may vary
considerably from the original estimates. (See Note 2--Federal Income Taxes
and Change in Accounting Policy for the Equity Base Tax).
- -------------------------------------------------------------------------------
NOTE 3--Investments
- -------------------------------------------------------------------------------
Bonds--Fair values of bonds as shown below are based on published market val-
ues, if available. For investments without readily ascertainable market val-
ues, fair value has been determined using one of the following sources: market
dealer quotations, a discounted cash flow approach, or a proprietary matrix
pricing model. Fair values do not necessarily represent the values for which
these securities could have been sold at December 31, 1995 or 1994; therefore,
care should be exercised in drawing any conclusions from these fair values.
The method for determining statement values is described in Note 2.
At December 31, 1995 and 1994, the maturity distribution of bonds was as
follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
ESTIMATED ESTIMATED
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Due in one year or less... $ 756 $ 763 $ 218 $ 218
Due after one year through
five years............... 3,012 3,082 3,267 3,179
Due after five years
through ten years........ 1,853 1,957 1,901 1,801
Due after ten years....... 1,863 2,042 1,916 1,795
Asset-backed securities:
Government or government
agency.................. 4,089 4,233 3,310 3,128
Other.................... 689 720 529 523
------- ------- ------- -------
Total................... $12,262 $12,797 $11,141 $10,644
======= ======= ======= =======
</TABLE>
At December 31, 1995 and 1994, the distribution of unrealized gains and
losses on bonds was as follows (in millions):
<TABLE>
<CAPTION>
1995
--------------------------------
ESTIMATED
STATEMENT FAIR
VALUE GAINS LOSSES VALUE
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government corporations
and agencies................................. $ 1,840 $ 82 $ 2 $ 1,920
U.S. agencies, state and municipal............ 3,563 150 8 3,705
Foreign governments........................... 324 20 1 343
Corporate..................................... 5,846 274 11 6,109
Other......................................... 689 32 1 720
------- ---- --- -------
Total....................................... $12,262 $558 $23 $12,797
======= ==== === =======
</TABLE>
F-27
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY
OF NEW YORK LIFE INSURANCE
COMPANY)
<TABLE>
<CAPTION>
1994
--------------------------------
ESTIMATED
STATEMENT FAIR
VALUE GAINS LOSSES VALUE
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government corporations
and agencies................................. $ 1,679 $10 $ 96 $ 1,593
U.S. agencies, state and municipal............ 2,965 14 193 2,786
Foreign governments........................... 298 4 21 281
Corporate..................................... 5,670 60 269 5,461
Other......................................... 529 10 16 523
------- --- ---- -------
Total....................................... $11,141 $98 $595 $10,644
======= === ==== =======
</TABLE>
Mortgage Loans--NYLIAC attempts to minimize the risk of investing in mort-
gage loans by diversification of geographic locations and types of properties,
collateralization of mortgage loans based on management's credit assessment of
the borrower, and by traditionally requiring loan-to-value ratios of 75% or
less on new loans. The maximum and minimum lending rates for mortgage loans
during 1995 were: commercial loans, 9.50% and 7.25% (9.50% and 6.80% for
1994); residential loans, 7.24% and 7.19% (no residential loans for 1994).
At December 31, 1995 and 1994, the distribution of the mortgage loan
portfolio by geographic location and property type was as follows (in
millions):
<TABLE>
<CAPTION>
1995 1994
--------------- ---------------
STATEMENT % OF STATEMENT % OF
VALUE TOTAL VALUE TOTAL
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Geographic Distribution:
Middle Atlantic.............................. $ 421 39.7% $432 44.6%
South Atlantic............................... 275 25.9 202 20.8
Pacific...................................... 132 12.4 140 14.4
East North Central........................... 132 12.4 130 13.4
West South Central........................... 52 4.9 15 1.6
East South Central........................... 22 2.1 29 3.0
Mountain..................................... 15 1.4 13 1.4
New England.................................. 12 1.1 7 .7
West North Central........................... 1 .1 1 .1
------ ----- ---- -----
Total....................................... $1,062 100.0% $969 100.0%
====== ===== ==== =====
Property Type:
Office Building.............................. $ 696 65.5% $649 67.0%
Retail....................................... 185 17.4 166 17.1
Apartments................................... 152 14.3 125 12.9
Industrial................................... 21 2.0 29 3.0
Residential.................................. 8 .8 -- --
------ ----- ---- -----
Total....................................... $1,062 100.0% $969 100.0%
====== ===== ==== =====
</TABLE>
F-28
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1995 and 1994, anticipated maturities in NYLIAC's mortgage
loan portfolio were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Due in one year or less.................................... $ 84 $142
Due after one year through five years...................... 398 345
Due after five years through ten years..................... 460 408
Due after ten years........................................ 120 74
------ ----
Total.................................................... $1,062 $969
====== ====
</TABLE>
Fair values for the mortgage loan portfolio at December 31, 1995 and 1994
were estimated to be $1,103,000,000 and $946,000,000, respectively, and were
determined by discounting the projected cash flow for each individual loan to
determine the current net present value. The discount rate used approximates
the current rate for new mortgages with comparable characteristics and similar
remaining maturities. As mortgage loans are generally intended to be held to
maturity and fair values do not necessarily represent the values for which
these loans could have been sold at December 31, 1995 or 1994, care should be
exercised in drawing any conclusions from these fair values. The method of
determining statement values is described in Note 2.
Real Estate--At December 31, 1995 and 1994, NYLIAC's real estate portfolio,
at statement value, consisted of the following (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial:
Investment................................................ $101 $ 90
Acquired through foreclosure.............................. 40 29
---- ----
Total real estate........................................ $141 $119
==== ====
</TABLE>
Accumulated depreciation on real estate at December 31, 1995 amounted to
$5,033,000 ($2,379,000 for 1994). Depreciation expense for 1995 was $2,654,000
($1,729,000 for 1994 and $699,000 for 1993), and was recorded as an investment
expense.
Cash and Short-Term Investments--Short-term investments consist of securi-
ties that have maturities of one year or less at acquisition. The carrying
amount reported in the Statement of Financial Position for cash and short-term
investments approximates fair value.
F-29
<PAGE>
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, 1995,
1994 and 1993 were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Bonds.............................................. $ 887 $ 877 $ 881
Mortgage loans..................................... 83 86 98
Preferred and common stocks........................ 3 5 7
Real estate........................................ 19 15 11
Policy loans....................................... 34 31 29
Short-term investments............................. 25 13 8
Amortization of IMR................................ 16 10 3
Other.............................................. 5 9 9
------ ------ ------
Gross investment income.......................... 1,072 1,046 1,046
Investment expenses................................ 35 26 21
------ ------ ------
Net investment income............................ $1,037 $1,020 $1,025
====== ====== ======
</TABLE>
For the years ended December 31, 1995, 1994 and 1993 realized capital gains
and losses were as follows (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- ------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Bonds................................... $ 62 $ (31) $ 94 $(132) $ 99 $(115)
Mortgage loans.......................... 4 (8) 1 -- 2 --
Preferred and common stocks............. 16 (6) 6 (1) 7 --
Real estate............................. -- (1) -- (3) -- (3)
Derivative instruments.................. 102 (103) 4 (14) -- --
Other assets............................ 10 (3) 5 -- 3 (13)
---- ----- ---- ----- ---- -----
$194 $(152) $110 $(150) $111 $(131)
==== ===== ==== ===== ==== =====
Net realized capital gains (losses)
before capital gains tax and transfers
to the IMR............................. 42 (40) (20)
Less:
Capital gains tax (benefit)............ 19 (19) (3)
Gains (losses) transferred to the IMR.. 23 (25) 44
---- ---- -----
Net realized capital gains (losses)
after capital gains tax and transfers
to the IMR............................. $ 0 $ 4 $ (61)
==== ==== =====
</TABLE>
Proceeds from investments in bonds sold, matured or repaid were
$3,395,000,000, $4,520,000,000 and $5,197,000,000 for the years ended December
31, 1995, 1994 and 1993, respectively.
F-30
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--Dividends to Stockholder
- --------------------------------------------------------------------------------
No dividends were declared or paid to New York Life in 1995. In 1994 and 1993,
NYLIAC declared and paid dividends of $70,000,000 and $71,000,000, respective-
ly, to New York Life. These dividends were paid from current year earnings, as
permitted by the Delaware Insurance Department.
- --------------------------------------------------------------------------------
NOTE 6--Service Agreement with New York Life
- --------------------------------------------------------------------------------
New York Life provides NYLIAC with services and facilities for the sale of in-
surance and other activities related to the business of insurance. NYLIAC reim-
burses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life and
NYLIAC. Such costs, amounting to $166,000,000 for the year ended December 31,
1995 ($147,000,000 for 1994 and $124,000,000 for 1993) are reflected in operat-
ing expenses and net investment income in the accompanying Statement of Opera-
tions.
In 1993, the NAIC approved a new accounting treatment for postretirement
benefits other than pensions which requires the reporting of expected future
benefit costs (primarily life and health benefits) for retirees and fully
eligible active employees. The liabilities for postretirement benefits are held
by New York Life. However, NYLIAC was allocated $5,000,000 for its share of the
net periodic postretirement benefits expense in 1995 ($5,000,000 and $6,000,000
in 1994 and 1993, respectively) under the provisions of the service agreement.
- --------------------------------------------------------------------------------
NOTE 7--Insurance Liabilities
- --------------------------------------------------------------------------------
Policy Reserves and Deposit Funds--Reserves for life insurance policies are
maintained principally using the 1958 and 1980 Commissioners' Standard Ordinary
(CSO) Mortality Tables under the Commissioners' Reserve Valuation Method (CRVM)
with valuation interest rates ranging from 4% to 6.5%. Reserves for annuities
are based principally on 1971 Individual Annuity and 1983-a Mortality Tables
and the Commissioners' Annuity Reserve Valuation Method (CARVM), with valuation
interest rates ranging from 4% to 10%. Generally, owners of NYLIAC deferred an-
nuities are able, at their discretion, to withdraw funds from their policies.
The following table reflects the withdrawal characteristics of annuity
reserves and deposit funds (in millions):
<TABLE>
<CAPTION>
1995 1994
------------ ------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment......................... $ -- --% $ -- --%
At book value less surrender charge of 5% or more.... 1,730 19 1,289 16
Market value......................................... 1,303 14 862 10
------ --- ------ ---
Total with adjustment or at market value.............. 3,033 33 2,151 26
At book value without adjustment (minimal or no
charge or adjustment)............................... 5,875 65 6,064 72
Not subject to discretionary withdrawal provisions... 189 2 184 2
------ --- ------ ---
Total annuity reserves and deposit fund liabilities. $9,097 100% $8,399 100%
====== === ====== ===
</TABLE>
F-31
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY
OF NEW YORK LIFE INSURANCE
COMPANY)
NYLIAC's liabilities under investment-type contracts, primarily deferred
annuities, of $7,614,000,000 and $7,343,000,000 at December 31, 1995 and 1994,
respectively, are included in policy reserves on the Statement of Financial
Position. Fair value of these liabilities at December 31, 1995 is
approximately $7,619,000,000 (statement value at December 31, 1994 generally
reflects fair value).
Liability for Unpaid Accident and Health Claims and Claim Adjustment Ex-
penses--Activity in the liability for unpaid accident and health claims and
claim adjustment expenses is summarized as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Balance at January 1.............................................. $20 $18
Incurred related to:
Current Year......................................................... 22 20
Prior Year........................................................... -- --
--- ---
Total Incurred....................................................... 22 20
--- ---
Paid related to:
Current Year......................................................... -- --
Prior Year........................................................... 20 18
--- ---
Total Paid........................................................... 20 18
--- ---
Net Balance at December 31............................................ $22 $20
</TABLE>
- -------------------------------------------------------------------------------
NOTE 8--Separate Accounts
- -------------------------------------------------------------------------------
NYLIAC maintains seven nonguaranteed separate accounts for its variable de-
ferred annuity and variable universal life products. The assets of the sepa-
rate accounts represent shares of New York Life sponsored MFA Series Fund and
Acacia Capital Corporation Calvert Socially Responsible Portfolio as follows
(in millions):
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
NO. OF STATEMENT NO. OF STATEMENT
PORTFOLIO SHARES VALUE SHARES VALUE
--------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Growth Equity............................... 24.823 $ 428 22.479 $330
Bond........................................ 17.514 235 17.099 207
Capital Appreciation........................ 15.784 244 9.952 114
Indexed Equity.............................. 7.776 105 6.088 63
Total Return................................ 14.699 195 11.562 122
Government.................................. 6.477 65 6.691 62
Cash Management............................. 88.930 89 72.526 73
International Equity........................ 1.435 15 -- --
High Yield Corporate Bond................... 4.105 43 -- --
Value....................................... 2.109 24 -- --
Socially Responsible........................ .356 1 -- --
------- ------ ------- ----
Total..................................... 184.008 $1,444 146.397 $971
======= ====== ======= ====
</TABLE>
F-32
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the second quarter of 1996, NYLIAC is expected to offer for sale a
new variable product, Corporate Owned Life Insurance Variable Universal Life,
for the purpose of investing payments received under new variable universal
life contracts issued by NYLIAC.
NYLIAC's total investment in the separate accounts was $48,000,000 and
$64,000,000 at December 31, 1995 and 1994, respectively.
Variable separate accounts held by NYLIAC for Individual Life and Annuity
policies represent nonguaranteed funds. The assets of these accounts are car-
ried at market value.
The following is a reconciliation of net transfers from NYLIAC to the
Separate Accounts (in millions):
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ----
<S> <C> <C> <C>
Transfers as reported in Summary of Operations of
the Separate Accounts Statement:
Transfers to Separate Accounts................... $ 404 $ 312 $215
Transfers from Separate Accounts................. (174) (143) (69)
----- ----- ----
Net transfers to Separate Accounts................ $ 230 $ 169 $146
===== ===== ====
Transfers as reported in "additions to other
insurance reserves" on the Statement of Operations
of NYLIAC......................................... $ 230 $ 169 $146
===== ===== ====
</TABLE>
F-33
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY
OF NEW YORK LIFE INSURANCE
COMPANY)
NOTE 9--Federal Income Taxes
- -------------------------------------------------------------------------------
NYLIAC is a member of an affiliated group which joins in the filing of a con-
solidated federal income tax return with New York Life. The consolidated in-
come tax liability is allocated among the members of the group in accordance
with a tax allocation agreement. The tax allocation agreement provides that
NYLIAC is allocated its share of the consolidated tax provision or benefit,
including the equity base tax, determined generally on a separate return ba-
sis, but may, where applicable, recognize the tax benefits of net operating
losses or capital losses utilizable in the consolidated group. Estimated pay-
ments for taxes are made between the members of the consolidated group during
the year.
At December 31, 1995 and 1994, federal income taxes payable to New York Life
were $62,000,000 and $19,000,000, respectively.
Set forth below is a reconciliation of the statutory federal income tax rate
to the effective tax rate for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate...................... 35.0% 35.0% 35.0%
Exempt interest........................................ (1.7) (2.8) (1.0)
Allocable share of equity base tax imposed on
New York Life:
Current year estimate................................. 5.0 2.7 2.3
Change in accounting policy........................... (8.0) -- --
Deferred acquisition costs............................. 8.3 6.0 5.6
Increase (decrease) in statutory reserves in excess of
increase in tax reserves.............................. 1.6 (1.5) 2.1
Other.................................................. (1.4) (.1) (.2)
---- ---- ----
Effective tax rate................................... 38.8% 39.3% 43.8%
==== ==== ====
</TABLE>
- -------------------------------------------------------------------------------
NOTE 10--Reinsurance
- -------------------------------------------------------------------------------
NYLIAC enters into reinsurance agreements in the normal course of its insurance
business to reduce overall risks. NYLIAC remains liable for reinsurance ceded
if the reinsurer fails to meet its obligations on the business it has assumed.
Life insurance reinsured was 11% and 9% of total life insurance in-force at
December 31, 1995 and 1994, respectively.
In 1994, NYLIAC entered into a coinsurance/modified coinsurance reinsurance
agreement, covering a specific block of NYLIAC's Single Premium Multi-Life
Corporate Owned Life Insurance business. In 1995, this treaty was amended to
cover 1995 and future years' business. In 1995, NYLIAC ceded $216,000,000 in
premiums ($220,000,000 in 1994) reduced by an experience refund of $8,000,000
($4,000,000 in 1994). In addition, in 1995 NYLIAC recorded a commission and
expense allowance of $22,000,000 ($22,000,000 in 1994), a modco reserve
adjustment of $185,000,000 ($194,000,000 in 1994), and a reserve credit of
$43,000,000 ($22,000,000 in 1994), related to the coinsurance portion of the
agreement.
F-34
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
A group reinsurance agreement between NYLIAC and New York Life was approved
by the New York State Insurance Department in 1981 and was terminated
effective December 31, 1995. Under the terms of the agreement, NYLIAC assumed
the liabilities for group health long-term disability policies issued by New
York Life. NYLIAC assumed premiums of $29,000,000, $26,000,000 and $25,000,000
for the years 1995, 1994 and 1993, respectively. A settlement is made between
the companies in the subsequent year. In 1995, NYLIAC received $4,000,000 from
New York Life (NYLIAC paid $1,000,000 and received $24,000,000 from New York
Life in 1994 and 1993, respectively), consisting of premiums due to NYLIAC of
$32,000,000 ($33,000,000 in 1994 and $41,000,000 in 1993), reduced by a
benefit reimbursement of $20,000,000 ($18,000,000 in 1994 and $15,000,000 in
1993) and an experience refund of $8,000,000 ($16,000,000 in 1994 and
$2,000,000 in 1993).
As a result of the termination, NYLIAC will transfer an amount to New York
Life equal to the reserves held to support the claims of those disabled lives.
At December 31, 1995 NYLIAC established a liability to New York Life of
$119,000,000 for the transfer of such reserves.
- -------------------------------------------------------------------------------
NOTE 11--Other Adjustments to Surplus
- -------------------------------------------------------------------------------
Other adjustments in the Statement of Changes in Surplus include principally
the effects of the following:
For 1995: (1) $18,000,000 decrease due to a change in accounting policy for
the equity base tax (see Note 2); (2) $14,000,000 decrease due to a change in
valuation basis; (3) $10,000,000 increase due to the change in separate
account surplus; (4) $3,000,000 decrease due to an increase in nonadmitted
assets; and (5) $3,000,000 decrease resulting from an increase in the
liability for federal income taxes of prior years.
For 1994: (1) $6,000,000 decrease due to an increase in nonadmitted assets;
(2) $5,000,000 increase resulting from a decrease in the liability for federal
income taxes of prior years; and (3) $2,000,000 decrease due to the change in
separate account surplus.
For 1993: (1) $18,000,000 decrease due to an adjustment to the Agents'
Progress Sharing Plan liability; (2) $6,000,000 increase due to the change in
separate account surplus; (3) $5,000,000 increase resulting from a decrease in
the liability for federal income taxes of prior years; and (4) $1,000,000
decrease due to the funding of the New York Life Foundation.
- -------------------------------------------------------------------------------
NOTE 12--Derivative Financial Instruments and Risk Management
- -------------------------------------------------------------------------------
NYLIAC uses derivative financial instruments to manage interest rate, currency
and market risk. These derivative financial instruments include foreign ex-
change forward contracts, interest rate floors, and interest rate and commod-
ity swaps. NYLIAC does not engage in derivative financial instrument transac-
tions for the purpose of trading.
Notional or contractual amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts exchanged between the parties engaged in the
transaction. The amounts exchanged are determined by reference to the notional
amounts and other terms of the derivative financial instruments which relate
to interest rates, exchange rates, or other financial indices.
F-35
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY
OF NEW YORK LIFE INSURANCE
COMPANY)
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>
1995 1994
----------------- -----------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps......................... $ 50,000 -- $ 80,000 $2,636
Floors Purchased............................ $150,000 -- $150,000 $ 15
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at
specified intervals, the difference between fixed- rate and floating-rate
interest amounts calculated by reference to an agreed notional amount. Swap
contracts outstanding at December 31, 1995 are between ten months and eight
years, seven months in maturity. At December 31, 1994 such contracts are
between seven months and eight years, seven months in maturity. NYLIAC does
not act as an intermediary or broker in interest rate swaps.
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows.
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Receive--fixed swaps--
Notional amount (in thousands)...... $15,000 $45,000
Average receive rate............. 7.93% 8.30%
Average pay rate................. 7.39% 5.85%
Pay--fixed swaps--Notional
amount (in thousands)............... $35,000 $35,000
Average pay rate................. 7.46% 7.46%
Average receive rate............. 6.02% 5.74%
</TABLE>
During the term of the swap, net settlement amounts are recorded as
investment income or expense when earned. Fair values of interest rate swaps
at December 31, 1995 and 1994 were $(2,298,000) and $1,760,000 respectively,
based on quoted market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest
rates on a portfolio of assets.
Premiums paid for interest rate floor agreements purchased are included in
other assets in the Statement of Financial Position and are amortized into
interest expense over the terms of the agreements. At December 31, 1995 and
1994, unamortized premiums amounted to $597,000 and $672,000, respectively.
Amounts received during the term of interest rate floor agreements are
recorded as investment income. Fair values of interest rate floors at December
31, 1995 and 1994 were $395,000 and $15,000, respectively, based on quoted
market prices.
F-36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NYLIAC is exposed to credit-related losses in the event that a counterparty
fails to perform its obligations under contractual terms. The credit exposure
of derivative financial instruments is represented by the sum of the fair
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.
Foreign Exchange Risk Management--NYLIAC enters into foreign exchange for-
ward contracts primarily as a portfolio hedge against foreign currency fluctu-
ations. The purpose of NYLIAC's foreign currency hedging activities is to pro-
tect it from the risk that eventual dollar net cash inflows from investment
income, or the eventual sale, of a foreign currency denominated investment,
will be adversely affected by changes in exchange rates.
NYLIAC's foreign exchange forward contracts involve the exchange of two
currencies at a specified future date and at a specified price. The average
term of the contracts is three to six months.
The table below summarizes, by major currency, the contractual amounts of
NYLIAC's foreign exchange forward contracts. The amounts represent the U.S.
dollar equivalent of commitments to sell foreign currencies, translated at
December 31, 1995 and 1994 exchange rates (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Japanese Yen............................................... $ 49,000 $ 29,000
French Francs.............................................. 24,000 27,000
Italian Lire............................................... 21,000 14,000
Other...................................................... 107,000 92,000
-------- --------
Total.................................................... $201,000 $162,000
======== ========
</TABLE>
The fair value of foreign exchange forward contracts at December 31, 1995
and 1994 was $(2,746,000) and $(1,046,000), respectively, and was based on
current market rates.
NYLIAC is exposed to credit-related losses in the event of non-performance
by counterparties, which could result in an unhedged position. NYLIAC deals
with highly rated, investment grade counterparties and does not expect the
counterparties to fail to meet their obligations under the contracts. For
contracts with counterparties where no master netting arrangement exists in
the event of default on the part of the counterparty, credit exposure is
defined as the fair value of contracts in a gain position at the reporting
date. Credit exposure to counterparties where a master netting arrangement is
in place in the event of default is defined as the net fair value, if
positive, of all outstanding contracts with each specific counterparty. The
credit exposure of NYLIAC's foreign exchange forward contracts at December 31,
1995 and 1994 was $137,000 and $26,000, respectively.
Commodity Management--In 1994, NYLIAC entered into a $10,145,000 notional
gold swap in order to hedge variable interest payments on a gold denominated
Eurobond. The bond pays interest in U.S. dollars based upon the prevailing
price of gold. Under the terms of the agreement, NYLIAC pays to the
counterparty the variable interest payments on the bond in
F-37
<PAGE>
NEW YORK LIFE
INSURANCE AND
ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY
OF NEW YORK LIFE INSURANCE
COMPANY)
exchange for a fixed payment in U.S. dollars at 8.46%. The counter party is
highly rated and NYLIAC does not expect the counterparty to fail to meet its
obligation. The fair value of the swap at December 31, 1995 and 1994 was
$1,244,000 and $51,000, respectively, based on current market quotes.
- -------------------------------------------------------------------------------
NOTE 13--Commitments and Contingencies
- -------------------------------------------------------------------------------
Litigation--The New York State Supreme Court on January 31, 1996 approved the
settlement of a consolidated nationwide class action lawsuit alleging certain
sales practice claims against NYLIAC and New York Life. In entering into the
settlement, NYLIAC specifically denied any wrongdoing. The class consists of
approximately three million policyowners who purchased whole life or universal
life policies from January 1, 1982 through December 31, 1994. Appeals from the
order may be filed within the prescribed statutory period. Under the terms of
the settlement, the class members receive benefits intended to address the is-
sues presented in the case or an opportunity to redress individual claims in
an alternative dispute resolution process. The settlement (including awards
made in an alternative dispute resolution process) will not have a material
adverse effect upon NYLIAC's financial position, and NYLIAC believes that, af-
ter consideration of provisions made, the settlement will not have a material
adverse effect on operating results. NYLIAC, its affiliates and its agents
have been released from liability to class members for transactions during the
class period relating to the sales practice claims in the lawsuits.
There are also actions in various jurisdictions by individual policyowners,
many of whom excluded themselves from the settlement of the nationwide class
action. Most of the these actions seek substantial or unspecified compensatory
and punitive damages.
NYLIAC is also a defendant in other actions arising from its insurance and
investment operations, including actions involving retail sales practices.
Most of these actions also seek substantial or unspecified compensatory and
punitive damages. NYLIAC is also from time to time involved as a party in
various governmental, administrative and investigative proceedings and
inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above and other actions pending against NYLIAC cannot be
predicted. NYLIAC nevertheless believes that the ultimate outcome of all
pending litigation should not have a material adverse effect on NYLIAC's
financial position; however, it is possible that settlements or adverse
determinations in one or more actions or other proceedings in the future could
have a material adverse effect on NYLIAC's operating results for a given year.
Loaned Securities and Repurchase Agreements--NYLIAC participates in a secu-
rities lending program for the purpose of enhancing income on securities held.
At December 31, 1995, $1,222,000,000 ($1,143,000,000 at December 31, 1994) of
NYLIAC's bonds were on loan to others, but were fully collateralized in an ac-
count held in trust for NYLIAC. Such assets reflect the extent of NYLIAC's in-
volvement in securities lending, not its risk of loss.
NYLIAC has entered into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The
liability reported in the Statement of Financial Position at December 31, 1995
of $86,000,000 ($254,000,000 at December 31, 1994) is considered to be fair
value. The investments acquired with the funds received from the securities
sold are generally included in short-term investments.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Directors and Stockholder of
New York Life Insurance and Annuity Corporation
In our opinion, the accompanying statement of financial position and the
related statements of operations, of changes in surplus and of cash flows
present fairly, in all material respects, the financial position of New York
Life Insurance and Annuity Corporation at December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles (practices prescribed or permitted by insurance regulatory
authorities, see Note 2). These financial statements are the responsibility of
the Corporation's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 2, in 1995 the Corporation changed its accounting policy
for reporting the effect of changes in the Differential Earnings Rate on its
equity base tax.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
February 16, 1996
F-39
<PAGE>
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE
NEW YORK, NY 10010
DISTRIBUTOR: NYLIFE DISTRIBUTORS INC.
18529 (596)
