<PAGE> 1
MAINSTAY PLUS VARIABLE ANNUITY
INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
SUPPLEMENT DATED OCTOBER 1, 1998 TO PROSPECTUS DATED AUGUST 1, 1998
This Supplement describes the minimum initial premium requirement and
the four additional Investment Divisions to which Policyowners may allocate
Premium under their MainStay Plus Variable Annuity Policies ("Policies"). These
Investment Divisions are listed below.
- M Brandes International Equity
(formerly "M Edinburgh Overseas Equity")
- M Enhanced U.S. Equity
- M Frontier Capital Appreciation
- M Turner Core Growth
These Investment Divisions invest in shares of four corresponding
Portfolios of M Fund, Inc. ("M Fund"), an open-end management investment
company. This Supplement provides information that a prospective investor should
know before investing. Please read it carefully and retain it for future
reference. This Supplement is not valid unless accompanied by the current
prospectuses for both the Policies ("Policy Prospectus") and the M Fund. Defined
terms used but not defined in this Supplement have the same meanings as in the
Policy Prospectus. The Policy Prospectus should be read in light of the addition
of the four Investment Divisions and the following changes:
1. The following sentence should be added to the definition of "Eligible
Portfolios ('Portfolios')" on page 3 of the Policy Prospectus.
The M Fund has four Portfolios available to the Separate Account: the M
Brandes International Equity, M Enhanced U.S. Equity, M Frontier Capital
Appreciation and M Turner Core Growth Portfolios.
2. The definition of "Funds (each, individually, a 'Fund')" on page 3 of the
Policy Prospectus should be modified to include the M Fund, Inc. ("M Fund").
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
1
<PAGE> 2
3. The following information should be added to the Fee Table on pages 6 and 7.
FEE TABLE
<TABLE>
<CAPTION>
M BRANDES M ENHANCED M FRONTIER
INTERNATIONAL U.S. CAPITAL M TURNER
EQUITY EQUITY APPRECIATION CORE GROWTH
------ ------ ------------ -----------
<S> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a)
(as a % of amount withdrawn)......................... 7% 7% 7% 7%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%
Administration Fees.................................... 0.15% 0.15% 0.15% 0.15%
Total Separate Account Annual Expenses............... 1.40% 1.40% 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year
ended December 31, 1997)(b) 1.05% 0.55% 0.90% 0.45%
Advisory Fees..........................................
Administration Fees.................................... -- -- -- --
Other Expenses......................................... 0.25% 0.25% 0.25% 0.25%
Total Fund Annual Expenses........................... 1.30%(c) 0.80%(c) 1.15%(c) 0.70%(c)
</TABLE>
- ----------
(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.
Certain exceptions may apply. See "Surrender Charges" on page 24 of the
Prospectus for the Policies.
(b) The fees and charges were provided by the Fund or its agents, which are
based on 1997 expenses and may reflect estimated changes.
(c) M Financial Investment Advisers, Inc. has agreed to limit the operating
expenses of each Portfolio (except brokerage or other portfolio transaction
expenses or expenses for litigation, indemnification, taxes or other
extraordinary expenses) to the extent that such expenses, as accrued for
each Portfolio, through December 31, 1998 exceed .25% of that Portfolio's
estimated daily net assets on an annualized basis. Absent such limits,
"Total Fund Annual Expenses" for the fiscal year ended December 31, 1997
would have been 4.94%, 5.42%, 2.86% and 6.20% for the M Brandes
International Equity (formerly "M Edinburgh Overseas Equity"), M Enhanced
U.S. Equity, M Frontier Capital Appreciation and M Turner Core Growth
Portfolios, respectively.
2
<PAGE> 3
4. The following information should be added to the Examples on pages 8 and 9.
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>
M Brandes International Equity $94.96 $160.73 $209.25 $335.48
M Enhanced U.S. Equity $90.17 $146.50 $185.32 $286.33
M Frontier Capital Appreciation $93.52 $156.48 $202.13 $320.99
M Turner Core Growth $89.21 $143.64 $180.48 $276.22
</TABLE>
2. If you annuitize 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>
M Brandes International Equity $94.96 $94.02 $159.75 $335.48
M Enhanced U.S. Equity $90.17 $78.78 $134.56 $286.33
M Frontier Capital Appreciation $93.52 $89.47 $152.25 $320.99
M Turner Core Growth $89.21 $75.72 $129.47 $276.22
</TABLE>
3. If you do NOT surrender your Policy:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
M Brandes International Equity $30.75 $94.02 $159.75 $335.48
M Enhanced U.S. Equity $25.63 $78.78 $134.56 $286.33
M Frontier Capital Appreciation $29.21 $89.47 $152.25 $320.99
M Turner Core Growth $24.62 $75.72 $129.47 $276.22
</TABLE>
----------
(1) For purposes of calculating these Examples, the annual policy
administration 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, 1997. 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.
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.
3
<PAGE> 4
5. The following performance information should be added to the Total Return
Calculations on page 14 and 15 of the Policy Prospectus.
The performance data under average annual total return (if surrendered)
reflect all Separate Account and Fund annual expenses shown in the Fee Table
which appears on pages 6 and 7 of the Prospectus. The average annual total
return (if surrendered) figures assume that the Policy is surrendered at the
end of the period shown. Thus, they reflect the deduction of any applicable
surrender charges. 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. The average annual total return (no surrenders) does not
reflect the deduction of any surrender charges. All rates of return presented
include the reinvestment of investment income.
The M Enhanced U.S. Equity and M Frontier Capital Appreciation Portfolios
existed prior to the date they were added to an Investment Division of the
Separate Account. For periods starting prior to October 2, 1997, when the M
Frontier Capital Appreciation Investment Division commenced operations and
for periods starting prior to December 30, 1997, when the M Enhanced U.S.
Equity Investment Division commenced operations, the performance of the
Investment Divisions was derived from the performance of the corresponding
Portfolios, modified to reflect the Separate Account and Fund annual expenses
as if the Policy had been available during the periods shown. The results
shown are not an estimate or guarantee of future investment performance for
the Investment Divisions in the following tables.
As of December 31, 1997, there were no Premium Payments allocated to the M
Brandes International Equity and M Turner Core Growth Investment Divisions.
Therefore, no performance or financial information is shown for these
Investment Divisions.
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
M FRONTIER
M ENHANCED CAPITAL
U.S. EQUITY APPRECIATION
INVESTMENT DIVISION: ----------- ------------
PORTFOLIO INCEPTION DATE: 1/4/96 1/4/96
INVESTMENT DIVISION INCEPTION DATE: 12/30/97 10/2/97
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average Total Return (if surrendered)
1 Year 28.01% 18.27%
3 Year N/A N/A
5 Year N/A N/A
10 Year N/A N/A
Since Portfolio Inception 22.82% 21.55%
Since Investment Division Inception -5.87% -15.25%
- ------------------------------------------------------------------------------------------------------------
Average Annual Total Return (no surrenders)
1 Year 35.01% 25.27%
3 Year N/A N/A
5 Year N/A N/A
10 Year N/A N/A
Since Portfolio Inception 25.65% 24.40%
Since Investment Division Inception 0.46% -9.56%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 5
6. The following information should be added to the "Condensed Financial
Information" section on page 16 of the Policy Prospectus.
As of December 31, 1997, there were no Premium Payments allocated to the M
Brandes International Equity and M Turner Core Growth Investment Divisions.
Therefore, no condensed financial information is shown for those Investment
Divisions.
For the period May 1, 1997 (commencement of operations) through December 31,
1997:
<TABLE>
<CAPTION>
M FRONTIER
M ENHANCED CAPITAL
U.S. EQUITY APPRECIATION
----------- ------------
<S> <C> <C>
Accumulation Unit Value (beginning of period) $10.00 $10.00
Accumulation Unit Value (end of period) $10.05 $ 9.04
Number of units outstanding (in 000s, end of period) 2 4
</TABLE>
7. The following information should be added to the table of Funds, Investment
Advisers and Eligible Portfolios on page 18 of the Policy Prospectus.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FUND INVESTMENT ADVISERS SUB-ADVISERS PORTFOLIOS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
M Fund, Inc. M Financial Investment Brandes Investment Partners, M Brandes
Advisers L.P. International Equity
- -----------------------------------------------------------------------------------------------------------------------------
M Fund, Inc. M Financial Investment Franklin Portfolio Associates LLC M Enhanced U.S.
Advisers Equity
- -----------------------------------------------------------------------------------------------------------------------------
M Fund, Inc. M Financial Investment Frontier Capital Management M Frontier Capital
Advisers Company, Inc. Appreciation
- -----------------------------------------------------------------------------------------------------------------------------
M Fund, Inc. M Financial Investment Turner Investment Partners, Inc. M Turner Core
Advisers Growth
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Please refer to the accompanying prospectus of the M Fund, Inc. for a complete
description of the M Fund, the investment advisers and the Portfolios.
ISSUED BY: NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
DISTRIBUTED BY: NYLIFE DISTRIBUTORS INC. (MEMBER NASD)
5
<PAGE> 6
MAINSTAY PLUS VARIABLE ANNUITY
INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
SUPPLEMENT DATED OCTOBER 1, 1998 TO THE
STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST 1, 1998
This Supplement to the MainStay Plus Variable Annuity Statement of Additional
Information ("SAI") provides information that a prospective investor should know
before investing. Please read it carefully and retain it for future reference.
This Supplement is not valid unless accompanied by the current SAI for both the
Policies (the "Policy SAI") and the M Fund. When used in connection with the
Prospectus, defined terms used in the SAI shall have the same meaning as in the
Prospectus.
This Supplement contains performance information and financial statements for
the M Enhanced U.S. Equity and the M Frontier Capital Appreciation Investment
Divisions. As of December 31, 1997, there were no Premium Payments allocated to
the M Brandes International Equity (formerly "M Edinburgh Overseas Equity") and
M Turner Core Growth Investment Divisions. Therefore, no performance or
financial information is shown for these Investment Divisions.
1. The performance data under average annual total return (if
surrendered) reflect all Separate Account and Fund annual expenses shown in the
Fee Table which appears on pages 6 and 7 of the Prospectus. The average annual
total return (if surrendered) figures assume that the Policy is surrendered at
the end of the period shown. Thus, they reflect the deduction of any applicable
surrender charges. 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.
The average annual total return (no surrenders) does not reflect the deduction
of any surrender charges. All rates of return presented include the reinvestment
of investment income.
The M Enhanced U.S. Equity and M Frontier Capital Appreciation
Portfolios existed prior to the date they were added to an Investment Division
of the Separate Account. For periods starting prior to October 2, 1997, when the
M Frontier Capital Appreciation Investment Division commenced operations and for
periods starting prior to December 30, 1997, when the M Enhanced U.S. Equity
Investment Division commenced operations, the performance of the Investment
Divisions was derived from the performance of the corresponding Portfolios,
modified to reflect the Separate Account and Fund annual expenses as if the
Policy had been available during the periods shown. The results shown are not an
estimate or guarantee of future investment performance for the Investment
Divisions in the following tables.
The following information should be added to the Total Return
Calculations on pages 4 and 5 of the Policy SAI.
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
M ENHANCED M FRONTIER CAPITAL
INVESTMENT DIVISION: U.S. EQUITY APPRECIATION
-------------------- ----------- ------------
PORTFOLIO INCEPTION DATE: 1/4/96 1/4/96
-------------------------
INVESTMENT DIVISION INCEPTION DATE: 12/30/97 10/2/97
-----------------------------------
<S> <C> <C>
Average Annual Total Return (if surrendered)
1 Year.......................................... 28.01% 18.27%
3 Year.......................................... N/A N/A
5 Year.......................................... N/A N/A
10 Year......................................... N/A N/A
Since Portfolio Inception....................... 22.82% 21.55%
Since Investment Division Inception............. -5.87% -15.25%
Average Annual Total Return (no surrenders)
1 Year.......................................... 35.01% 25.27%
3 Year.......................................... N/A N/A
5 Year.......................................... N/A N/A
10 Year......................................... N/A N/A
Since Portfolio Inception....................... 25.65% 24.40%
Since Investment Division Inception............. 0.46% -9.56%
</TABLE>
<PAGE> 7
2. The following financial statements for the period May 1, 1997
(commencement of operations) through December 31, 1997 and the report thereon of
Price Waterhouse LLP, independent accountants for the M Enhanced U.S. Equity and
M Frontier Capital Appreciation Investment Divisions should be added to the
financial statements included in the Policy SAI. MainStay Variable Annuity
changed its name to MainStay Plus Variable Annuity on October 1, 1998. The
following financial statements relate to the period prior to the name change and
therefore, references to MainStay Variable Annuity appear in the financial
statements.
<PAGE> 8
MAINSTAY VARIABLE ANNUITY INVESTING IN
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<CAPTION>
M Enhanced M Frontier
ASSETS: U.S. Equity Capital Appreciation
------------ --------------------
<S> <C> <C>
Investment at net asset value
(Identified Cost: $20,030;
$40,489, respectively) $20,124 $38,469
LIABILITIES:
Liability for mortality and expense risk charges 1 64
------- -------
Total equity $20,123 $38,405
======= =======
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
2,003; 4,246, respectively $20,123 $38,405
======= =======
Variable accumulation unit value: $ 10.05 $ 9.04
======= =======
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-1
<PAGE> 9
MAINSTAY VARIABLE ANNUITY INVESTING IN
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
STATEMENT OF OPERATIONS
For the period May 1, 1997 (commencement of operations)
through December 31, 1997
<TABLE>
<CAPTION>
M Enhanced M Frontier
U.S. Equity Capital Appreciation
----------- --------------------
<S> <C> <C>
INVESTMENT LOSS:
Mortality and expense risk charges $(1) $(67)
------- --------
Net investment loss $(1) $(67)
------- --------
REALIZED AND UNREALIZED GAIN (LOSS):
Realized gain distribution received --- 428
Change in unrealized appreciation (depreciation)
on investment 94 (2,020)
------- --------
Net gain (loss) on investments 94 (1,592)
Increase attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account --- 3
------- --------
Net increase (decrease) in total equity
resulting from operations $93 $(1,656)
======= ========
</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> 10
MAINSTAY VARIABLE ANNUITY INVESTING IN
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
STATEMENT OF CHANGES IN TOTAL EQUITY
For the period May 1, 1997 (commencement
of operations) through December 31, 1997
<TABLE>
<CAPTION>
M Enhanced M Frontier
U.S. Equity Capital Appreciation
----------- --------------------
<S> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment loss $(1) $(67)
Realized gain distribution received --- 428
Change in unrealized appreciation/
(depreciation) on investments 94 (2,020)
Increase attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account --- 3
--------- ---------
Net increase (decrease) in total equity resulting
from operations 93 (1,656)
--------- ---------
Contributions and Withdrawals:
Transfers between Investment Divisions 20,030 40,061
--------- ---------
Net contributions and withdrawals 20,030 40,061
--------- ---------
Increase in total equity 20,123 38,405
TOTAL EQUITY:
Beginning of period --- ---
--------- ---------
End of period $20,123 $38,405
========= =========
</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> 11
MAINSTAY VARIABLE ANNUITY INVESTING IN
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Organization and Accounting Policies:
MainStay Variable Annuity commenced in May of 1997, with the first sale
occurring on October 2, 1997. MainStay Variable Annuity invests in New York Life
Insurance and Annuity Corporation Variable Annuity Separate Account-III
("Separate Account" formerly, "LifeStages(SM) Annuity Separate Account"). The
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. MainStay
Variable Annuity policies are distributed by NYLIFE Distributors Inc. and sold
by registered representatives of unaffiliated broker-dealers. NYLIFE
Distributors Inc. 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 MainStay Variable Annuity policies 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, the Morgan Stanley Universal Funds,
Inc. and the M Fund, Inc. (collectively, "Funds"). These assets are clearly
identified and distinguished from the other assets and liabilities of New York
Life Insurance and Annuity Corporation.
The Separate Account offers twenty-two variable Investment Divisions, with
their respective fund portfolios, for Policyowners to invest premium payments.
These financial statements and notes relate only to the following four
Investment Divisions: M Enhanced U.S. Equity, M Frontier Capital Appreciation, M
Edinburgh Overseas Equity and M Turner Core Growth Investment Divisions (the "M
Divisions"). Each Investment Division of the Separate Account will invest
exclusively in the corresponding eligible portfolio of the Funds. As of December
31, 1997, there were no premium payments allocated to the M Edinburgh Overseas
Equity and M Turner Core Growth Investment Divisions.
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.
F-4
<PAGE> 12
MAINSTAY VARIABLE ANNUITY INVESTING IN
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 - Organization and Accounting Policies (continued):
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.
NOTE 2 - Investments (in 000's):
At December 31, 1997, the investment in the M Divisions of the Separate Account
are as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier
U.S. Equity Capital Appreciation
----------- --------------------
<S> <C> <C>
Number of Shares 1 3
Identified Cost* $20 $40
</TABLE>
*The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the period May 1, 1997 (commencement of operations)
through December 31, 1997 was as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier
U.S. Equity Capital Appreciation
----------- --------------------
<S> <C> <C>
Purchases $20 $40
</TABLE>
F-5
<PAGE> 13
MAINSTAY VARIABLE ANNUITY INVESTING IN
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - Mortality and Expense Risk Charges:
The Separate Account is charged for administrative services provided and the
mortality and expense risks assumed by New York Life Insurance and Annuity
Corporation. These charges are made 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 the New York Life
Insurance and Annuity Corporation. Accordingly, New York Life Insurance and
Annuity Corporation participates in the results of each Investment Division
ratably with the Policyowners.
NOTE 4 - Distribution of Net Income
The Separate Account does not expect to declare dividends to Policyowners from
accumulated net investment income and realized gains. The income and gains are
distributed to Policyowners as part of withdrawals of amounts (in the form of
surrenders, death benefits, transfers, or annuity payments) in excess of net
premium payments.
NOTE 5 - Cost to Policyowners (in 000's):
At December 31, 1997, the cost to Policyowners for accumulation units
outstanding, with adjustments for net investment income, market appreciation
(depreciation) and deduction for expenses is as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier
U.S. Equity Capital Appreciation
----------- --------------------
<S> <C> <C>
Cost to Policyowners (net of withdrawals) $20 $40
Unrealized appreciation (depreciation)
on investments --- (2)
--------- --------
Net amount applicable to Policyowners $20 $38
========= ========
</TABLE>
F-6
<PAGE> 14
MAINSTAY VARIABLE ANNUITY INVESTING IN
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - Unit Transactions (in 000's):
Transactions in accumulated units for the period May 1, 1997 (commencement of
operations) through December 31, 1997 were as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier
U.S. Equity Capital Appreciation
----------- --------------------
<S> <C> <C>
Units issued on transfers between
Investment Divisions 2 4
---------- -----------
Net Increase 2 4
Units outstanding, beginning of period --- ---
---------- -----------
Units outstanding, end of period 2 4
========== ===========
</TABLE>
NOTE 7 - Selected Per Unit Data*:
The following table presents selected per accumulation unit income and capital
changes (for an accumulation unit outstanding throughout the period May 1, 1997
(commencement of operations) through December 31, 1997) with
respect to the M Divisions of the Separate Account.
<TABLE>
<CAPTION>
M Enhanced M Frontier
U.S. Equity Capital Appreciation
----------- --------------------
<S> <C> <C>
Unit value, beginning of period $10.00 $10.00
Net investment loss --- (.03)
Net realized and unrealized gains (losses)
on security transactions and realized
capital gain distributions received
(includes the effect of capital share
transactions) .05 (.93)
---------- ----------
Unit value, end of period $10.05 $9.04
========== ==========
</TABLE>
*Per unit data based on average daily units outstanding during the period.
F-7
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of New York Life Insurance and
Annuity Corporation and the Variable Annuity Separate Account-III Policyowners:
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations, of changes in total equity and the selected
per unit data present fairly, in all material respects, the financial position
of the New York Life Insurance and Annuity Corporation Variable Annuity Separate
Account-III insofar as it relates to the M Enhanced U.S. Equity Investment
Division, the M Frontier Capital Appreciation Investment Division, the M
Edinburgh Overseas Equity Investment Division and the M Turner Core Growth
Investment Division at December 31, 1997, and the results of each of their
operations, the changes in each of their total equity, and the selected per unit
data for the period May 1, 1997 (commencement of operations) through December
31, 1997, 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, 1997 with the
M Fund, Inc., provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 23, 1998
F-8
