<PAGE> 1
PROSPECTUS DATED MAY 1, 1997
FOR THE
MAINSTAY VARIABLE ANNUITY
FROM
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE, NEW YORK, NEW YORK 10010
INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
This Prospectus describes individual flexible premium MainStay Variable
Annuity policies offered by New York Life Insurance and Annuity Corporation
("NYLIAC"). The policies are primarily designed to assist individuals in their
retirement planning, and can be used in connection both with plans that do and
plans that do not qualify for special federal income tax treatment. Premium
payments accumulate on a tax-deferred basis and can be later distributed under a
number of different methods. The policies offer flexible premium payments,
access to cash value through partial withdrawals (although certain withdrawals
may be subject to a surrender charge and/or tax penalty), a choice of when
income payments will commence, and a guaranteed payment of premiums (or the
policy's value, if greater) to the beneficiary if the owner or annuitant dies
before income payments have commenced. The policies also offer a choice of
premium allocation alternatives, including a guaranteed interest option and the
eighteen separate account variable investment divisions listed below.
<TABLE>
<S> <C>
- MainStay VP Capital Appreciation
- MainStay VP Cash Management
- MainStay VP Convertible
- MainStay VP Government
- MainStay VP High Yield Corporate Bond
- MainStay VP International Equity
- MainStay VP Total Return
- MainStay VP Value
- MainStay VP Bond
- MainStay VP Growth Equity
- MainStay VP Indexed Equity
- Alger American Small Capitalization
- Calvert Socially Responsible
- Fidelity VIP II: Contrafund
- Fidelity VIP: Equity-Income
- Janus Aspen Balanced
- Janus Aspen Worldwide Growth
- Morgan Stanley Emerging Markets Equity
</TABLE>
We do not guarantee the investment performance of these investment divisions,
which involve varying degrees of risk.
This Prospectus provides information that a prospective investor should
know before investing. Please read it carefully and retain it for future
reference. This Prospectus is not valid unless attached to current prospectuses
for the MainStay VP Series Fund, Inc., The Alger American Fund, the Acacia
Capital Corporation, the Fidelity Variable Insurance Products Fund II, the
Fidelity Variable Insurance Products Fund, the Janus Aspen Series and the Morgan
Stanley Universal Funds, Inc.
Registration statements relating to the policies and the separate account
have been filed with the Securities and Exchange Commission. A Statement of
Additional Information, dated May 1, 1997, is incorporated herein by reference.
The Statement of Additional Information is available free by writing NYLIAC at
the address above or by calling (888) 695-4748. The table of contents for the
Statement of Additional Information is included at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS............................ 3
FEE TABLE.............................. 6
QUESTIONS AND ANSWERS ABOUT MAINSTAY
VARIABLE ANNUITY..................... 10
FINANCIAL STATEMENTS................... 16
CONDENSED FINANCIAL INFORMATION........ 17
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION AND THE SEPARATE
ACCOUNT.............................. 18
New York Life Insurance and Annuity
Corporation....................... 18
The Separate Account................. 18
The Portfolios....................... 18
Additions, Deletions or Substitutions
of Investments.................... 20
Reinvestment......................... 20
THE POLICIES........................... 20
Purpose of Policies.................. 20
Types of Policies.................... 21
Policy Application and Premium
Payments.......................... 21
Issue Ages........................... 22
Transfers............................ 22
Procedures for Telephone Transfers... 23
Dollar Cost Averaging................ 23
Automatic Asset Reallocation......... 24
Interest Sweep....................... 24
Accumulation Period.................. 25
(a) Crediting of Premium
Payments..................... 25
(b) Valuation of Accumulation
Units........................ 25
Owner Inquiries...................... 26
CHARGES AND DEDUCTIONS................. 26
Surrender Charges.................... 26
Amount of Surrender Charge........... 26
Exceptions to Surrender Charges...... 26
Other Charges........................ 27
Group and Sponsored Arrangements..... 28
Taxes................................ 28
DISTRIBUTIONS UNDER THE POLICY......... 29
Surrenders and Withdrawals........... 29
(a) Surrenders.................... 29
(b) Partial Withdrawals........... 30
(c) Periodic Partial
Withdrawals.................. 30
(d) Hardship Withdrawals.......... 30
Required Minimum Distribution
Option........................... 31
Cancellations........................ 31
Annuity Commencement Date............ 31
Death Before Annuity Commencement.... 31
Income Payments...................... 32
(a) Election of Income Payment
Options...................... 32
(b) Other Methods of Payment...... 33
(c) Proof of Survivorship......... 33
Delay of Payments.................... 33
Designation of Beneficiary........... 33
Restrictions Under Internal Revenue
Code Section 403(b)(11)........... 34
Loans................................ 34
Riders............................... 35
(a) Living Needs Benefit Rider.... 35
(b) Unemployment Benefit Rider... 35
THE FIXED ACCOUNT...................... 36
(a) Interest Crediting............ 36
(b) Transfers to Investment
Divisions.................... 36
(c) Fixed Account Initial Premium
Guarantee..................... 37
FEDERAL TAX MATTERS.................... 37
Introduction......................... 37
Taxation of Annuities in General..... 37
Qualified Plans...................... 39
(a) Section 403(b) Plans.......... 39
(b) Individual Retirement
Annuities.................... 39
(c) Deferred Compensation Plans.. 39
DISTRIBUTOR OF THE POLICIES............ 40
VOTING RIGHTS.......................... 40
TABLE OF CONTENTS FOR THE STATEMENT OF
ADDITIONAL INFORMATION............... 41
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NYLIAC DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED SUPPLEMENT
THERETO OR IN ANY SUPPLEMENTAL SALES MATERIAL AUTHORIZED BY NYLIAC.
2
<PAGE> 3
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 NYLIAC is open and the New York Stock
Exchange is open for trading. We are closed on national holidays, Martin Luther
King, Jr. Day and the Friday after Thanksgiving. In addition, we may choose to
close on the day immediately preceding or following a national holiday. Our
Business Day ends at 4:00 p.m. Eastern Time or the closing of the New York Stock
Exchange, if earlier.
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
Funds. The MainStay VP Series Fund currently has eleven Portfolios available for
investment by the Investment Divisions of the Separate Account: the MainStay VP
Capital Appreciation, MainStay VP Cash Management, MainStay VP Convertible,
MainStay VP Government, MainStay VP High Yield Corporate Bond, MainStay VP
International Equity, MainStay VP Total Return, MainStay VP Value, MainStay VP
Bond, MainStay VP Growth Equity and MainStay VP Indexed Equity Portfolios. The
Alger American Fund has one Portfolio available to the Separate Account: the
Alger American Small Capitalization Portfolio. The Acacia Fund has one Portfolio
available to the Separate Account: the Calvert Responsibly Invested Balanced
Portfolio ("Calvert Socially Responsible Portfolio"). The Fidelity Funds have
two Portfolios available to the Separate Account: the Contrafund Portfolio of
the Fidelity Variable Insurance Products Fund II ("Fidelity VIP II: Contrafund
Portfolio") and the Equity-Income Portfolio of the Fidelity Variable Insurance
Products Fund ("Fidelity VIP: Equity-Income Portfolio"). The Janus Aspen Series
has two Portfolios available to the Separate Account: the Balanced Portfolio of
the Janus Aspen Series ("Janus Aspen Balanced Portfolio") and the Worldwide
Growth Portfolio of the Janus Aspen Se-
3
<PAGE> 4
ries ("Janus Aspen Worldwide Growth Portfolio"). The Morgan Stanley Fund has one
Portfolio available to the Separate Account: the Emerging Markets Equity
Portfolio of the Morgan Stanley Universal Funds, Inc. ("Morgan Stanley Emerging
Markets Equity Portfolio").
FIXED ACCOUNT--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 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.
FUNDS (EACH, INDIVIDUALLY, A "FUND")--The MainStay VP Series Fund, Inc.
("MainStay VP Series Fund" and, formerly, "New York Life MFA Series Fund,
Inc."), The Alger American Fund ("The Alger American Fund"), the Acacia Capital
Corporation ("Acacia Fund"), the Fidelity Variable Insurance Products Fund and
the Fidelity Variable Insurance Products Fund II (collectively, the "Fidelity
Variable Insurance Products Funds" or the "Fidelity Funds"), the Janus Aspen
Series and the Morgan Stanley Universal Funds, Inc. ("Morgan Stanley Fund").
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--The MainStay Variable Annuity policy offered by NYLIAC that is described
in this Prospectus.
POLICY ANNIVERSARY--An anniversary of the Policy Date displayed on the Policy
Data Page.
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<PAGE> 5
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 generally
commencing with the year the 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 Variable Annuity Separate Account-III, 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, consisting of one or more days, from one Valuation
Time to the next succeeding Valuation Time.
VALUATION TIME--The time of the close of the New York Stock Exchange (currently
4:00 p.m. Eastern Time) on any day on which the New York Stock Exchange is open.
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.
5
<PAGE> 6
FEE TABLE
<TABLE>
<CAPTION>
MAINSTAY MAINSTAY VP
MAINSTAY VP VP MAINSTAY HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP VP CORPORATE INTERNATIONAL
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY
------------ ---------- ----------- ---------- ----------- -------------
<S> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a)
(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.............................. 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Separate Account Annual
Expenses....................................... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average account value)
Advisory Fees.................................... 0.36% 0.25% 0.36% 0.30% 0.30% 0.60%
Administration Fees.............................. 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses................................... 0.19%(b) 0.19%(b) 0.17%(c) 0.21%(b) 0.17%(c) 0.17%(c)
Total Fund Annual Expenses....................... 0.75%(b) 0.64%(b) 0.73%(c) 0.71%(b) 0.67%(c) 0.97%(c)
<CAPTION>
MAINSTAY VP
TOTAL MAINSTAY VP MAINSTAY VP
RETURN VALUE BOND
----------- ----------- -----------
<S> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a)
(as a % of amount withdrawn)................... 7% 7% 7%
Transfer Fee.....................................
Annual Policy Fee................................
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees.................. 1.25% 1.25% 1.25%
Administration Fees.............................. 0.15% 0.15% 0.15%
Total Separate Account Annual
Expenses....................................... 1.40% 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average account value)
Advisory Fees.................................... 0.32% 0.36% 0.25%
Administration Fees.............................. 0.20% 0.20% 0.20%
Other Expenses................................... 0.19%(b) 0.17%(c) 0.13%(b)
Total Fund Annual Expenses....................... 0.71%(b) 0.73%(c) 0.58%(b)
</TABLE>
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(a) 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 26.
(b) An expense reimbursement agreement which limited "Other Expenses" to 0.17%
annually was in effect until December 31, 1996. "Other Expenses" and "Total
Fund Annual Expenses" have been restated to reflect the absence of this
limitation in 1996.
(c) These numbers reflect an expense reimbursement agreement effective through
December 31, 1997 limiting "Other Expenses" to 0.17% annually. In the
absence of the expense reimbursement arrangement, the "Total Fund Annual
Expenses" for the year ended December 31, 1996 would have been 1.46%,
0.71%, 1.51% and 0.79% for the MainStay VP Convertible, MainStay VP High
Yield Corporate Bond, MainStay VP International Equity and MainStay VP
Value Portfolios, respectively. Numbers for the MainStay VP Convertible
Portfolio have been annualized based on the period from October 1, 1996
(the date of inception) to December 31, 1996.
6
<PAGE> 7
FEE TABLE--(CONTINUED)
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN CALVERT FIDELITY FIDELITY VIP:
GROWTH INDEXED SMALL SOCIALLY VIP II: EQUITY
EQUITY EQUITY CAPITALIZATION RESPONSIBLE CONTRAFUND INCOME
----------- ----------- -------------- ----------- ---------- -------------
<S> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Load(a) (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................ 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Separate Account Annual
Expenses......................... 1.40% 1.40% 1.40% 1.40% 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average account value)
Advisory Fees...................... 0.25% 0.10% 0.85% 0.71%(d) 0.61% 0.51%
Administration Fees................ 0.20% 0.20% -- -- -- --
Other Expenses..................... 0.13%(b) 0.20%(b) 0.03% 0.13%(d) 0.13% 0.07%
Total Fund Annual Expenses......... 0.58%(b) 0.50%(b) 0.88% 0.84%(d) 0.74%(e) 0.58%(e)
<CAPTION>
JANUS JANUS ASPEN MORGAN STANLEY
ASPEN WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
-------- ----------- --------------
<S> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales
Load(a) (as a % of amount
withdrawn)....................... 7% 7% 7%
Transfer Fee.......................
Annual Policy Fee..................
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees.... 1.25% 1.25% 1.25%
Administration Fees................ 0.15% 0.15% 0.15%
Total Separate Account Annual
Expenses......................... 1.40% 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER
REIMBURSEMENT
(as a % of average account value)
Advisory Fees...................... 0.79% 0.66% 0.85%
Administration Fees................ -- -- 0.25%
Other Expenses..................... 0.15% 0.14% 0.65%
Total Fund Annual Expenses......... 0.94%(f) 0.80%(f) 1.75%(g)
</TABLE>
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(d) "Other Expenses" are based on expenses for fiscal year 1996, and have been
restated to reflect an increase in transfer agency expenses of 0.03%
expected to be incurred in 1997. The "Advisory Fee" includes a performance
adjustment which could cause the fee to be as high as 0.85% or as low as
0.55%, depending on performance. "Other Expenses" reflect an indirect fee
of 0.03%. "Total Fund Annual Expenses" after reductions for fees paid
indirectly would have been 0.81%.
(e) A portion of the brokerage commissions that these Portfolios pay was used
to reduce the Portfolios' annual expenses. In addition, these Portfolios
have entered into arrangements with their custodian and transfer agent
whereby interest earned on uninvested cash balances was used to reduce
custodian and transfer agent expenses. Including these reductions, the
"Total Fund Annual Expenses" would have been 0.71% for the Fidelity VIP II:
Contrafund Portfolio and 0.56% for the Fidelity VIP: Equity-Income
Portfolio.
(f) Janus Capital Corporation ("JCC") has agreed to reduce the advisory fee for
each Portfolio to the extent that such fee exceeds the effective rate of
the Janus retail fund corresponding to such Portfolio. JCC may terminate
this fee reduction at any time upon 90 days' notice to the Board of
Trustees of the Janus Aspen Series. Absent such reductions, "Advisory Fees"
and "Total Fund Annual Expenses" for the fiscal year ended December 31,
1996 would have been: 0.92% and 1.07%, respectively, for the Janus Aspen
Balanced Portfolio and 0.77% and 0.91%, respectively, for the Janus Aspen
Worldwide Growth Portfolio.
(g) "Other Expenses" for the Morgan Stanley Emerging Markets Equity Portfolio
are estimated for the current fiscal year. Morgan Stanley Asset Management
Inc. has agreed to a reduction of its management fees and to reimburse the
Portfolio if such fees would cause the "Total Fund Annual Expenses" to
exceed 1.75% of average daily net assets. Absent such reductions, it is
estimated that "Advisory Fees" and "Total Fund Annual Expenses" would be
1.25% and 6.17%, respectively.
7
<PAGE> 8
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 26 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 in one of
the Investment Divisions listed, 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>
MainStay VP Capital Appreciation.......... $ 89.69 $ 145.08 $ 182.90 $ 281.29
MainStay VP Cash Management............... $ 88.64 $ 141.92 $ 177.54 $ 270.08
MainStay VP Convertible................... $ 89.49 $ 144.50 $ 181.93 $ 279.27
MainStay VP Government.................... $ 89.31 $ 143.93 $ 180.96 $ 277.23
MainStay VP High Yield Corporate Bond..... $ 88.93 $ 142.78 $ 179.01 $ 273.16
MainStay VP International Equity.......... $ 91.79 $ 151.35 $ 193.51 $ 303.31
MainStay VP Total Return.................. $ 89.31 $ 143.93 $ 180.96 $ 277.23
MainStay VP Value......................... $ 89.49 $ 144.50 $ 181.93 $ 279.27
MainStay VP Bond.......................... $ 88.07 $ 140.21 $ 174.64 $ 263.94
MainStay VP Growth Equity................. $ 88.07 $ 140.21 $ 174.64 $ 263.94
MainStay VP Indexed Equity................ $ 87.30 $ 137.91 $ 170.72 $ 255.68
Alger American Small Capitalization....... $ 90.93 $ 148.79 $ 189.18 $ 294.36
Calvert Socially Responsible.............. $ 90.55 $ 147.64 $ 187.25 $ 290.35
Fidelity VIP II: Contrafund............... $ 89.60 $ 144.79 $ 182.41 $ 280.27
Fidelity VIP: Equity-Income............... $ 88.07 $ 140.21 $ 174.64 $ 263.94
Janus Aspen Balanced...................... $ 91.51 $ 150.51 $ 192.08 $ 300.35
Janus Aspen Worldwide Growth.............. $ 90.17 $ 146.50 $ 185.32 $ 286.33
Morgan Stanley Emerging Markets Equity.... $ 99.27 $ 173.40 $ 230.36 $ 377.65
</TABLE>
2. If you annuitize your Policy at the end of the applicable time
period:
<TABLE>
<S> <C> <C> <C> <C>
MainStay VP Capital Appreciation.......... $ 89.69 $ 77.26 $ 132.02 $ 281.29
MainStay VP Cash Management............... $ 88.64 $ 73.87 $ 126.38 $ 270.08
MainStay VP Convertible................... $ 89.49 $ 76.64 $ 131.00 $ 279.27
MainStay VP Government.................... $ 89.31 $ 76.03 $ 129.98 $ 277.23
MainStay VP High Yield Corporate Bond..... $ 88.93 $ 74.80 $ 127.93 $ 273.16
MainStay VP International Equity.......... $ 91.79 $ 83.97 $ 143.18 $ 303.31
</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,
1996. 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.
8
<PAGE> 9
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- --------
<S> <C> <C> <C> <C>
MainStay VP Total Return.................. $ 89.31 $ 76.03 $ 129.98 $ 277.23
MainStay VP Value......................... $ 89.49 $ 76.64 $ 131.00 $ 279.27
MainStay VP Bond.......................... $ 88.07 $ 72.05 $ 123.32 $ 263.94
MainStay VP Growth Equity................. $ 88.07 $ 72.05 $ 123.32 $ 263.94
MainStay VP Indexed Equity................ $ 87.30 $ 69.58 $ 119.20 $ 255.68
Alger American Small Capitalization....... $ 90.93 $ 81.23 $ 138.62 $ 294.36
Calvert Socially Responsible.............. $ 90.55 $ 80.01 $ 136.59 $ 290.35
Fidelity VIP II: Contrafund............... $ 89.60 $ 76.95 $ 131.50 $ 280.27
Fidelity VIP: Equity-Income............... $ 88.07 $ 72.05 $ 123.32 $ 263.94
Janus Aspen Balanced...................... $ 91.51 $ 83.08 $ 141.67 $ 300.35
Janus Aspen Worldwide Growth.............. $ 90.17 $ 78.78 $ 134.56 $ 286.33
Morgan Stanley Emerging Markets Equity.... $ 99.27 $ 107.58 $ 181.96 $ 377.65
</TABLE>
3. If you do not surrender your Policy:
<TABLE>
<S> <C> <C> <C> <C>
MainStay VP Capital Appreciation.......... $ 25.12 $ 77.26 $ 132.02 $ 281.29
MainStay VP Cash Management............... $ 24.00 $ 73.87 $ 126.38 $ 270.08
MainStay VP Convertible................... $ 24.91 $ 76.64 $ 131.00 $ 279.27
MainStay VP Government.................... $ 24.72 $ 76.03 $ 129.98 $ 277.23
MainStay VP High Yield Corporate Bond..... $ 24.31 $ 74.80 $ 127.93 $ 273.16
MainStay VP International Equity.......... $ 27.37 $ 83.97 $ 143.18 $ 303.31
MainStay VP Total Return.................. $ 24.72 $ 76.03 $ 129.98 $ 277.23
MainStay VP Value......................... $ 24.91 $ 76.64 $ 131.00 $ 279.27
MainStay VP Bond.......................... $ 23.39 $ 72.05 $ 123.32 $ 263.94
MainStay VP Growth Equity................. $ 23.39 $ 72.05 $ 123.32 $ 263.94
MainStay VP Indexed Equity................ $ 22.57 $ 69.58 $ 119.20 $ 255.68
Alger American Small Capitalization....... $ 26.45 $ 81.23 $ 138.62 $ 294.36
Calvert Socially Responsible.............. $ 26.04 $ 80.01 $ 136.59 $ 290.35
Fidelity VIP II: Contrafund............... $ 25.02 $ 76.95 $ 131.50 $ 280.27
Fidelity VIP: Equity-Income............... $ 23.39 $ 72.05 $ 123.32 $ 263.94
Janus Aspen Balanced...................... $ 27.07 $ 83.08 $ 141.67 $ 300.35
Janus Aspen Worldwide Growth.............. $ 25.63 $ 78.78 $ 134.56 $ 286.33
Morgan Stanley Emerging Markets Equity.... $ 35.34 $ 107.58 $ 181.96 $ 377.65
</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.
9
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT MAINSTAY VARIABLE ANNUITY
NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT
MAINSTAY VARIABLE ANNUITY. 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 A MAINSTAY VARIABLE ANNUITY?
A MainStay Variable Annuity issued by NYLIAC is a Flexible Premium Deferred
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 eighteen Investment Divisions.
The Investment Divisions of the Separate Account invest exclusively
in shares of the Funds, each an open-end management investment company.
The MainStay VP Series Fund has eleven Eligible Portfolios available for
investment through the Investment Divisions of the Separate Account: the
MainStay VP Capital Appreciation Portfolio, the MainStay VP Cash
Management Portfolio, the MainStay VP Convertible Portfolio, the
MainStay VP Government Portfolio, the MainStay VP High Yield Corporate
Bond Portfolio, the MainStay VP International Equity Portfolio, the
MainStay VP Total Return Portfolio, the MainStay VP Value Portfolio, the
MainStay VP Bond Portfolio, the MainStay VP Growth Equity Portfolio and
the MainStay VP Indexed Equity Portfolio. The Alger American Fund has
one Eligible Portfolio available through the Investment Divisions of the
Separate Account: the Alger American Small Capitalization Portfolio. The
Acacia Fund has one Eligible Portfolio available for investment through
the Investment Divisions of the Separate Account: the Calvert Socially
Responsible Portfolio. The Fidelity Funds have two Eligible Portfolios
available to the Separate Account: the Fidelity VIP II: Contrafund and
Fidelity VIP: Equity-Income Portfolios. The Janus Aspen Series has two
Eligible Portfolios available to the Separate Account: the Janus Aspen
Balanced and Janus Aspen Worldwide Growth Portfolios. The Morgan Stanley
Fund has one Eligible Portfolio available to the Separate Account: the
Morgan Stanley Emerging Markets Equity 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 36.)
10
<PAGE> 11
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 22.)
For transfers made from the Fixed Account to the Investment Divisions, see
"The Fixed Account" at page 36. In addition, Owners can request transfers
through the Dollar Cost Averaging, Automatic Asset Reallocation, or Interest
Sweep options described at pages 23 and 24 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 27.)
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 27.)
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 26 and "Exceptions to Surrender Charges" at
page 26.)
11
<PAGE> 12
Finally, the value of the shares of each Fund reflects advisory fees and
other expenses deducted from the assets of each Fund. (See the Fund Prospectuses
which are attached to this Prospectus.)
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 (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 MainStay VP 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 maintain
Accumulation Value in any number of Allocation Alternatives. (See "Automatic
Asset Reallocation" at page 24.) 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 29 and "Federal Tax Matters" at page
37.)
12
<PAGE> 13
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 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 32.)
10. WHAT IS A LIFE INCOME PAYMENT OPTION?
A retirement annuity provides periodic 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 32.)
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 31 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 31 and "Federal Tax Matters" at page
37.)
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, if the Policy is a Non-Qualified Policy, IRA,
TSA or SEP, 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.
13
<PAGE> 14
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 40.)
15. HOW WILL INVESTMENT PERFORMANCE OF THE SEPARATE ACCOUNT BE CALCULATED?
YIELDS. The yield of the MainStay VP 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, 1996, the MainStay VP Cash Management Investment Division's yield
and effective yield were 4.04% and 4.12%, respectively.
The yield of the MainStay VP Government, MainStay VP High Yield Corporate
Bond or MainStay VP 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, 1996, the annualized yields for the
MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay VP
Bond Investment Divisions were 5.72%, 6.59% and 4.64%, 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 MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay VP
Government, MainStay VP High Yield Corporate Bond, MainStay VP International
Equity, MainStay VP Total Return, MainStay VP Value, MainStay VP Bond, MainStay
VP Growth Equity, MainStay VP Indexed Equity, Alger American Small
Capitalization, Calvert Socially Responsible, Fidelity VIP II: Contrafund,
Fidelity VIP: Equity-Income, Janus Aspen Balanced, and Janus Aspen Worldwide
Growth Investment Divisions for various periods of time. The data reflect all
Separate Account and Fund annual expenses shown in the Fee Table which appears
on pages 6 and 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. For the period
of the underlying MainStay VP and Calvert Socially Responsible Portfolios'
inception dates to the dates those Portfolios were added to the Separate
Account, performance assumes that the Policies were available, which they were
not. For the period of the inception dates of the Alger American Small
Capitalization, Fidelity VIP II: Contrafund, Fidelity VIP: Equity-Income,
14
<PAGE> 15
Janus Aspen Balanced and Janus Aspen Worldwide Growth Portfolios until these
Portfolios were added to the Separate Account on October 1, 1996, performance
assumes that the Policies were available and these Portfolios were offered under
the Policies, which they were not. There is no performance information for the
MainStay VP Convertible and Morgan Stanley Emerging Markets Equity Investment
Divisions because they were first offered as of October 1, 1996. 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.
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP CORPORATE INTERNATIONAL TOTAL
INCEPTION DATE APPRECIATION MANAGEMENT GOVERNMENT BOND EQUITY RETURN
- ------------------------------------ ------------ ----------- ----------- ----------- ----------- -----------
1/29/93 1/29/93 1/29/93 5/1/95 5/1/95 1/29/93
<S> <C> <C> <C> <C> <C>
SEC AVERAGE TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/96-12/31/96)............ 10.10% (2.96%) (5.50%) 8.55% 2.14% 3.56%
3 Year (1/1/94-12/31/96)............ 12.09% 1.15% 1.76% N/A N/A 7.84%
5 Year (1/1/92-12/31/96)............ N/A N/A N/A N/A N/A N/A
10 Year (1/1/87-12/31/96)........... N/A N/A N/A N/A N/A N/A
Since Inception..................... 14.31% 1.41% 2.65% 10.51% 6.89% 9.61%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/96-12/31/96)............ 17.10% 3.56% 0.85% 15.55% 9.00% 10.52%
3 Year (1/1/94-12/31/96)............ 13.92% 3.36% 3.96% N/A N/A 9.81%
5 Year (1/1/92-12/31/96)............ N/A N/A N/A N/A N/A N/A
10 Year (1/1/87-12/31/96)........... N/A N/A N/A N/A N/A N/A
Since Inception..................... 15.50% 2.86% 4.12% 14.38% 10.85% 10.95%
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP CALVERT
MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIALLY
INCEPTION DATE VALUE BOND EQUITY EQUITY RESPONSIBLE
- ------------------------------------------------ ----------- ----------- ----------- ----------- -----------
5/1/95 1/23/84 1/23/84 1/29/93 9/2/86
<S> <C> <C> <C> <C> <C>
SEC AVERAGE TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/96-12/31/96)........................ 14.51% (5.72%) 15.77% 13.72% 4.06%
3 Year (1/1/94-12/31/96)........................ N/A 1.58% 14.23% 15.70% 8.75%
5 Year (1/1/92-12/31/96)........................ N/A 4.58% 13.07% N/A 7.91%
10 Year (1/1/87-12/31/96)....................... N/A 6.79% 12.65% N/A 9.56%
Since Inception................................. 17.31% 8.49% 11.40% 13.88% 8.84%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/96-12/31/96)........................ 21.51% 0.62% 22.77% 20.72% 11.06%
3 Year (1/1/94-12/31/96)........................ N/A 3.80% 15.99% 17.42% 10.69%
5 Year (1/1/92-12/31/96)........................ N/A 5.54% 13.91% N/A 8.91%
10 Year (1/1/87-12/31/96)....................... N/A 6.79% 12.65% N/A 9.56%
Since Inception................................. 21.04% 8.49% 11.40% 15.08% 8.84%
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
ALGER AMERICAN JANUS ASPEN
SMALL FIDELITY VIP II: FIDELITY VIP: JANUS ASPEN WORLDWIDE
INCEPTION DATE CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH
- ------------------------------------------- -------------- ---------------- ------------- ----------- -----------
9/20/88 1/3/95 10/9/86 9/13/93 9/13/93
<S> <C> <C> <C> <C> <C>
SEC AVERAGE TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/96-12/31/96)................... (3.74%) 12.52% 5.68% 7.57% 20.24%
3 Year (1/1/94-12/31/96)................... 9.36% N/A 14.85% 10.03% 15.23%
5 Year (1/1/92-12/31/96)................... 8.46% N/A 15.56% N/A N/A
10 Year (1/1/87-12/31/96).................. N/A N/A 11.99% N/A N/A
Since Inception............................ 18.53% 25.73% 11.68% 11.37% 20.05%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/96-12/31/96)................... 2.73% 19.52% 12.68% 14.57% 27.24%
3 Year (1/1/94-12/31/96)................... 11.28% N/A 16.59% 11.92% 16.96%
5 Year (1/1/92-12/31/96)................... 9.46% N/A 16.34% N/A N/A
10 Year (1/1/87-12/31/96).................. N/A N/A 11.99% N/A N/A
Since Inception............................ 18.53% 28.50% 11.68% 13.00% 21.43%
</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 34.)
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report
thereon) for the fiscal years ended December 31, 1996, 1995 and 1994, and of the
Separate Account (including the auditor's report thereon) for the period ended
December 31, 1996 and 1995 are included in the Statement of Additional
Information.
16
<PAGE> 17
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, 1996 have been audited by
Price Waterhouse LLP, independent accountants, whose report on the related
financial statements appears in the Statement of Additional Information. Values
and units shown are for full year periods, except where indicated. 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.
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT
------------------ ------------------ ----------- ------------------
1996 1995(a) 1996 1995(a) 1996(b) 1996 1995(a)
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value (beginning of
period)............................... $11.89 $10.00 $ 1.03 $ 1.00 $ 10.00 $10.57 $10.00
Accumulation Unit value (end of
period)............................... $13.92 $11.89 $ 1.06 $ 1.03 $ 10.35 $10.66 $10.57
Number of units outstanding (in 000s)
(end of period)....................... 6,949 951 32,709 13,190 1,250 855 178
<CAPTION>
MAINSTAY VP MAINSTAY VP
HIGH YIELD INTERNATIONAL
CORPORATE BOND EQUITY
------------------ ------------------
1996 1995(a) 1996 1995(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Accumulation Unit value (beginning of
period)............................... $10.83 $10.00 $10.90 $10.00
Accumulation Unit value (end of
period)............................... $12.52 $10.83 $11.88 $10.90
Number of units outstanding (in 000s)
(end of period)....................... 6,539 648 692 67
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL MAINSTAY VP MAINSTAY VP GROWTH
RETURN VALUE BOND EQUITY
------------------ ------------------ ------------------ ------------------
1996 1995(a) 1996 1995(a) 1996 1995(a) 1996 1995(a)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value (beginning of
period)............................. $11.36 $10.00 $11.32 $10.00 $10.57 $10.00 $11.42 $10.00
Accumulation Unit value (end of
period)............................. $12.55 $11.36 $13.76 $11.32 $10.64 $10.57 $14.01 $11.42
Number of units outstanding (in 000s)
(end of period)..................... 5,154 665 3,377 432 1,193 173 2,276 241
<CAPTION>
ALGER
INDEXED SMALL
EQUITY CAPITALIZATION
------------------ --------------
1996 1995(a) 1996(b)
------- ------- -------
<S> <C> <C> <C>
Accumulation Unit value (beginning of
period)............................. $11.58 $10.00 $10.00
Accumulation Unit value (end of
period)............................. $13.97 $11.58 $ 9.57
Number of units outstanding (in 000s)
(end of period)..................... 4,327 358 125
</TABLE>
<TABLE>
<CAPTION>
CALVERT
SOCIALLY FIDELITY VIP II: FIDELITY VIP: JANUS ASPEN
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED
------------------ ---------------- ------------- -----------
1996 1995(a) 1996(b) 1996(b) 1996(b)
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Accumulation Unit value (beginning of period)....... $11.22 $10.00 $10.00 $ 10.00 $ 10.00
Accumulation Unit value (end of period)............. $12.46 $11.22 $10.63 $ 10.45 $ 10.24
Number of units outstanding (in 000s) (end of
period)........................................... 123 17 241 149 125
<CAPTION>
JANUS ASPEN MORGAN STANLEY
WORLDWIDE EMERGING
GROWTH MARKETS EQUITY
----------- --------------
1996(b) 1996(b)
------- -------
<S> <C> <C>
Accumulation Unit value (beginning of period)....... $ 10.00 $10.00
Accumulation Unit value (end of period)............. $ 10.36 $10.00
Number of units outstanding (in 000s) (end of
period)........................................... 269 80
</TABLE>
- ------------
(a) For the period May 1, 1995 (commencement of operations) through December
31, 1995.
(b) For the period October 1, 1996 (commencement of operations) through
December 31, 1996.
17
<PAGE> 18
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 $78.8 billion at the
end of 1996, 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.
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 22 Investment Divisions, 18 of which are
available under the Policies. Premium Payments are invested solely in the
corresponding Eligible Portfolios of the relevant Fund. Additional Investment
Divisions may be added at the discretion of NYLIAC.
THE PORTFOLIOS
The assets of each Eligible Portfolio are separate from the others and each
such Portfolio has different investment objectives and policies. As a result,
each Eligible Portfolio operates as a separate investment fund and the
investment performance of one Portfolio has no effect on the investment
performance of any other Portfolio.
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<PAGE> 19
THERE IS NO ASSURANCE THAT ANY OF THE ELIGIBLE PORTFOLIOS WILL ATTAIN THEIR
RESPECTIVE STATED OBJECTIVES.
The Funds' shares are also available to certain separate accounts funding
variable life insurance policies offered by NYLIAC. This is called "mixed
funding." Shares of The Alger American Fund, the Acacia Fund, the Fidelity
Funds, the Janus Fund and the Morgan Stanley Fund may also be available to
separate accounts of insurance companies unaffiliated with NYLIAC and, in
certain instances, to qualified plans. This is called "shared funding." Although
we do not anticipate any inherent difficulties arising from mixed and shared
funding, it is theoretically possible that, due to differences in tax treatment
or other considerations, the interests of owners of various contracts
participating in the Funds might at some time be in conflict. The Board of
Directors/Trustees of each Fund, each Fund's investment advisers, and NYLIAC are
required to monitor events to identify any material conflicts that arise from
the use of the Funds for mixed and shared funding. For more information about
the risks of mixed and shared funding please refer to the relevant Fund
prospectus.
The Eligible Portfolios of the relevant Funds, along with their investment
advisers, are listed in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FUND INVESTMENT ADVISERS ELIGIBLE PORTFOLIOS
<S> <C> <C>
MainStay VP Series Fund, Inc. MacKay-Shields Financial MainStay VP Capital Appreciation;
Corporation MainStay VP Cash Management;
MainStay VP Convertible; MainStay
VP Government;
MainStay VP High Yield Corporate
Bond;
MainStay VP International Equity;
MainStay VP Total Return;
MainStay VP Value
MainStay VP Series Fund, Inc. Monitor Capital Advisors, Inc. MainStay VP Indexed Equity
MainStay VP Series Fund, Inc. New York Life Insurance Company MainStay VP Bond;
MainStay VP Growth Equity
The Alger American Fund Fred Alger Management, Inc. Alger American Small
Capitalization
Acacia Capital Corporation Calvert Asset Management Calvert Socially Responsible
Company
Fidelity Variable Insurance Fidelity Management and Fidelity VIP II: Contrafund
Products Fund II Research Company
Fidelity Variable Insurance Fidelity Management and Fidelity VIP: Equity-Income
Products Fund Research Company
Janus Aspen Series Janus Capital Corporation Janus Aspen Balanced;
Janus Aspen Worldwide Growth
Morgan Stanley Universal Funds, Morgan Stanley Asset Management Morgan Stanley Emerging Markets
Inc. Inc. Equity
</TABLE>
Please refer to the attached prospectuses of the respective Funds for a complete
description of the Funds, the investment advisers and the Portfolios. The Funds'
prospectuses should be read carefully before any decision is made concerning the
allocation of
19
<PAGE> 20
Premium Payments to an Investment Division corresponding to a particular
Eligible Portfolio.
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 22 Investment Divisions, 18 of which are
available under the Policies. 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
20
<PAGE> 21
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") meeting the relevant
requirements of Section 408 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 37.)
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 MainStay VP 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.
21
<PAGE> 22
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 each or such lower amount as we may permit) may be made at any
interval or by any method NYLIAC makes available. For residents of the states of
Maryland and Washington, however, additional Premium Payments may only be made
until the later of the Annuitant's age 64 or the fourth Policy Year. 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 31.)
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 80 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. For IRA, TSA and SEP plans,
the Owner and the Annuitant must be the same. Qualified Policies can be issued
if the Owner/Annuitant is between the ages of 18-75 (ages 21-75 for SEP
arrangements) and we will accept additional Premium Payments until the
Owner/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.
22
<PAGE> 23
Any transfer made in connection with the Dollar Cost Averaging, Automatic Asset
Reallocation and Interest Sweep options will not count as a transfer toward the
twelve transfer limit. 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 36.)
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
33.)
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. Telephone transfer requests must be received no later than
4:00 p.m. Eastern Time in order to assure same-day processing. Requests received
after 4:00 p.m. will be processed on the next Business Day.
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.
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
23
<PAGE> 24
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 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 MainStay
VP Bond Investment Division and 50% of the Variable Accumulation Value be
allocated to the MainStay VP Growth Equity Investment Division. Over time, the
variations in each such Investment Division's investment results will shift this
balance. If you elect this reallocation option, NYLIAC will automatically
transfer your 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. 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
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 is called Interest Sweep. The
24
<PAGE> 25
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 36.) 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 37. 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. 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 MainStay
VP 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 36 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 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.
25
<PAGE> 26
OWNER INQUIRIES
Owner inquiries should be addressed to New York Life Insurance Company, 920
Main Street, Suite 2100, Kansas City, MO 64105, Attn: Policyowner Service.
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>
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,
26
<PAGE> 27
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 31.) 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 30.) 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
35 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 Owner 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 by the Owner 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
31.) In addition, NYLIAC assumes the risk 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
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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.
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 37.) 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.
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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 New York
Life Insurance Company, 920 Main Street, Suite 2100, Kansas City, MO 64105,
Attn: Policyowner Service, 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 33)
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.
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 37.)
(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
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Payments" at page 32.) Surrenders may be taxable transactions and the 10%
penalty tax provisions may be applicable. (See "Federal Tax Matters--Taxation of
Annuities in General" at page 37.)
(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 provisions may be applicable. (See
"Federal Tax Matters--Taxation of Annuities in General" at page 37.)
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 37.) 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.
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 37.
(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.
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REQUIRED MINIMUM DISTRIBUTION OPTION
For IRAs and IRA SEPs, the Owner is generally not required to elect the
Required Minimum Distribution Option until April 1st of the year following the
calendar year he or she attains age 70 1/2. For TSAs, the Owner is generally not
required to elect the Required Minimum Distribution Option until April 1st of
the year following the calendar year he or she attains age 70 1/2 or until April
1st of the year following the calendar year he or she retires, whichever occurs
last.
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 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
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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"
below.)
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 37.)
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 place, subject to postponement in certain
circumstances. (See "Delay of Payments" at page 33.)
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 where permitted by State laws. 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 based on older annuitants are expected to be fewer
in number, the amount of each annuity payment shall be greater.
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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. Income Payment Options
involving life income are based on annuity tables that vary on the basis of
gender, unless the Policy was issued under an employer sponsored plan or in a
state which requires unisex rates.
(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) 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.
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
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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.
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 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% (110% in New York) 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% (110% in
New York) 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% (110% in New York) 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.
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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 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 will be taxable to the
extent of gain 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.
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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.
(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
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that may be used for requesting transfers by telephone, please see "Procedures
for Telephone Transfers" at page 23 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 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.
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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.
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
38
<PAGE> 39
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.
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 to individuals who attained the age of 50 by January 1,
1986). 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 therefore.
(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.
39
<PAGE> 40
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 typically paid to broker-dealers who have entered into dealer
agreements with NYLIFE Distributors is 6.5%. A portion of this amount will be
paid as commissions to registered representatives.
VOTING RIGHTS
The Funds are not required to hold routine annual stockholder meetings.
Each Fund's Board of Directors/Trustees has decided not to hold routine annual
stockholder meetings. Special stockholder meetings will be called when
necessary. Not holding routine annual meetings will result in 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
Investment Divisions of 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.
40
<PAGE> 41
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
GENERAL MATTERS.............................................................. 6
FEDERAL TAX MATTERS.......................................................... 7
DISTRIBUTOR OF THE POLICIES.................................................. 8
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS....................................... 9
STATE REGULATION............................................................. 9
RECORDS AND REPORTS.......................................................... 9
LEGAL PROCEEDINGS............................................................ 9
INDEPENDENT ACCOUNTANTS...................................................... 10
OTHER INFORMATION............................................................ 10
FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
41
<PAGE> 42
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
FOR THE
MAINSTAY VARIABLE ANNUITY
FROM
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
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 MainStay Variable Annuity Prospectus.
Accordingly this Statement should be read in conjunction with the current
MainStay Variable Annuity Prospectus dated May 1, 1997, which may be obtained by
calling New York Life Insurance and Annuity Corporation ("NYLIAC") at (888)
695-4748 or writing to New York Life Insurance Company, 920 Main Street, Suite
2100, Kansas City, MO 64105, Attn: Policyowner Service. Terms used in the
current MainStay Variable Annuity Prospectus are incorporated in this Statement.
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES (20)............................................................. 2
Valuation of Accumulation Units (25)..................................... 2
INVESTMENT PERFORMANCE CALCULATIONS........................................... 2
MainStay VP Cash Management Investment Division.......................... 2
MainStay VP Government, MainStay VP High Yield Corporate Bond and
MainStay VP Bond Investment Division Yields............................ 3
Total Return Calculations................................................ 4
GENERAL MATTERS............................................................... 6
FEDERAL TAX MATTERS (37)...................................................... 7
Taxation of New York Life Insurance and Annuity Corporation.............. 7
Tax Status of the Policies............................................... 7
DISTRIBUTOR OF THE POLICIES (40).............................................. 8
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS........................................ 9
STATE REGULATION.............................................................. 9
RECORDS AND REPORTS........................................................... 9
LEGAL PROCEEDINGS............................................................. 9
INDEPENDENT ACCOUNTANTS....................................................... 10
OTHER INFORMATION............................................................. 10
FINANCIAL STATEMENTS.......................................................... F-1
</TABLE>
- ------------
* (Numbers in parentheses refer to page numbers of corresponding sections of the
current MainStay Variable Annuity Prospectus.)
<PAGE> 43
THE POLICIES
The following provides additional information about the Policies, to
supplement the description in the Prospectus, which may be of interest to some
Owners.
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
Investment Division is the same. The value of each Accumulation Unit was
arbitrarily 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 Investment
Division as of the immediately preceding Valuation Period multiplied by the "Net
Investment Factor" for that Investment Division for the current Valuation
Period.
The Net Investment Factor for each Investment Division for any Valuation
Period 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 Division if the "ex-dividend" date occurs during the current
Valuation Period;
(b) is 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
Investment Division on a daily basis. Such factor is equal, on an annual
basis, to 1.40% of the daily net asset value of the Separate Account and
represents 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 27
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 decrease
from Valuation Period to Valuation Period.
INVESTMENT PERFORMANCE CALCULATIONS
MAINSTAY VP CASH MANAGEMENT INVESTMENT DIVISION
In accordance with regulations adopted by the Securities and Exchange
Commission, if NYLIAC discloses the MainStay VP 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 MainStay VP Cash Management Portfolio or on its
portfolio securities. This current annualized yield is computed by determining
the net change (exclusive of realized gains and losses on the sale of securities
and unrealized appreciation and depreciation) in the value of a hypothetical
account having a balance of one unit of the MainStay VP Cash
2
<PAGE> 44
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 services and the mortality and expense risk charge
and income and expenses accrued during the period. Because of these deductions,
the yield for the MainStay VP Cash Management Division will be lower than the
yield for the MainStay VP Cash Management Portfolio.
The Securities and Exchange Commission also permits NYLIAC to disclose the
effective yield of the MainStay VP Cash Management Investment Division for the
same seven-day period, determined on a compounded basis. The effective yield is
calculated 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 MainStay VP Cash Management Investment
Division normally 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 MainStay VP Cash Management Investment Division's
actual yield is affected by changes in interest rates on money market
securities, average portfolio maturity of the MainStay VP Cash Management
Portfolio, the types and quality of portfolio securities held by the MainStay VP
Cash Management Portfolio, and its operating expenses.
For the 7-day period ended December 31, 1996 the MainStay VP Cash
Management Investment Division's yield and effective yield were 4.04% and 4.12%,
respectively.
MAINSTAY VP GOVERNMENT, MAINSTAY VP HIGH YIELD CORPORATE BOND AND MAINSTAY
VP BOND INVESTMENT DIVISION YIELDS
The current annualized yield of the MainStay VP Government, MainStay VP
High Yield Corporate Bond and MainStay VP Bond Investment Divisions refers to
the income generated by these Investment 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 period by the price per unit on the last day of the
period, according to the following formula:
YIELD = 2[(a-b+1)(6)-1]
-----
cd
Where: a = net investment income earned during the period by the Portfolio
attributable to shares owned by the MainStay VP Government, MainStay
VP High Yield Corporate Bond or MainStay VP 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
established by the Securities and Exchange Commission. Accrued expenses will
include all recurring fees that 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
3
<PAGE> 45
from 7% to 0% of the Premium Payments withdrawn depending 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
corresponding 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 MainStay VP Government, MainStay VP High Yield Corporate
Bond or MainStay VP Bond Investment Division's actual yield will be affected by
the types and quality of portfolio securities held by the MainStay VP
Government, MainStay VP High Yield Corporate Bond and MainStay VP Bond
Portfolios of the Fund and their operating expenses.
For the 30-day period ended December 31, 1996, the annualized yields for
the MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay
VP Bond Investment Divisions were 5.72%, 6.59% and 4.64%, respectively.
TOTAL RETURN CALCULATIONS
This section presents performance data for the MainStay VP Capital
Appreciation, MainStay VP Cash Management, MainStay VP Government, MainStay VP
High Yield Corporate Bond, MainStay VP International Equity, MainStay VP Total
Return, MainStay VP Bond, MainStay VP Growth Equity, MainStay VP Indexed Equity,
Alger American Small Capitalization, Calvert Socially Responsible, Fidelity VIP
II: Contrafund, Fidelity VIP: Equity-Income, Janus Aspen Balanced and Janus
Aspen Worldwide Growth Investment Divisions for various periods of time.
The data reflect all Separate Account and Fund annual expenses shown in the
"Fee Table" which appears on pages 6 and 7 of the Prospectus. 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. For the period
of the underlying MainStay VP and Calvert Socially Responsible Portfolios'
inception dates to the dates those Portfolios were added to the Separate
Account, performance assumes that the Policies were available, which they were
not. For the period of the inception dates of the Alger American Small
Capitalization, Fidelity VIP II: Contrafund, Fidelity VIP: Equity-Income, Janus
Aspen Balanced and Janus Aspen Worldwide Growth Portfolios until these
Portfolios were added to the Separate Account on October 1, 1996, performance
assumes that the Policies were available and these Portfolios were offered under
the Policies, which they were not. There is no performance information for the
MainStay VP Convertible and Morgan Stanley Emerging Markets Equity Investment
Divisions because they were first offered as of October 1, 1996. The results
shown are not an estimate or guarantee 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
4
<PAGE> 46
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
periods shown that would 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).
<TABLE>
<CAPTION> MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP CORPORATE INTERNATIONAL TOTAL
INCEPTION DATE APPRECIATION MANAGEMENT GOVERNMENT BOND EQUITY RETURN
- ------------------------------------- ------------ ----------- ----------- ----------- ----------- -----------
1/29/93 1/29/93 1/29/93 5/1/95 5/1/95 1/29/93
<S> <C> <C> <C> <C> <C>
SEC AVERAGE TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/96-12/31/96)............ 10.10% (2.96%) (5.50%) 8.55% 2.14% 3.56%
3 Year (1/1/94-12/31/96)............ 12.09% 1.15% 1.76% N/A N/A 7.84%
5 Year (1/1/92-12/31/96)............ N/A N/A N/A N/A N/A N/A
10 Year (1/1/87-12/31/96)............ N/A N/A N/A N/A N/A N/A
Since Inception...................... 14.31% 1.41% 2.65% 10.51% 6.89% 9.61%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/96-12/31/96)............ 17.10% 3.56% 0.85% 15.55% 9.00% 10.52%
3 Year (1/1/94-12/31/96)............ 13.92% 3.36% 3.96% N/A N/A 9.81%
5 Year (1/1/92-12/31/96)............ N/A N/A N/A N/A N/A N/A
10 Year (1/1/87-12/31/96)............ N/A N/A N/A N/A N/A N/A
Since Inception...................... 15.50% 2.86% 4.12% 14.38% 10.85% 10.95%
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP CALVERT
MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIALLY
INCEPTION DATE VALUE BOND EQUITY EQUITY RESPONSIBLE
- ------------------------------------------------ ----------- ----------- ----------- ----------- -----------
5/1/95 1/23/84 1/23/84 1/29/93 9/2/86
<S> <C> <C> <C> <C> <C>
SEC AVERAGE TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/96-12/31/96)....................... 14.51% (5.72%) 15.77% 13.72% 4.06%
3 Year (1/1/94-12/31/96)....................... N/A 1.58% 14.23% 15.70% 8.75%
5 Year (1/1/92-12/31/96)....................... N/A 4.58% 13.07% N/A 7.91%
10 Year (1/1/87-12/31/96)....................... N/A 6.79% 12.65% N/A 9.56%
Since Inception................................. 17.31% 8.49% 11.40% 13.88% 8.84%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/96-12/31/96)....................... 21.51% 0.62% 22.77% 20.72% 11.06%
3 Year (1/1/94-12/31/96)....................... N/A 3.80% 15.99% 17.42% 10.69%
5 Year (1/1/92-12/31/96)....................... N/A 5.54% 13.91% N/A 8.91%
10 Year (1/1/87-12/31/96)....................... N/A 6.79% 12.65% N/A 9.56%
Since Inception................................. 21.04% 8.49% 11.40% 15.08% 8.84%
</TABLE>
5
<PAGE> 47
<TABLE>
<CAPTION>
ALGER AMERICAN JANUS ASPEN
SMALL FIDELITY VIP II: FIDELITY VIP: JANUS ASPEN WORLDWIDE
INCEPTION DATE CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH
- ------------------------------------------- -------------- ---------------- ------------- ----------- -----------
9/20/88 1/3/95 10/9/86 9/13/93 9/13/93
<S> <C> <C> <C> <C> <C>
SEC AVERAGE TOTAL RETURN (IF SURRENDERED)
1 Year (1/1/96-12/31/96).................. (3.74%) 12.52% 5.68% 7.57% 20.24%
3 Year (1/1/94-12/31/96).................. 9.36% N/A 14.85% 10.03% 15.23%
5 Year (1/1/92-12/31/96).................. 8.46% N/A 15.56% N/A N/A
10 Year (1/1/87-12/31/96).................. N/A N/A 11.99% N/A N/A
Since Inception............................ 18.53% 25.73% 11.68% 11.37% 20.05%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year (1/1/96-12/31/96).................. 2.73% 19.52% 12.68% 14.57% 27.24%
3 Year (1/1/94-12/31/96).................. 11.28% N/A 16.59% 11.92% 16.96%
5 Year (1/1/92-12/31/96).................. 9.46% N/A 16.34% N/A N/A
10 Year (1/1/87-12/31/96).................. N/A N/A 11.99% N/A N/A
Since Inception............................ 18.53% 28.50% 11.68% 13.00% 21.43%
</TABLE>
Performance data for the Investment Divisions may be compared, in
advertisements, 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 variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services, a widely used independent research firm which ranks
mutual 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 among
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.
GENERAL MATTERS
NON-PARTICIPATING. The Policies are non-participating; no dividends are
payable.
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--Election of Income Payment Options" at page 32 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 assignment.
Further, NYLIAC assumes no responsi-
6
<PAGE> 48
bility for the validity of any assignment. (See "Federal Tax Matters--Taxation
of Annuities in General" at page 37 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 Company
Act of 1940, or 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 annuity, 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 Policy
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
Account 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
requirements 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,
securities of a single issuer are treated as one investment and each U.S.
Government agency or instrumentality is treated as a separate issuer. Any
security 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
instrumentality, whichever is applicable.
Although the Treasury Department has issued regulations on the
diversification requirements, such regulations do not provide guidance
concerning the extent 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
7
<PAGE> 49
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 otherwise to qualify the Policy for favorable
tax treatment.
The Code also requires that non-qualified annuity contracts contain
specific provisions for distribution of the policy proceeds upon the death of
any Owner. In order to be treated as an annuity contract for federal income tax
purposes, 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 interest of
the Policy is used to purchase an immediate annuity under which payments 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 expectancy of the
Beneficiary. The Owner's Beneficiary is the person to whom ownership of the
Policy passes by reason of death. If the Beneficiary is the Owner'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 requirements 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 requirements. The provisions
contained in these Policies will be reviewed and modified 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
distributions 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
individuals) 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
Association of Securities Dealers, Inc. NYLIFE Distributors is an indirect
wholly-owned subsidiary of New York Life. The maximum commission typically paid
to broker-dealers who have entered into dealer agreements with NYLIFE
Distributors is 6.5%. A portion of this amount will be paid as commissions to
registered representatives.
8
<PAGE> 50
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. Records 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
Delaware, 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 financial 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
In 1995, NYLIAC and New York Life settled a class action related to the
sale of whole life and universal life insurance policies from 1982 through 1994.
In entering into the settlement, NYLIAC specifically denied any wrongdoing. The
settlement was approved by the judge, and has now been upheld on appeal,
including a recent refusal by the New York State Court of Appeals to permit a
discretionary appeal from the Appellate Division. The lone appellant has
recently filed two motions in the trial court seeking to enjoin implementation
of the settlement and to renew his objections to the settlement. The lone
appellant may file a writ of certiorari in the United States Supreme Court
during the prescribed statutory period.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action; and in each of two jurisdictions a purported class
action claiming to include numerous policyowners who excluded themselves from
the settlement of the nationwide class action; and in one jurisdiction a
purported class action claiming to include numerous policyowners who did not
exclude themselves from the class action. Most of these actions seek substantial
or unspecified compensatory and punitive damages.
9
<PAGE> 51
NYLIAC is also a defendant in other individual and alleged class actions
arising from its insurance, investment and/or other operations, including
actions involving retail sales practices. Most of these actions also seek
substantial or unspecified compensatory and punitive damages. NYLIAC is also
from time to time involved as a party in various governmental, administrative,
and investigative proceedings and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that the
ultimate liability that could result from such litigation and proceedings would
not have a material adverse effect on NYLIAC's financial position; however, it
is possible that settlements or adverse determinations in one or more actions or
other proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
INDEPENDENT ACCOUNTANTS
The 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 financial statements included in this
Statement of Additional Information have been included in reliance on the
reports of Price Waterhouse LLP, given on the authority of that 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.
Statements contained in this Statement of Additional Information concerning the
content of the Policies and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
10
<PAGE> 52
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-1
<PAGE> 53
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost: $88,898,113;
$34,862,927;
$12,718,635; $9,406,648;
$81,183,175;
$8,238,059; $61,939,654;
$42,200,894;
$13,158,639, respectively).......... $ 97,022,945 $ 34,862,901 $ 12,976,783
LIABILITIES:
Liability for mortality and expense
risk charges........................ 305,195 108,803 39,567
------------ ------------ ------------
Total equity...................... $ 96,717,750 $ 34,754,098 $ 12,937,216
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units
outstanding:
6,949,364; 32,708,991; 249,710;
855,087;
6,539,273; 692,262; 5,154,404;
3,377,264;
1,192,662, respectively........... $ 96,717,750 $ 34,754,098 $ 2,585,046
Equity of New York Life Insurance and
Annuity Corporation:
Variable accumulation units
outstanding for the
Convertible Investment
Division: 1,000,000............... -- -- 10,352,170
------------ ------------ ------------
Total equity...................... $ 96,717,750 $ 34,754,098 $ 12,937,216
============ ============ ============
Variable accumulation unit value.... $ 13.92 $ 1.06 $ 10.35
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost: $33,129,480;
$56,034,169;
$1,199,953; $1,550,034; $2,523,704;
$1,562,623; $1,287,386; $2,764,977;
$792,164, respectively)............. $ 32,001,863 $ 60,653,499 $ 1,197,453
LIABILITIES:
Liability for mortality and expense
risk charges........................ 98,411 186,484 1,356
------------ ------------ ------------
Total equity...................... $ 31,903,452 $ 60,467,015 $ 1,196,097
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units
outstanding:
2,276,392; 4,327,291; 125,006;
122,592;
240,533; 149,389; 125,480;
269,333;
80,108, respectively.............. $ 31,903,452 $ 60,467,015 $ 1,196,097
============ ============ ============
Variable accumulation unit value.... $ 14.01 $ 13.97 $ 9.57
============ ============ ============
</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> 54
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 9,142,457 $ 82,084,889 $ 8,249,664 $ 64,901,856 $ 46,605,230 $ 12,727,023
29,443 242,519 27,294 210,212 146,702 41,442
------------ ------------ ------------ ------------ ------------ ------------
$ 9,113,014 $ 81,842,370 $ 8,222,370 $ 64,691,644 $ 46,458,528 $ 12,685,581
============ ============ ============ ============ ============ ============
$ 9,113,014 $ 81,842,370 $ 8,222,370 $ 64,691,644 $ 46,458,528 $ 12,685,581
-- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
.... $ 9,113,014 $ 81,842,370 $ 8,222,370 $ 64,691,644 $ 46,458,528 $ 12,685,581
============ ============ ============ ============ ============ ============
$ 10.66 $ 12.52 $ 11.88 $ 12.55 $ 13.76 $ 10.64
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,532,401 $ 2,559,897 $ 1,562,256 $ 1,285,853 $ 2,792,790 $ 801,791
4,653 3,158 1,503 1,465 2,761 758
------------ ------------ ------------ ------------ ------------ ------------
$ 1,527,748 $ 2,556,739 $ 1,560,753 $ 1,284,388 $ 2,790,029 $ 801,033
============ ============ ============ ============ ============ ============
$ 1,527,748 $ 2,556,739 $ 1,560,753 $ 1,284,388 $ 2,790,029 $ 801,033
============ ============ ============ ============ ============ ============
$ 12.46 $ 10.63 $ 10.45 $ 10.24 $ 10.36 $ 10.00
============ ============ ============ ============ ============ ============
</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> 55
STATEMENT OF OPERATIONS
For the year ended December 31, 1996
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE(a)
---------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 61,695 $ 1,135,615 $ 130,516
Mortality and expense risk charges.................. (726,083) (324,977) (38,962)
---------- ----------- --------
Net investment income (loss).................... (664,388) 810,638 91,554
---------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 486,600 85,254,960 2,902
Cost of investments sold............................ (404,467) (85,255,180) (2,851)
---------- ----------- --------
Net realized gain (loss) on investments......... 82,133 (220) 51
Realized gain distribution received................. -- -- 22,531
Change in unrealized appreciation (depreciation) on
investments....................................... 7,874,228 (27) 258,148
---------- ----------- --------
Net gain (loss) on investments.................. 7,956,361 (247) 280,730
---------- ----------- --------
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account...................... (8,631) (270) (606)
---------- ----------- --------
Net increase in total equity resulting from
operations.................................... $ 7,283,342 $ 810,121 $ 371,678
========== =========== ========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION(a)
---------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 269,488 $ 855,543 $ --
Mortality and expense risk charges.................. (213,996) (393,614) (1,352)
---------- ----------- --------
Net investment income (loss).................... 55,492 461,929 (1,352)
---------- ----------- --------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 217,409 238,777 13,078
Cost of investments sold............................ (215,047) (204,934) (13,381)
---------- ----------- --------
Net realized gain (loss) on investments......... 2,362 33,843 (303)
Realized gain distribution received................. 3,899,589 660,493 --
Change in unrealized appreciation (depreciation) on
investments....................................... (956,785) 4,658,706 (2,501)
---------- ----------- --------
Net gain (loss) on investments.................. 2,945,166 5,353,042 (2,804)
---------- ----------- --------
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account.................................. (5,191) (10,453) (4)
---------- ----------- --------
Net increase (decrease) in total equity
resulting from operations..................... $ 2,995,467 $ 5,804,518 $ (4,160)
========== =========== ========
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE> 56
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 573,541 $ 3,859,992 $ 400,989 $ 1,305,132 $ 546,333 $ 812,105
(83,465) (537,942) (62,230) (508,367) (332,109) (104,468)
----------- ---------- --------- ---------- ---------- ---------
490,076 3,322,050 338,759 796,765 214,224 707,637
----------- ---------- --------- ---------- ---------- ---------
1,484,822 483,940 574,596 893,046 469,189 748,147
(1,589,511) (439,697) (543,310) (825,383) (407,132) (770,277)
----------- ---------- --------- ---------- ---------- ---------
(104,689) 44,243 31,286 67,663 62,057 (22,130)
-- 1,045,061 10,677 -- 621,260 --
(177,770) 1,034,049 10,409 2,963,990 4,267,746 (368,463)
----------- ---------- --------- ---------- ---------- ---------
(282,459) 2,123,353 52,372 3,031,653 4,951,063 (390,593)
----------- ---------- --------- ---------- ---------- ---------
(704) (11,968) (1,301) (5,906) (9,279) (916)
----------- ---------- --------- ---------- ---------- ---------
$ 206,913 $ 5,433,435 $ 389,830 $ 3,822,512 $ 5,156,008 $ 316,128
=========== ========== ========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND(a) EQUITY-INCOME(a) BALANCED(a) GROWTH(a) EQUITY(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 32,894 $ -- $ -- $ 12,075 $ 12,376 $ 1,324
(10,575) (3,115) (1,504) (1,422) (2,724) (750)
----------- ---------- --------- ---------- ---------- ---------
22,319 (3,115) (1,504) 10,653 9,652 574
----------- ---------- --------- ---------- ---------- ---------
108,666 -- -- 19,610 2,120 18,001
(106,016) -- -- (19,573) (2,122) (18,173)
----------- ---------- --------- ---------- ---------- ---------
2,650 -- -- 37 (2) (172)
81,014 -- -- -- -- --
(7,934) 36,193 (367) (1,534) 27,813 9,627
----------- ---------- --------- ---------- ---------- ---------
75,730 36,193 (367) (1,497) 27,811 9,455
----------- ---------- --------- ---------- ---------- ---------
(184) (43) -- (43) (37) (7)
----------- ---------- --------- ---------- ---------- ---------
$ 97,865 $ 33,035 $ (1,871) $ 9,113 $ 37,426 $ 10,022
=========== ========== ========= ========== ========== =========
</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> 57
STATEMENT OF CHANGES IN TOTAL EQUITY
For the year ended December 31, 1996 and the period
May 1, 1995 (Commencement of Operations) through December 31, 1995
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
------------------------------- -------------------------------
1996 1995 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss).................. $ (664,388) $ 17,730 $ 810,638 $ 86,036
Net realized gain (loss) on investments....... 82,133 27,997 (220) (60)
Realized gain distribution received........... -- -- -- --
Change in unrealized appreciation
(depreciation) on investments............... 7,874,228 250,604 (27) --
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account................ (8,631) (466) (270) (176)
------------ ------------ ------------ ------------
Net increase in total equity resulting from
operations................................ 7,283,342 295,865 810,121 85,800
------------ ------------ ------------ ------------
Contributions and withdrawals:
Equity contributions by New York Life
Insurance and Annuity Corporation........... -- -- -- --
Policyowners' premium payments................ 6,695,280 613,994 350,217,192 52,879,690
Policyowners' surrenders...................... (876,617) (19,258) (311,835) 3
Policyowners' annuity and death benefits...... (174,699) -- (89,119) --
Net transfers from (to) Fixed Account......... 320,781 33,040 (2,160,711) (40,722)
Transfers between Investment Divisions........ 72,162,586 10,383,436 (327,243,653) (39,392,668)
------------ ------------ ------------ ------------
Net contributions and withdrawals........... 78,127,331 11,011,212 20,411,874 13,446,303
------------ ------------ ------------ ------------
Increase in total equity.................. 85,410,673 11,307,077 21,221,995 13,532,103
TOTAL EQUITY:
Beginning of period........................... 11,307,077 -- 13,532,103 --
------------ ------------ ------------ ------------
End of period................................. $ 96,717,750 $ 11,307,077 $ 34,754,098 $ 13,532,103
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE
------------------------------- -------------------------------
1996 1995 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss).................. $ 796,765 $ 159,502 $ 214,224 $ 28,244
Net realized gain (loss) on investments....... 67,663 6,015 62,057 9,613
Realized gain distribution received........... -- -- 621,260 --
Change in unrealized appreciation
(depreciation) on investments............... 2,963,990 (1,789) 4,267,746 136,591
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account................ (5,906) (266) (9,279) (292)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations................. 3,822,512 163,462 5,156,008 174,156
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments................ 4,782,594 270,670 3,152,430 115,567
Policyowners' surrenders...................... (539,346) (12,611) (375,043) (10,880)
Policyowners' annuity and death benefits...... (18,557) -- (31,082) --
Net transfers from (to) Fixed Account......... (38,671) 44,775 (182,311) 201
Transfers between Investment Divisions........ 49,131,827 7,084,989 33,850,065 4,609,417
------------ ------------ ------------ ------------
Net contributions and withdrawals........... 53,317,847 7,387,823 36,414,059 4,714,305
------------ ------------ ------------ ------------
Increase in total equity.................. 57,140,359 7,551,285 41,570,067 4,888,461
TOTAL EQUITY:
Beginning of period........................... 7,551,285 -- 4,888,461 --
------------ ------------ ------------ ------------
End of period................................. $ 64,691,644 $ 7,551,285 $ 46,458,528 $ 4,888,461
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-6
<PAGE> 58
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CONVERTIBLE GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
------------ ----------------------------- ----------------------------- -------------------------------
1996(a) 1996 1995 1996 1995 1996 1995
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 91,554 $ 490,076 $ 125,814 $ 3,322,050 $ 230,146 $ 338,759 $ 32,091
51 (104,689) 1,438 44,243 8,294 31,286 3,127
22,531 -- -- 1,045,061 41,412 10,677 --
258,148 (177,770) (86,421) 1,034,049 (132,335) 10,409 1,196
(606) (704) (63) (11,968) (277) (1,301) (62)
------------ ------------ ------------ ------------ ------------ ------------ ------------
371,678 206,913 40,768 5,433,435 147,240 389,830 36,352
------------ ------------ ------------ ------------ ------------ ------------ ------------
10,000,000 -- -- -- -- -- --
25,163 868,542 34,988 6,212,700 283,469 669,296 34,022
(3,437) (685,395) (5,368) (762,345) (18,337) (127,066) (1,851)
-- (2,576) -- (62,320) -- -- --
5,137 (2,472) 160 75,022 132 25,429 (91)
2,538,675 6,850,594 1,806,860 63,927,520 6,605,854 6,538,724 657,725
------------ ------------ ------------ ------------ ------------ ------------ ------------
12,565,538 7,028,693 1,836,640 69,390,577 6,871,118 7,106,383 689,805
------------ ------------ ------------ ------------ ------------ ------------ ------------
12,937,216 7,235,606 1,877,408 74,824,012 7,018,358 7,496,213 726,157
-- 1,877,408 -- 7,018,358 -- 726,157 --
------------ ------------ ------------ ------------ ------------ ------------ ------------
$12,937,216 $ 9,113,014 $ 1,877,408 $ 81,842,370 $ 7,018,358 $ 8,222,370 $ 726,157
============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER AMERICAN
MAINSTAY VP MAINSTAY VP MAINSTAY VP SMALL
BOND GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
----------------------------- ----------------------------- ----------------------------- --------------
1996 1995 1996 1995 1996 1995 1996(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 707,637 $ 106,909 $ 55,492 $ 24,561 $ 461,929 $ 67,733 $ (1,352)
(22,130) 1,005 2,362 12,788 33,843 13,374 (303)
-- -- 3,899,589 215,561 660,493 109,107 --
(368,463) (63,154) (956,785) (170,833) 4,658,706 (39,376) (2,501)
(916) (67) (5,191) (179) (10,453) (239) (4)
------------ ------------ ------------ ------------ ------------ ------------ ------------
316,128 44,693 2,995,467 81,898 5,804,518 150,599 (4,160)
------------ ------------ ------------ ------------ ------------ ------------ ------------
1,075,713 122,959 1,623,667 76,948 4,036,124 148,405 90,796
(170,897) (484) (218,309) (498) (536,208) (2,608) (2,025)
(21,291) -- (54,801) -- (60,199) -- --
(251,813) -- 93,346 (552) (142,226) 2,000 5,467
9,912,712 1,657,861 24,711,617 2,594,669 47,219,415 3,847,195 1,106,019
------------ ------------ ------------ ------------ ------------ ------------ ------------
10,544,424 1,780,336 26,155,520 2,670,567 50,516,906 3,994,992 1,200,257
------------ ------------ ------------ ------------ ------------ ------------ ------------
10,860,552 1,825,029 29,150,987 2,752,465 56,321,424 4,145,591 1,196,097
1,825,029 -- 2,752,465 -- 4,145,591 -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------
$12,685,581 $ 1,825,029 $ 31,903,452 $ 2,752,465 $ 60,467,015 $ 4,145,591 $ 1,196,097
============ ============ ============ ============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-7
<PAGE> 59
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the year ended December 31, 1996 and the period
May 1, 1995 (Commencement of Operations) through December 31, 1995
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
-------------------------------------- --------------
1996 1995 1996(a)
---------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss).................... $ 22,319 $ 10,729 $ (3,115)
Net realized gain on investments................ 2,650 165 --
Realized gain distribution received............. 81,014 5,463 --
Change in unrealized appreciation (depreciation)
on investments................................ (7,934) (9,699) 36,193
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account.............................. (184) (13) (43)
------------ ------------ ------------
Net increase in total equity resulting from
operations.................................. 97,865 6,645 33,035
------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.................. 115,702 231 161,508
Policyowners' surrenders........................ (52,684) -- (1,347)
Net transfers from (to) Fixed Account........... (10,686) -- 46,266
Transfers between Investment Divisions.......... 1,190,501 180,174 2,317,277
------------ ------------ ------------
Net contributions and withdrawals............. 1,242,833 180,405 2,523,704
------------ ------------ ------------
Increase in total equity.................... 1,340,698 187,050 2,556,739
TOTAL EQUITY:
Beginning of period............................. 187,050 -- --
------------ ------------ ------------
End of period................................... $ 1,527,748 $ 187,050 $ 2,556,739
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
FIDELITY JANUS ASPEN EMERGING
VIP: ASPEN WORLDWIDE MARKETS
EQUITY-INCOME BALANCED GROWTH EQUITY
-------------- -------------- -------------- --------------
1996(a) 1996(a) 1996(a) 1996(a)
------------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss).................... $ (1,504) $ 10,653 $ 9,652 $ 574
Net realized gain (loss) on investments......... -- 37 (2) (172)
Change in unrealized appreciation (depreciation)
on investments................................ (367) (1,534) 27,813 9,627
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account.............................. -- (43) (37) (7)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations................... (1,871) 9,113 37,426 10,022
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.................. 57,029 71,053 187,630 70,861
Policyowners' surrenders........................ (3,838) (435) (245) --
Net transfers from Fixed Account................ 19,406 26,917 47,272 2,893
Transfers between Investment Divisions.......... 1,490,027 1,177,740 2,517,946 717,257
------------ ------------ ------------ ------------
Net contributions and withdrawals............. 1,562,624 1,275,275 2,752,603 791,011
------------ ------------ ------------ ------------
Increase in total equity.................... 1,560,753 1,284,388 2,790,029 801,033
TOTAL EQUITY:
Beginning of period............................. -- -- -- --
------------ ------------ ------------ ------------
End of period................................... $ 1,560,753 $ 1,284,388 $ 2,790,029 $ 801,033
============ ============ ============ ============
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-8
<PAGE> 60
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
N
ew York Life Insurance and Annuity Corporation Variable Annuity Separate
Account-III, formerly known as 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 Non-Qualified and Qualified Flexible Premium Variable Retirement
Annuity Policies issued by New York Life Insurance and Annuity Corporation. The
non-qualified policies are designed to establish retirement benefits to provide
individuals with supplemental retirement income. The qualified policies are
designed to establish retirement benefits for individuals who participate in
qualified pension, profit sharing or annuity plans. The policies are distributed
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.,
which is a wholly-owned subsidiary 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 MainStay
VP Series Fund, Inc. (formerly, "New York Life MFA Series Fund, Inc."), The
Alger American Fund, the Acacia Capital Corporation, the Fidelity Variable
Insurance Products Fund, the Fidelity Variable Insurance Products Fund II, the
Janus Aspen Series and the Morgan Stanley Universal Funds, Inc. (collectively,
"Funds"). These assets are clearly identified and distinguished from the other
assets and liabilities of New York Life Insurance and Annuity Corporation.
On October 1, 1996, New York Life Insurance and Annuity Corporation created
seven new Investment Divisions within the Separate Account. These new Investment
Divisions offer the Separate Account seven new Eligible Portfolios to invest in:
the MainStay VP Convertible Portfolio, the Alger American Small Capitalization
Portfolio, the Fidelity VIP II: Contrafund Portfolio, the Fidelity VIP:
Equity-Income Portfolio, the Janus Aspen Balanced Portfolio, the Janus Aspen
Worldwide Growth Portfolio and the Morgan Stanley Emerging Markets Equity
Portfolio.
The Separate Account offers the following eighteen variable Investment
Divisions, with their respective fund portfolios, for Policyowners to invest
premium payments: MainStay VP Capital Appreciation, MainStay VP Cash Management,
MainStay VP Convertible, MainStay VP Government, MainStay VP High Yield
Corporate Bond, MainStay VP International Equity, MainStay VP Total Return,
MainStay VP Value, MainStay VP Bond, MainStay VP Growth Equity, MainStay VP
Indexed Equity, Alger American Small Capitalization, Calvert Socially
Responsible, Fidelity VIP II: Contrafund, Fidelity VIP: Equity-Income, Janus
Aspen Balanced, Janus Aspen Worldwide Growth and Morgan Stanley Emerging Markets
Equity. Each Investment Division of the Separate Account will invest exclusively
in the corresponding Eligible Portfolio.
Initial premium payments received are allocated to the MainStay VP 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 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-9
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
A
t December 31, 1996, the investments of the Separate Account are as follows:
<TABLE>
<CAPTION>
MAINSTAY
MAINSTAY VP VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 5,277 34,864 1,264
Identified cost*........................................ $ 88,898 $ 34,863 $ 12,719
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY ALGER
MAINSTAY VP VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 1,718 3,768 29
Identified cost*........................................ $ 33,129 $ 56,034 $ 1,200
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1996, was as follows:
<TABLE>
<CAPTION>
MAINSTAY
MAINSTAY VP VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $ 78,223 $106,561 $ 12,721
Proceeds from sales..................................... 487 85,255 3
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY ALGER
MAINSTAY VP VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $ 30,416 $ 52,046 $ 1,213
Proceeds from sales..................................... 217 239 13
</TABLE>
F-10
<PAGE> 62
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
953 7,069 774 4,457 3,353 992
$ 9,407 $ 81,183 $ 8,238 $ 61,940 $ 42,201 $ 13,159
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
864 155 74 87 144 82
$ 1,550 $ 2,524 $ 1,563 $ 1,287 $ 2,765 $ 792
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 9,029 $ 74,459 $ 8,055 $ 55,198 $ 37,847 $ 12,037
1,485 484 575 893 469 748
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,459 $ 2,524 $ 1,563 $ 1,307 $ 2,767 $ 810
109 -- -- 20 2 18
</TABLE>
F-11
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--Mortality and Expense Risk Charges:
- --------------------------------------------------------------------------------
T
he 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 daily 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:
- --------------------------------------------------------------------------------
T
he Separate Account does 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-12
<PAGE> 64
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-13
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners and New York Life Insurance and Annuity
Corporation (in 000's):
- --------------------------------------------------------------------------------
A
t December 31, 1996, the cost to Policyowners and New York Life Insurance
and Annuity Corporation for accumulation units outstanding, with adjustments
for net investment income, market appreciation (depreciation) and deduction
for expenses is as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners and New York Life Insurance and
Annuity Corporation (net of withdrawals)............... $ 89,139 $ 33,857 $ 12,565
Accumulated net investment income (loss)................. (647) 897 92
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 110 -- 23
Unrealized appreciation (depreciation) on investments.... 8,125 -- 258
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (9) -- (1)
-------- -------- --------
Net amount applicable to Policyowners and New York Life
Insurance and Annuity Corporation...................... $ 96,718 $ 34,754 $ 12,937
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
------------------------------------------------------
<S> <C> <C> <C>
Cost to Policyowners (net of withdrawals)................ $ 28,826 $ 54,512 $ 1,200
Accumulated net investment income (loss)................. 80 530 (1)
Accumulated net realized gain on investments and realized
gain distributions received............................ 4,130 817 --
Unrealized appreciation (depreciation) on investments.... (1,128) 4,619 (3)
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (5) (11) --
-------- -------- --------
Net amount applicable to Policyowners.................... $ 31,903 $ 60,467 $ 1,196
======== ======== ========
</TABLE>
F-14
<PAGE> 66
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
MAINSTAY VP HIGH YIELD INTERNATIONAL TOTAL MAINSTAY VP MAINSTAY VP
GOVERNMENT CORPORATE BOND EQUITY RETURN VALUE BOND
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 8,865 $ 76,261 $ 7,795 $ 60,706 $ 41,130 $ 12,325
616 3,552 371 956 242 815
(103) 1,139 45 74 693 (21)
(264) 902 12 2,962 4,404 (432)
(1) (12) (1) (6) (10) (1)
------- ------- ------- ------- ------- -------
$ 9,113 $ 81,842 $ 8,222 $ 64,692 $ 46,459 $ 12,686
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
CALVERT FIDELITY FIDELITY JANUS ASPEN EMERGING
SOCIALLY VIP II: VIP: ASPEN WORLDWIDE MARKETS
RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH EQUITY
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,424 $ 2,524 $ 1,563 $ 1,275 $ 2,752 $ 790
33 (3) (2) 11 10 1
89 -- -- -- -- --
(18) 36 -- (2) 28 10
-- -- -- -- -- --
------- ------- ------- ------- ------- -------
$ 1,528 $ 2,557 $ 1,561 $ 1,284 $ 2,790 $ 801
======= ======= ======= ======= ======= =======
</TABLE>
F-15
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
T
ransactions in accumulation units for the year ended December 31, 1996 and
the period May 1, 1995 (Commencement of Operations) through December 31,
1995, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
-------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on contribution by New York Life
Insurance and Annuity Corporation................. -- -- -- --
Units issued on premium payments.................... 508 53 334,902 51,863
Units redeemed on surrenders........................ (65) (2) (297) --
Units redeemed on annuity and death benefits........ (13) -- (85) --
Units issued (redeemed) on net transfers from (to)
Fixed Account..................................... 24 3 (2,060) (40)
Units issued (redeemed) on transfers between
Investment Divisions.............................. 5,544 897 (312,941) (38,633)
----- --- -------- -------
Net increase...................................... 5,998 951 19,519 13,190
Units outstanding, beginning of period.............. 951 -- 13,190 --
----- --- -------- -------
Units outstanding, end of period.................... 6,949 951 32,709 13,190
===== === ======== =======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE
-------------------------- ---------------------------------
1996 1995 1996 1995
------------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments.................... 400 24 253 11
Units redeemed on surrenders........................ (44) (1) (30) (1)
Units redeemed on annuity and death benefits........ (2) -- (3) --
Units issued (redeemed) on net transfers from (to)
Fixed Account..................................... (3) 4 (15) --
Units issued on transfers between
Investment Divisions.............................. 4,138 638 2,740 422
----- --- -------- -------
Net increase...................................... 4,489 665 2,945 432
Units outstanding, beginning of period.............. 665 -- 432 --
----- --- -------- -------
Units outstanding, end of period.................... 5,154 665 3,377 432
===== === ======== =======
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-16
<PAGE> 68
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CONVERTIBLE GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
----------- --------------------- --------------------- ------------------------------
1996(a) 1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1,000 -- -- -- -- -- --
2 83 3 528 27 58 3
-- (67) (1) (64) (2) (11) --
-- -- -- (5) -- -- --
1 -- -- 6 -- 2 --
247 661 176 5,426 623 576 64
----- ----- ----- ----- ----- ----- -----
1,250 677 178 5,891 648 625 67
-- 178 -- 648 -- 67 --
----- ----- ----- ----- ----- ----- -----
1,250 855 178 6,539 648 692 67
===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP MAINSTAY VP SMALL
BOND GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
---------------------------- --------------------- --------------------- --------------
1996 1995 1996 1995 1996 1995 1996(a)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
104 12 126 7 316 13 9
(16) -- (17) -- (42) -- --
(2) -- (4) -- (5) -- --
(24) -- 7 -- (10) -- 1
958 161 1,923 234 3,710 345 115
----- ----- ----- ----- ----- ----- -----
1,020 173 2,035 241 3,969 358 125
173 -- 241 -- 358 -- --
----- ----- ----- ----- ----- ----- -----
1,193 173 2,276 241 4,327 358 125
===== ===== ===== ===== ===== ===== =====
</TABLE>
F-17
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY FIDELITY
SOCIALLY VIP II: VIP:
RESPONSIBLE CONTRAFUND EQUITY-INCOME
-------------------------- -------------- --------------
1996 1995 1996(a) 1996(a)
------------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments.................... 10 -- 16 5
Units redeemed on surrenders........................ (4) -- -- --
Units issued (redeemed) on net transfers from (to)
Fixed Account..................................... (1) -- 4 2
Units issued on transfers between Investment
Divisions......................................... 101 17 221 142
--- --- --- ---
Net increase...................................... 106 17 241 149
Units outstanding, beginning of period.............. 17 -- -- --
--- --- --- ---
Units outstanding, end of period.................... 123 17 241 149
=== === === ===
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
JANUS ASPEN EMERGING
ASPEN WORLDWIDE MARKETS
BALANCED GROWTH EQUITY
-------- --------- --------------
1996(a) 1996(a) 1996(a)
-----------------------------------------
<S> <C> <C> <C>
Units issued on premium payments.................... 7 18 7
Units issued on net transfers from Fixed Account.... 2 5 --
Units issued on transfers between Investment
Divisions......................................... 116 246 73
--- --- ---
Net increase...................................... 125 269 80
Units outstanding, beginning of period.............. -- -- --
--- --- ---
Units outstanding, end of period.................... 125 269 80
=== === ===
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-18
<PAGE> 70
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-19
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
T
he following table presents selected per accumulation unit income and
capital changes (for an accumulation unit outstanding throughout each
period) with respect to each Investment Division of the Separate Account:
<TABLE>
<CAPTION>
MAINSTAY VP
CAPITAL APPRECIATION
-----------------------
1996 1995(a)
----------------------
<S> <C> <C>
Unit value, beginning of period....................................... $11.89 $10.00
Net investment income (loss).......................................... (0.17) 0.06
Net realized and unrealized gains (losses) on security transactions
and realized capital gain distributions received (includes the
effect of capital share transactions)............................... 2.20 1.83
------ ------
Unit value, end of period............................................. $13.92 $11.89
====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
INTERNATIONAL EQUITY
-----------------------
1996 1995(a)
----------------------
<S> <C> <C>
Unit value, beginning of period....................................... $10.90 $10.00
Net investment income................................................. 0.87 1.36
Net realized and unrealized gains (losses) on security transactions
and realized capital gain distributions received (includes the
effect of capital share transactions)............................... 0.11 (0.46)
Unit value, end of period............................................. $11.88 $10.90
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
INDEXED EQUITY
-----------------------
1996 1995(a)
----------------------
<S> <C> <C>
Unit value, beginning of period....................................... $11.58 $10.00
Net investment income (loss).......................................... 0.21 0.62
Net realized and unrealized gains (losses) on security transactions
and realized capital gain distributions received (includes the
effect of capital share transactions)............................... 2.18 0.96
------ ------
Unit value, end of period............................................. $13.97 $11.58
====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the period.
(a) For the period May 1, 1995 (Commencement of Operations) through December 31,
1995.
(b) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-20
<PAGE> 72
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(FORMERLY KNOWN AS NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
LIFESTAGES(SM) ANNUITY SEPARATE ACCOUNT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP MAINSTAY VP HIGH YIELD
CASH MANAGEMENT CONVERTIBLE GOVERNMENT CORPORATE BOND
------------------- ------------------- ------------------- -------------------
1996 1995(a) 1996(b) 1996 1995(a) 1996 1995(a)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.03 $ 1.00 $10.00 $10.57 $10.00 $10.83 $10.00
0.04 0.02 0.08 0.86 2.49 1.02 1.15
(0.01) 0.01 0.27 (0.77) (1.92) 0.67 (0.32)
------ ------ ------ ------ ------ ------
$ 1.06 $ 1.03 $10.35 $10.66 $10.57 $12.52 $10.83
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE BOND GROWTH EQUITY
------------------- ------------------- ------------------- -------------------
1996 1995(a) 1996 1995(a) 1996 1995(a) 1996 1995(a)
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$11.36 $10.00 $11.32 $10.00 $10.57 $10.00 $11.42 $10.00
0.27 0.79 0.11 0.20 0.99 2.16 0.05 0.35
0.92 0.57 2.33 1.12 (0.92) (1.59) 2.54 1.07
------ ------ ------ ------ ------ ------ ------ ------
$12.55 $11.36 $13.76 $11.32 $10.64 $10.57 $14.01 $11.42
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ALGER JANUS
AMERICAN CALVERT FIDELITY FIDELITY JANUS ASPEN
SMALL SOCIALLY VIP II: VIP: ASPEN WORLDWIDE
CAPITALIZATION RESPONSIBLE CONTRAFUND EQUITY-INCOME BALANCED GROWTH
------------- ------------------------------- ------------- ------------- ------------- -------------
1996(b) 1996 1995(a) 1996(b) 1996(b) 1996(b) 1996(b)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 10.00 $ 11.22 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
(0.02) 0.35 1.60 (0.03) (0.02) 0.17 0.08
(0.41) 0.89 (0.38) 0.66 0.47 0.07 0.28
------ ------ ------ ------ ------ ------ ------
$ 9.57 $ 12.46 $ 11.22 $ 10.63 $ 10.45 $ 10.24 $ 10.36
====== ====== ====== ====== ====== ====== ======
<CAPTION>
MORGAN
STANLEY
EMERGING
MARKETS
EQUITY
-------------
1996(b)
<S> <C> <C>
$ 10.00
0.02
(0.02)
$ 10.00
</TABLE>
F-21
<PAGE> 73
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 statement of assets and liabilities and the
related statement of operations, the statement of changes in total equity and
the selected per unit data present fairly, in all material respects, the
financial position of the New York Life Insurance and Annuity Corporation
Variable Annuity Separate Account-III, formerly known as New York Life Insurance
and Annuity Corporation LifeStages(SM) Annuity Separate Account, comprised of
the MainStay VP Capital Appreciation Investment Division, MainStay VP Cash
Management Investment Division, MainStay VP Convertible Investment Division,
MainStay VP Government Investment Division, MainStay VP High Yield Corporate
Bond Investment Division, MainStay VP International Equity Investment Division,
MainStay VP Total Return Investment Division, MainStay VP Value Investment
Division, MainStay VP Bond Investment Division, MainStay VP Growth Equity
Investment Division, MainStay VP Indexed Equity Investment Division, Alger
American Small Capitalization Investment Division, Calvert Socially Responsible
Investment Division, Fidelity VIP II: Contrafund Investment Division, Fidelity
VIP: Equity-Income Investment Division, Janus Aspen Balanced Investment
Division, Janus Aspen Worldwide Growth Investment Division, and Morgan Stanley
Emerging Markets Equity Investment Division at December 31, 1996, the results of
its operations for the year then ended (for the MainStay VP Convertible
Investment Division, the Alger American Small Capitalization Investment
Division, the Fidelity VIP II: Contrafund Investment Division, the Fidelity VIP:
Equity-Income Investment Division, the Janus Aspen Balanced Investment Division,
the Janus Aspen Worldwide Growth Investment Division and the Morgan Stanley
Emerging Markets Equity Investment Division for the period October 1, 1996
(commencement of operations) through December 31, 1996), the changes in its
total equity and the selected per unit data for the period presented in
conformity with generally accepted accounting principles. These financial
statements and the selected per unit data (herein referred to as the "financial
statements") are the responsibility of management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of investments at December 31, 1996, with the
MainStay VP Series Fund, Inc., The Alger American Fund, the Acacia Capital
Corporation, the Fidelity Variable Insurance Products Fund, the Fidelity
Variable Insurance Products Fund II, the Janus Aspen Series, and the Morgan
Stanley Universal Funds, Inc., provides a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 19, 1997
F-22
<PAGE> 74
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-23
<PAGE> 75
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-----------------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value.......................................................... $11,854 $12,237
Held to maturity, at amortized cost........................................................ 647 566
Equity securities............................................................................ 70 70
Mortgage loans............................................................................... 1,113 1,003
Real estate.................................................................................. 151 141
Policy loans................................................................................. 464 435
Other long-term investments.................................................................. 17 17
------- -------
Total investments...................................................................... 14,316 14,469
Cash and cash equivalents.................................................................... 236 326
Deferred policy acquisition costs............................................................ 691 511
Other assets................................................................................. 252 236
Separate account assets...................................................................... 2,445 1,444
------- -------
Total assets........................................................................... $17,940 $16,986
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances.............................................................. $13,163 $12,853
Future policy benefits....................................................................... 251 233
Policy claims................................................................................ 57 81
Deferred income taxes........................................................................ 47 156
Other liabilities............................................................................ 333 591
Separate account liabilities................................................................. 2,403 1,396
------- -------
Total liabilities...................................................................... 16,254 15,310
STOCKHOLDER'S EQUITY
Capital stock -- par value $10,000
(20,000 shares authorized, 2,500 issued and outstanding)................................... 25 25
Additional paid in capital................................................................... 480 480
Net unrealized gains on investments.......................................................... 68 227
Retained earnings............................................................................ 1,113 944
------- -------
Total stockholder's equity............................................................. 1,686 1,676
------- -------
Total liabilities and stockholder's equity............................................. $17,940 $16,986
======= =======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 76
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
--------------------------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees.................................................... $ 234 $ 224 $ 194
Net investment income.............................................................. 1,048 1,012 1,014
Net realized investment gains (losses)............................................. 65 38 (41)
Other income....................................................................... 58 71 57
------ ------ ------
Total revenues............................................................... 1,405 1,345 1,224
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances............................... 723 742 609
Policyholder benefits.............................................................. 117 168 154
Operating expenses................................................................. 299 239 278
------ ------ ------
Total expenses............................................................... 1,139 1,149 1,041
------ ------ ------
Income before Federal income taxes................................................... 266 196 183
Federal income taxes
Current............................................................................ 121 84 97
Deferred........................................................................... (24) (8) (10)
------ ------ ------
Total Federal income taxes................................................... 97 76 87
Net income........................................................................... $ 169 $ 120 $ 96
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 77
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
--------------------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory capital and surplus, beginning of year as previously reported.............. $ -- $ -- $ 780
Cumulative effect of comprehensive change in basis of accounting (Note 2)............ -- -- 532
------ ------ ------
Stockholder's equity, beginning of year as adjusted.................................. 1,676 1,141 1,312
Net income........................................................................... 169 120 96
Change in unrealized gains and losses on investments................................. (159) 415 (197)
Dividends paid to stockholder........................................................ -- -- (70)
------ ------ ------
Stockholder's equity, end of year.................................................... $1,686 $1,676 $1,141
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 78
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------------------------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.......................................................................... $ 169 $ 120 $ 96
Adjustments to reconcile net income to net cash provided by (used for) operating
activities:
Depreciation and amortization..................................................... (18) (26) (43)
Capitalization of deferred policy acquisition costs............................... (151) (126) (111)
Amortization of deferred policy acquisition costs................................. 107 86 139
Policyholder expense charge....................................................... (188) (183) (168)
Interest credited to policyholders' account balances.............................. 723 742 609
Net realized investment (gains) losses............................................ (65) (38) 41
Deferred income taxes............................................................. (24) (8) (10)
Decrease in net separate account assets........................................... 6 17 2
(Increase) decrease in other assets and other liabilities......................... (127) 308 (179)
(Decrease) increase in policy claims.............................................. (24) 8 19
Increase (decrease) in future policy benefits..................................... 18 (80) 33
------- ------- -------
Net cash provided by operating activities..................................... 426 820 428
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available for sale fixed maturities........................... 5,787 2,370 3,120
Proceeds from maturity of available for sale fixed maturities....................... 1,505 930 1,266
Proceeds from maturity of held to maturity fixed maturities......................... 141 103 160
Proceeds from sale of equity securities............................................. 47 40 25
Proceeds from repayment of mortgage loans........................................... 143 244 138
Proceeds from sale of real estate................................................... 55 13 16
Proceeds from other invested assets................................................. 4 31 --
Cost of available for sale fixed maturities acquired................................ (7,447) (4,320) (4,605)
Cost of held to maturity fixed maturities acquired.................................. (95) (162) (135)
Cost of equity securities acquired.................................................. (43) (12) (1)
Cost of mortgage loans acquired..................................................... (280) (320) (139)
Cost of real estate acquired........................................................ (35) (14) (54)
Cost of other invested assets acquired.............................................. (8) (5) (16)
Policy loans........................................................................ (29) (25) (31)
Securities sold under agreements to repurchase (net)................................ (37) (168) 105
------- ------- -------
Net cash used in investing activities............................................. (292) (1,295) (151)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Policyholders' account balances:
Deposits.......................................................................... 1,069 1,252 1,153
Withdrawals....................................................................... (562) (751) (793)
Net transfers to the separate accounts............................................ (733) (238) (172)
Other, net.......................................................................... -- (52) (70)
------- ------- -------
Net cash (used in) provided by financing activities........................... (226) 211 118
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents.......................... 2 (1) 1
------- ------- -------
Net (decrease) increase in cash and cash equivalents.................................. (90) (265) 396
Cash and cash equivalents, beginning of year.......................................... 326 591 195
------- ------- -------
Cash and cash equivalents, end of year................................................ $ 236 $ 326 $ 591
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 79
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1--Nature of Operations
- --------------------------------------------------------------------------------
N
ew York Life Insurance and Annuity Corporation ("NYLIAC") is a direct,
wholly owned subsidiary of New York Life Insurance Company ("New York
Life"). NYLIAC offers a wide variety of interest sensitive insurance and
annuity products to a large cross section of the insurance market. NYLIAC
markets its products in all 50 of the United States, the District of Columbia
and Taiwan, primarily through its agency force. In addition, NYLIAC markets
Corporate Owned Life Insurance through independent brokers and brokerage general
agents.
NOTE 2--Significant Accounting Policies
- --------------------------------------------------------------------------------
Basis of Presentation
T
he accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of
financial statements of life insurance enterprises requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements. Actual results may
differ from estimates.
Comprehensive Change in Basis of Accounting
In 1996, NYLIAC adopted Financial Accounting Standards Board ("FASB")
Interpretation No. 40 "Applicability of Generally Accepted Accounting Principles
to Mutual Life Insurance and Other Enterprises," as amended by Statement of
Financial Accounting Standards ("SFAS") No. 120 "Accounting and Reporting by
Mutual Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts," effective for fiscal years beginning
after December 15, 1995. Prior to the effective date of the Interpretation,
NYLIAC, consistent with industry practice, issued financial statements in
accordance with statutory accounting practices which were considered GAAP for
mutual life insurance companies and their life insurance subsidiaries.
Interpretation No. 40 establishes a new definition of GAAP for mutual life
insurance companies and their life insurance subsidiaries. Under the
Interpretation, financial statements of mutual life insurance companies and
their life insurance subsidiaries which are prepared on the basis of statutory
accounting practices, are no longer characterized as in conformity with GAAP.
As a result, NYLIAC has prepared financial statements for the year ended
December 31, 1996 in accordance with GAAP. Financial statements for the years
ended December 31, 1995, 1994 and 1993, which were previously prepared on the
basis of statutory accounting, have been restated in accordance with GAAP. The
cumulative effect of the comprehensive change in basis of accounting of $532
million has been recorded as an increase in the beginning of year equity for the
year ended December 31, 1994, the earliest year presented herein (See Note 14
for a reconciliation of NYLIAC's statutory surplus and statutory net income with
stockholder's equity and net income on a GAAP basis).
Investments
Fixed maturity investments, which NYLIAC has both the ability and the intent
to hold to maturity, are stated at amortized cost. Investments identified as
available for sale are reported at fair value. Unrealized gains and losses on
available for sale securities are reported in equity, net of deferred taxes and
related adjustments. The cost basis of fixed maturities is adjusted for
impairments in value deemed to be other than temporary, with the associated
realized loss reported in net income. Equity securities are carried at fair
value. Unrealized gains and losses related to such securities are reflected in
equity, net of deferred taxes and related adjustments. Realized losses are
recognized in net income for other than temporary declines in fair value.
Mortgage loans are carried at unpaid principal balances, net of impairment
allowances, and are generally secured. Investment real estate, which NYLIAC has
the intent to hold for the production of income, is carried at depreciated cost
net of write-downs for other than temporary declines in fair value. Properties
held for sale are carried at the lower of cost or fair value less estimated
selling costs. Policy loans are stated at the aggregate balance due. The
carrying amount approximates fair value since loans on policies have no defined
maturity date and reduce amounts payable at death or surrender. Cash equivalents
include investments that have maturities of 90 days or less at date of purchase
and are carried at amortized cost, which approximates fair value. Short-term
investments are included in fixed maturities on the balance sheet, and are
carried at amortized cost, which approximates fair value.
Derivative financial instruments used by NYLIAC to hedge exposure to interest
rate and foreign currency fluctuations are accounted for on an accrual basis.
Realized gains and losses related to contracts that are effective hedges on
specific assets are deferred and recognized in net income in the same period as
gains and losses on the hedged assets. Amounts payable or
F-28
<PAGE> 80
Investments (Continued)
receivable under interest rate, currency and commodity swap agreements and
interest rate floor agreements are recognized as investment income or expense
when earned. Premiums paid for interest rate floor agreements are amortized into
interest expense over the life of the agreement. Unamortized premiums are
included in other assets in the balance sheet. Unrealized gains and losses on
foreign currency forward exchange contracts are reported in equity. Realized
gains and losses are recognized in net income upon termination or maturity of
the contracts.
Deferred Policy Acquisition Costs
The costs of acquiring new business and certain costs of issuing policies that
vary with and are primarily related to the production of new business have been
deferred and recorded as an asset in the balance sheet. These consist primarily
of commissions, certain expenses of underwriting and issuing contracts, and
certain agency expenses. Acquisition costs for universal life and annuity
contracts are amortized in proportion to estimated gross profits over the
effective life of these contracts, which is assumed to be 25 years for universal
life contracts and 15 years for annuities. Changes in assumptions are reflected
in the current year's amortization.
The carrying amount of the deferred policy acquisition cost asset is adjusted
at each balance sheet date as if the unrealized gains or losses on investments
associated with these insurance contracts had been realized and included in the
gross profits used to determine current period amortization. The increase or
decrease in the deferred policy acquisition cost asset due to unrealized gains
or losses is recorded in stockholder's equity.
Recognition of Income and Related Expenses
Amounts received under universal life and annuity contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period for mortality and expense risk,
policy administration and surrender charges. Policy benefits and claims that are
charged to expense include benefit claims incurred in the period in excess of
related policyholders' account balances.
Policyholders' Account Balances
Policyholders' account balances on universal life and annuity contracts are
equal to cumulative deposits plus credited interest less withdrawals and
charges.
Federal Income Taxes
NYLIAC is a member of a group which files a consolidated Federal income tax
return with New York Life. The consolidated income tax provision or benefit is
allocated among the members of the group in accordance with a tax allocation
agreement. The tax allocation agreement provides that each member of the group
is allocated its share of the consolidated tax provision or benefit determined
on a separate company basis. Current Federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or recoverable
as a result of taxable operations for the current year. Adjustments to such
estimates are recorded in net income. Deferred income tax assets and liabilities
are recognized for the future tax consequence of temporary differences between
financial statement carrying amounts and income tax bases of assets and
liabilities.
Current Federal income taxes include a provision for NYLIAC's allocable share
of the equity base tax applicable to mutual life insurance companies and their
subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate used to compute the equity base tax.
Reinsurance
NYLIAC enters into reinsurance agreements in the normal course of its
insurance business to reduce overall risk. NYLIAC remains liable for reinsurance
ceded if the reinsurer fails to meet its obligation on the business it has
assumed. NYLIAC evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
Separate Accounts
NYLIAC has established separate accounts with varying investment objectives
which are segregated from NYLIAC's general account and are maintained for the
benefit of separate account contractholders and NYLIAC. Separate account assets
are stated at market value. The liability for separate accounts represents
contractholders' interests in the separate account assets, including accumulated
net investment income and realized and unrealized gains and losses on those
assets.
F-29
<PAGE> 81
Fair Values of Financial Instruments
Fair values of various assets and liabilities are included throughout the
notes to financial statements. Specifically, fair value disclosure of fixed
maturities, short-term investments, cash equivalents, equity securities and
mortgage loans is reported in Note 2 -- Significant Accounting Policies and Note
3 -- Investments. Fair values for policyholders' account balances are reported
in Note 5 -- Insurance Liabilities. Fair values for derivative financial
instruments are included in Note 10 -- Derivative Financial Instruments and Risk
Management. Fair values for repurchase agreements are included in Note 11 --
Commitments and Contingencies.
Business Risks and Uncertainties
The development of liabilities for future policy benefits and deferred policy
acquisition costs for NYLIAC's products requires management to make estimates
and assumptions regarding mortality, morbidity, lapse, expense and investment
experience. Such estimates are primarily based on historical experience and
future expectations of mortality, morbidity, expense, persistency and investment
assumptions. Actual results could differ from those estimates. Management
monitors actual experience, and where circumstances warrant, revises its
assumptions and the related estimates for liabilities for future policy benefits
and deferred policy acquisition costs.
NYLIAC's investments are primarily comprised of fixed maturities and mortgage
loans. Significant changes in prevailing interest rates and geographic
conditions may adversely affect the timing and amount of cash flows on such
investments, as well as their related values. A significant decline in the
market value of these investments could have an adverse affect on NYLIAC's
balance sheet.
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 premium and accretion of
market discount for mortgage-backed securities is based on historical experience
and estimates of future payment experience on the underlying mortgage loans.
Actual prepayment speeds will differ from original estimates and may result in
material adjustments to amortization or accretion recorded in future periods.
As a subsidiary of a mutual life insurance company, NYLIAC is subject to a tax
on its equity base. The rates applied to NYLIAC's equity base are determined
annually by the Internal Revenue Service ("IRS") after comparison of mutual life
insurance company earnings for the year to the average earnings of the 50
largest stock life insurance companies for the prior three years. Due to the
timing of earnings information, estimates of the current year's tax must be made
by management. The ultimate amounts of equity base tax incurred may vary
considerably from the original estimates.
NOTE 3-- Investments
- --------------------------------------------------------------------------------
Fixed Maturities
F
or publicly traded fixed maturities, estimated fair value is determined
using quoted market prices. For fixed maturities without a readily
ascertainable market value, NYLIAC has determined an estimated fair value
using either a discounted cash flow approach (including provisions for
credit risk, generally based upon the assumption such securities will be held to
maturity) or a proprietary matrix pricing model.
At December 31, 1996 and 1995, the maturity distribution of fixed maturities
was as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
Due in one year or less............................................. $ 489 $ 491 $ 755 $ 762
Due after one year through five years............................... 3,019 3,039 2,782 2,850
Due after five years through ten years.............................. 2,122 2,151 1,642 1,736
Due after ten years................................................. 2,030 2,091 1,795 1,967
Asset-backed securities:
Government or government agency................................... 2,866 2,916 4,089 4,233
Other............................................................. 1,168 1,166 657 689
------- ------- ------- --------
Total Available for Sale.................................... $11,694 $ 11,854 $11,720 $ 12,237
======= ======= ======= ========
</TABLE>
F-30
<PAGE> 82
Fixed Maturities (Continued)
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------------------------------------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
Due in one year or less............................................. $ 24 $ 24 $ 29 $ 29
Due after one year through five years............................... 192 194 232 237
Due after five years through ten years.............................. 235 241 208 221
Due after ten years................................................. 100 105 67 75
Asset-backed securities............................................. 96 96 30 31
----- ---- ----- ----
Total Held to Maturity...................................... $ 647 $660 $ 566 $593
===== ==== ===== ====
</TABLE>
At December 31, 1996 and 1995, the distribution of gross unrealized gains and
losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1996
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury and U.S. Government corporations and agencies........ $ 1,243 $ 24 $ 7 $ 1,260
U.S. agencies, state and municipal................................. 2,561 64 15 2,610
Foreign governments................................................ 191 13 1 203
Corporate.......................................................... 6,531 131 47 6,615
Other.............................................................. 1,168 19 21 1,166
------- ---- ---- --------
Total Available for Sale................................... $11,694 $251 $ 91 $ 11,854
======= ==== ==== ========
HELD TO MATURITY
Corporate.......................................................... $ 551 $ 15 $ 2 $ 564
Asset-backed securities............................................ 96 -- -- 96
------- ---- ---- --------
Total Held to Maturity..................................... $ 647 $ 15 $ 2 $ 660
======= ==== ==== ========
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
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................................................ 318 26 1 343
Corporate.......................................................... 5,342 249 11 5,580
Other.............................................................. 657 33 1 689
------- ---- ---- --------
Total Available for Sale................................... $11,720 $540 $ 23 $ 12,237
======= ==== ==== ========
HELD TO MATURITY
Corporate.......................................................... $ 536 $ 26 $ -- $ 562
Asset-backed securities............................................ 30 1 -- 31
------- ---- ---- --------
Total Held to Maturity..................................... $ 566 $ 27 $ -- $ 593
======= ==== ==== ========
</TABLE>
Equity Securities
Estimated fair value for equity securities, substantially all of which have a
readily ascertainable market value, has been determined using quoted market
prices.
At December 31, 1996 and 1995, the distribution of gross unrealized gains and
losses on equity securities is as follows (in millions):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------------------------------------
<S> <C> <C> <C> <C>
1996..................................................................... $63 $ 8 $1 $ 70
1995..................................................................... $45 $ 28 $3 $ 70
</TABLE>
F-31
<PAGE> 83
Mortgage Loans
NYLIAC's mortgage loans are diversified by property type, location and
borrower. Mortgage loans are collateralized by the related property and
generally approximate 75% of the property's value at the time the original loan
is made. The carrying value of mortgage loans was $1,113 million and $1,003
million at December 31, 1996 and 1995, respectively.
The fair market value of the mortgage loan portfolio at December 31, 1996 and
1995, is estimated to be $1,194 million and $1,103 million, respectively. Market
values are determined by discounting the projected cash flow for each individual
loan to determine the current net present value. The discount rate used
approximates the current rate for new mortgages with comparable characteristics
and similar remaining maturities.
At December 31, 1996, contractual commitments to extend credit under
commercial mortgage loan agreements amounted to approximately $25 million, all
at a fixed market rate of interest. These commitments are diversified by
property type and geographic region.
Allowances related to mortgage loans were $20 million at December 31, 1996 and
1995. The activity in the allowances as of December 31, 1996 and 1995, is
summarized below (in millions):
<TABLE>
<CAPTION>
1996 1995
-------------
<S> <C> <C>
Beginning balance.................................................................................. $20 $19
Charged to net loss................................................................................ (1) (5)
Principal write-offs............................................................................... 1 6
--- ---
Ending balance..................................................................................... $20 $20
=== ===
</TABLE>
Impaired mortgage loans along with specific allowances for losses as of
December 31, 1996 and 1995, were as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
-------------
<S> <C> <C>
Impaired mortgage loans with provisions for losses................................................. $39 $51
Provision for losses............................................................................... (14) (13)
---- ----
Net impaired mortgage loans........................................................................ $25 $38
==== ====
</TABLE>
NYLIAC accrues interest income on impaired loans to the extent it is deemed
collectible (delinquent less than 90 days) and the loan continues to perform
under its original or restructured contractual terms. Interest income on problem
loans is generally recognized on a cash basis. Cash payments on loans in the
process of foreclosure are generally treated as a return of principal.
At December 31, 1996 and 1995, the distribution of the mortgage loan portfolio
by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
---------------
<S> <C> <C>
PROPERTY TYPE:
Office building................................................................................ $ 643 $ 639
Retail......................................................................................... 235 184
Apartments..................................................................................... 179 151
Other.......................................................................................... 56 29
------ ------
Total.................................................................................... $1,113 $1,003
====== ======
GEOGRAPHIC REGION:
Central........................................................................................ $ 246 $ 207
Pacific........................................................................................ 133 131
Middle Atlantic................................................................................ 377 365
South Atlantic................................................................................. 307 273
New England.................................................................................... 33 12
Other.......................................................................................... 17 15
------ ------
Total.................................................................................... $1,113 $1,003
====== ======
</TABLE>
F-32
<PAGE> 84
Real Estate
At December 31, 1996 and 1995, NYLIAC's real estate portfolio consisted of the
following (in millions):
<TABLE>
<CAPTION>
1996 1995
-------------
<S> <C> <C>
Investment......................................................................................... $105 $101
Acquired through foreclosure....................................................................... 39 40
Real estate joint ventures......................................................................... 7 --
---- ----
Total real estate.......................................................................... $151 $141
==== ====
</TABLE>
Accumulated depreciation on real estate was $5 million at December 31, 1996
and 1995. Depreciation expense for 1996, 1995 and 1994, totaled $3 million, $3
million and $2 million, respectively.
NOTE 4--Investment Income and Capital Gains and Losses
- --------------------------------------------------------------------------------
T
he components of net investment income for the years ended December 31,
1996, 1995 and 1994, were as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
------------------------
<S> <C> <C> <C>
Fixed maturities....................................................................... $ 920 $ 904 $ 890
Equity securities...................................................................... 3 3 5
Mortgage loans......................................................................... 93 82 86
Real estate............................................................................ 21 19 16
Policy loans........................................................................... 37 35 31
Other.................................................................................. 6 4 13
------ ------ ------
Gross investment income............................................................ 1,080 1,047 1,041
Investment expenses.................................................................... (32) (35) (27)
------ ------ ------
Net investment income.............................................................. $1,048 $1,012 $1,014
====== ====== ======
</TABLE>
For the years ended December 31, 1996, 1995 and 1994, realized investment
gains and losses computed under the specific identification method are as
follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities.......................................... $100 $ (64) $ 62 $ (32) $ 98 $(132)
Equity securities......................................... 22 (1) 16 (7) 5 (1)
Mortgage loans............................................ 15 (19) 15 (19) 1 (5)
Real estate............................................... 6 (3) 1 (1) 1 (4)
Derivative instruments.................................... 46 (41) 102 (102) 4 (14)
Other..................................................... 7 (3) 9 (6) 7 (1)
---- ----- ---- ----- ---- -----
Subtotal................................................ $196 $(131) $205 $(167) $116 $(157)
---- ----- ---- ----- ---- -----
Net realized investment gains (losses).................... $65 $38 $(41)
=== === ===
</TABLE>
F-33
<PAGE> 85
NOTE 4--Investment Income and Capital Gains and Losses (Continued)
- --------------------------------------------------------------------------------
Stockholder's equity at December 31, 1996 and 1995, includes net unrealized
gains and losses as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
-------------
<S> <C> <C>
Net unrealized gains on investments before adjustments............................................ $163 $ 535
Related adjustments:
Deferred policy acquisition costs............................................................... (60) (196)
Policyholder liabilities........................................................................ 2 9
Deferred Federal income taxes................................................................... (37) (121)
---- ----
(95) (308)
Net unrealized gains on investments included in stockholder's equity.............................. $68 $ 227
==== ====
</TABLE>
Changes in net unrealized gains and losses on investments were as follows (in
millions):
<TABLE>
<CAPTION>
1996 1995
--------------
<S> <C> <C>
Net unrealized gains (losses) on investments before adjustments:
Beginning of year.............................................................................. $ 535 $ (477)
End of year.................................................................................... 163 535
---- ----
Net change..................................................................................... (372) 1,012
Change in related adjustments:
Deferred policy acquisition costs.............................................................. 136 (391)
Policyholder liabilities....................................................................... (7) 17
Deferred Federal income taxes.................................................................. 84 (223)
---- ----
Change in unrealized gains on investments........................................................ (159) 415
Net unrealized gains (losses) on investments at beginning of year................................ 227 (188)
---- ----
Net unrealized gains on investments at end of year............................................... $ 68 $ 227
==== ====
</TABLE>
NOTE 5--Insurance Liabilities
- --------------------------------------------------------------------------------
Policyholders' Account Balances
N
YLIAC's annuity contracts are primarily deferred annuities. The carrying
value, which approximates fair value, of NYLIAC's liabilities for deferred
annuities at December 31, 1996 and 1995, was $7,345 million and $7,559
million, respectively.
NOTE 6--Separate Accounts
- --------------------------------------------------------------------------------
N
YLIAC maintains seven non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products with assets of $2,445
million and $1,444 million at December 31, 1996 and 1995, respectively.
NYLIAC maintains investments in the registered separate accounts of $42
million and $48 million at December 31, 1996 and 1995, respectively. The assets
of the separate accounts, which are carried at market value, represent
investments in shares of the New York Life sponsored MainStay VP Series Fund and
seven nonproprietary funds.
F-34
<PAGE> 86
NOTE 7--Deferred Policy Acquisition Costs
- --------------------------------------------------------------------------------
A
n analysis of deferred policy acquisition costs for the years ended December
31, 1996, 1995 and 1994, is as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
----------------------
<S> <C> <C> <C>
Balance at beginning of year before adjustment for unrealized (gains) losses on
investments............................................................................ $ 707 $ 667 $ 695
Current year deferral.................................................................... 151 126 111
Amortized during year.................................................................... (107) (86) (139)
------ ------ ------
Balance at end of year before adjustment for unrealized (gains) losses on investments.... 751 707 667
Adjustment for unrealized (gains) losses on investments.................................. (60) (196) 195
------ ------ ------
Balance at end of year................................................................... $ 691 $ 511 $ 862
====== ====== ======
</TABLE>
NOTE 8--Federal Income Taxes
- --------------------------------------------------------------------------------
T
he components of the net deferred income tax liability as of December 31,
1996 and 1995, are as follows (in millions):
<TABLE>
<CAPTION>
1996 1995
-------------
<S> <C> <C>
Deferred Tax Assets:
Future policy benefits.......................................................................... $114 $ 105
Employee benefits............................................................................... 26 43
Other........................................................................................... 36 9
---- ----
Gross deferred tax assets..................................................................... 176 157
---- ----
Deferred Tax Liabilities:
Deferred policy acquisition costs............................................................... 161 110
Investments..................................................................................... 54 191
Other........................................................................................... 8 12
---- ----
Gross deferred tax liabilities................................................................ 223 313
---- ----
Net deferred tax liability.................................................................... $(47) $(156)
==== ====
</TABLE>
The gross deferred tax asset relates to temporary differences that are
expected to reverse as net ordinary deductions. Management believes that
NYLIAC's taxable income in future years will be sufficient to realize the
deferred tax benefits and therefore, no valuation allowance has been recorded.
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------
<S> <C> <C> <C>
Statutory Federal income tax rate......................................................... 35.0% 35.0% 35.0%
Equity base tax....................................................................... 3.2 -- 11.7
Investments in employee stock option loans............................................ (.7) (1.3) (1.4)
Other................................................................................. (.9) 5.2 3.3
---- ---- ----
Effective tax rate.................................................................... 36.6% 38.9% 48.6%
==== ==== ====
</TABLE>
NYLIAC's Federal income tax returns are routinely audited by the IRS and
provisions are made in the financial statements in anticipation of the results
of these audits. The IRS has completed audits through 1990. There were no
material effects on NYLIAC's results of operations as a result of these audits.
NYLIAC believes that its recorded income tax liabilities are adequate for all
open years.
F-35
<PAGE> 87
NOTE 9--Reinsurance
- --------------------------------------------------------------------------------
A
group reinsurance agreement between NYLIAC and New York Life was approved by
the New York State Insurance Department in 1981 and was terminated effective
December 31, 1995. Under the terms of the agreement, NYLIAC assumed the
liabilities for group health long-term disability policies issued by New York
Life. Cash settlements were made between the companies as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
---------------------
<S> <C> <C> <C>
Premiums due.............................................................................. $-- $(32) $(33)
Benefit reimbursement..................................................................... 22 20 18
Experience refund......................................................................... 4 8 16
--- --- ---
Net settlement paid (received) by NYLIAC.................................................. $26 $(4) $ 1
=== === ===
</TABLE>
As a result of the termination of the group reinsurance agreement between
NYLIAC and New York Life, NYLIAC transferred $119 million in fixed maturities to
New York Life during 1996 as payment for the policy liabilities related to
disability claims covered under the group reinsurance contract. At December 31,
1995, NYLIAC had established a liability of $119 million for this payment.
NOTE 10--Derivative Financial Instruments and Risk Management
- --------------------------------------------------------------------------------
N
YLIAC uses derivative financial instruments to manage interest rate,
currency and market risk. These derivative financial instruments include
foreign currency forward exchange contracts, interest rate floors, and
interest rate and commodity swaps. NYLIAC does not engage in derivative
financial instrument transactions 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 they 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.
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>
1996 1995
--------------------- ---------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
---------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Swaps............................................... $57,000 $992 $50,000 --
Floors............................................................ $150,000 $120 $150,000 --
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed upon notional amount. Swap
contracts outstanding at December 31, 1996 are between eight years, eight months
and fourteen years, four months in maturity. At December 31, 1995 such contracts
were between ten months and eight years, seven months in maturity. NYLIAC does
not act as an intermediary or broker in interest rate swaps.
F-36
<PAGE> 88
Interest Rate Risk Management (Continued)
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows:
<TABLE>
<CAPTION>
1996 1995
-------------------
<S> <C> <C>
Receive -- fixed swaps -- Notional amount (in thousands).................................... $57,000 $15,000
Average receive rate...................................................................... 7.19% 7.93%
Average pay rate.......................................................................... 5.92% 7.39%
Pay -- fixed swaps -- Notional amount (in thousands)........................................ -- $35,000
Average pay rate.......................................................................... -- 7.46%
Average receive rate...................................................................... -- 6.02%
</TABLE>
During the term of the swap, net settlement amounts are recorded as investment
income or expense when earned. Fair values of interest rate swaps were $569,000
and ($2,000,000) at December 31, 1996 and 1995, respectively, based on quoted
market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest rates
on a portfolio of assets. Amounts received during the term of interest rate
floor agreements are recorded as investment income.
At December 31, 1996 and 1995, unamortized premiums on interest rate floors
amounted to $522,000 and $597,000, respectively. Fair values of such agreements
were $120,000 and $395,000 at December 31, 1996 and 1995, respectively, based on
quoted market prices.
NYLIAC is exposed to credit-related losses in the event that a counterparty
fails to perform its obligations under contractual terms. The credit exposure of
derivative financial instruments is represented by the sum of 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 currency forward exchange contracts and foreign
currency swaps primarily as a portfolio hedge against foreign currency
fluctuations. The purpose of NYLIAC's foreign currency hedging activities is to
protect it from the risk that the value of foreign currency denominated
investments will be adversely affected by changes in exchange rates.
NYLIAC's foreign currency forward exchange 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 currency forward exchange contracts. The amounts represent the
U.S. dollar equivalent of commitments to buy and sell foreign currencies,
translated at December 31, 1996 and 1995 exchange rates (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
BUY SELL BUY SELL
---------------------------------
<S> <C> <C> <C> <C>
Japanese Yen.................................................................. $ -- $14,000 $ -- $ 49,000
Italian Lire.................................................................. -- 9,000 -- 21,000
French Francs................................................................. -- 8,000 -- 24,000
Other......................................................................... 4,000 43,000 -- 107,000
------ ------- --- --------
$4,000 $74,000 $ -- $201,000
====== ======= === ========
</TABLE>
F-37
<PAGE> 89
Foreign Exchange Risk Management (Continued)
The fair values of foreign currency forward exchange contracts at December 31,
1996 and 1995 were $1 million and $(3) million, respectively, 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 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 currency
forward exchange contracts at December 31, 1996 and 1995 was $1,000,000 and
$137,000, respectively.
NOTE 11--Commitments and Contingencies
- --------------------------------------------------------------------------------
Litigation
I
n 1995, NYLIAC and New York Life settled a class action related to the sale
of whole life and universal life insurance policies from 1982 through 1994.
In entering into the settlement, NYLIAC specifically denied any wrongdoing.
The settlement was approved by the judge, and has now been upheld on appeal,
including a recent refusal by the New York State Court of Appeals to permit a
discretionary appeal from the Appellate Division. The lone appellant has
recently filed two motions in the trial court seeking to enjoin implementation
of the settlement and to renew his objections to the settlement. The lone
appellant may file a writ of certiorari in the United States Supreme Court
during the prescribed statutory period.
There are also actions in various jurisdictions by individual policyowners who
excluded themselves from the settlement of the nationwide class action; and in
each of two jurisdictions a purported class action claiming to include numerous
policyowners who excluded themselves from the settlement of the nationwide class
action. Most of these actions seek substantial or unspecified compensatory and
punitive damages.
NYLIAC is also a defendant in other individual and alleged class actions
arising from its insurance, investment and/or other operations, including
actions involving retail sales practices. Most of these actions also seek
substantial or unspecified compensatory and punitive damages. NYLIAC is also
from time to time involved as a party in various governmental, administrative,
and investigative proceedings and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the outcome
of the above cannot be predicted. NYLIAC nevertheless believes that the ultimate
liability that could result from such litigation and proceedings would not have
a material adverse effect on NYLIAC's financial position; however, it is
possible that settlements or adverse determinations in one or more actions or
other proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
Loaned Securities and Repurchase Agreements
NYLIAC participates in a secured lending program for the purpose of enhancing
income on securities held. At December 31, 1996, $826 million ($1,222 million at
December 31, 1995) of NYLIAC's bonds were on loan to others, but were fully
collateralized in an account held in trust for NYLIAC. Such assets reflect the
extent of NYLIAC's involvement in securities lending, not its risk of loss.
NYLIAC enters into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The
liability reported in the balance sheet at December 31, 1996 of $50 million ($86
million at December 31, 1995) is considered to be fair value. The investments
acquired with the funds received from the securities sold are primarily included
in cash and cash equivalents in the balance sheet.
NOTE 12--Related Party Transactions
- --------------------------------------------------------------------------------
N
o dividends were declared or paid to New York Life in 1996 or 1995. In 1994,
NYLIAC declared and paid a dividend of $70 million to New York Life. This
dividend was paid from current year earnings, as permitted by the Delaware
Insurance Department.
F-38
<PAGE> 90
NOTE 12--Related Party Transactions (Continued)
- --------------------------------------------------------------------------------
New York Life provides NYLIAC with services and facilities for the sale of
insurance and other activities related to the business of insurance. NYLIAC
reimburses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life and
NYLIAC. Such costs, amounting to $191 million for the year ended December 31,
1996 ($166 million for 1995 and $147 million for 1994) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
NOTE 13--Supplemental Cash Flow Information
- --------------------------------------------------------------------------------
A
s a result of the reinsurance agreement with New York Life discussed in Note
9, NYLIAC transferred $119 million in fixed maturities to New York Life
during 1996.
Federal income taxes paid were $146 million, $57 million, and $105 million
during 1996, 1995 and 1994, respectively.
Interest paid was $3 million, $2 million and $2 million during 1996, 1995 and
1994, respectively.
NOTE 14--Reconciliations Between Statutory Accounting and GAAP
- --------------------------------------------------------------------------------
A
ccounting practices used to prepare statutory financial statements for
regulatory filings of life insurance companies differ in certain instances
from GAAP. The following chart reconciles NYLIAC's statutory capital and
surplus determined in accordance with accounting practices prescribed by the
Delaware Insurance Department with stockholder's equity on a GAAP basis, and the
cumulative effect of adopting GAAP as of January 1, 1994 (in millions):
<TABLE>
<CAPTION>
CUMULATIVE
YEAR ENDED EFFECT
DECEMBER 31, OF ADOPTING GAAP
---------------------------- ----------------
1996 1995 1994 JANUARY 1, 1994
----------------------------------------------
<S> <C> <C> <C> <C>
Statutory Capital and Surplus.................................... $ 998 $ 878 $ 845 $ 780
------ ------ ------ ------
Adjustments:
Deferred policy acquisition costs.............................. 691 511 862 694
Asset valuation reserve........................................ 164 137 105 79
Investment related............................................. 151 511 (490) (7)
Interest maintenance reserve................................... 35 26 20 55
Non-admitted assets............................................ 31 26 23 17
Policyholder liabilities....................................... (262) (187) (203) (184)
Deferred income taxes.......................................... (47) (156) 59 (55)
Employee benefit liabilities................................... (63) (61) (61) (60)
Other.......................................................... (12) (9) (19) (7)
------ ------ ------ ------
Total adjustments............................................ 688 798 296 532
------ ------ ------ ------
Total GAAP Stockholder's Equity.................................. $1,686 $1,676 $1,141 $1,312
====== ====== ====== ======
</TABLE>
F-39
<PAGE> 91
NOTE 14--Reconciliations Between Statutory Accounting and GAAP (Continued)
- --------------------------------------------------------------------------------
The following chart reconciles NYLIAC's statutory net income determined in
accordance with accounting practices prescribed by the Delaware Insurance
Department with net income on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
<S> <C> <C> <C>
---------------------
Statutory Net Income...................................................................... $148 $95 $166
---- ---- ---
Adjustments:
Deferred policy acquisition costs....................................................... 44 40 (28)
Deferred income taxes................................................................... 24 8 10
Interest maintenance reserve............................................................ 9 6 (35)
Investment related...................................................................... 1 (11) --
Policyholder liabilities................................................................ (54) (4) (14)
Other................................................................................... (3) (14) (3)
---- ---- ---
Total Adjustments................................................................. 21 25 (70)
---- ---- ---
GAAP Net Income........................................................................... $169 $120 $96
==== ==== ===
</TABLE>
Financial statements prepared on the statutory basis of accounting vary from
those prepared under GAAP, primarily as follows: (1) the costs related to
acquiring business, principally commissions and certain policy issue expenses
are charged to income in the year incurred, whereas under GAAP they would be
deferred and amortized over the periods benefitted; (2) funds received under
deposit-type contracts are reported as premium income, whereas under GAAP, such
funds are recorded as a liability; (3) life insurance reserves are based on
different assumptions than they are under GAAP; (4) life insurance companies are
required to establish an Asset Valuation Reserve ("AVR") by a direct charge to
surplus to offset potential investment losses, whereas, under GAAP, the AVR is
not recognized and any allowances for losses on investments would be deducted
from the assets to which they relate and would be charged to income; (5)
investments in fixed maturities are generally carried at amortized cost or
values prescribed by the National Association of Insurance Commissioners
("NAIC"); under GAAP, investments in fixed maturities, which are available for
sale or held for trading, are generally carried at market value, with changes in
market value charged against equity or reflected in earnings; (6) realized gains
and losses resulting from changes in interest rates on fixed income investments
are deferred in the interest maintenance reserve ("IMR") and amortized into
investment income over the remaining life of the investment sold, whereas under
GAAP, the gains and losses are recognized in income at the time of sale; and (7)
deferred Federal income taxes are not provided for as they are under GAAP.
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results of
operations of an insurance company, and for determining its solvency under the
New York Insurance Law. No consideration is given by the Department to financial
statements prepared in accordance with generally accepted accounting principles
in making such determinations.
At December 31, 1996 and 1995, admitted assets on a statutory basis were
$17,099 million and $15,977 million, respectively, and total liabilities were
$16,101 million and $15,099 million, respectively, which included policy
reserves of $13,099 million and $12,821 million, respectively.
F-40
<PAGE> 92
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
New York Life Insurance and Annuity Corporation
I
n our opinion, the accompanying balance sheets and the related statements of
income, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of New York Life Insurance
and Annuity Corporation at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 2, the Company changed its accounting policies to adopt
pronouncements of the Financial Accounting Standards Board in 1996.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
April 16, 1997
F-41
