<PAGE> 1
As filed with the Securities and Exchange Commission on April 17, 1998
Registration No. 33-87382
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Form N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 3 [ X ]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 3 [ X ]
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
(Exact Name of Registrant)
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
(Name of Depositor)
51 Madison Avenue, New York, New York 10010
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (212) 576-7000
Carol Yee, Esq.
New York Life Insurance and Annuity Corporation
51 Madison Avenue
New York, New York 10010
(Name and Address of Agent for Service)
Copy to:
Peter E. Panarites, Esq. Michael J. McLaughlin, Esq.
Freedman, Levy, Kroll & Simonds Senior Vice President
1050 Connecticut Avenue and General Counsel
Suite 825 New York Life Insurance Company
Washington, D.C. 20036 51 Madison Avenue
New York, New York 10010
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485.
[X] on May 1, 1998 pursuant to paragraph (b) of Rule 485.
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[ ] on ___________ pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered:
Units of interest in a separate account under variable annuity contracts.
<PAGE> 2
CROSS REFERENCE SHEET
INFORMATION REQUIRED IN A PROSPECTUS
<TABLE>
<CAPTION>
Item of Form N-4 Prospectus Caption
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<S> <C>
1. Cover Page Cover Page
2. Definitions Definitions
3. Synopsis Fee Table
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant, New York Life Insurance and Annuity
Depositor and Portfolio Companies Corporation; The Portfolios; The Separate
Accounts; Voting Rights
6. Deductions and Expenses Charges and Deductions; Fee Table; Federal
Tax Matters; Distributor of the Policies
7. General Description of Variable The Policies; Distributions Under the Policy;
Annuity Contracts Voting Rights; Charges and Deductions; The
Fixed Account
8. Annuity Period Income Payments
9. Death Benefit Distributions Under the Policy
10. Purchases and Contract Value Policy Application and Premium Payments;
Accumulation Period
11. Redemptions Surrenders and Withdrawals; Income Payments;
Cancellations
12. Taxes Federal Tax Matters
13. Legal Proceedings Statement of Additional Information - Legal
Proceedings
14. Table of Contents of the Statement of Table of Contents for the Statement of
Additional Information Additional Information
</TABLE>
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INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Statement of Additional
Item of Form N-4 Information Caption
- ---------------- -------------------
<S> <C>
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information & History Not Applicable
18. Services Safekeeping of Separate Account Assets
19. Purchase of Securities Being Offered Distributor of the Policies
20. Underwriters Distributor of the Policies
21. Calculation of Performance Data Investment Performance Calculations
22. Annuity Payments Valuation of Accumulation Units
23. Financial Statements Financial Statements
</TABLE>
<PAGE> 4
PROSPECTUS DATED MAY 1, 1998
FOR
NEW YORK LIFE LIFESTAGES(SM) VARIABLE ANNUITY
FROM
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE, ROOM 452, NEW YORK, NEW YORK 10010
INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
This Prospectus describes individual flexible premium New York Life
LifeStages(SM) 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 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 their value 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 twenty-six 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
- American Century Income & Growth*
- Dreyfus Large Company Value*
- Eagle Asset Management Growth Equity*
- Lord Abbett Developing Growth*
- Alger American Small Capitalization
- Calvert Social Balanced
- Fidelity VIP II Contrafund
- Fidelity VIP Equity-Income
- Janus Aspen Series Balanced
- Janus Aspen Series Worldwide Growth
- MFS Growth With Income Series*
- MFS Research Series*
- Morgan Stanley Emerging Markets Equity
- T. Rowe Price Equity Income*
- Van Eck Worldwide Hard Assets*
</TABLE>
* These investment divisions will be available to accept premium
payments beginning June 1, 1998.
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 Calvert
Variable Series, Inc., the Fidelity Variable Insurance Products Fund II, the
Fidelity Variable Insurance Products Fund, the Janus Aspen Series, the MFS
Variable Insurance Trust, the Morgan Stanley Universal Funds, Inc., the T. Rowe
Price Equity Series, Inc. and the Van Eck Worldwide Insurance Trust.
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, 1998, is incorporated herein by reference.
The Statement of Additional Information is available free by writing NYLIAC at
the address above or by calling (800) 598-2019. 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.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. PREMIUMS ALLOCATED TO THE SEPARATE ACCOUNT
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DEFINITIONS............................ 3
FEE TABLE.............................. 6
QUESTIONS AND ANSWERS ABOUT
LIFESTAGES(SM)....................... 10
FINANCIAL STATEMENTS................... 15
CONDENSED FINANCIAL INFORMATION........ 16
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION AND THE SEPARATE
ACCOUNT.............................. 17
New York Life Insurance and Annuity
Corporation....................... 17
The Separate Account................. 17
The Portfolios....................... 17
Additions, Deletions or Substitutions
of Investments.................... 19
Reinvestment......................... 19
THE POLICIES........................... 19
Purpose of Policies.................. 19
Types of Policies.................... 20
Policy Application and Premium
Payments.......................... 20
Issue Ages........................... 20
Transfers............................ 20
Procedures for Telephone Transfers... 21
Dollar Cost Averaging................ 21
Automatic Asset Reallocation......... 22
Interest Sweep....................... 22
Accumulation Period.................. 22
(a) Crediting of Premium
Payments..................... 22
(b) Valuation of Accumulation
Units........................ 23
Owner Inquiries...................... 23
CHARGES AND DEDUCTIONS................. 23
Surrender Charges.................... 23
Amount of Surrender Charge........... 23
Exceptions to Surrender Charges...... 23
Other Charges........................ 24
Group and Sponsored Arrangements..... 24
Taxes................................ 25
DISTRIBUTIONS UNDER THE POLICY......... 25
Surrenders and Withdrawals........... 25
(a) Surrenders.................... 26
(b) Partial Withdrawals........... 26
(c) Periodic Partial
Withdrawals.................. 26
(d) Hardship Withdrawals.......... 26
Required Minimum Distribution
Option........................... 26
Cancellations........................ 27
Annuity Commencement Date............ 27
Death Before Annuity Commencement.... 27
Income Payments...................... 28
(a) Election of Income Payment
Options...................... 28
(b) Other Methods of Payment...... 28
(c) Proof of Survivorship......... 28
Delay of Payments.................... 28
Designation of Beneficiary........... 29
Restrictions Under Internal Revenue
Code Section 403(b)(11)........... 29
Loans................................ 29
Riders............................... 30
(a) Living Needs Benefit Rider.... 30
(b) Unemployment Benefit Rider.... 30
THE FIXED ACCOUNT...................... 30
(a) Interest Crediting............ 30
(b) Transfers to Investment
Divisions.................... 30
(c) Fixed Account Initial Premium
Guarantee..................... 31
FEDERAL TAX MATTERS.................... 31
Introduction......................... 31
Taxation of Annuities in General..... 31
Qualified Plans...................... 32
(a) Section 403(b) Plans.......... 33
(b) Individual Retirement
Annuities.................... 33
(c) Roth Individual Retirement
Annuities.................... 33
(d) Deferred Compensation Plans... 33
DISTRIBUTOR OF THE POLICIES............ 33
VOTING RIGHTS.......................... 33
TABLE OF CONTENTS FOR THE STATEMENT OF
ADDITIONAL INFORMATION............... 35
</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> 6
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--The attained age on last birthday.
ALLOCATION ALTERNATIVES--The Investment Divisions of the Separate Account and
the Fixed Account.
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 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 fifteen 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, MainStay VP Indexed Equity, MainStay VP
American Century Income & Growth, MainStay VP Dreyfus Large Company Value,
MainStay VP Eagle Asset Management Growth Equity and MainStay VP Lord Abbett
Developing Growth Portfolios. The Alger American Fund has one Portfolio
available to the Separate Account: the Alger American Small Capitalization
Portfolio. The Calvert Variable Series has one Portfolio available to the
Separate Account: the Calvert Social Balanced Portfolio ("Calvert Social
Balanced 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 Series Balanced Portfolio") and the Worldwide Growth Portfolio of
the Janus Aspen Series ("Janus Aspen Series Worldwide Growth Portfolio"). The
MFS Variable Insurance Trust has two Portfolios available to the Separate
Account: the MFS Growth With Income Series of the MFS Trust ("MFS Growth With
Income Series") and the MFS Research Series of the MFS Trust ("MFS Research
Series"). The Morgan Stanley Fund has one Portfolio available to the Separate
Account: the Emerging Markets Equity Portfolio ("Morgan Stanley Emerging Markets
Equity Portfolio"). The T. Rowe Price Equity Series has one Portfolio available
to the Separate Account: the T. Rowe Price Equity Income Portfolio ("T. Rowe
Price Equity Income Portfolio"). The Van Eck Worldwide Insurance Trust has one
Portfolio available to the Separate Account: the Van Eck Worldwide Hard Assets
Portfolio ("Van Eck Worldwide Hard Assets 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.
3
<PAGE> 7
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 ("Alger American Fund"), the Calvert Variable
Series, Inc. ("Calvert Variable Series"), 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 ("Janus Aspen Series"), the MFS Variable
Insurance Trust ("MFS Trust"), the Morgan Stanley Universal Funds, Inc. ("Morgan
Stanley Fund"), the T. Rowe Price Equity Series, Inc. ("T. Rowe Price Series")
and the Van Eck Worldwide Insurance Trust ("Van Eck Trust").
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 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. If
NYLIAC 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.
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 New York Life LifeStages(SM) 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.
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 Code 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 when required by the Code.
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. Prior to April 11, 1997, NYLIAC Variable Annuity Separate Account-III
was known as NYLIAC LifeStages(SM) Annuity Separate Account.
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.
4
<PAGE> 8
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
for trading.
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> 9
FEE TABLE
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 7% 7% 7% 7% 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer in
excess of 12 transfers per Policy Year.
Annual Policy Fee......................................... Lesser of $30 per Policy or 2% of the Accumulation Value, for
Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees........................... 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees....................................... 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%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.36% 0.25% 0.36% 0.30% 0.30%
Administration Fees....................................... 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses............................................ 0.09% 0.09% 0.17%(b) 0.13% 0.09%
Total Fund Annual Expenses................................ 0.65% 0.54% 0.73%(b) 0.63% 0.59%
<CAPTION>
MAINSTAY VP MAINSTAY VP
INTERNATIONAL TOTAL
EQUITY RETURN
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<S> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 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%
Administration Fees....................................... 0.15% 0.15%
Total Separate Account Annual Expenses.................... 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.60% 0.32%
Administration Fees....................................... 0.20% 0.20%
Other Expenses............................................ 0.17%(b) 0.08%
Total Fund Annual Expenses................................ 0.97%(b) 0.60%
</TABLE>
<TABLE>
<CAPTION>
AMERICAN
MAINSTAY VP MAINSTAY VP CENTURY
MAINSTAY VP MAINSTAY VP GROWTH INDEXED INCOME &
VALUE BOND EQUITY EQUITY GROWTH(g)
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 7% 7% 7% 7% 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer in
excess of 12 transfers per Policy Year.
Annual Policy Fee......................................... Lesser of $30 per Policy or 2% of the Accumulation Value, for
Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees........................... 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees....................................... 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%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.36% 0.25% 0.25% 0.10% 0.50%
Administration Fees....................................... 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses............................................ 0.09% 0.05% 0.05% 0.09% 0.15%(j)
Total Fund Annual Expenses................................ 0.65% 0.50% 0.50% 0.39% 0.85%
<CAPTION>
DREYFUS LARGE
COMPANY
VALUE(g)
-------------
<S> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer in
excess of 12 transfers per Policy Year.
Lesser of $30 per Policy or 2% of the Accumulation Value, for
Annual Policy Fee......................................... 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%
Administration Fees....................................... 0.15%
Total Separate Account Annual Expenses.................... 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.60%
Administration Fees....................................... 0.20%
Other Expenses............................................ 0.15%(j)
Total Fund Annual Expenses................................ 0.95%
</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 23.
(b) These numbers reflect an expense reimbursement agreement effective through
December 31, 1998 limiting "Other Expenses" to 0.17% annually. In the
absence of the expense reimbursement arrangement, the "Total Fund Annual
Expenses" for the year ending December 31, 1997 would have been 0.78% and
1.25% for the MainStay VP Convertible and the MainStay VP International
Equity Portfolios, respectively.
(c) These fees are based on expenses for the fiscal year 1997, and have been
restated to reflect an increase in transfer agency expenses of 0.01%
expected to be incurred in 1998. The "Advisory Fee" includes a performance
adjustment which could cause the fee to be as high as 0.85% or as low as
0.55%, depending on performance. "Other Expenses" reflect an indirect fee of
0.03%. "Total Fund Annual Expenses" after reductions for fees paid
indirectly would have been 0.78%.
(d) A portion of the brokerage commissions that these Portfolios pay was used to
reduce the Portfolios' annual expenses. In addition, these Portfolios have
entered into arrangements with their custodian and transfer agent whereby
interest earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, the "Total Fund Annual
Expenses" would have been 0.68% for the Fidelity VIP II Contrafund Portfolio
and 0.57% for the Fidelity VIP Equity-Income Portfolio.
6
<PAGE> 10
FEE TABLE--(CONTINUED)
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
EAGLE
ASSET ALGER
MANAGEMENT LORD ABBETT AMERICAN CALVERT FIDELITY
GROWTH DEVELOPING SMALL SOCIAL VIP II
EQUITY(g) GROWTH(g) CAPITALIZATION BALANCED CONTRAFUND
---------- ----------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 7% 7% 7% 7% 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer
in excess of 12 transfers per Policy Year.
Annual Policy Fee......................................... Lesser of $30 per Policy or 2% of the Accumulation Value, for
Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees........................... 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees....................................... 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%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.50% 0.60% 0.85% 0.69%(c) 0.60%
Administration Fees....................................... 0.20% 0.20% -- -- --
Other Expenses............................................ 0.15%(j) 0.15%(j) 0.04% 0.12%(c) 0.11%
Total Fund Annual Expenses................................ 0.85% 0.85% 0.89% 0.81%(c) 0.71%(d)
<CAPTION>
FIDELITY VIP JANUS
EQUITY ASPEN SERIES
INCOME BALANCED
------------ ------------
<S> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 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%
Administration Fees....................................... 0.15% 0.15%
Total Separate Account Annual Expenses.................... 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.50% 0.76%
Administration Fees....................................... -- --
Other Expenses............................................ 0.08% 0.07%
Total Fund Annual Expenses................................ 0.58%(d) 0.83%(e)
</TABLE>
<TABLE>
<CAPTION>
JANUS
ASPEN SERIES MFS GROWTH MFS MORGAN STANLEY
WORLDWIDE WITH INCOME RESEARCH EMERGING
GROWTH SERIES(g) SERIES(g) MARKETS EQUITY
------------ ----------- --------- --------------
<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)(k)
Advisory Fees............................................. 0.66% 0.75% 0.75% --
Administration Fees....................................... -- -- -- 0.25%
Other Expenses............................................ 0.08% 0.25% 0.13% 1.50%
Total Fund Annual Expenses................................ 0.74%(e) 1.00% 0.88% 1.75%(f)
<CAPTION>
VAN ECK
T. ROWE PRICE WORLDWIDE
EQUITY HARD
INCOME(g) ASSETS(g)
------------- ---------
<S> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 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%
Administration Fees....................................... 0.15% 0.15%
Total Separate Account Annual Expenses.................... 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.85%(h) 1.00%
Administration Fees....................................... -- --
Other Expenses............................................ -- 0.17%(i)
Total Fund Annual Expenses................................ 0.85% 1.17%
</TABLE>
- ------------
(e) A reduced "Advisory Fee" schedule was put into effect on July 1, 1997. The
"Advisory Fee" reflects the new rate applied to net assets as of December
31, 1997. "Other Expenses" are based on gross expenses of the Fund shares
before expense offset arrangements for the fiscal year ended December 31,
1997. Janus Capital Corporation ("JCC") has agreed to reduce the "Advisory
Fee" for each Portfolio to the extent that such fee exceeds the effective
rate of the Janus retail fund corresponding to such Portfolio. JCC may
terminate this fee reduction at any time upon 90 days' notice to the Board
of Trustees of the Janus Aspen Series. Other waivers, if applicable, are
first applied against the "Advisory Fee" and then against "Other Expenses."
Absent such waivers or reductions, "Advisory Fees", "Other Expenses" and
"Total Fund Annual Expenses" for the fiscal year ended December 31, 1997
would have been 0.77%, 0.06% and 0.83%, respectively, for the Janus Aspen
Series Balanced Portfolio and 0.72%, 0.09% and 0.81%, respectively, for the
Janus Aspen Series Worldwide Growth Portfolio.
(f) Morgan Stanley Asset Management Inc. has agreed to a reduction in its
"Advisory Fees" and to reimburse the Portfolio for "Other Expenses" if such
fees would cause the "Total Fund Annual Expenses" to exceed 1.75% of
average daily net assets. This fee reduction agreement may be terminated by
Morgan Stanley Asset Management Inc. at any time without notice. Absent
such reductions, it is estimated that "Advisory Fees," "Other Expenses" and
"Total Fund Annual Expenses" would be 1.25%, 2.62% and 4.12%, respectively.
(g) As of the date of this Prospectus, the sale of Policies offering these
Investment Divisions had not begun. The Fund Annual Expenses are based on
estimated amounts for the current fiscal year.
(h) The "Advisory Fees" include the ordinary expenses of operating the Fund.
(i) "Other Expenses" are net of soft dollar credits. Without such credits,
"Other Expenses" would have been 0.18% and "Total Fund Annual Expenses"
would have been 1.18%.
(j) These numbers reflect an expense reimbursement agreement effective through
December 31, 1999 limiting "Other Expenses" to 0.15% annually.
(k) The fees and charges were provided by the Fund or its agents, which are
based on 1997 expenses and may reflect estimated changes.
7
<PAGE> 11
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 23 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...................... $88.73 $142.22 $178.05 $271.13
MainStay VP Cash Management........................... $87.68 $139.05 $172.67 $259.81
MainStay VP Convertible............................... $89.49 $144.50 $181.93 $279.27
MainStay VP Government................................ $88.54 $141.64 $177.07 $269.08
MainStay VP High Yield Corporate Bond................. $88.16 $140.49 $175.12 $264.97
MainStay VP International Equity...................... $91.79 $151.35 $193.51 $303.31
MainStay VP Total Return.............................. $88.25 $140.78 $175.60 $265.98
MainStay VP Value..................................... $88.73 $142.22 $178.05 $271.13
MainStay VP Bond...................................... $87.30 $137.91 $170.72 $255.68
MainStay VP Growth Equity............................. $87.30 $137.91 $170.72 $255.68
MainStay VP Indexed Equity............................ $86.24 $134.74 $165.31 $244.18
American Century Income & Growth...................... $90.64 $147.93 -- --
Dreyfus Large Company Value........................... $91.61 $150.79 -- --
Eagle Asset Management Growth Equity.................. $90.64 $147.93 -- --
Lord Abbett Developing Growth......................... $91.61 $150.79 -- --
Alger American Small Capitalization................... $91.03 $149.07 $189.66 $295.36
Calvert Social Balanced............................... $90.26 $146.79 $185.80 $287.34
Fidelity VIP II Contrafund............................ $89.31 $143.93 $180.96 $277.23
Fidelity VIP Equity-Income............................ $88.07 $140.21 $174.64 $263.94
Janus Aspen Series Balanced........................... $90.46 $147.37 $186.78 $289.36
Janus Aspen Series Worldwide Growth................... $89.60 $144.79 $182.41 $280.27
MFS Growth With Income Series......................... $92.08 $152.21 -- --
MFS Research Series................................... $90.93 $148.79 -- --
Morgan Stanley Emerging Markets Equity................ $99.27 $173.40 $230.36 $377.65
T. Rowe Price Equity Income........................... $90.64 $147.93 -- --
Van Eck Worldwide Hard Assets......................... $93.71 $157.04 -- --
</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...................... $88.73 $ 74.19 $126.92 $271.13
MainStay VP Cash Management........................... $87.68 $ 70.80 $121.25 $259.81
MainStay VP Convertible............................... $89.49 $ 76.64 $131.00 $279.27
MainStay VP Government................................ $88.54 $ 73.58 $125.89 $269.08
MainStay VP High Yield Corporate Bond................. $88.16 $ 72.34 $123.82 $264.97
MainStay VP International Equity...................... $91.79 $ 83.97 $143.18 $303.31
</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.
8
<PAGE> 12
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
MainStay VP Total Return.............................. $88.25 $ 72.65 $124.34 $265.98
MainStay VP Value..................................... $88.73 $ 74.19 $126.92 $271.13
MainStay VP Bond...................................... $87.30 $ 69.58 $119.20 $255.68
MainStay VP Growth Equity............................. $87.30 $ 69.58 $119.20 $255.68
MainStay VP Indexed Equity............................ $86.24 $ 66.18 $113.50 $244.18
American Century Income & Growth...................... $90.64 $ 80.31 -- --
Dreyfus Large Company Value........................... $91.61 $ 83.38 -- --
Eagle Asset Management Growth Equity.................. $90.64 $ 80.31 -- --
Lord Abbett Developing Growth......................... $91.61 $ 83.38 -- --
Alger American Small Capitalization................... $91.03 $ 81.54 $139.13 $295.36
Calvert Social Balanced............................... $90.26 $ 79.09 $135.07 $287.34
Fidelity VIP II Contrafund............................ $89.31 $ 76.03 $129.98 $277.23
Fidelity VIP Equity-Income............................ $88.07 $ 72.05 $123.32 $263.94
Janus Aspen Series Balanced........................... $90.46 $ 79.71 $136.10 $289.36
Janus Aspen Series Worldwide Growth................... $89.60 $ 76.95 $131.50 $280.27
MFS Growth With Income Series......................... $92.08 $ 84.90 -- --
MFS Research Series................................... $90.93 $ 81.23 -- --
Morgan Stanley Emerging Markets Equity................ $99.27 $107.58 $181.96 $377.65
T. Rowe Price Equity Income........................... $90.64 $ 80.31 -- --
Van Eck Worldwide Hard Assets......................... $93.71 $ 90.06 -- --
</TABLE>
3. If you do not surrender your Policy:
<TABLE>
<S> <C> <C> <C> <C>
MainStay VP Capital Appreciation...................... $24.10 $ 74.19 $126.92 $271.13
MainStay VP Cash Management........................... $22.98 $ 70.80 $121.25 $259.81
MainStay VP Convertible............................... $24.91 $ 76.64 $131.00 $279.27
MainStay VP Government................................ $23.90 $ 73.58 $125.89 $269.08
MainStay VP High Yield Corporate Bond................. $23.49 $ 72.34 $123.82 $264.97
MainStay VP International Equity...................... $27.37 $ 83.97 $143.18 $303.31
MainStay VP Total Return.............................. $23.59 $ 72.65 $124.34 $265.98
MainStay VP Value..................................... $24.10 $ 74.19 $126.92 $271.13
MainStay VP Bond...................................... $22.57 $ 69.58 $119.20 $255.68
MainStay VP Growth Equity............................. $22.57 $ 69.58 $119.20 $255.68
MainStay VP Indexed Equity............................ $21.44 $ 66.18 $113.50 $244.18
American Century Income & Growth...................... $26.14 $ 80.31 -- --
Dreyfus Large Company Value........................... $27.17 $ 83.38 -- --
Eagle Asset Management Growth Equity.................. $26.14 $ 80.31 -- --
Lord Abbett Developing Growth......................... $27.17 $ 83.38 -- --
Alger American Small Capitalization................... $26.55 $ 81.54 $139.13 $295.36
Calvert Social Balanced............................... $25.73 $ 79.09 $135.07 $287.34
Fidelity VIP II Contrafund............................ $24.72 $ 76.03 $129.98 $277.23
Fidelity VIP Equity-Income............................ $23.39 $ 72.05 $123.32 $263.94
Janus Aspen Series Balanced........................... $25.94 $ 79.71 $136.10 $289.36
Janus Aspen Series Worldwide Growth................... $25.02 $ 76.95 $131.50 $280.27
MFS Growth With Income Series......................... $27.68 $ 84.90 -- --
MFS Research Series................................... $26.45 $ 81.23 -- --
Morgan Stanley Emerging Markets Equity................ $35.34 $107.58 $181.96 $377.65
T. Rowe Price Equity Income........................... $26.14 $ 80.31 -- --
Van Eck Worldwide Hard Assets......................... $29.41 $ 90.06 -- --
</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> 13
QUESTIONS AND ANSWERS ABOUT LIFESTAGES(SM)
NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT NEW
YORK LIFE LIFESTAGES(SM) VARIABLE ANNUITY. REFERENCE SHOULD BE MADE TO THE BODY
OF THIS PROSPECTUS FOR MORE DETAILED INFORMATION.
1. WHAT IS NEW YORK LIFE LIFESTAGES(SM) VARIABLE ANNUITY?
New York Life LifeStages(SM) 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 thirty Investment Divisions,
twenty-six of which are available under the Policies.
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 fifteen 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, the
MainStay VP Indexed Equity Portfolio, the MainStay VP American Century
Income & Growth Portfolio, the MainStay VP Dreyfus Large Company Value
Portfolio, the MainStay VP Eagle Asset Management Growth Equity
Portfolio and the MainStay VP Lord Abbett Developing Growth 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 Calvert Variable Series has one Eligible
Portfolio available for investment through the Investment Divisions of
the Separate Account: the Calvert Social Balanced 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 Series Balanced and Janus Aspen
Series Worldwide Growth Portfolios. The MFS Trust has two Eligible
Portfolios available to the Separate Account: the MFS Growth With Income
Series and MFS Research Series. The Morgan Stanley Fund has one Eligible
Portfolio available to the Separate Account: the Morgan Stanley Emerging
Markets Equity Portfolio. The T. Rowe Price Series has one Eligible
Portfolio available to the Separate Account: the T. Rowe Price Equity
Income Portfolio. The Van Eck Trust has one Eligible Portfolio available
to the Separate Account: the Van Eck Worldwide Hard Assets 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 30.)
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 20.)
For transfers made from the Fixed Account to the Investment Divisions, see
"The Fixed Account" at page 30. In addition, Owners can request transfers
through the Dollar Cost Averaging, Automatic Asset Reallocation, or Interest
Sweep options described at pages 21 and 22 of this Prospectus.
10
<PAGE> 14
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 24.)
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 24.)
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 23 and "Exceptions to Surrender Charges" at
page 23.)
Finally, the value of the shares of each Fund reflects advisory fees,
administration 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?
Except for Premium Payments or portions of Premium Payments applied to the
Fixed Account, initial Premium Payments are held in the MainStay VP Cash
Management Division for 15 days after the Policy Issue Date and then are
allocated to the Investment Divisions of the Separate Account as selected by
you. Initial Premium Payments allocated to the Fixed Account are deposited
immediately into the Fixed Account. You may allocate each Premium Payment in up
to 18 Investment Divisions plus the Fixed Account. (See "Automatic Asset
Reallocation" at page 22.) 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. However, any
change to your allocations may not result in the Accumulation Value being
allocated to more than 18 Investment Divisions plus the Fixed Account. 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 and
the number of Investment Divisions to which your Accumulation Value may be
allocated.
11
<PAGE> 15
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 25 and "Federal Tax Matters" at page
31.)
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 28.)
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 28.)
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 27 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 27 and "Federal Tax Matters" at page
31.)
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.
12
<PAGE> 16
14. WHAT ABOUT VOTING RIGHTS?
You may instruct NYLIAC how to vote shares of the Funds in which you have a
voting interest through the Separate Account. (See "Voting Rights" at page 33.)
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, 1997, the MainStay VP Cash Management Investment Division's yield
and effective yield were 4.24% and 4.33%, 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, 1997, the annualized yields for the
MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay VP
Bond Investment Divisions were 3.98%, 6.15% and 4.50%, 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 following tables present performance data
for the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Convertible, MainStay VP Government, MainStay VP High Yield Corporate Bond,
MainStay VP International Equity, MainStay VP Total Return, MainStay VP Value,
MainStay VP Bond, MainStay VP Growth Equity, MainStay VP Indexed Equity, Alger
American Small Capitalization, Calvert Social Balanced, Fidelity VIP II
Contrafund, Fidelity VIP Equity-Income, Janus Aspen Series Balanced, Janus Aspen
Series Worldwide Growth and Morgan Stanley Emerging Markets Equity Investment
Divisions for periods ending December 31, 1997. The average annual total return
(if surrendered) data reflect all Separate Account and Fund annual expenses
shown in the Fee Table which appears on pages 6 and 7. The average annual total
return (if surrendered) figures assume that the Policy is surrendered at the end
of the periods 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, including interest and dividends.
Certain Portfolios existed prior to the date that they were added to an
Investment Division of the Separate Account. For periods prior to May 1, 1995,
when the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Government, MainStay VP Total Return, MainStay VP Bond, MainStay VP Growth
Equity, MainStay VP Indexed Equity and Calvert Social Balanced Investment
Divisions commenced operations, and for periods prior to October 1, 1996, when
the Alger American Small Capitalization, Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced and Janus Aspen Series Worldwide
Growth Investment Divisions 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. There is no
performance information for the American Century Income & Growth, Dreyfus Large
Company Value, Eagle Asset Management Growth Equity, Lord Abbett Developing
Growth, MFS Growth With Income Series, MFS Research Series, T. Rowe Price Equity
Income and Van Eck Worldwide Hard Assets Investment Divisions because they were
not available under the Policies as of the date of this Prospectus. The results
shown are not an estimate or guarantee of future investment performance for the
Investment Divisions in the following tables.
13
<PAGE> 17
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIOD ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL
INVESTMENT DIVISIONS: APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY
--------------------- ------------ ----------- ----------- ----------- ----------- -------------
PORTFOLIO INCEPTION DATE: 1/29/93 1/29/93 10/1/96 1/29/93 5/1/95 5/1/95
- -------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 10/1/96 5/1/95 5/1/95 5/1/95
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year..................................... 14.78% -2.74% 6.82% 1.16% 4.46% -2.82%
3 Year..................................... 22.52% 1.62% -- 5.77% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 15.95% 2.09% 8.56% 3.91% 11.10% 5.77%
Since Investment Division Inception........ 19.92% 1.23% 8.56% 2.94% 11.10% 5.77%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year..................................... 21.78% 3.80% 13.82% 7.96% 11.46% 3.71%
3 Year..................................... 24.06% 3.83% -- 7.82% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 16.73% 3.05% 14.00% 4.88% 13.26% 8.11%
Since Investment Division Inception........ 21.83% 3.73% 14.00% 5.39% 13.26% 8.11%
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP CALVERT
TOTAL MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIAL
INVESTMENT DIVISIONS: RETURN VALUE BOND EQUITY EQUITY BALANCED
--------------------- ----------- ----------- ----------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 1/29/93 5/1/95 1/23/84 1/23/84 1/29/93 9/2/86
- ----------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95
- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year........................................ 9.17% 14.19% 1.32% 17.99% 24.00% 11.42%
3 Year........................................ 15.85% -- 6.25% 23.52% 27.34% 17.28%
5 Year........................................ -- -- 4.87% 16.19% -- 10.40%
10 Year....................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.06% 19.13% 8.55% 12.32% 17.39% 9.66%
Since Investment Division Inception........... 13.05% 19.13% 2.92% 21.48% 23.58% 13.59%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year........................................ 16.17% 21.19% 8.13% 24.99% 31.00% 18.42%
3 Year........................................ 17.56% -- 8.28% 25.03% 28.76% 18.95%
5 Year........................................ -- -- 5.84% 16.95% -- 11.33%
10 Year....................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.98% 21.06% 8.55% 12.32% 18.14% 9.66%
Since Investment Division Inception........... 15.16% 21.06% 5.37% 23.35% 25.40% 15.68%
</TABLE>
<TABLE>
<CAPTION>
MORGAN
JANUS ASPEN STANLEY
ALGER AMERICAN JANUS ASPEN SERIES EMERGING
SMALL FIDELITY VIP II FIDELITY VIP SERIES WORLDWIDE MARKETS
INVESTMENT DIVISIONS: CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH EQUITY
--------------------- -------------- --------------- ------------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 9/20/88 1/3/95 10/9/86 9/13/93 9/13/93 10/1/96
- ---------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year................................. 2.93% 15.43% 19.34% 13.41% 13.46% -7.32%
3 Year................................. 15.36% -- 22.24% 17.63% 22.87% --
5 Year................................. 10.14% -- 17.77% -- -- --
10 Year................................ -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 24.91% 12.92% 13.62% 20.32% -5.89%
Since Investment Division Inception.... -1.22% 18.12% 19.54% 12.80% 14.00% -5.89%
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
MORGAN
JANUS ASPEN STANLEY
ALGER AMERICAN JANUS ASPEN SERIES EMERGING
SMALL FIDELITY VIP II FIDELITY VIP SERIES WORLDWIDE MARKETS
INVESTMENT DIVISIONS: CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH EQUITY
--------------------- -------------- --------------- ------------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 9/20/88 1/3/95 10/9/86 9/13/93 9/13/93 10/1/96
- ---------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year................................. 9.85% 22.43% 26.34% 20.41% 20.46% -1.09%
3 Year................................. 17.09% -- 23.78% 19.29% 24.40% --
5 Year................................. 11.08% -- 18.49% -- -- --
10 Year................................ -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 26.39% 12.92% 14.67% 21.20% -0.87%
Since Investment Division Inception.... 4.06% 23.46% 24.87% 18.21% 19.39% -0.87%
</TABLE>
For periods commencing on or after the dates when the respective Investment
Divisions commenced operations, the average annual total return (if surrendered)
figures may be referred to as "standardized" performance, prepared under the
method prescribed by the Securities and Exchange Commission when advertising
performance information. It is noted that all average annual total return (if
surrendered) figures have been prepared on the basis of this method, but are
considered "non-standardized" for periods prior to the dates on which the
respective Investment Divisions commenced operations. The average annual total
return (no surrender) figures are all considered "non-standardized." 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 29.)
17. HOW DO I CONTACT NYLIAC?
<TABLE>
<S> <C> <C>
GENERAL INQUIRIES AND WRITTEN REQUESTS PREMIUM PAYMENTS AND LOAN PAYMENTS
Regular NYLIAC Variable Product Services NYLIAC Variable Product Services
Mail Madison Square Station P.O. Box 19289
P.O. Box 922 Newark, NJ 07195-0289
New York, NY 10159
Express NYLIAC Variable Product Services NYLIAC Variable Product Services
Mail 51 Madison Avenue 51 Madison Avenue
Room 452 Room 452
New York, NY 10010 New York, NY 10010
Customer Service (800) 598-2019
and Unit Values
</TABLE>
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report
thereon) for the fiscal years ended December 31, 1997, 1996 and 1995, and of the
Separate Account (including the auditor's report thereon) for the period ended
December 31, 1997 and 1996 are included in the Statement of Additional
Information.
15
<PAGE> 19
CONDENSED FINANCIAL INFORMATION
The following Accumulation Unit values and the number of Accumulation Units
outstanding for each Investment Division for each fiscal year ended December 31
presented below 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.
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT CONVERTIBLE
-------------------------- -------------------------- ----------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996(b)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $13.92 $11.89 $10.00 $ 1.06 $ 1.03 $ 1.00 $10.35 $10.00
Accumulation Unit value
(end of period)................. $16.95 $13.92 $11.89 $ 1.10 $ 1.06 $ 1.03 $11.78 $10.35
Number of units outstanding
(in 000s) (end of period)....... 11,001 6,949 951 43,157 32,709 13,190 2,205 1,250
<CAPTION>
MAINSTAY VP
MAINSTAY VP HIGH YIELD MAINSTAY VP
GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
-------------------------- -------------------------- --------------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a)
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $10.66 $10.57 $10.00 $12.52 $10.83 $10.00 $11.88 $10.90 $10.00
Accumulation Unit value
(end of period)................. $11.51 $10.66 $10.57 $13.95 $12.52 $10.83 $12.32 $11.88 $10.90
Number of units outstanding
(in 000s) (end of period)....... 1,103 855 178 14,577 6,539 648 932 692 67
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE BOND
--------------------------- --------------------------- ---------------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a)
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $12.55 $11.36 $10.00 $13.76 $11.32 $10.00 $10.64 $10.57 $10.00
Accumulation Unit value
(end of period)................. $14.58 $12.55 $11.36 $16.67 $13.76 $11.32 $11.50 $10.64 $10.57
Number of units outstanding
(in 000s) (end of period)....... 7,629 5,154 665 7,236 3,377 432 1,981 1,193 173
<CAPTION>
ALGER AMERICAN
MAINSTAY VP MAINSTAY VP SMALL
GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
--------------------------- --------------------------- -----------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996(b)
------ ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $14.01 $11.42 $10.00 $13.97 $11.58 $10.00 $ 9.57 $10.00
Accumulation Unit value
(end of period)................. $17.52 $14.01 $11.42 $18.30 $13.97 $11.58 $10.51 $ 9.57
Number of units outstanding
(in 000s) (end of period)....... 4,979 2,276 241 9,982 4,327 358 1,060 125
</TABLE>
<TABLE>
<CAPTION>
CALVERT FIDELITY VIP II FIDELITY VIP
SOCIAL BALANCED CONTRAFUND EQUITY-INCOME
-------------------------- ---------------- ----------------
1997 1996 1995(a) 1997 1996(b) 1997 1996(b)
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)..................................... $12.46 $11.22 $10.00 $10.63 $10.00 $10.45 $10.00
Accumulation Unit value
(end of period)........................................... $14.76 $12.46 $11.22 $13.01 $10.63 $13.20 $10.45
Number of units outstanding
(in 000s) (end of period)................................. 282 123 17 3,079 241 2,267 149
<CAPTION>
JANUS
JANUS ASPEN SERIES MORGAN STANLEY
ASPEN SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
---------------- ---------------- ----------------
1997 1996(b) 1997 1996(b) 1997 1996(b)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)..................................... $10.24 $10.00 $10.36 $10.00 $10.00 $10.00
Accumulation Unit value
(end of period)........................................... $12.32 $10.24 $12.48 $10.36 $ 9.89 $10.00
Number of units outstanding
(in 000s) (end of period)................................. 2,043 125 4,392 269 827 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.
16
<PAGE> 20
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 is a wholly-owned subsidiary of New York Life Insurance Company
("New York Life"), a mutual life insurance company doing business in New York
since 1845. NYLIAC held assets of $20.1 billion at the end of 1997. New York
Life has invested in NYLIAC, and will, in order to maintain capital and surplus
in accordance with state requirements, occasionally make additional
contributions to NYLIAC.
Year 2000 Readiness-The computer systems we use to process all Policy
transactions and valuations need to be modified to accommodate the changeover to
Year 2000. These modifications are necessary for us to be able to continue to
administer the Policies in Year 2000 and later. As is the case with most systems
projects, risks and uncertainties exist, and a project could be delayed. We are,
however, working to make these systems modifications, and we expect that the
necessary changes will be completed on time and in a way that will result in no
disruption to our Policy servicing operations.
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.
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 30 Investment Divisions, 26 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.
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 Calvert Variable Series, the
Fidelity Funds, the Janus Aspen Series, the MFS Trust, the Morgan Stanley Fund,
the T. Rowe Price Series and the Van Eck Trust 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
17
<PAGE> 21
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.
NYLIAC renders certain services to Owners of the Policies in connection
with the investment of Premium Payments in the Investment Divisions, which, in
turn, invest in the Eligible Portfolios. These services include, among others,
providing information about the Eligible Portfolios. We receive a service fee
from the investment advisers or other service providers of some of the Funds in
return for providing services of this type. Currently, NYLIAC receives service
fees at annual rates ranging from .10% to .21% of the aggregate net asset value
of the shares of some of the Eligible Portfolios held by the Investment
Divisions.
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; MainStay VP
Corporation 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;
MainStay VP American Century
Income & Growth;
MainStay VP Dreyfus Large Company Value;
MainStay VP Eagle Asset Management Growth
Equity;
MainStay VP Lord Abbett Developing Growth;
- -----------------------------------------------------------------------------------------------------------------------
The Alger American Fund Fred Alger Management, Inc. Alger American Small Capitalization
- -----------------------------------------------------------------------------------------------------------------------
Calvert Variable Series, Inc. Calvert Asset Management Company Calvert Social Balanced
- -----------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Management and Research Fidelity VIP II Contrafund
Products Fund II Company
- -----------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Management and Research Fidelity VIP Equity-Income
Products Fund Company
- -----------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Janus Capital Corporation Janus Aspen Series Balanced;
Janus Aspen Series Worldwide Growth
- -----------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust Massachusetts Financial Services MFS Growth With Income Series; MFS Research
Company Series
- -----------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Morgan Stanley Asset Management Morgan Stanley Emerging Markets Equity
Inc. Inc.
- -----------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Series, Inc. T. Rowe Price Associates, Inc. T. Rowe Price Equity Income
- -----------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust Van Eck Associates Corporation Van Eck Worldwide Hard Assets
- -----------------------------------------------------------------------------------------------------------------------
</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 Premium Payments to an Investment Division corresponding to a
particular Eligible Portfolio.
18
<PAGE> 22
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 30 Investment Divisions, 26 of which are
available under the Policies. Premium Payments are invested solely in the
corresponding Eligible Portfolios of the Funds. 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, the Separate Account may be operated
as a management company under the Investment Company Act of 1940, may be
deregistered under such Act in the event such registration is no longer
required, or may be combined with one or more other separate accounts.
REINVESTMENT
All dividends and capital gain distributions from Eligible Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value on the payable date.
THE POLICIES
PURPOSE OF POLICIES
The Policies described in this Prospectus are designed to establish
retirement benefits for two types of purchasers.
The first type of purchaser is one who is eligible to participate in, and
purchases a Policy for use with, any one of the following: (1) annuity plans
qualified under Section 403(a) of the Internal Revenue Code (the "Code"); (2)
annuity purchase plans adopted by certain private tax exempt organizations and
certain state supported educational institutions under certain circumstances
under Section 403(b) of the Code; (3) individual retirement annuities ("IRAs")
meeting the relevant requirements of Sections 408 or 408A 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 31.)
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.
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<PAGE> 23
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. Premium Payments may be allocated in up to 18
Investment Divisions plus the Fixed Account. Moreover, the percentages of the
Premium Payments (which must be in whole number percentages) allocated to each
Allocation Alternative may be increased or decreased at the time a Premium
Payment is made. However, any change to the Policy's allocations may not result
in the Accumulation Value being allocated to more than 18 Investment Divisions
plus the Fixed Account.
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, New Jersey and Washington, however, additional Premium Payments may
only be made until either the Annuitant reaches age 64 or the fourth Policy
Year, whichever is later. 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 27.)
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 18-80 and we will accept
additional Premium Payments until the Owner/Annuitant reaches the age of 80,
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
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<PAGE> 24
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 other Investment Divisions 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. The amount(s)
transferred to other Investment Divisions must be a minimum of $25 for each
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. 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 30.)
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 telephone transfer request, or at the end of the
Business Day if NYLIAC receives a written request. (See "Delay of Payments" at
page 28.)
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 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. 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 at the end of
the next Valuation Period.
DOLLAR COST AVERAGING
This program permits systematic investing to be made in equal installments
over various market cycles to help reduce risk. 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 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.
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<PAGE> 25
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 Convertible Investment Division and 50% of the Variable Accumulation Value be
allocated to the MainStay VP International 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. However, the Variable
Accumulation Value may not be allocated to more than 18 Investment Divisions if
the Automatic Asset Reallocation option is selected.
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 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 30.) 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 31. The Interest Sweep option may be canceled at any time by
the Owner in a written request, or by NYLIAC 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
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<PAGE> 26
a Policy is determined by dividing the amount allocated to each Investment
Division by the Accumulation Unit value for that Investment Division on the
Business Day during which the Premium Payment and documentation is received at
NYLIAC. 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 30 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 Separate
Account charges. The Statement of Additional Information contains a detailed
description of how the Accumulation Units are valued.
OWNER INQUIRIES
Owner inquiries should be addressed to NYLIAC. (See page 15.)
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 partial withdrawals are made, 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 law, the Surrender Charge for 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, exceed 10% of the Accumulation
Value at the time of
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<PAGE> 27
surrender or withdrawal (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 27.) 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 26.) 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 30 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 the cost of providing Policy administration
services. All Policies are subject to an administrative fee charged daily as an
amount equal, on an annual basis, to .15% of the average daily net asset value
of the Separate Account. In addition, an annual Policy fee for Policy
administration expenses is deducted 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. The annual Policy fee is 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
27.) In addition, NYLIAC assumes the risk that the charges for providing Policy
administration services to Owners and Annuitants may be insufficient to cover
the actual costs incurred by NYLIAC. Moreover, NYLIAC does not anticipate that
the Surrender Charges on withdrawals and surrenders will generate sufficient
funds to pay the distribution expenses. If these charges are insufficient to
cover those expenses, the deficiency will be met from NYLIAC's general funds,
including amounts derived from the risk charges that are not needed for expenses
actually incurred. 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 charges prove more than sufficient any
excess will be added to NYLIAC's general funds. 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. The fees and expenses paid by the
Funds are not fixed or specified under the terms of the Policy, and they may
vary from year to year.
GROUP AND SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the Surrender
Charge and the administrative charges 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.
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<PAGE> 28
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 31.) Based upon
these expectations, no charge is being made currently to the Separate Account
for corporate federal income taxes which may be attributable to the Separate
Account.
NYLIAC will review the question of a charge to the Separate Account for
corporate federal income taxes periodically. Such a charge may be made in future
years for any federal income taxes incurred by NYLIAC. This might become
necessary if the tax treatment of NYLIAC is ultimately determined to be other
than what NYLIAC currently believes it to be, if there are changes made in the
federal income tax treatment of annuities at the corporate level, or if there is
a change in NYLIAC's tax status. In the event that NYLIAC should incur federal
income taxes attributable to investment income or capital gains retained as part
of the reserves under the Policies, the Accumulation Value of the Policies would
be correspondingly adjusted by any provision or charge for such taxes.
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS AND WITHDRAWALS
The Owner may make a Partial Withdrawal, Periodic Partial Withdrawal,
Hardship Withdrawal or surrender the Policy to receive part or all of the
Accumulation Value at any time before the Annuity Commencement Date and while
the Annuitant is living, by sending a written request to NYLIAC. The amount
available for withdrawal is the Accumulation Value on the Business Day during
which the surrender or withdrawal request is received at NYLIAC, 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, if applicable, 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 28.)
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.
25
<PAGE> 29
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 31.)
(a) Surrenders
A Surrender Charge and any premium tax, if applicable, less any outstanding
loan balance, and less the charge for Policy administration expenses, if
applicable, may be deducted from the amount paid. The Policy administration
expense charge will be the lesser of $30 or 2% of the Accumulation Value at the
end of the Policy Year or on the date of surrender, whichever is applicable. The
proceeds will be paid in a lump sum to the Owner unless the Owner elects a
different Income Payment method. (See "Income Payments" at page 28.) 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
31.)
(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 31.)
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 31.) 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 31.
(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 and 10% penalty tax, if applicable, and provisions
applicable to Partial Withdrawals apply to Hardship Withdrawals. For all
Policies, the Surrender Charge will only be applied to any amounts withdrawn in
any Policy Year which, when added to all other surrender charge free withdrawals
in that Policy Year, exceed the 10% Window. For Policies with accumulated
Premium Payments of $100,000 or more, the Surrender Charge will not apply if the
amount of the Hardship Withdrawal is less than or equal to the gain in the
Policy which is measured as the Accumulation Value of the Policy less
accumulated Premium Payments.
REQUIRED MINIMUM DISTRIBUTION OPTION
For IRAs 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.
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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 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 more than one Beneficiary is
named, each will be paid a pro rata portion from each Allocation Alternative in
which the Policy is invested as of the date proof of death and all requirements
necessary to make the payment to that Beneficiary is received.
If an Owner or Annuitant dies before the Annuity Commencement Date, the
Policy will no longer be in force and we will pay as proceeds to the Beneficiary
an amount which is the greater of "(a)," "(b)," or "(c)" as they are described
in the preceding paragraph. Payment will be made in a lump sum to the
Beneficiary unless the Owner has elected or the Beneficiary elects otherwise in
a signed written notice which gives us the facts that we need. If such an
election is properly made, all or part of these proceeds will be:
(i) applied under the Life Income Payment Option to provide an
immediate annuity for the Beneficiary who will be the Owner and Annuitant;
or
(ii) applied under another Income Payment option we may offer at the
time. Payments under the annuity or under any other method of payment we
make available must be for the life of the Beneficiary, or for a number of
years that is not more than the life expectancy of the Beneficiary at the
time of the Owner's death (as determined for federal tax purposes), and
must begin within one year after the Owner's death. (See "Income Payments"
at page 28.)
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
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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 31.)
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" below.)
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. 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 partial or full surrender request
deferred for 30 days or more.
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DESIGNATION OF BENEFICIARY
The Owner may select one or more Beneficiaries and name them in the
application. Thereafter, before the Annuity Commencement Date and while the
Annuitant is living, the Owner may change the Beneficiary by written notice to
NYLIAC. If before the Annuity Commencement Date, the Annuitant dies before the
Owner and no Beneficiary for the proceeds or for a stated share of the proceeds
survives, the right to the proceeds or shares of the proceeds passes to the
Owner. If the Owner is the Annuitant, the proceeds pass to the Owner's estate.
However, if the Owner who is not the Annuitant dies before the Annuity
Commencement Date, and no Beneficiary for the proceeds or for a stated share of
the proceeds survives, the right to the proceeds or shares of the proceeds
passes to the Owner's estate.
RESTRICTIONS UNDER INTERNAL REVENUE CODE SECTION 403(B)(11)
Distributions attributable to salary reduction contributions made in years
beginning after December 31, 1988 (including the earnings on these
contributions), as well as to earnings in such years on salary reduction
accumulations held as of the end of the last year beginning before January 1,
1989, may not begin before the employee attains age 59 1/2, separates from
service, dies or becomes disabled. The plan may also provide for distribution in
the case of hardship. However, hardship distributions are limited to amounts
contributed by salary reduction; the earnings on such amounts may not be
withdrawn. Even though a distribution may be permitted under these rules (e.g.
for hardship or after separation from service), it may nonetheless be subject to
a 10% additional income tax as a premature distribution. To the extent that
these limitations on distributions conflict with the redeemability provisions of
the Investment Company Act, NYLIAC relies upon a November 28, 1988 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. 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.
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
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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 Accumulation
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.
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.
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2. Transfers of at least the minimum amount are permitted. The minimum
amount that may be transferred from the Fixed Account to the Investment
Divisions is the lesser of (i) $500 or (ii) the Fixed Accumulation Value,
unless we agree otherwise. (Additionally, the remaining values in the Fixed
Account must be at least $500. If, after a contemplated transfer, the
remaining values in the Fixed Account would be less than $500, that amount
must be included in the transfer, unless NYLIAC in its discretion
determines otherwise. Amounts transferred from the Fixed Account will be
determined on a FIFO basis, for purposes of determining the rate at which
interest will be credited on monies remaining in the Fixed Account.)
Except as part of an existing Dollar Cost Averaging request, money may not
be transferred into the Fixed Account if a transfer was made out of the Fixed
Account during the previous six-month period. Unlimited transfers are permitted
each Policy Year, although we reserve the right to impose a charge of up to $30
per transfer for each transfer in excess of twelve transfers in any Policy Year.
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. For a more detailed
discussion of procedures that may be used for requesting transfers by telephone,
please see "Procedures for Telephone Transfers" at page 21 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, 408A 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, which may change from time to time without notice. Any such
change could have retroactive effects regardless of the date of enactment.
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. We
suggest you consult with your tax adviser.
TAXATION OF ANNUITIES IN GENERAL
The following discussion assumes that the Policies will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional
Information discusses such qualifications.
Section 72 of the Code governs taxation of annuities in general. NYLIAC
believes that an annuity contract owner generally is not taxed on increases in
the value of a policy until distribution occurs either in the form of a
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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. The law requires the use of
special simplified methods to determine the taxable amount of payments that are
based in whole or in part on the Annuitant's life and that are paid from
qualified retirement plans under Section 401(a) and from qualified annuities and
Tax Sheltered Annuities under Sections 403(a) and 403(b).
Generally, in the case of a withdrawal under a Non-Qualified Policy before
the Annuity Commencement Date, amounts received are first treated as taxable
income to the extent that the Accumulation Value immediately before the
withdrawal exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable.
Although the tax consequences may vary depending on the Income Payment
option elected under the Policy, in general, only the portion of the Income
Payment that represents the amount by which the Accumulation Value exceeds the
"investment in the contract" will be taxed; after the investment in the Policy
is recovered, the full amount of any additional Income Payments is taxable. For
Fixed Income Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Income Payments for the term of the
payments; however, the remainder of each Income Payment is taxable until the
recovery of the investment in the contract, and thereafter the full amount of
each annuity payment is taxable. If death occurs before full recovery of the
investment in the contract, the unrecovered amount may be deducted on the
annuitant's final tax return.
In the case of a distribution pursuant to any Policy, there may be imposed
a penalty tax equal to 10% of the amount treated as taxable income. The penalty
tax is not imposed in certain circumstances, including, generally,
distributions: (1) made on or after the date on which the taxpayer is actual age
59 1/2, (2) made as a result of the Owner's or Annuitant's death or disability,
or (3) received in substantially equal installments paid at least annually as a
life annuity. Other tax penalties may apply to certain distributions pursuant to
a Qualified Policy.
All non-qualified, deferred annuity contracts issued by NYLIAC (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. In addition, there may be other situations in which
the Treasury Department may conclude (under its authority to issue regulations)
that it would be appropriate to aggregate two or more annuity contracts
purchased by the same Owner. Accordingly, an Owner should consult a competent
tax adviser before purchasing more than one Policy or other annuity contract.
A transfer of ownership of a Policy, or designation of an Annuitant or
other Beneficiary who is not also the Owner, may result in certain income or
gift tax consequences to the Owner that are beyond the scope of this discussion.
An Owner contemplating any transfer or assignment of a Policy should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.
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
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minimum distribution rules 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) Roth Individual Retirement Annuities. Section 408A of the Code
permits individuals with incomes below a certain level to contribute to an
individual retirement program known as a "Roth Individual Retirement
Annuity" or "Roth IRA." Roth IRAs are subject to limitations on the amount
that may be contributed. Contributions to Roth IRAs are not deductible, but
distributions from Roth IRAs that meet certain requirements are not
included in gross income. Certain individuals are eligible to convert their
existing non-Roth IRAs into Roth IRAs. They will be subject to income tax
at the time of conversion.
(d) 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. Such investments
are generally owned by, and are subject to, the claims of the general
creditors of the sponsoring employer, except that Section 457 plans of
state and local government must be held and used for the exclusive benefit
of participants and beneficiaries in a trust or annuity contract.
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.
33
<PAGE> 37
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.
34
<PAGE> 38
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............................................. 5
FEDERAL TAX MATTERS......................................... 6
DISTRIBUTOR OF THE POLICIES................................. 7
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS...................... 7
STATE REGULATION............................................ 7
RECORDS AND REPORTS......................................... 8
LEGAL PROCEEDINGS........................................... 8
INDEPENDENT ACCOUNTANTS..................................... 8
OTHER INFORMATION........................................... 8
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
How to obtain a New York Life LifeStages(SM) Variable Annuity Statement of
Additional Information.
Call (800) 598-2019 or send this request form to:
NYLIAC Variable Product Services
Madison Square Station
P.O. Box 922
New York, NY 10159
- -------------------------------------------------------------------------------
Please send me a New York Life LifeStages(SM) Variable Annuity Statement
of Additional Information dated May 1, 1998:
- -------------------------------------------------------------------------------
Name
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City State Zip
35
<PAGE> 39
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 40
LOGO
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
INDIVIDUAL RETIREMENT ANNUITY
DISCLOSURE STATEMENT
The following information is being provided to you, the Policyowner, in
accordance with the requirements of the Internal Revenue Service. This
Disclosure Statement includes non-technical explanation of some of the changes
made by the Taxpayer Relief Act of 1997 applicable to Individual Retirement
Accounts or Annuities (IRAs). You should consult your tax adviser about the
specifics of these rules, and remember that the terms of your actual contract
and any endorsements will control your rights and obligations.
1. REVOCATION OF YOUR IRA
If you have not received this Disclosure Statement at least seven calendar
days before the establishment of your Individual Retirement Annuity, you have
the right to revoke your Individual Retirement Annuity during the seven calendar
day period following the establishment of it. In order to revoke your Individual
Retirement Annuity, you must notify us in writing and you must mail or deliver
your revocation to NYLIAC. If your revocation is mailed, the date of the
postmark (or the date of certification or registration if sent by certified or
registered mail) will be considered your revocation date. If you revoke your
Individual Retirement Annuity during the seven day period, the entire amount of
your account, without any adjustments (for items such as administrative
expenses, fees, or fluctuation in market value) will be returned to you.
2. CONTRIBUTIONS
(a) Regular IRA. The Policyowner may make periodic contributions to a
regular IRA in any amount up to the combined tax deductible and non-tax
deductible contribution limit described in Section 3 of this Disclosure
Statement. All such contributions shall be in cash and shall be invested in
accordance with this Disclosure Statement. This IRA cannot be issued as a SIMPLE
IRA.
(b) Spousal IRA. If the Policyowner and the spouse file a joint federal
income tax return for the taxable year and if the spouse's compensation, if any,
includable in gross income for the year is less than the compensation includable
in the gross income of the Policyowner for the year, the Policyowner and the
spouse may each establish his or her own individual IRA and may make periodic
contributions to their own IRA in accordance with the rules and limits for tax
deductible and non-tax deductible contributions contained in Sections 219(c) and
408(o) of the Code. Such contributions shall be in cash and shall be vested in
accordance with this Disclosure Statement.
(c) Rollover IRA. A rollover contribution by the Policyowner shall be a
nonperiodic deposit in cash to be invested in accordance with this Disclosure
Statement, with respect to which contribution the Policyowner warrants that (1)
the entire amount rolled over is attributable to a distribution from an
employee's trust, an employee's annuity, an annuity contract or another
individual retirement account or annuity, which meets the requirements of Code
section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3); (2) within one (1) year of
receiving such distribution, the Policyowner did not receive another
distribution which constituted a "rollover" referred to in Code Section
408(d)(3)(B); and (3) the contribution as made satisfies all the requirements
for rollover contributions as set forth under the Internal Revenue Code. A
rollover contribution attributable to contributions made by an employer to an
individual's SIMPLE IRA cannot be made prior to the expiration of the 2-year
period beginning on the date the individual first participated in that
employer's SIMPLE plan.
Strict limitations apply to rollovers, and you should seek competent tax
advice in order to comply with all the rules governing rollovers.
(d) Transfers. The Policyowner may make an initial or subsequent
contribution hereunder by directing a Custodian or Trustee of an existing
individual retirement account or individual retirement annuity to transfer an
amount in cash to the Individual Retirement Annuity.
(e) Time to Make Contributions. You may make contributions to your IRA at
any time for a taxable year beginning on the first day of that year and ending
on the date that your income tax return for that year is due (without regard to
any extensions).
(f) Simplified Employee Pension. If an IRA is established that meets the
requirements of a Simplified Employee Pension Plan, your employer may contribute
an amount not to exceed the lesser of 15% of your includable compensation
($160,000 for 1997, adjusted for inflation thereafter) or $30,000. The amount of
such
IRA-1
<PAGE> 41
contribution is not includable in your income as wages (for federal income tax
purposes). Within that overall limit you may elect to defer up to $10,000 in
1998 (as adjusted for inflation in accordance with the Internal Revenue Code) of
your includable compensation if your employer's SEP plan permits salary
reduction contributions and was established on or before December 31, 1996. The
amount of such elective deferral is excludable from your income as wages (for
federal income tax purposes). For further details, see your employer.
(g) Responsibility of the Policyowner. If the Policyowner contemplates
future periodic contributions, rollovers, or transfers to the IRA, such
contributions, rollovers or transfers must be made in accordance with the
appropriate sections of the Code. It is the Policyowner's full and sole
responsibility to determine the tax deductibility of all contributions, and to
make such contributions in accordance with the Code. Neither the Custodian nor
New York Life Insurance and Annuity Corporation are permitted to provide tax
advice, and will assume no liability for the tax consequences of any
contribution to the IRA.
3. DEDUCTIBILITY OF CONTRIBUTIONS
(a) Eligibility. Under the new law, if neither you nor your spouse is an
active participant (see (b) below), you and your spouse may contribute up to
$4,000 together (but no more than $2,000 to each individual account) if your
combined compensation is at least equal to that amount and take a deduction for
the entire amount contributed. If you are an active participant, but have an
adjusted gross income (AGI) below a certain level (see (c) below), you may make
a deductible contribution. If you are an active participant and you have AGI
above that level (see (c) below), the amount of the deductible contribution you
may make is phased down and eventually eliminated. If you are not an active
participant, but your spouse is an active participant, you may make a $2,000
deductible contribution provided that if your combined AGI is above the
specified level (see (c) below), the amount of the deductible contribution you
may make to an IRA is phased down and eventually eliminated.
(b) Active Participant. You are an "active participant" for a year if you
are covered by a retirement plan. You are covered by a "retirement plan" for a
year if your employer or union has a retirement plan under which money is added
to your annuity or you are eligible to earn retirement credits. For example, if
you are covered under a profit-sharing plan, a 403(b) annuity, certain
government plans, a salary reduction arrangement (such as a Tax Sheltered
Annuity 403(b) arrangement or a 401(k) plan), a Simplified Employee Pension Plan
(SEP), a SIMPLE retirement account or a plan which promises you a retirement
benefit which is based upon the number of years of service you have with the
employer, you are likely to be an active participant. Your Form W-2 for the year
should indicate your participation status.
(c) Adjusted Gross Income (AGI). If you or your spouse is an active
participant, you must look at your Adjusted Gross Income for the year (if you
and your spouse file a joint tax return, you use your combined AGI) to determine
whether you can make a deductible IRA contribution. Your tax return will show
you how to calculate your AGI for this purpose. If you are at or below a certain
AGI level, called the Threshold Level, you are treated as if you were not an
active participant and can make a deductible contribution under the same rules
as a person who is not an active participant.
If you are single, your threshold AGI level is $30,000 (for 1998). The
Threshold Level if you are married and file a joint tax return is $50,000 (for
1998), and if you are married, but file a separate tax return, the Threshold
Level is $0. However, if only your spouse is an active participant and you file
a joint tax return, the Threshold level is $150,000 phased out of $160,000
(beginning in 1998).
IRA-2
<PAGE> 42
The $30,000 and $50,000 Threshold Levels are to increase in future years as
shown below:
<TABLE>
<CAPTION>
JOINT RETURNS
-------------
FOR TAXABLE YEARS BEGINNING IN: THE THRESHOLD LEVEL IS:
- ------------------------------- -----------------------
<S> <C>
1998 $50,000
1999 $51,000
2000 $52,000
2001 $53,000
2002 $54,000
2003 $60,000
2004 $65,000
2005 $70,000
2006 $75,000
2007 and thereafter $80,000
</TABLE>
<TABLE>
<CAPTION>
SINGLE TAXPAYERS
----------------
FOR TAXABLE YEARS BEGINNING IN: THE THRESHOLD LEVEL IS:
- ------------------------------- -----------------------
<S> <C>
1998 $30,000
1999 $31,000
2000 $32,000
2001 $33,000
2002 $34,000
2003 $40,000
2004 $45,000
2005 and thereafter $50,000
</TABLE>
If your AGI is less than $10,000 above your Threshold Level, you will still
be able to make a deductible contribution, but it will be limited in amount. The
amount by which your AGI exceeds your Threshold Level (AGI-Threshold Level) is
called your Excess AGI. The Maximum Allowable Deduction is $2,000 (and an
additional $2,000 for a Spousal IRA). You can calculate your Deduction Limit as
follows:
10,000 - Excess AGI X Maximum Allowable Deduction = Deduction Limit
-------------------
10,000
You must round up the result to the next highest $10 level (the next
highest number which ends in zero). For example, if the result is $1,525, you
must round it up to $1,530. If the final result is below $200 but above zero,
your Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed
100% of your compensation.
(d) Restrictions. No deduction is allowed for (a) contributions other than
in cash; (b) contributions (other than those by an employer to a Simplified
Employee Pension Plan) made during your calendar year in which you attain age
70 1/2 or thereafter; or (c) for any amount you contribute which was a
distribution from another retirement plan ("rollover" contribution). However,
the limitations in paragraph, (a) and (b) do not apply to rollover
contributions.
(e) Compensation. For purposes of determining allowable contributions, the
term "Compensation" includes all earned income, including net earnings from self
employment and alimony or separate maintenance payments received and includable
in your gross income, but does not include deferred compensation or any amount
received as a pension or annuity.
4. NONDEDUCTIBLE CONTRIBUTIONS TO IRAS
Even if you are above the Threshold Level and, thus, may not make a
deductible contribution of $2,000 (and an additional $2,000 for a Spousal IRA),
you may still contribute up to the lesser of 100% of compensation or $2,000 to
an IRA (and an additional $2,000 for a Spousal IRA). The amount of your
contribution which is not deductible will be a nondeductible contribution to the
IRA. You may also choose to make a contribution nondeductible even if you could
have deducted part or all of the contribution. Interest or other earnings on
your IRA contribution, whether from deductible or nondeductible contributions,
will not be taxed until taken out of your IRA and distributed to you.
If you make a nondeductible contribution to an IRA you must report the
amount of the nondeductible contribution to the IRS as a part of your tax return
for the year.
IRA-3
<PAGE> 43
5. DISTRIBUTIONS
(a) Required Distributions. Distribution of your IRA must be made or begin
no later than April 1 of the calendar year following the calendar year in which
you attain age 70 1/2. A distribution may be made at once in a lump sum, or it
may be made in installments. Installment payments must be made over a period not
exceeding your life expectancy (as determined annually), or the joint life and
last survivor expectancy of you and the beneficiary you designate (as
redetermined annually, if that beneficiary is your spouse).
If you die before the entire interest is distributed to you, but after
distribution to you has begun, your entire annuity must be distributed to your
beneficiary at least as rapidly as your annuity was being distributed prior to
your death. If you die before you begin to receive distributions from your
annuity and if you have a designated beneficiary, distribution to your
beneficiary must be made over a period not exceeding the greater of the
beneficiary's life expectancy or five years after your death; if you have no
designated beneficiary, distribution must be completed within five years of your
death. Distributions upon your death must begin within one year following your
death or, if your beneficiary is your spouse, no later than the date on which
you would have attained age 70 1/2 (if later). If following your death before
distributions have begun, your spouse also dies, immediate distribution must
begin to be made to your spouse's beneficiary, if any, over a period no longer
than that person's life expectancy, or if your spouse has not designated a
beneficiary, full payment must be made to your spouse's estate within five
years.
(b) IRA Distributions. Because nondeductible IRA contributions are made
using income which has already been taxed (that is, they are not deductible
contributions), the portion of the IRA distributions consisting of nondeductible
contributions will not be taxed again when received by you. If you make any
nondeductible IRA contributions, each distribution from your IRAs will consist
of a nontaxable portion (return of nondeductible contributions) and a taxable
portion (return of deductible contributions, if any, and account earnings).
Thus, you may not take a distribution which is entirely tax-free. The
following formula is used to determine the nontaxable portion of your
distributions for a taxable year.
<TABLE>
<S> <C> <C> <C> <C>
Remaining Nondeductible contributions
- --------------------------------------------- Total distributions Nontaxable distributions
Year-end total IRA balances X (for the year) = (for the year)
</TABLE>
To figure the year-end total IRA balance, you must treat all of your IRAs
as a single IRA (other than Roth IRAs). This includes all regular IRAs, as well
as Simplified Employee Pension (SEP) IRAs, SIMPLE IRAs, and Rollover IRAs. You
also add back the distributions taken during the year.
Even if you withdrew all of the money in your IRA in a lump sum, you will
not be entitled to use any form of income averaging to reduce the federal income
tax on your distribution. Also, no portion of your distribution is taxable as a
capital gain.
(c) Withholding. Unless you elect not to have withholding apply, a 10%
federal income tax will be withheld from your IRA distributions. If payments are
delivered to foreign countries, however, tax will, generally, be withheld at a
10% rate unless you certify to the Custodian that you are not a U.S. citizen
residing abroad or a "tax avoidance expatriate" as defined in the Internal
Revenue Code (Section 877).
6. PENALTIES
(a) Excess Contributions. If at the end of any taxable year your IRA
contributions (other than rollovers or transfers) exceed the maximum allowable
(deductible and nondeductible) amount for that year, this excess contribution
amount will be subject to a nondeductible 6% excise (penalty) tax. However, if
you withdraw the excess contribution, plus any earnings on it, before the due
date for filing your federal income tax return for the year (including
extensions), the excess contribution will not be subject to the 6% penalty tax.
The amount of the excess contribution withdrawn will not be considered a
premature distribution, but the earnings withdrawn will be taxable income to you
and may be subject to an additional 10% tax on premature distributions.
Alternatively, excess contributions for one year may be carried forward as IRA
contributions in the next year to the extent that the excess, when aggregated
with your IRA contribution (if any) for the subsequent year, does not exceed the
maximum allowable (deductible and nondeductible) amount for that year. The 6%
excise tax will be imposed on excess contributions in each year they are neither
returned nor applied as contributions.
(b) Early Distributions. Since the purpose of an IRA is to accumulate
funds for retirement, your receipt or use of any portion of your IRA before you
attain age 59 1/2 constitutes an early distribution unless the distribution
occurs in the event of your death or disability or is part of a series of
substantially equal periodic payments made over your life expectancy (as
determined from tables in the income tax regulations) or the joint life
expectancies
IRA-4
<PAGE> 44
of you and your beneficiary or is used to pay certain medical expenses or is
used for certain qualified first-time homebuyer expenses (beginning in 1998) or
certain qualified higher education expenses (beginning in 1998). The amount of
an early distribution (excluding the nondeductible contribution included
therein) is includable in your gross income and is subject to a 10% penalty tax
on the amount of the early distribution unless you transfer it to another IRA as
a qualifying rollover contribution. If you transfer, rollover or convert a
regular IRA into a Roth IRA, the 10% penalty tax will not apply, but the
distribution is taxable income. (If you transfer, rollover or convert a regular
IRA into a Roth IRA in 1998, the additional tax liability will be spread over
four years (1998, 1999, 2000, and 2001).
(c) Minimum Distributions. If the minimum distribution rules described in
5a apply to a recipient of distributions and if the amount distributed during a
calendar year is less than the minimum amount required to be distributed, the
recipient will be subject to a penalty tax equal to 50% of the difference
between the amount required to be distributed and the amount actually
distributed.
(d) Excess Distributions. The 15% excise tax on excess distributions has
been repealed for excess distributions received after December 31, 1996. The 15%
excise tax on excess retirement accumulations has been repealed for estates of
decedents dying after December 31, 1996.
(e) Prohibited Transactions. If the Policyowner or the beneficiary engage
in any prohibited transaction (such as any sale, exchange or leasing of any
property between the Policyowner and the annuity, or any interference with the
independent status of the annuity), the annuity will lose its tax exemption and
be treated as having been distributed to the Policyowner. The value of the
entire annuity (excluding the non-deductible contribution included therein) will
be includable in your gross income; if at the time of the prohibited transaction
the Policyowner is under age 59 1/2, the Policyowner will also be subject to the
10% penalty tax on early distributions.
(f) Overstatement of Non-deductible Contributions. If you overstate your
non-deductible IRA contributions on your federal income tax return (without
reasonable cause) you may be subject to a $100 penalty and a $50 penalty for
failure to file any form required by the IRS to report non-deductible
contributions (in addition to any generally applicable tax, interest, and
penalties to which you may be liable if you understate income upon receiving a
distribution from your account. See paragraph 5(b) of this Disclosure Statement
and IRS Form 8606.)
7. FEDERAL ESTATE AND GIFT TAXES
Any amount distributed from your IRA upon your death may be subject to
federal estate and gift taxes.
8. OTHER INFORMATION
(a) Tax Reporting. You need not file Treasury Form 5329 with the Internal
Revenue Service unless during the taxable year there is an excess contribution
to, premature distribution from, or insufficient distribution from your IRA. You
must report contributions to, and distributions from your IRA (including the
year end aggregate account balance of all IRAs) on your federal income tax
return for the year. You must designate on the return how much of your annual
contribution is deductible and how much is nondeductible.
(b) IRS Approval. This Individual Retirement Annuity has been approved as
to form by the Internal Revenue Service. Such approval is a determination only
as to the form of the annuity and does not represent a determination of the
merits of such annuity.
(c) Custodian. The Trustee or Custodian of an IRA must be either a bank or
such other person who has been approved by the Secretary of the Treasury.
(d) Vesting. Your interest in your IRA must be nonforfeitable at all
times.
(e) State Tax Law. You should consult your tax adviser about any state tax
consequences of your IRA; you should be aware that some of these laws may differ
from Federal tax law governing IRAs.
IRA-5
<PAGE> 45
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 46
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<PAGE> 47
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 48
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
FOR
NEW YORK LIFE LIFESTAGES(SM) 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 New York Life LifeStages(SM) Variable Annuity
Prospectus. Accordingly this Statement should be read in conjunction with the
current New York Life LifeStages(SM) Variable Annuity Prospectus dated May 1,
1998, which may be obtained by calling New York Life Insurance and Annuity
Corporation ("NYLIAC") at (800) 598-2019 or writing to NYLIAC at 51 Madison
Avenue, Room 452, New York, New York 10010. Terms used in the current New York
Life LifeStages(SM) Variable Annuity Prospectus are incorporated in this
Statement.
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES (19)........................................... 2
Valuation of Accumulation Units (23)................... 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.............................. 3
GENERAL MATTERS............................................. 5
FEDERAL TAX MATTERS (31).................................... 6
Taxation of New York Life Insurance and Annuity
Corporation.......................................... 6
Tax Status of the Policies............................. 6
DISTRIBUTOR OF THE POLICIES (33)............................ 7
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS...................... 7
STATE REGULATION............................................ 7
RECORDS AND REPORTS......................................... 8
LEGAL PROCEEDINGS........................................... 8
INDEPENDENT ACCOUNTANTS..................................... 8
OTHER INFORMATION........................................... 8
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
- ------------
* (Numbers in parentheses refer to page numbers of corresponding sections of the
current New York Life LifeStages(SM) Variable Annuity Prospectus.)
<PAGE> 49
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 24
of the Prospectus.)
The Net Investment Factor may be greater or less than one. Therefore, the
value of an Accumulation Unit in an Investment Division may increase or decrease
from Valuation Period to Valuation Period.
INVESTMENT PERFORMANCE CALCULATIONS
MAINSTAY VP CASH MANAGEMENT INVESTMENT DIVISION
NYLIAC calculates the MainStay VP Cash Management Investment Division's
current annualized yield for a seven-day period 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 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 the administration fee 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.
NYLIAC also calculates the effective yield of the MainStay VP Cash
Management Investment Division for the same seven-day period 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
2
<PAGE> 50
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, 1997 the MainStay VP Cash
Management Investment Division's yield and effective yield were 4.24% and 4.33%,
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.
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 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, 1997, the annualized yields for
the MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay
VP Bond Investment Divisions were 3.98%, 6.15% and 4.50%, respectively.
TOTAL RETURN CALCULATIONS
The following tables present performance data for the MainStay VP Capital
Appreciation, MainStay VP Cash Management, MainStay VP Convertible, MainStay VP
Government, MainStay VP High Yield Corporate Bond, MainStay VP International
Equity, MainStay VP Total Return, MainStay VP Value, MainStay VP Bond, MainStay
VP Growth Equity, MainStay VP Indexed Equity, Alger American Small
Capitalization, Calvert Social Balanced, Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced, Janus Aspen Series Worldwide
Growth and Morgan Stanley Emerging Markets Equity Investment Divisions for
periods ending December 31, 1997. The average annual total return (if
surrendered) 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 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, including interest and dividends.
3
<PAGE> 51
Certain Portfolios existed prior to the date that they were added to an
Investment Division of the Separate Account. For periods prior to May 1, 1995,
when the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Government, MainStay VP Total Return, MainStay VP Bond, MainStay VP Growth
Equity, MainStay VP Indexed Equity and Calvert Social Balanced Investment
Divisions commenced operations and for periods prior to October 1, 1996, when
the Alger American Small Capitalization, Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced and Janus Aspen Series Worldwide
Growth Investment Divisions 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. There is no
performance information for the American Century Income & Growth, Dreyfus Large
Company Value, Eagle Asset Management Growth Equity, Lord Abbett Developing
Growth, MFS Growth With Income Series, MFS Research Series, T. Rowe Price Equity
Income and Van Eck Worldwide Hard Assets Investment Divisions because they were
not available under the Policies as of the date of this Statement of Additional
Information. The results shown are not an estimate or guarantee of future
investment performance for the Investment Divisions in the tables below.
For periods commencing on or after the dates when the respective Investment
Divisions commenced operations, the average annual total return (if surrendered)
figures may be referred to as "standardized" performance, prepared under the
method prescribed by the Securities and Exchange Commission when advertising
performance information. It is noted that all average annual total return (if
surrendered) figures have been prepared on the basis of this method, but are
considered "non-standardized" for periods prior to the dates on which the
respective Investment Divisions commenced operations. The average annual total
return (no surrender) figures are all considered "non-standardized."
AVERAGE ANNUAL TOTAL RETURN. 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>
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIOD ENDED DECEMBER 31, 1997)
------------------------------------
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL
INVESTMENT DIVISIONS: APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY
--------------------- ------------ ----------- ----------- ----------- ----------- -------------
PORTFOLIO INCEPTION DATE: 1/29/93 1/29/93 10/1/96 1/29/93 5/1/95 5/1/95
- -------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 10/1/96 5/1/95 5/1/95 5/1/95
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year..................................... 14.78% -2.74% 6.82% 1.16% 4.46% -2.82%
3 Year..................................... 22.52% 1.62% -- 5.77% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 15.95% 2.09% 8.56% 3.91% 11.10% 5.77%
Since Investment Division Inception........ 19.92% 1.23% 8.56% 2.94% 11.10% 5.77%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year..................................... 21.78% 3.80% 13.82% 7.96% 11.46% 3.71%
3 Year..................................... 24.06% 3.83% -- 7.82% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 16.73% 3.05% 14.00% 4.88% 13.26% 8.11%
Since Investment Division Inception........ 21.83% 3.73% 14.00% 5.39% 13.26% 8.11%
</TABLE>
4
<PAGE> 52
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP CALVERT
TOTAL MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIAL
INVESTMENT DIVISIONS: RETURN VALUE BOND EQUITY EQUITY BALANCED
--------------------- ----------- ----------- ----------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 1/29/93 5/1/95 1/23/84 1/23/84 1/29/93 9/2/86
- ----------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95
- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year ....................................... 9.17% 14.19% 1.32% 17.99% 24.00% 11.42%
3 Year ....................................... 15.85% -- 6.25% 23.52% 27.34% 17.28%
5 Year ....................................... -- -- 4.87% 16.19% -- 10.40%
10 Year ...................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.06% 19.13% 8.55% 12.32% 17.39% 9.66%
Since Investment Division Inception........... 13.05% 19.13% 2.92% 21.48% 23.58% 13.59%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year ....................................... 16.17% 21.19% 8.13% 24.99% 31.00% 18.42%
3 Year ....................................... 17.56% -- 8.28% 25.03% 28.76% 18.95%
5 Year ....................................... -- -- 5.84% 16.95% -- 11.33%
10 Year....................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.98% 21.06% 8.55% 12.32% 18.14% 9.66%
Since Investment Division Inception........... 15.16% 21.06% 5.37% 23.35% 25.40% 15.68%
</TABLE>
<TABLE>
<CAPTION>
MORGAN
JANUS ASPEN STANLEY
ALGER AMERICAN JANUS ASPEN SERIES EMERGING
SMALL FIDELITY VIP II FIDELITY VIP SERIES WORLDWIDE MARKETS
INVESTMENT DIVISIONS: CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH EQUITY
--------------------- -------------- --------------- ------------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 9/20/88 1/3/95 10/9/86 9/13/93 9/13/93 10/1/96
- ---------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year ................................ 2.93% 15.43% 19.34% 13.41% 13.46% -7.32%
3 Year ................................ 15.36% -- 22.24% 17.63% 22.87% --
5 Year ................................ 10.14% -- 17.77% -- -- --
10 Year ............................... -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 24.91% 12.92% 13.62% 20.32% -5.89%
Since Investment Division Inception.... -1.22% 18.12% 19.54% 12.80% 14.00% -5.89%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year ................................ 9.85% 22.43% 26.34% 20.41% 20.46% -1.09%
3 Year ................................ 17.09% -- 23.78% 19.29% 24.40% --
5 Year ................................ 11.08% -- 18.49% -- -- --
10 Year ............................... -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 26.39% 12.92% 14.67% 21.20% -0.87%
Since Investment Division Inception.... 4.06% 23.46% 24.87% 18.21% 19.39% -0.87%
</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.
5
<PAGE> 53
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 28 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 responsibility for the validity of any assignment.
(See "Federal Tax Matters--Taxation of Annuities in General" at page 31 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 or a
Policy request. 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 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.
6
<PAGE> 54
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.
If the Owner is not a natural person, these "death of Owner" rules apply when
the primary Annuitant is changed. 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.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to NYLIFE Distributors Inc. was $55,918, of which $27,959 was
retained by them. For the year ended December 31, 1996, the aggregate amount of
underwriting commissions paid to NYLIFE Distributors Inc. was $528,880, of which
$264,440 was retained by them. For the year ended December 31, 1997, the
aggregate amount of underwriting commissions paid to NYLIFE Distributors Inc.
was $1,662,404, of which $831,203 was retained by them.
The offering is on a continuous basis.
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.
7
<PAGE> 55
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 nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyholders in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyholders in that
state who excluded themselves from the settlement of the nationwide class action
was recently reversed by an intermediate appellate court; plaintiffs filed a
motion for rehearing in the intermediate appellate court and the motion was
denied. Plaintiffs may file a petition with the highest court within the
statutory time allowed to do so. Most of these actions seek substantial or
unspecified compensatory and punitive damages.
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
INDEPENDENT ACCOUNTANTS
The annual financial statements of the Separate Account and NYLIAC have
been 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.
8
<PAGE> 56
FINANCIAL STATEMENTS
F-1
<PAGE> 57
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost: $154,081,441; $47,763,380;
$25,292,531; $12,778,765; $207,738,142;
$12,024,934; $99,004,373; $106,681,069;
$23,036,116, respectively).......................... $187,063,193 $ 47,763,443 $ 26,074,795
LIABILITIES:
Liability for mortality and expense risk charges...... 625,766 170,441 89,681
------------ ------------ ------------
Total equity...................................... $186,437,427 $ 47,593,002 $ 25,985,114
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
11,000,900; 43,156,823; 1,205,318; 1,102,738;
14,576,756; 931,624; 7,628,679; 7,235,593;
1,981,340, respectively........................... $186,437,427 $ 47,593,002 $ 14,202,181
Equity of New York Life Insurance and
Annuity Corporation:
Variable accumulation units outstanding for the
Convertible Investment Division: 1,000,000........ -- -- 11,782,933
------------ ------------ ------------
Total equity...................................... $186,437,427 $ 47,593,002 $ 25,985,114
============ ============ ============
Variable accumulation unit value.................... $ 16.95 $ 1.10 $ 11.78
============ ============ ============
</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: $87,214,499; $155,681,009;
$10,603,092; $4,148,755; $36,511,708;
$27,589,246; $23,630,150; $52,072,462;
$9,770,575, respectively)........................... $ 87,497,499 $183,300,051 $ 11,176,351
LIABILITIES:
Liability for mortality and expense risk charges...... 286,380 590,789 35,075
------------ ------------ ------------
Total equity...................................... $ 87,211,119 $182,709,262 $ 11,141,276
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
4,978,788; 9,981,999; 1,060,048; 281,938;
3,078,610; 2,266,594; 2,042,709; 4,392,279;
826,986, respectively............................. $ 87,211,119 $182,709,262 $ 11,141,276
============ ============ ============
Variable accumulation unit value.................... $ 17.52 $ 18.30 $ 10.51
============ ============ ============
</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> 58
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<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>
$ 12,729,673 $204,003,435 $ 11,514,434 $111,591,834 $121,015,336 $ 22,861,428
42,358 666,936 38,565 376,259 393,756 75,157
------------ ------------ ------------ ------------ ------------ ------------
$ 12,687,315 $203,336,499 $ 11,475,869 $111,215,575 $120,621,580 $ 22,786,271
============ ============ ============ ============ ============ ============
$ 12,687,315 $203,336,499 $ 11,475,869 $111,215,575 $120,621,580 $ 22,786,271
-- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
$ 12,687,315 $203,336,499 $ 11,475,869 $111,215,575 $120,621,580 $ 22,786,271
============ ============ ============ ============ ============ ============
$ 11.51 $ 13.95 $ 12.32 $ 14.58 $ 16.67 $ 11.50
============ ============ ============ ============ ============ ============
</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>
$ 4,172,943 $ 40,180,957 $ 30,000,204 $ 25,251,412 $ 54,981,581 $ 8,205,783
12,639 121,283 85,234 76,423 174,689 26,263
------------ ------------ ------------ ------------ ------------ ------------
$ 4,160,304 $ 40,059,674 $ 29,914,970 $ 25,174,989 $ 54,806,892 $ 8,179,520
============ ============ ============ ============ ============ ============
$ 4,160,304 $ 40,059,674 $ 29,914,970 $ 25,174,989 $ 54,806,892 $ 8,179,520
============ ============ ============ ============ ============ ============
$ 14.76 $ 13.01 $ 13.20 $ 12.32 $ 12.48 $ 9.89
============ ============ ============ ============ ============ ============
</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> 59
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
---------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 218 $ 2,141,281 $ 974,235
Mortality and expense risk charges.................. (2,005,027) (584,103) (284,676)
------------ ------------ ------------
Net investment income (loss).................... (2,004,809) 1,557,178 689,559
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 4,705,404 117,813,310 628,113
Cost of investments sold............................ (3,243,437) (117,812,926) (558,562)
------------ ------------ ------------
Net realized gain (loss) on investments......... 1,461,967 384 69,551
Realized gain distribution received................. 2,490,645 -- 1,382,924
Change in unrealized appreciation (depreciation) on
investments....................................... 24,856,920 89 524,116
------------ ------------ ------------
Net gain (loss) on investments.................. 28,809,532 473 1,976,591
------------ ------------ ------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (54,419) (3,261) (8,739)
------------ ------------ ------------
Net increase in total equity resulting from
operations.................................... $ 26,750,304 $ 1,554,390 $ 2,657,411
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
---------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 603,506 $ 2,267,827 $ --
Mortality and expense risk charges.................. (823,978) (1,629,713) (84,204)
------------ ------------ ------------
Net investment income (loss).................... (220,472) 638,114 (84,204)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 357,981 1,664,270 749,075
Cost of investments sold............................ (303,561) (1,150,801) (736,831)
------------ ------------ ------------
Net realized gain on investments................ 54,420 513,469 12,244
Realized gain distribution received................. 11,231,183 4,074,683 181,977
Change in unrealized appreciation (depreciation) on
investments....................................... 1,410,618 22,999,711 575,759
------------ ------------ ------------
Net gain (loss) on investments.................. 12,696,221 27,587,863 769,980
------------ ------------ ------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (29,274) (52,444) (1,898)
------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations..................... $ 12,446,475 $ 28,173,533 $ 683,878
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE> 60
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<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>
$ 810,754 $ 12,980,396 $ 892,079 $ 2,350,316 $ 1,519,954 $ 1,414,166
(146,527) (1,964,468) (143,769) (1,239,258) (1,133,891) (237,178)
------------ ------------ ------------ ------------ ------------ ------------
664,227 11,015,928 748,310 1,111,058 386,063 1,176,988
------------ ------------ ------------ ------------ ------------ ------------
1,638,432 1,496,124 1,275,193 1,599,951 327,423 1,316,770
(1,674,476) (1,245,567) (1,222,507) (1,261,355) (225,842) (1,379,439)
------------ ------------ ------------ ------------ ------------ ------------
(36,044) 250,557 52,686 338,596 101,581 (62,669)
-- 8,027,954 -- 2,007,938 5,111,434 63,187
215,099 (4,636,421) (522,105) 9,625,259 9,929,931 256,928
------------ ------------ ------------ ------------ ------------ ------------
179,055 3,642,090 (469,419) 11,971,793 15,142,946 257,446
------------ ------------ ------------ ------------ ------------ ------------
(2,274) (45,438) 386 (28,939) (33,267) (3,926)
------------ ------------ ------------ ------------ ------------ ------------
$ 841,008 $ 14,612,580 $ 279,277 $ 13,053,912 $ 15,495,742 $ 1,430,508
============ ============ ============ ============ ============ ============
</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>
$ 91,503 $ 43,874 $ 46,869 $ 444,987 $ 337,924 $ 55,591
(35,348) (272,321) (178,207) (162,126) (401,259) (79,649)
------------ ------------ ------------ ------------ ------------ ------------
56,155 (228,447) (131,338) 282,861 (63,335) (24,058)
------------ ------------ ------------ ------------ ------------ ------------
903,217 214,396 224,944 269,796 267,361 1,111,633
(780,288) (181,698) (195,848) (239,912) (225,488) (973,510)
------------ ------------ ------------ ------------ ------------ ------------
122,929 32,698 29,096 29,884 41,873 138,123
198,489 115,953 235,647 15,180 135,117 245,953
41,821 3,633,056 2,411,326 1,622,795 2,881,305 (1,574,419)
------------ ------------ ------------ ------------ ------------ ------------
363,239 3,781,707 2,676,069 1,667,859 3,058,295 (1,190,343)
------------ ------------ ------------ ------------ ------------ ------------
(963) (8,761) (4,837) (5,264) (8,481) 1,437
------------ ------------ ------------ ------------ ------------ ------------
$ 418,431 $ 3,544,499 $ 2,539,894 $ 1,945,456 $ 2,986,479 $ (1,212,964)
============ ============ ============ ============ ============ ============
</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> 61
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
--------------------------- ---------------------------
1997 1996 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)......................... $ (2,004,809) $ (664,388) $ 1,557,178 $ 810,638
Net realized gain (loss) on investments.............. 1,461,967 82,133 384 (220)
Realized gain distribution received.................. 2,490,645 -- -- --
Change in unrealized appreciation (depreciation) on
investments........................................ 24,856,920 7,874,228 89 (27)
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account................................... (54,419) (8,631) (3,261) (270)
------------ ------------ ------------ ------------
Net increase in total equity resulting from
operations....................................... 26,750,304 7,283,342 1,554,390 810,121
------------ ------------ ------------ ------------
Contributions and withdrawals:
Equity contribution by New York Life Insurance and
Annuity Corporation................................ -- -- -- --
Policyowners' premium payments....................... 10,878,222 6,695,280 533,387,885 350,217,192
Policyowners' surrenders............................. (3,833,164) (876,617) (593,348) (311,835)
Policyowners' annuity and death benefits............. (570,014) (174,699) (89,388) (89,119)
Net transfers from (to) Fixed Account................ 139,248 320,781 (2,565,258) (2,160,711)
Transfers between Investment Divisions............... 56,355,081 72,162,586 (518,855,377) (327,243,653)
------------ ------------ ------------ ------------
Net contributions and withdrawals.................. 62,969,373 78,127,331 11,284,514 20,411,874
------------ ------------ ------------ ------------
Increase in total equity......................... 89,719,677 85,410,673 12,838,904 21,221,995
TOTAL EQUITY:
Beginning of year.................................... 96,717,750 11,307,077 34,754,098 13,532,103
------------ ------------ ------------ ------------
End of year.......................................... $186,437,427 $ 96,717,750 $ 47,593,002 $ 34,754,098
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE
--------------------------- ---------------------------
1997 1996 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)......................... $ 1,111,058 $ 796,765 $ 386,063 $ 214,224
Net realized gain (loss) on investments.............. 338,596 67,663 101,581 62,057
Realized gain distribution received.................. 2,007,938 -- 5,111,434 621,260
Change in unrealized appreciation (depreciation) on
investments........................................ 9,625,259 2,963,990 9,929,931 4,267,746
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account................................... (28,939) (5,906) (33,267) (9,279)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity resulting
from operations.................................. 13,053,912 3,822,512 15,495,742 5,156,008
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments....................... 6,536,163 4,782,594 7,389,878 3,152,430
Policyowners' surrenders............................. (2,714,075) (539,346) (2,348,977) (375,043)
Policyowners' annuity and death benefits............. (620,414) (18,557) (381,578) (31,082)
Net transfers from (to) Fixed Account................ (367,210) (38,671) 100,929 (182,311)
Transfers between Investment Divisions............... 30,635,555 49,131,827 53,907,058 33,850,065
------------ ------------ ------------ ------------
Net contributions and withdrawals.................. 33,470,019 53,317,847 58,667,310 36,414,059
------------ ------------ ------------ ------------
Increase in total equity......................... 46,523,931 57,140,359 74,163,052 41,570,067
TOTAL EQUITY:
Beginning of year.................................... 64,691,644 7,551,285 46,458,528 4,888,461
------------ ------------ ------------ ------------
End of year.......................................... $111,215,575 $ 64,691,644 $120,621,580 $ 46,458,528
============ ============ ============ ============
</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> 62
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CONVERTIBLE GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
--------------------------- --------------------------- --------------------------- ---------------------------
1997 1996(a) 1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 689,559 $ 91,554 $ 664,227 $ 490,076 $ 11,015,928 $ 3,322,050 $ 748,310 $ 338,759
69,551 51 (36,044) (104,689) 250,557 44,243 52,686 31,286
1,382,924 22,531 -- -- 8,027,954 1,045,061 -- 10,677
524,116 258,148 215,099 (177,770) (4,636,421) 1,034,049 (522,105) 10,409
(8,739) (606) (2,274) (704) (45,438) (11,968) 386 (1,301)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,657,411 371,678 841,008 206,913 14,612,580 5,433,435 279,277 389,830
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 10,000,000 -- -- -- -- -- --
859,834 25,163 656,652 868,542 15,824,644 6,212,700 652,833 669,296
(244,202) (3,437) (396,389) (685,395) (4,527,694) (762,345) (221,697) (127,066)
(72,117) -- (48,462) (2,576) (1,111,802) (62,320) (24,509) --
37,227 5,137 (159,195) (2,472) 460,931 75,022 2,289 25,429
9,809,745 2,538,675 2,680,687 6,850,594 96,235,470 63,927,520 2,565,306 6,538,724
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,390,487 12,565,538 2,733,293 7,028,693 106,881,549 69,390,577 2,974,222 7,106,383
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
13,047,898 12,937,216 3,574,301 7,235,606 121,494,129 74,824,012 3,253,499 7,496,213
12,937,216 -- 9,113,014 1,877,408 81,842,370 7,018,358 8,222,370 726,157
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 25,985,114 $ 12,937,216 $ 12,687,315 $ 9,113,014 $203,336,499 $ 81,842,370 $ 11,475,869 $ 8,222,370
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP MAINSTAY VP SMALL
BOND GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
--------------------------- --------------------------- --------------------------- ---------------------------
1997 1996 1997 1996 1997 1996 1997 1996(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,176,988 $ 707,637 $ (220,472) $ 55,492 $ 638,114 $ 461,929 $ (84,204) $ (1,352)
(62,669) (22,130) 54,420 2,362 513,469 33,843 12,244 (303)
63,187 -- 11,231,183 3,899,589 4,074,683 660,493 181,977 --
256,928 (368,463) 1,410,618 (956,785) 22,999,711 4,658,706 575,759 (2,501)
(3,926) (916) (29,274) (5,191) (52,444) (10,453) (1,898) (4)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,430,508 316,128 12,446,475 2,995,467 28,173,533 5,804,518 683,878 (4,160)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,711,859 1,075,713 5,229,461 1,623,667 12,909,902 4,036,124 836,724 90,796
(541,597) (170,897) (1,146,808) (218,309) (2,242,151) (536,208) (186,892) (2,025)
(137,890) (21,291) (121,552) (54,801) (495,418) (60,199) (5,920) --
(22,994) (251,813) 150,624 93,346 158,473 (142,226) 126,538 5,467
7,660,804 9,912,712 38,749,467 24,711,617 83,737,908 47,219,415 8,490,851 1,106,019
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
8,670,182 10,544,424 42,861,192 26,155,520 94,068,714 50,516,906 9,261,301 1,200,257
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,100,690 10,860,552 55,307,667 29,150,987 122,242,247 56,321,424 9,945,179 1,196,097
12,685,581 1,825,029 31,903,452 2,752,465 60,467,015 4,145,591 1,196,097 --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 22,786,271 $ 12,685,581 $ 87,211,119 $ 31,903,452 $182,709,262 $ 60,467,015 $ 11,141,276 $ 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> 63
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
--------------------------- ---------------------------
1997 1996 1997 1996(a)
---------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)................ $ 56,155 $ 22,319 $ (228,447) $ (3,115)
Net realized gain on investments............ 122,929 2,650 32,698 --
Realized gain distribution received......... 198,489 81,014 115,953 --
Change in unrealized appreciation
(depreciation) on investments............. 41,821 (7,934) 3,633,056 36,193
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account.............. (963) (184) (8,761) (43)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations............... 418,431 97,865 3,544,499 33,035
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.............. 229,133 115,702 3,143,721 161,508
Policyowners' surrenders.................... (50,664) (52,684) (339,799) (1,347)
Policyowner's annuity and death benefits.... -- -- (51,672) --
Net transfers from (to) Fixed Account....... (27,090) (10,686) 232,305 46,266
Transfers between Investment Divisions...... 2,062,746 1,190,501 30,973,881 2,317,277
------------ ------------ ------------ ------------
Net contributions and withdrawals......... 2,214,125 1,242,833 33,958,436 2,523,704
------------ ------------ ------------ ------------
Increase in total equity................ 2,632,556 1,340,698 37,502,935 2,556,739
TOTAL EQUITY:
Beginning of year........................... 1,527,748 187,050 2,556,739 --
------------ ------------ ------------ ------------
End of year................................. $ 4,160,304 $ 1,527,748 $ 40,059,674 $ 2,556,739
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
--------------------------- ---------------------------
1997 1996(a) 1997 1996(a)
---------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)................ $ (63,335) $ 9,652 $ (24,058) $ 574
Net realized gain (loss) on investments..... 41,873 (2) 138,123 (172)
Realized gain distribution received......... 135,117 -- 245,953 --
Change in unrealized appreciation
(depreciation)
on investments............................ 2,881,305 27,813 (1,574,419) 9,627
Increase (decrease) attributable to funds of
New York
Life Insurance and Annuity Corporation
retained by
Separate Account.......................... (8,481) (37) 1,437 (7)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations............... 2,986,479 37,426 (1,212,964) 10,022
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.............. 5,065,954 187,630 1,173,626 70,861
Policyowners' surrenders.................... (689,464) (245) (79,912) --
Policyowner's annuity and death benefits.... (100,782) -- -- --
Net transfers from Fixed Account............ 502,000 47,272 75,384 2,893
Transfers between Investment Divisions...... 44,252,676 2,517,946 7,422,353 717,257
------------ ------------ ------------ ------------
Net contributions and withdrawals......... 49,030,384 2,752,603 8,591,451 791,011
------------ ------------ ------------ ------------
Increase in total equity................ 52,016,863 2,790,029 7,378,487 801,033
TOTAL EQUITY:
Beginning of year........................... 2,790,029 -- 801,033 --
------------ ------------ ------------ ------------
End of year................................. $ 54,806,892 $ 2,790,029 $ 8,179,520 $ 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> 64
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
--------------------------------- ---------------------------------
1997 1996(a) 1997 1996(a)
---------------------------------------------------------------------------
<S> <C> <C> <C>
$ (131,338) $ (1,504) $ 282,861 $ 10,653
29,096 -- 29,884 37
235,647 -- 15,180 --
2,411,326 (367) 1,622,795 (1,534)
(4,837) -- (5,264) (43)
------------ ------------ ------------ ------------
2,539,894 (1,871) 1,945,456 9,113
------------ ------------ ------------ ------------
2,301,288 57,029 2,080,572 71,053
(233,692) (3,838) (252,056) (435)
(16,054) -- (29,064) --
139,382 19,406 112,186 26,917
23,623,399 1,490,027 20,033,507 1,177,740
------------ ------------ ------------ ------------
25,814,323 1,562,624 21,945,145 1,275,275
------------ ------------ ------------ ------------
28,354,217 1,560,753 23,890,601 1,284,388
1,560,753 -- 1,284,388 --
------------ ------------ ------------ ------------
$ 29,914,970 $ 1,560,753 $ 25,174,989 $ 1,284,388
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-9
<PAGE> 65
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-10
<PAGE> 66
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation Variable Annuity Separate
Account-III ("Separate Account" formerly, "LifeStages(SM) Annuity 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., certain banking
institutions which have entered into selling agreements with New York Life
Insurance and Annuity Corporation and registered representatives of
unaffiliated broker-dealers. 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, the Morgan Stanley Universal Funds, Inc. and certain other
funds (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 eighteen
investment divisions: 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-11
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, the investments of the Separate Account are as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 8,355 47,764 2,423
Identified cost*........................................ $154,081 $ 47,763 $ 25,293
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 4,308 8,908 255
Identified cost*........................................ $ 87,214 $155,681 $ 10,603
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1997, was as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $ 68,427 $130,713 $ 13,132
Proceeds from sales..................................... 4,705 117,813 628
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $ 54,389 $100,798 $ 10,140
Proceeds from sales..................................... 358 1,664 749
</TABLE>
F-12
<PAGE> 68
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<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>
1,295 17,388 1,116 6,776 7,520 1,739
$ 12,779 $207,738 $ 12,025 $ 99,004 $106,681 $ 23,036
</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>
2,105 2,015 1,236 1,445 2,351 870
$ 4,149 $ 36,512 $ 27,589 $ 23,630 $ 52,072 $ 9,771
</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>
$ 5,047 $127,801 $ 5,009 $ 38,326 $ 64,706 $ 11,257
1,638 1,496 1,275 1,600 327 1,317
</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>
$ 3,379 $ 34,170 $ 26,222 $ 22,583 $ 49,533 $ 9,952
903 214 225 270 267 1,112
</TABLE>
F-13
<PAGE> 69
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 New York Life Insurance
and Annuity Corporation. Accordingly, New York Life Insurance and Annuity
Corporation participates in the results of each Investment Division ratably
with the Policyowners.
- --------------------------------------------------------------------------------
NOTE 4 --Distribution of Net Income:
- --------------------------------------------------------------------------------
The Separate Account does not expect to declare dividends to Policyowners from
accumulated net investment income and realized gains. The income and gains are
distributed to Policyowners as part of withdrawals of amounts (in the form of
surrenders, death benefits, transfers, or annuity payments) in excess of the
net premium payments.
F-14
<PAGE> 70
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-15
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners and New York Life Insurance and Annuity
Corporation (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, 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)............... $152,107 $ 45,143 $ 22,956
Accumulated net investment income (loss)................. (2,651) 2,454 781
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 4,063 -- 1,475
Unrealized appreciation (depreciation) on investments.... 32,982 -- 782
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (64) (4) (9)
-------- -------- --------
Net amount applicable to Policyowners and New York Life
Insurance and Annuity Corporation...................... $186,437 $ 47,593 $ 25,985
======== ======== ========
</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)................ $ 71,687 $148,580 $ 10,462
Accumulated net investment income (loss)................. (140) 1,168 (86)
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 15,416 5,405 194
Unrealized appreciation (depreciation) on investments.... 283 27,619 573
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account....................................... (35) (63) (2)
-------- -------- --------
Net amount applicable to Policyowners.................... $ 87,211 $182,709 $ 11,141
======== ======== ========
</TABLE>
F-16
<PAGE> 72
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<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>
$ 11,598 $183,143 $ 10,770 $ 94,177 $ 99,796 $ 20,995
1,280 14,568 1,119 2,067 629 1,992
(139) 9,418 98 2,420 5,906 (21)
(49) (3,735) (510) 12,587 14,334 (175)
(3) (58) (1) (35) (43) (5)
-------- -------- -------- -------- -------- --------
$ 12,687 $203,336 $ 11,476 $111,216 $120,622 $ 22,786
======== ======== ======== ======== ======== ========
</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>
$ 3,637 $ 36,483 $ 27,377 $ 23,220 $ 51,784 $ 9,383
89 (232) (133) 294 (54) (23)
411 149 265 45 177 384
24 3,669 2,411 1,621 2,909 (1,565)
(1) (9) (5) (5) (9) 1
-------- -------- -------- -------- -------- --------
$ 4,160 $ 40,060 $ 29,915 $ 25,175 $ 54,807 $ 8,180
======== ======== ======== ======== ======== ========
</TABLE>
F-17
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the years ended December 31, 1997 and
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
------------------------- -------------------------
1997 1996 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on contribution by New York Life Insurance and
Annuity Corporation....................................... -- -- -- --
Units issued on premium payments............................ 701 508 492,361 334,902
Units redeemed on surrenders................................ (242) (65) (548) (297)
Units redeemed on annuity and death benefits................ (36) (13) (82) (85)
Units issued (redeemed) on net transfers from (to) Fixed
Account................................................... 7 24 (2,361) (2,060)
Units issued (redeemed) on transfers between Investment
Divisions................................................. 3,622 5,544 (478,922) (312,941)
-------- -------- -------- --------
Net increase.............................................. 4,052 5,998 10,448 19,519
Units outstanding, beginning of year........................ 6,949 951 32,709 13,190
-------- -------- -------- --------
Units outstanding, end of year.............................. 11,001 6,949 43,157 32,709
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE
------------------------- -------------------------
1997 1996 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments............................ 482 400 485 253
Units redeemed on surrenders................................ (197) (44) (152) (30)
Units redeemed on annuity and death benefits................ (45) (2) (24) (3)
Units issued (redeemed) on net transfers from (to) Fixed
Account................................................... (28) (3) 5 (15)
Units issued on transfers between Investment Divisions...... 2,263 4,138 3,545 2,740
-------- -------- -------- --------
Net increase.............................................. 2,475 4,489 3,859 2,945
Units outstanding, beginning of year........................ 5,154 665 3,377 432
-------- -------- -------- --------
Units outstanding, end of year.............................. 7,629 5,154 7,236 3,377
======== ======== ======== ========
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-18
<PAGE> 74
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CONVERTIBLE GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
------------------- ------------------- ------------------- ---------------------
1997 1996(a) 1997 1996 1997 1996 1997 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- 1,000 -- -- -- -- -- --
78 2 59 83 1,184 528 54 58
(22) -- (36) (67) (335) (64) (18) (11)
(6) -- (4) -- (84) (5) (2) --
2 1 (14) -- 34 6 -- 2
903 247 243 661 7,239 5,426 206 576
-------- -------- -------- -------- -------- -------- -------- --------
955 1,250 248 677 8,038 5,891 240 625
1,250 -- 855 178 6,539 648 692 67
-------- -------- -------- -------- -------- -------- -------- --------
2,205 1,250 1,103 855 14,577 6,539 932 692
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP MAINSTAY VP SMALL
BOND GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
------------------- ------------------- ------------------- -------------------
1997 1996 1997 1996 1997 1996 1997 1996(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
155 104 329 126 776 316 84 9
(49) (16) (70) (17) (134) (42) (18) --
(13) (2) (7) (4) (29) (5) (1) --
(2) (24) 11 7 10 (10) 13 1
697 958 2,440 1,923 5,032 3,710 857 115
-------- -------- -------- -------- -------- -------- -------- --------
788 1,020 2,703 2,035 5,655 3,969 935 125
1,193 173 2,276 241 4,327 358 125 --
-------- -------- -------- -------- -------- -------- -------- --------
1,981 1,193 4,979 2,276 9,982 4,327 1,060 125
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
------------------- -------------------
1997 1996 1997 1996(a)
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 16 10 259 16
Units redeemed on surrenders....................... (4) (4) (27) --
Units redeemed on annuity and death benefits....... -- -- (4) --
Units issued (redeemed) on net transfers from (to)
Fixed Account.................................... (2) (1) 19 4
Units issued on transfers between Investment
Divisions........................................ 149 101 2,591 221
-------- -------- -------- --------
Net increase..................................... 159 106 2,838 241
Units outstanding, beginning of year............... 123 17 241 --
-------- -------- -------- --------
Units outstanding, end of year..................... 282 123 3,079 241
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
------------------- -------------------
1997 1996(a) 1997 1996(a)
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 188 5 180 7
Units redeemed on surrenders....................... (19) -- (22) --
Units redeemed on annuity and death benefits....... (1) -- (2) --
Units issued on net transfers from Fixed Account... 12 2 10 2
Units issued on transfers between Investment
Divisions........................................ 1,938 142 1,752 116
-------- -------- -------- --------
Net increase..................................... 2,118 149 1,918 125
Units outstanding, beginning of year............... 149 -- 125 --
-------- -------- -------- --------
Units outstanding, end of year..................... 2,267 149 2,043 125
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
------------------- -------------------
1997 1996(a) 1997 1996(a)
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 418 18 105 7
Units redeemed on surrenders....................... (56) -- (7) --
Units redeemed on annuity and death benefits....... (8) -- -- --
Units issued on net transfers from Fixed Account... 41 5 6 --
Units issued on transfers between Investment
Divisions........................................ 3,728 246 643 73
-------- -------- -------- --------
Net increase..................................... 4,123 269 747 80
Units outstanding, beginning of year............... 269 -- 80 --
-------- -------- -------- --------
Units outstanding, end of year..................... 4,392 269 827 80
======== ======== ======== ========
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-20
<PAGE> 76
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-21
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and
capital changes (for an accumulation unit outstanding throughout each year)
with respect to each Investment Division of the Separate Account:
<TABLE>
<CAPTION>
MAINSTAY VP
CAPITAL APPRECIATION
---------------------------
1997 1996 1995(a)
---------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $13.92 $11.89 $10.00
Net investment income (loss)................................ (0.22) (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)............................................. 3.25 2.20 1.83
------ ------ ------
Unit value, end of year..................................... $16.95 $13.92 $11.89
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
HIGH YIELD
CORPORATE BOND
---------------------------
1997 1996 1995(a)
---------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $12.52 $10.83 $10.00
Net investment income....................................... 1.05 1.02 1.15
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 0.38 0.67 (0.32)
------ ------ ------
Unit value, end of year..................................... $13.95 $12.52 $10.83
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
BOND
---------------------------
1997 1996 1995(a)
---------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $10.64 $10.57 $10.00
Net investment income (loss)................................ 0.76 0.99 2.16
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 0.10 (0.92) (1.59)
------ ------ ------
Unit value, end of year..................................... $11.50 $10.64 $10.57
====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(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-22
<PAGE> 78
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CASH MANAGEMENT CONVERTIBLE GOVERNMENT
--------------------------- ----------------- ---------------------------
1997 1996 1995(a) 1997 1996(b) 1997 1996 1995(a)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.06 $ 1.03 $ 1.00 $10.35 $10.00 $10.66 $10.57 $10.00
0.04 0.04 0.02 0.38 0.08 0.69 0.86 2.49
-- (0.01) 0.01 1.05 0.27 0.16 (0.77) (1.92)
------ ------ ------ ------ ------ ------ ------ ------
$ 1.10 $ 1.06 $ 1.03 $11.78 $10.35 $11.51 $10.66 $10.57
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN VALUE
--------------------------- --------------------------- ---------------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$11.88 $10.90 $10.00 $12.55 $11.36 $10.00 $13.76 $11.32 $10.00
0.90 0.87 1.36 0.17 0.27 0.79 0.07 0.11 0.20
(0.46) 0.11 (0.46) 1.86 0.92 0.57 2.84 2.33 1.12
------ ------ ------ ------ ------ ------ ------ ------ ------
$12.32 $11.88 $10.90 $14.58 $12.55 $11.36 $16.67 $13.76 $11.32
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP SMALL
GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
--------------------------------------- --------------------------------------- -----------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996(b)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$14.01 $11.42 $10.00 $13.97 $11.58 $10.00 $ 9.57 $10.00
(0.06) 0.05 0.35 0.09 0.21 0.62 (0.14) (0.02)
3.57 2.54 1.07 4.24 2.18 0.96 1.08 (0.41)
------ ------ ------ ------ ------ ------ ------ ------
$17.52 $14.01 $11.42 $18.30 $13.97 $11.58 $10.51 $ 9.57
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-23
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
--------------------------- -----------------
1997 1996 1995(a) 1997 1996(b)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year............................... $12.46 $11.22 $10.00 $10.63 $10.00
Net investment income (loss)................................ 0.31 0.35 1.60 (0.14) (0.03)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.99 0.89 (0.38) 2.52 0.66
------ ------ ------ ------ ------
Unit value, end of year..................................... $14.76 $12.46 $11.22 $13.01 $10.63
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
----------------- -----------------
1997 1996(b) 1997 1996(b)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $10.45 $10.00 $10.24 $10.00
Net investment income (loss)................................ (0.13) (0.02) 0.28 0.17
Net realized and unrealized gains on security transactions
and realized capital gain distributions received (includes
the effect of capital share transactions)................. 2.88 0.47 1.80 0.07
------ ------ ------ ------
Unit value, end of year..................................... $13.20 $10.45 $12.32 $10.24
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
----------------- -----------------
1997 1996(b) 1997 1996(b)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $10.36 $10.00 $10.00 $10.00
Net investment income (loss)................................ (0.03) 0.08 (0.05) 0.02
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 2.15 0.28 (0.06) (0.02)
------ ------ ------ ------
Unit value, end of year..................................... $12.48 $10.36 $ 9.89 $10.00
====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(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-24
<PAGE> 80
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, formerly known as 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, 1997,
and the results of each of their operations, the changes in each of their total
equity, and the selected per unit data for each of the periods presented in
conformity with generally accepted accounting principles. These financial
statements and the selected per unit data (herein referred to as the "financial
statements") are the responsibility of management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1997 with the
MainStay VP Series Fund, Inc., The Alger American Fund, the Acacia Capital
Corporation, the Fidelity Variable Insurance Products Fund, the Fidelity
Variable Insurance Products Fund II, the Janus Aspen Series, and the Morgan
Stanley Universal Funds, Inc., 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-25
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
New York Life Insurance and Annuity Corporation
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of New York Life Insurance and
Annuity Corporation at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
F-26
<PAGE> 82
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value...................... $12,170 $11,854
Held to maturity, at amortized cost.................... 801 647
Equity securities........................................... 83 70
Mortgage loans.............................................. 1,305 1,113
Real estate................................................. 151 151
Policy loans................................................ 481 464
Other long-term investments................................. 20 17
------- -------
Total investments................................. 15,011 14,316
Cash and cash equivalents................................... 773 236
Deferred policy acquisition costs........................... 688 691
Other assets................................................ 345 252
Separate account assets..................................... 4,315 2,445
------- -------
Total assets...................................... $21,132 $17,940
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances............................. $13,716 $13,163
Future policy benefits...................................... 276 251
Policy claims............................................... 55 57
Deferred taxes.............................................. 93 47
Other liabilities........................................... 727 333
Separate account liabilities................................ 4,303 2,403
------- -------
Total liabilities................................. 19,170 16,254
STOCKHOLDER'S EQUITY
Capital stock -- par value $10,000
(20,000 shares authorized,
2,500 issued and outstanding)............................. 25 25
Additional paid in capital.................................. 480 480
Net unrealized gains on investments......................... 157 68
Retained earnings........................................... 1,300 1,113
------- -------
Total stockholder's equity........................ 1,962 1,686
------- -------
Total liabilities and stockholder's equity........ $21,132 $17,940
======= =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 83
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees........................ $ 267 $ 234 $ 224
Net investment income.................................. 1,066 1,048 1,012
Investment gains, net.................................. 126 65 38
Other income........................................... 82 58 71
------ ------ ------
Total revenues.................................... 1,541 1,405 1,345
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances... 748 723 742
Policyholder benefits.................................. 141 117 168
Operating expenses..................................... 352 299 239
------ ------ ------
Total expenses.................................... 1,241 1,139 1,149
------ ------ ------
Income before Federal income taxes.......................... 300 266 196
Federal income taxes:
Current................................................ 114 121 84
Deferred............................................... (1) (24) (8)
------ ------ ------
Total Federal income taxes........................ 113 97 76
------ ------ ------
Net income.................................................. $ 187 $ 169 $ 120
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 84
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Stockholder's equity, beginning of year..................... $1,686 $1,676 $1,141
Net income.................................................. 187 169 120
Change in unrealized gains and losses on investments........ 89 (159) 415
------ ------ ------
Stockholder's equity, end of year........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 85
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 187 $ 169 $ 120
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... (43) (18) (26)
Net capitalization of deferred policy acquisition
costs................................................ (85) (44) (40)
Universal life and annuity fees........................ (202) (188) (183)
Interest credited to policyholders' account balances... 748 723 742
Net realized investment gains.......................... (126) (65) (38)
Deferred income taxes.................................. (1) (24) (8)
Decrease in net separate account assets................ 30 6 17
Decrease (increase) in other assets and other
liabilities.......................................... 126 (127) 308
(Decrease) increase in policy claims................... (2) (24) 8
Increase (decrease) in future policy benefits.......... 25 18 (80)
-------- ------- -------
Net cash provided by operating activities......... 657 426 820
-------- ------- -------
Cash Flows from Investing Activities:
Proceeds from sale of available for sale fixed
maturities............................................. 13,378 5,787 2,370
Proceeds from maturity of available for sale fixed
maturities............................................. 1,137 1,505 930
Proceeds from sale of held to maturity fixed securities... 3 -- --
Proceeds from maturity of held to maturity fixed
maturities............................................. 112 141 103
Proceeds from sale of equity securities................... 140 47 40
Proceeds from repayment of mortgage loans................. 220 143 244
Proceeds from sale of real estate......................... 24 55 13
Proceeds from other invested assets....................... 16 4 31
Cost of available for sale fixed maturities acquired...... (14,391) (7,447) (4,320)
Cost of held to maturity fixed maturities acquired........ (281) (95) (162)
Cost of equity securities acquired........................ (163) (43) (12)
Cost of mortgage loans acquired........................... (413) (280) (320)
Cost of real estate acquired.............................. (4) (35) (14)
Cost of other invested assets acquired.................... (25) (8) (5)
Policy loans.............................................. (17) (29) (25)
Securities sold under agreements to repurchase (net)...... 134 (37) (168)
-------- ------- -------
Net cash used in investing activities............. (130) (292) (1,295)
-------- ------- -------
Cash Flows from Financing Activities:
Policyholders' account balances:
Deposits............................................... 1,228 1,069 1,252
Withdrawals............................................ (176) (562) (751)
Net transfers to the separate accounts.................... (1,040) (733) (238)
Other, net................................................ -- -- (52)
-------- ------- -------
Net cash provided (used) by financing
activities...................................... 12 (226) 211
-------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2) 2 (1)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 537 (90) (265)
-------- ------- -------
Cash and cash equivalents, beginning of year................ 236 326 591
-------- ------- -------
Cash and cash equivalents, end of year...................... $ 773 $ 236 $ 326
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 86
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 -- NATURE OF OPERATIONS
New York Life Insurance and Annuity Corporation ("NYLIAC"), is a direct,
wholly owned subsidiary of New York Life Insurance Company ("New York Life")
domiciled in the State of Delaware. NYLIAC offers a wide variety of interest
sensitive insurance and annuity products to a large cross section of the
insurance market. NYLIAC markets its products in all 50 of the United States,
the District of Columbia and Taiwan, primarily through its agency force. In
addition, NYLIAC markets Corporate Owned Life Insurance through independent
brokers and brokerage general agents.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements of life insurance enterprises requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. Actual results may differ from estimates.
INVESTMENTS
Fixed maturity investments, which NYLIAC has both the ability and the
intent to hold to maturity, are stated at amortized cost. Investments identified
as available for sale are reported at fair value. Unrealized gains and losses on
available for sale securities are reported in stockholder's equity, net of
deferred taxes and related adjustments. The cost basis of fixed maturities is
adjusted for impairments in value deemed to be other than temporary, with the
associated realized loss reported in net income. Equity securities are carried
at fair value with related unrealized gains and losses reflected in
stockholder's equity, net of deferred taxes and related adjustments. Realized
losses are recognized in net income for other than temporary declines in the
fair value of equity securities. Mortgage loans are carried at unpaid principal
balances, net of impairment reserves, and are generally secured. Investment real
estate, which NYLIAC has the intent to hold for the production of income, is
carried at depreciated cost net of write-downs for other than temporary declines
in fair value. Properties held for sale are carried at the lower of cost or fair
value less estimated selling costs. Policy loans are stated at the aggregate
balance due, which approximates fair value since loans on policies have no
defined maturity date and reduce amounts payable at death or surrender. Cash
equivalents include investments that have maturities of 90 days or less at date
of purchase and are carried at amortized cost, which approximates fair value.
Short-term investments include investments that have maturities of between
91-365 days at date of purchase. They are included in fixed maturities on the
balance sheet, and are carried at amortized cost, which approximates fair value.
F-31
<PAGE> 87
INVESTMENTS -- (CONTINUED)
Derivative financial instruments used by NYLIAC to hedge exposure to
interest rate and foreign currency fluctuations are accounted for on an accrual
basis. Realized gains and losses related to contracts that are effective hedges
on specific assets are deferred and recognized in net income in the same period
as gains and losses on the hedged assets. Amounts payable or receivable under
interest rate, currency and commodity swap agreements and interest rate floor
agreements are recognized as investment income or expense when earned. Premiums
paid for interest rate floor agreements are amortized into interest expense over
the life of the agreement. Unamortized premiums are included in other assets in
the balance sheet.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business and certain costs of issuing policies
that vary with and are primarily related to the production of new business have
been deferred and recorded as an asset in the balance sheet. These consist
primarily of commissions, certain expenses of underwriting and issuing
contracts, and certain agency expenses. Acquisition costs for universal life and
annuity contracts are amortized in proportion to estimated gross profits over
the effective life of the contracts, which is assumed to be 25 years for
universal life contracts and 15 years for annuities. Changes in assumptions are
reflected in the current year's amortization.
The carrying amount of the deferred policy acquisition cost asset is
adjusted at each balance sheet date as if the unrealized gains or losses on
investments associated with these insurance contracts had been realized and
included in the gross profits used to determine current period amortization. The
increase or decrease in the deferred policy acquisition cost asset due to
unrealized gains or losses is recorded in stockholder's equity.
RECOGNITION OF INCOME AND RELATED EXPENSES
Amounts received under universal life and annuity contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period for mortality and expense risk,
policy administration and surrender charges. Policy benefits and claims that are
charged to expense include benefit claims incurred in the period in excess of
related policyholders' account balances.
POLICYHOLDERS' ACCOUNT BALANCES
Policyholders' account balances on universal life and annuity contracts are
equal to cumulative deposits plus credited interest less withdrawals and
charges.
FEDERAL INCOME TAXES
NYLIAC is a member of a group which files a consolidated Federal income tax
return with New York Life. The consolidated income tax provision or benefit is
allocated among the members of the group in accordance with a tax allocation
agreement. The tax allocation agreement provides that each member of the group
is allocated its share of the consolidated tax provision or benefit determined
on a separate company basis. Current Federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or recoverable
as a result of taxable operations for the current year and any adjustments to
such estimates from prior years. Deferred income tax assets and liabilities are
recognized for the future tax consequence of temporary differences between
financial statement carrying amounts and income tax bases of assets and
liabilities.
Current Federal income taxes include a provision for NYLIAC's share of the
equity base tax applicable to mutual life insurance companies and their
subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate (the actual rate will be announced at a later date by
the Internal Revenue Service ("IRS")) used to compute the equity base tax.
F-32
<PAGE> 88
REINSURANCE
NYLIAC enters into reinsurance agreements in the normal course of its
insurance business to reduce overall risk. NYLIAC remains liable for reinsurance
ceded if the reinsurer fails to meet its obligation on the business it has
assumed. NYLIAC evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
SEPARATE ACCOUNTS
NYLIAC has established separate accounts with varying investment objectives
which are segregated from NYLIAC's general account and are maintained for the
benefit of separate account policyholders and NYLIAC. Separate account assets
are stated at market value. The liability for separate accounts represents
policyholders' interests in the separate account assets. For its registered
separate accounts, these liabilities include accumulated net investment income
and realized and unrealized gains and losses on those assets, and generally
reflect market value. For its guaranteed, non-registered separate accounts, the
liability represents amounts due policyholders pursuant to the terms of the
binder agreements.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of various assets and liabilities are included throughout the
notes to financial statements. Specifically, fair value disclosure of fixed
maturities, short-term investments, cash equivalents, equity securities and
mortgage loans is reported in Note 2 -- Significant Accounting Policies and Note
3 -- Investments. Fair values for policyholders' account balances are reported
in Note 5 -- Insurance Liabilities. Fair values for derivative financial
instruments are included in Note 10 -- Derivative Financial Instruments and Risk
Management. Fair values for repurchase agreements are included in Note
11 -- Commitments and Contingencies.
BUSINESS RISKS AND UNCERTAINTIES
The development of policy reserves and deferred policy acquisition costs
for NYLIAC's products requires management to make estimates and assumptions
regarding mortality, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and future expectations
of mortality, morbidity, expense, persistency and investment assumptions. Actual
results could differ from those estimates. Management monitors actual
experience, and where circumstances warrant, revises its assumptions and the
related estimates for policy reserves and deferred policy acquisition costs.
NYLIAC regularly invests in mortgage loans, mortgage-backed securities and
other securities subject to prepayment and call risk. Significant changes in
prevailing interest rates and/or geographic conditions may adversely affect the
timing and amount of cash flows on such securities, as well as their related
values. In addition, the amortization of market premium and accretion of market
discount for mortgage-backed securities is based on historical experience and
estimates of future payment experience on the underlying mortgage loans. Actual
prepayment speeds will differ from original estimates and may result in material
adjustments to amortization or accretion recorded in future periods.
As a subsidiary of a mutual life insurance company, NYLIAC is subject to a
tax on its equity base. The rates applied to NYLIAC's equity base are determined
annually by the IRS after comparison of mutual life insurance company earnings
for the year to the average earnings of the 50 largest stock life insurance
companies for the prior three years. Due to the timing of earnings information,
estimates of the current year's tax rate must be made by management. The
ultimate amounts of equity base tax incurred may vary considerably from the
original estimates.
F-33
<PAGE> 89
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997 the FASB issued SFAS 130, "Reporting Comprehensive Income"
which establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income is composed of two items -- "net
income" and "other comprehensive income". Other comprehensive income includes
all changes in equity from nonowner sources (e.g., unrealized holding gains and
losses on available for sale securities).
This Statement requires that the Company classify items of other
comprehensive income according to their nature and present each item separately
in the financial statement in which other comprehensive income is reported. This
Statement also requires that the accumulated balance of other comprehensive
income be reported as a separate item in the equity section of the balance
sheet. This Statement is effective for the 1998 financial statements of the
Company. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Adoption of this Statement will have no
effect on reported net income or stockholder's equity.
NOTE 3 -- INVESTMENTS
FIXED MATURITIES
For publicly traded fixed maturities, estimated fair value is determined
using quoted market prices. For fixed maturities without a readily ascertainable
market value, NYLIAC has determined an estimated fair value using either a
discounted cash flow approach (including provisions for credit risk) or a
proprietary matrix pricing model.
At December 31, 1997 and 1996, the maturity distribution of fixed
maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE COST FAIR VALUE
------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 480 $ 482 $ 489 $ 491
Due after one year through five years.... 3,053 3,099 3,019 3,039
Due after five years through ten years... 2,156 2,230 2,122 2,151
Due after ten years...................... 2,425 2,608 2,030 2,091
Asset-backed securities:
Government or government agency..... 2,271 2,324 2,866 2,916
Other............................... 1,411 1,427 1,168 1,166
------- ------- ------- -------
Total Available for Sale............ $11,796 $12,170 $11,694 $11,854
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE COST FAIR VALUE
---------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 30 $ 30 $ 24 $ 24
Due after one year through five years.... 225 239 192 194
Due after five years through ten years... 226 240 235 241
Due after ten years...................... 224 238 100 105
Asset-backed securities.................. 96 97 96 96
------- ------- ------- -------
Total Held to Maturity.............. $ 801 $ 844 $ 647 $ 660
======= ======= ======= =======
</TABLE>
F-34
<PAGE> 90
FIXED MATURITIES -- (CONTINUED)
At December 31, 1997 and 1996, the distribution of gross unrealized gains
and losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,066 $ 36 $ 1 $ 1,101
U.S. agencies, state and municipal........ 1,946 42 2 1,986
Foreign governments....................... 237 19 -- 256
Corporate................................. 7,136 276 12 7,400
Other..................................... 1,411 20 4 1,427
------- ---- --- -------
Total Available for Sale............. $11,796 $393 $19 $12,170
======= ==== === =======
HELD TO MATURITY
----------------
Corporate................................. $ 705 $ 42 $-- $ 747
Other..................................... 96 1 -- 97
------- ---- --- -------
Total Held to Maturity............... $ 801 $ 43 $-- $ 844
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,243 $ 24 $ 7 $ 1,260
U.S. agencies, state and municipal........ 2,561 64 15 2,610
Foreign governments....................... 191 13 1 203
Corporate................................. 6,531 131 47 6,615
Other..................................... 1,168 19 21 1,166
------- ---- --- -------
Total Available for Sale............. $11,694 $251 $91 $11,854
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
HELD TO MATURITY COST GAINS LOSSES FAIR VALUE
---------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate................................. $ 551 $ 15 $ 2 $ 564
Other..................................... 96 -- -- 96
------- ---- --- -------
Total Held to Maturity............... $ 647 $ 15 $ 2 $ 660
======= ==== === =======
</TABLE>
F-35
<PAGE> 91
EQUITY SECURITIES
Estimated fair value for equity securities has been determined using quoted
market prices. At December 31, 1997 and 1996, the distribution of gross
unrealized gains and losses on equity securities is as follows (in millions):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997...................... $66 $25 $8 $83
1996...................... $63 $ 8 $1 $70
</TABLE>
MORTGAGE LOANS
NYLIAC's mortgage loans are diversified by property type, location and
borrower, and are generally collateralized by the related property. The carrying
value of mortgage loans was $1,305 million and $1,113 million at December 31,
1997 and 1996, respectively.
The fair market value of the mortgage loan portfolio at December 31, 1997
and 1996 is estimated to be $1,408 million and $1,194 million, respectively.
Market values are determined by discounting the projected cash flow for each
individual loan to determine the current net present value. The discount rate
used approximates the current rate for new mortgages with comparable
characteristics and similar remaining maturities.
At December 31, 1997, contractual commitments to extend credit under
commercial and residential mortgage loan agreements amounted to approximately
$108 million, all at a fixed market rate of interest. These commitments are
diversified by property type and geographic region.
The provision for losses on mortgage loans was $14 million and $20 million
at December 31, 1997 and 1996, respectively. The activity in the specific and
general provision as of December 31, 1997 and 1996 is summarized below (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Beginning balance.................................. $20 $20
Reductions credited to operations.................. (1) (1)
Direct writedowns.................................. -- 9
Recoveries of amounts previously charged off....... (5) (8)
--- ---
Ending balance..................................... $14 $20
=== ===
</TABLE>
Impaired mortgage loans along with specific provisions for losses as of
December 31, 1997 and 1996, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Impaired mortgage loans with provisions for
losses.......................................... $19 $ 39
Provision for losses.............................. (8) (14)
--- ----
Net impaired mortgage loans....................... $11 $ 25
=== ====
</TABLE>
F-36
<PAGE> 92
MORTGAGE LOANS -- (CONTINUED)
NYLIAC accrues interest income on impaired loans to the extent it is deemed
collectible and the loan continues to perform under its original or restructured
contractual terms. Interest income on problem loans is generally recognized on a
cash basis. Cash payments on loans in the process of foreclosure are generally
treated as a return of principal.
At December 31, 1997 and 1996, the distribution of the mortgage loan
portfolio by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Property Type:
Office building.......................... $ 601 $ 643
Retail................................... 255 235
Apartments............................... 187 179
Residential.............................. 172 18
Other.................................... 90 38
------ ------
Total............................... $1,305 $1,113
====== ======
Geographic Region:
Central.................................. $ 250 $ 246
Pacific.................................. 145 133
Middle Atlantic.......................... 426 377
South Atlantic........................... 362 307
New England.............................. 73 33
Other.................................... 49 17
------ ------
Total............................... $1,305 $1,113
====== ======
</TABLE>
REAL ESTATE
At December 31, 1997 and 1996, NYLIAC's real estate portfolio consisted of
the following (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Investment....................................... $103 $105
Acquired through foreclosure..................... 19 39
Real estate joint ventures and limited partnerships 29 7
---- ----
Total real estate...................... $151 $151
==== ====
</TABLE>
Accumulated depreciation on real estate was $8 million and $5 million at
December 31, 1997 and 1996, respectively. Depreciation expense totaled $3
million for each of the years ended December 31, 1997, 1996 and 1995.
F-37
<PAGE> 93
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
The components of net investment income for the years ended December 31,
1997, 1996 and 1995, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Fixed maturities..................... $ 961 $ 920 $ 904
Equity securities.................... 6 3 3
Mortgage loans....................... 96 93 82
Real estate.......................... 18 21 19
Policy loans......................... 39 37 35
Other................................ 1 6 4
------ ------ ------
Gross investment income......... 1,121 1,080 1,047
Investment expenses.................. (55) (32) (35)
------ ------ ------
Net investment income...... $1,066 $1,048 $1,012
====== ====== ======
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, realized investment
gains computed under the specific identification method are as follows (in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities....................... $172 $ (83) $100 $ (64) $ 62 $ (32)
Equity securities...................... 9 (4) 22 (1) 16 (7)
Mortgage loans......................... 12 (8) 15 (19) 15 (19)
Real estate............................ 3 (2) 6 (3) 1 (1)
Derivative instruments................. 80 (71) 46 (41) 102 (102)
Other.................................. 19 (1) 7 (3) 9 (6)
---- ----- ---- ----- ---- -----
Subtotal.......................... $295 $(169) $196 $(131) $205 $(167)
---- ----- ---- ----- ---- -----
Investment gains, net.................. $126 $65 $38
===== ==== ====
</TABLE>
During 1997, one fixed maturity investment that had been classified as held
to maturity was sold due to credit deterioration. The investment had an
amortized cost of $2,791,000, and the sale resulted in a realized gain of
$14,000.
F-38
<PAGE> 94
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES -- (CONTINUED)
Stockholder's equity at December 31, 1997 and 1996 includes net unrealized
gains as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Net unrealized gains on investments before adjustments...... $ 382 $ 163
----- -----
Related adjustments:
Deferred policy acquisition costs...................... (148) (60)
Policyholder liabilities............................... 7 2
Deferred Federal income taxes.......................... (84) (37)
----- -----
(225) (95)
----- -----
Net unrealized gains on investments included in
stockholder's equity...................................... $ 157 $ 68
===== =====
</TABLE>
Changes in net unrealized gains and losses on investments were as follows
(in millions):
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Unrealized gains (losses) on investments:
Beginning of year...................................... $163 $ 535
End of year............................................ 382 163
---- -----
Net change............................................. 219 (372)
Change in related adjustments of balance sheet accounts:
Deferred policy acquisition costs...................... (88) 136
Policyholder liabilities............................... 5 (7)
Deferred Federal income taxes.......................... (47) 84
---- -----
Change in unrealized gains on investments................... 89 (159)
Net unrealized gains on investments at beginning of year.... 68 227
---- -----
Net unrealized gains on investments at end of year.......... $157 $ 68
==== =====
</TABLE>
NOTE 5 -- INSURANCE LIABILITIES
POLICYHOLDERS' ACCOUNT BALANCES
NYLIAC's annuity contracts are primarily deferred annuities. The carrying
value, which approximates fair value, of NYLIAC's liabilities for deferred
annuities at December 31, 1997 and 1996, was $7,150 million and $7,345 million,
respectively.
NOTE 6 -- SEPARATE ACCOUNTS
NYLIAC maintains nine non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products. NYLIAC maintains
investments in the registered separate accounts of $12 million and $42 million
at December 31, 1997 and 1996, respectively. The assets of the separate
accounts, which are carried at market value, represent investments in shares of
the New York Life sponsored MainStay VP Series Fund and other nonproprietary
funds.
In addition, in 1997 two guaranteed, non-registered separate accounts were
established for universal life insurance policies. These accounts provide a
minimum guaranteed interest rate with a market value adjustment imposed upon
certain surrenders. The assets of these separate accounts are carried at market
value.
F-39
<PAGE> 95
NOTE 7 -- DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs (DAC) for the years ended
December 31, 1997, 1996 and 1995 is as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of year before adjustment for
unrealized gains on investments........................... $751 $ 707 $ 667
Current year additions...................................... 200 151 126
Amortized during year....................................... (115) (107) (86)
Balance at end of year before adjustment for unrealized
gains on investments...................................... 836 751 707
Adjustment for unrealized gains on investments.............. (148) (60) (196)
---- ----- -----
Balance at end of year...................................... $688 $ 691 $ 511
==== ===== =====
</TABLE>
NOTE 8 -- FEDERAL INCOME TAXES
The components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Future policyholder benefits........... $153 $131
Employee and agents benefits........... 49 44
Other.................................. 6 16
---- ----
Gross deferred tax assets......... 208 191
==== ====
Deferred tax liabilities:
Deferred policy acquisition costs...... 147 161
Investments............................ 149 68
Other.................................. 5 9
---- ----
Gross deferred tax liabilities.... 301 238
---- ----
Net deferred tax liability........ $ 93 $ 47
==== ====
</TABLE>
The gross deferred tax asset relates to temporary differences that are
expected to reverse as net ordinary deductions. Management believes that
NYLIAC's taxable income in future years will be sufficient to realize the
deferred tax benefits and therefore, no valuation allowance has been recorded.
F-40
<PAGE> 96
NOTE 8 -- FEDERAL INCOME TAXES -- (CONTINUED)
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............. 35.0% 35.0% 35.0%
Equity base tax............................... 3.3 3.2 --
Tax-exempt income............................. (.5) (.7) (1.3)
Other......................................... (.1) (.9) 5.2
---- ---- ----
Effective tax rate............................ 37.7% 36.6% 38.9%
==== ==== ====
</TABLE>
NYLIAC's Federal income tax returns are routinely examined by the IRS and
provisions are made in the financial statements in anticipation of the results
of these audits. The IRS has completed audits through 1993. There were no
material effects on NYLIAC's results of operations as a result of these audits.
NYLIAC believes that its recorded income tax liabilities are adequate for all
open years.
NOTE 9 -- REINSURANCE
A group reinsurance agreement between NYLIAC and New York Life was approved
by the New York State Insurance Department in 1981 and was terminated effective
December 31, 1995. Under the terms of the agreement, NYLIAC assumed the
liabilities for group health long-term disability policies issued by New York
Life. Cash settlements were made between the companies through 1996 as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Premiums due..................................... $-- $(32)
Benefit reimbursement............................ 22 20
Experience refund................................ 4 8
--- ----
Net settlement paid (received) by NYLIAC......... $26 $ (4)
=== ====
</TABLE>
As a result of the termination of the group reinsurance agreement between
NYLIAC and New York Life, NYLIAC transferred $119 million in 1996 as payment for
the reserves held to support the claims of the disabled lives covered under the
group reinsurance contract. At December 31, 1995, NYLIAC had established a
liability of $119 million for this payment.
On April 1, 1997 NYLIAC, under the terms of an assumption reinsurance
agreement, acquired certain bank owned life insurance policies that had been
issued by Confederation Life Insurance Company. In conjunction with this
transaction, NYLIAC recorded a liability for policyholder account balances of
$278 million, and received cash of $245 million and a note receivable of $11
million. The difference of $22 million between the liability recorded and the
assets received has been recorded as DAC, which will be amortized over the
remaining life of the policies, assumed to be 25 years.
F-41
<PAGE> 97
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
NYLIAC uses derivative financial instruments to manage interest rate,
currency and market risk. These derivative financial instruments include foreign
currency forward exchange contracts, interest rate floors, and interest rate and
commodity swaps. NYLIAC has not engaged in derivative financial instrument
transactions for speculative purposes.
Notional or contractual amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts exchanged between the parties engaged in the transaction.
The amounts exchanged are determined by reference to the notional amounts and
other terms of the derivative financial instruments which relate to interest
rates, exchange rates, or other financial indices.
NYLIAC is exposed to credit-related losses in the event that a counterparty
fails to perform its obligations under contractual terms. The credit exposure of
derivative financial instruments is represented by the sum of fair values of
contracts with each counterparty, if the net value is positive, at the reporting
date.
NYLIAC deals with highly rated counterparties and does not expect the
counterparties to fail to meet their obligations. NYLIAC has controls in place
to monitor credit exposures by limiting transactions with specific
counterparties within specified dollar limits and assessing the future
creditworthiness of counterparties. NYLIAC uses master netting agreements and
adjusts transaction levels, when appropriate, to minimize risk.
INTEREST RATE RISK MANAGEMENT
NYLIAC enters into various types of interest rate contracts primarily to
minimize exposure of specific assets held by NYLIAC to fluctuations in interest
rates.
The following table summarizes the notional amounts and credit exposures of
interest rate related derivative transactions (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps........................ $125,000 $2,973 $ 57,000 $992
Interest Rate Floors....................... $150,000 $ 251 $150,000 $120
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed upon notional amount. Swap
contracts outstanding at December 31, 1997 are between seven years, eight months
and twenty years in maturity. At December 31, 1996 such contracts were between
eight years, eight months and fourteen years, four months in maturity. NYLIAC
does not act as an intermediary or broker in interest rate swaps.
F-42
<PAGE> 98
INTEREST RATE RISK MANAGEMENT -- (CONTINUED)
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Receive -- fixed swaps -- Notional amount (in thousands).... $125,000 $57,000
Average receive rate................................... 6.64% 7.19%
Average pay rate....................................... 5.70% 5.92%
</TABLE>
During the term of the swap, net settlement amounts are recorded as
investment income or expense when earned. Fair values of interest rate swaps
were $2,973,000 and $569,000 at December 31, 1997 and 1996, respectively, based
on quoted market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest rates
on a portfolio of assets. Amounts received during the term of interest rate
floor agreements are recorded as investment income.
At December 31, 1997 and 1996, unamortized premiums on interest rate floors
amounted to $447,000 and $522,000, respectively. Fair values of such agreements
were $251,000 and $120,000 at December 31, 1997 and 1996, respectively, based on
quoted market prices.
COMMODITY RISK MANAGEMENT
NYLIAC has certain bond investments with interest payments linked to prices
of commodities such as gold and crude oil. NYLIAC has entered into commodity
swaps with a total notional amount of $18,000,000 as a hedge against commodity
risks. The credit exposure of these swaps is $3,021,000 at December 31, 1997.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
In 1995, NYLIAC and New York Life settled a nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyowners in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyowners in that state
who excluded themselves from the settlement of the nationwide class action was
recently reversed by an intermediate appellate court; plaintiffs have filed a
motion for rehearing in the intermediate appellate court. Most of these actions
seek substantial or unspecified compensatory and punitive damages.
F-43
<PAGE> 99
LITIGATION -- (CONTINUED)
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
LOANED SECURITIES AND REPURCHASE AGREEMENTS
NYLIAC participates in a securities lending program for the purpose of
enhancing income on securities held. At December 31, 1997, $659 million ($826
million at December 31, 1996) of NYLIAC's bonds were on loan to others, but were
fully collateralized in an account held in trust for NYLIAC.
NYLIAC enters into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The
liability reported in the balance sheet (included in other liabilities) at
December 31, 1997 of $184 million ($50 million at December 31, 1996)
approximates fair value. The investments acquired with the funds received from
the securities sold are primarily included in cash and cash equivalents in the
balance sheet.
NOTE 12 -- RELATED PARTY TRANSACTIONS
New York Life provides NYLIAC with services and facilities for the sale of
insurance and other activities related to the business of insurance. NYLIAC
reimburses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life and
NYLIAC. Such costs, amounting to $247 million for the year ended December 31,
1997 ($191 million for 1996 and $166 million for 1995) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
NOTE 13 -- SUPPLEMENTAL CASH FLOW INFORMATION
As a result of the reinsurance agreement with New York Life discussed in
Note 9, NYLIAC transferred $119 million in fixed maturities to New York Life
during 1996.
Federal income taxes paid were $126 million, $146 million, and $57 million
during 1997, 1996 and 1995, respectively.
Interest paid was $5 million, $3 million and $2 million during 1997, 1996
and 1995, respectively.
F-44
<PAGE> 100
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP
Accounting practices used to prepare statutory financial statements for
regulatory filings of life insurance companies differ in certain instances from
GAAP. The following chart reconciles NYLIAC's statutory surplus determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with stockholder's equity on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory Surplus......................................... $1,089 $ 998 $ 878
------ ------ ------
Adjustments:
Deferred policy acquisition costs.................... 688 691 511
Investment related................................... 377 151 511
Asset valuation reserve.............................. 165 164 137
Interest maintenance reserve......................... 105 35 26
Non-admitted assets.................................. 59 31 26
Policyholder liabilities............................. (330) (262) (187)
Deferred taxes....................................... (93) (47) (156)
Employee benefit liabilities......................... (66) (63) (61)
Other................................................ (32) (12) (9)
------ ------ ------
Total adjustments............................... 873 688 798
------ ------ ------
Total GAAP Stockholder's Equity........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
The following chart reconciles NYLIAC's statutory net income determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with net income on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Net Income.................................... $134 $148 $ 95
---- ---- ----
Adjustments:
Deferred policy acquisition costs.................. 63 44 40
Investment related................................. 92 1 (11)
Interest maintenance reserve....................... (14) 9 6
Policyholder liabilities........................... (84) (54) (4)
Deferred taxes..................................... (1) 24 8
Other.............................................. (3) (3) (14)
---- ---- ----
Total Adjustments............................. 53 21 25
---- ---- ----
GAAP Net Income......................................... $187 $169 $120
==== ==== ====
</TABLE>
F-45
<PAGE> 101
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP -- (CONTINUED)
Financial statements prepared on the statutory basis of accounting vary
from those prepared under GAAP, primarily as follows: (1) the costs related to
acquiring business, principally commissions and certain policy issue expenses
are charged to income in the year incurred, whereas under GAAP they would be
deferred and amortized over the periods benefitted; (2) funds received under
deposit-type contracts are reported as premium income, whereas under GAAP, such
funds are recorded as a liability; (3) life insurance reserves are based on
different assumptions than they are under GAAP; (4) life insurance companies are
required to establish an Asset Valuation Reserve ("AVR") by a direct charge to
surplus to offset potential investment losses, whereas under GAAP, the AVR is
not recognized and any reserve for losses on investments would be deducted from
the assets to which they relate and would be charged to income; (5) investments
in fixed maturities are generally carried at amortized cost or values prescribed
by the National Association of Insurance Commissioners ("NAIC"); under GAAP,
investments in fixed maturities, which are available for sale or held for
trading, are generally carried at market value, with changes in market value
charged against equity or reflected in earnings; (6) realized gains and losses
resulting from changes in interest rates on fixed income investments are
deferred in the interest maintenance reserve ("IMR") and amortized into
investment income over the remaining life of the investment sold, whereas under
GAAP, the gains and losses are recognized in income at the time of sale; and (7)
deferred federal income taxes are not provided for as they are under GAAP; (8)
certain assets are considered non-admitted and excluded from assets in the
balance sheet, whereas they are included under GAAP.
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company, and for determining its solvency
under the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with generally accepted accounting
principles in making such determinations.
At December 31, 1997 and 1996, on a statutory basis, admitted assets were
$20,059 million and $17,099 million, respectively, and total liabilities were
$18,970 million and $16,101 million, respectively, which included policy
reserves of $13,666 million and $13,099 million, respectively.
NYLIAC is restricted as to the amounts it may pay as dividends to New York
Life. The maximum amount of dividends which can be paid by a Delaware insurance
company to its stockholders may not exceed that part of its available and
accumulated surplus funds which is derived from net operating profits and
realized capital gains. Such available and accumulated funds at December 31,
1997 were $584 million.
F-46
<PAGE> 102
PROSPECTUS DATED MAY 1, 1998
FOR
MAINSTAY PLUS 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 Plus
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 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 their value 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 twenty-six 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
- American Century Income & Growth
- Dreyfus Large Company Value
- Eagle Asset Management Growth Equity
- Lord Abbett Developing Growth
- Alger American Small Capitalization
- Calvert Social Balanced
- Fidelity VIP II Contrafund
- Fidelity VIP Equity-Income
- Janus Aspen Series Balanced
- Janus Aspen Series Worldwide Growth
- MFS Growth With Income Series
- MFS Research Series
- Morgan Stanley Emerging Markets Equity
- T. Rowe Price Equity Income
- Van Eck Worldwide Hard Assets
</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 Calvert
Variable Series, Inc., the Fidelity Variable Insurance Products Fund II, the
Fidelity Variable Insurance Products Fund, the Janus Aspen Series, the MFS
Variable Insurance Trust, the Morgan Stanley Universal Funds, Inc., the T. Rowe
Price Equity Series, Inc. and the Van Eck Worldwide Insurance Trust.
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, 1998, is incorporated herein by reference.
The Statement of Additional Information is available free by writing NYLIAC at
the address above or by calling (888) 695-6246. 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.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. PREMIUMS ALLOCATED TO THE SEPARATE ACCOUNT
ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL INVESTED.
<PAGE> 103
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEFINITIONS............................ 3
FEE TABLE.............................. 6
QUESTIONS AND ANSWERS ABOUT MAINSTAY
PLUS VARIABLE ANNUITY................ 10
FINANCIAL STATEMENTS................... 15
CONDENSED FINANCIAL INFORMATION........ 16
NEW YORK LIFE INSURANCE AND ANNUITY
CORPORATION AND THE SEPARATE
ACCOUNT.............................. 17
New York Life Insurance and Annuity
Corporation....................... 17
The Separate Account................. 17
The Portfolios....................... 17
Additions, Deletions or Substitutions
of Investments.................... 18
Reinvestment......................... 19
THE POLICIES........................... 19
Purpose of Policies.................. 19
Types of Policies.................... 19
Issuing the Policy and Premium
Payments.......................... 19
Issue Ages........................... 20
Transfers............................ 20
Procedures for Telephone
Transactions...................... 21
Dollar Cost Averaging................ 21
Automatic Asset Reallocation......... 22
Interest Sweep....................... 22
Accumulation Period.................. 22
(a) Crediting of Premium
Payments..................... 22
(b) Valuation of Accumulation
Units........................ 23
Owner Inquiries...................... 23
CHARGES AND DEDUCTIONS................. 23
Surrender Charges.................... 23
Amount of Surrender Charge........... 23
Exceptions to Surrender Charges...... 23
Other Charges........................ 24
Group and Sponsored Arrangements..... 24
Taxes................................ 25
DISTRIBUTIONS UNDER THE POLICY......... 25
Surrenders and Withdrawals........... 25
(a) Surrenders.................... 25
(b) Partial Withdrawals........... 26
(c) Periodic Partial
Withdrawals.................. 26
(d) Hardship Withdrawals.......... 26
Required Minimum Distribution
Option........................... 26
Cancellations........................ 26
Annuity Commencement Date............ 27
Death Before Annuity Commencement.... 27
Income Payments...................... 28
(a) Election of Income Payment
Options...................... 28
(b) Other Methods of Payment...... 28
(c) Proof of Survivorship......... 28
Delay of Payments.................... 28
Designation of Beneficiary........... 28
Restrictions Under Internal Revenue
Code Section 403(b)(11)........... 29
Loans................................ 29
Riders............................... 29
(a) Living Needs Benefit Rider.... 30
(b) Unemployment Benefit Rider... 30
THE FIXED ACCOUNT...................... 30
(a) Interest Crediting............ 30
(b) Transfers to Investment
Divisions.................... 30
(c) Fixed Account Initial Premium
Guarantee..................... 31
FEDERAL TAX MATTERS.................... 31
Introduction......................... 31
Taxation of Annuities in General..... 31
Qualified Plans...................... 32
(a) Section 403(b) Plans.......... 32
(b) Individual Retirement
Annuities.................... 32
(c) Roth Individual Retirement
Annuities..................... 33
(d) Deferred Compensation Plans.. 33
DISTRIBUTOR OF THE POLICIES............ 33
VOTING RIGHTS.......................... 33
TABLE OF CONTENTS FOR THE STATEMENT OF
ADDITIONAL INFORMATION............... 34
</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> 104
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--The attained age on last birthday.
ALLOCATION ALTERNATIVES--The Investment Divisions of the Separate Account and
the Fixed Account.
ANNUITANT--The person 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 of the Internal Revenue Code in the event of the Annuitant's or the
Owner's death.
BUSINESS DAY--Generally, any day on which the New York Stock Exchange is open
for trading. 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 fifteen 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, MainStay VP Indexed Equity, MainStay VP
American Century Income & Growth, MainStay VP Dreyfus Large Company Value,
MainStay VP Eagle Asset Management Growth Equity and MainStay VP Lord Abbett
Developing Growth Portfolios. The Alger American Fund has one Portfolio
available to the Separate Account: the Alger American Small Capitalization
Portfolio. The Calvert Variable Series has one Portfolio available to the
Separate Account: the Calvert Social Balanced Portfolio ("Calvert Social
Balanced 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 Series Balanced Portfolio") and the Worldwide Growth Portfolio of
the Janus Aspen Series ("Janus Aspen Series Worldwide Growth Portfolio"). The
MFS Variable Insurance Trust has two Portfolios available to the Separate
Account: the MFS Growth With Income Series of the MFS Trust ("MFS Growth With
Income Series") and the MFS Research Series of the MFS Trust ("MFS Research
Series"). The Morgan Stanley Fund has one Portfolio available to the Separate
Account: the Emerging Markets Equity Portfolio ("Morgan Stanley Emerging Markets
Equity Portfolio"). The T. Rowe Price Equity Series has one Portfolio available
to the Separate Account: the T. Rowe Price Equity Income Portfolio ("T. Rowe
Price Equity Income Portfolio"). The Van Eck Worldwide Insurance Trust has one
Portfolio available to the Separate Account: the Van Eck Worldwide Hard Assets
Portfolio ("Van Eck Worldwide Hard Assets 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.
3
<PAGE> 105
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 ("Alger American Fund"), the Calvert Variable
Series, Inc. ("Calvert Variable Series"), 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 ("Janus Aspen Series"), the MFS Variable
Insurance Trust ("MFS Trust"), the Morgan Stanley Universal Funds, Inc. ("Morgan
Stanley Fund"), the T. Rowe Price Equity Series, Inc. ("T. Rowe Price Series")
and the Van Eck Worldwide Insurance Trust ("Van Eck Trust").
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 as subsequently changed, and upon whose death prior to the Annuity
Commencement Date benefits under the Policy may be paid. If NYLIAC 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.
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 Plus 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.
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 REQUEST--Information submitted by a broker-dealer for the purpose of
issuing a Policy as required by NYLIAC.
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 Code 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 when required by the Code.
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 each Premium Payment is made, when a Partial Withdrawal of
the Accumulation Value is made or when the Policy is surrendered for its
Accumulation Value.
4
<PAGE> 106
VALUATION PERIOD--The period from the close of the immediately preceding
Business Day to the close of the current Business Day.
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
for trading.
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> 107
FEE TABLE
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE
APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a)
(as a % of amount withdrawn)............................ 7% 7% 7% 7% 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer in
excess of 12 transfers per Policy Year.
Annual Policy Fee......................................... Lesser of $30 per Policy or 2% of the Accumulation Value, for
Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees........................... 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees....................................... 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%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31,1997)(k)
Advisory Fees............................................. 0.36% 0.25% 0.36% 0.30% 0.30%
Administration Fees....................................... 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses............................................ 0.09% 0.09% 0.17%(b) 0.13% 0.09%
Total Fund Annual Expenses................................ 0.65% 0.54% 0.73%(b) 0.63% 0.59%
<CAPTION>
MAINSTAY VP
INTERNATIONAL
EQUITY
-------------
<S> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a)
(as a % of amount withdrawn)............................ 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%
Administration Fees....................................... 0.15%
Total Separate Account Annual
Expenses................................................ 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31,1997)(k)
Advisory Fees............................................. 0.60%
Administration Fees....................................... 0.20%
Other Expenses............................................ 0.17%(b)
Total Fund Annual Expenses................................ 0.97%(b)
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
TOTAL MAINSTAY VP MAINSTAY VP GROWTH INDEXED
RETURN VALUE BOND EQUITY EQUITY
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a)
(as a % of amount withdrawn)............................ 7% 7% 7% 7% 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer in
excess of 12 transfers per Policy Year.
Annual Policy Fee......................................... Lesser of $30 per Policy or 2% of the Accumulation Value, for
Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees 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%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees 0.32% 0.36% 0.25% 0.25% 0.10%
Administration Fees 0.20% 0.20% 0.20% 0.20% 0.20%
Other Expenses 0.08% 0.09% 0.05% 0.05% 0.09%
Total Fund Annual Expenses 0.60% 0.65% 0.50% 0.50% 0.39%
<CAPTION>
AMERICAN DREYFUS
CENTURY LARGE
INCOME & COMPANY
GROWTH(g) VALUE(g)
--------- --------
<S> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a)
(as a % of amount withdrawn)............................ 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%
Administration Fees 0.15% 0.15%
Total Separate Account Annual
Expenses 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees 0.50% 0.60%
Administration Fees 0.20% 0.20%
Other Expenses 0.15%(j) 0.15%(j)
Total Fund Annual Expenses 0.85% 0.95%
</TABLE>
- ------------
<TABLE>
<C> <S>
(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 23.
(b) These numbers reflect an expense reimbursement agreement
effective through December 31, 1998 limiting "Other
Expenses" to 0.17% annually. In the absence of the expense
reimbursement arrangement, the "Total Fund Annual Expenses"
for the year ending December 31, 1997 would have been 0.78%
and 1.25% for the MainStay VP Convertible and the MainStay
VP International Equity Portfolios, respectively.
(c) These fees are based on expenses for the fiscal year 1997,
and have been restated to reflect an increase in transfer
agency expenses of 0.01% expected to be incurred in 1998.
The "Advisory Fee" includes a performance adjustment which
could cause the fee to be as high as 0.85% or as low as
0.55%, depending on performance. "Other Expenses" reflect an
indirect fee of 0.03%. "Total Fund Annual Expenses" after
reductions for fees paid indirectly would have been 0.78%.
(d) A portion of the brokerage commissions that these Portfolios
pay was used to reduce the Portfolios' annual expenses. In
addition, these Portfolios have entered into arrangements
with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce
custodian and transfer agent expenses. Including these
reductions, the "Total Fund Annual Expenses" would have been
0.68% for the Fidelity VIP Contrafund Portfolio and 0.57%
for the Fidelity VIP Equity-Income Portfolio.
</TABLE>
6
<PAGE> 108
FEE TABLE--(CONTINUED)
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
EAGLE
GROWTH ALGER
ASSET LORD ABBETT AMERICAN CALVERT FIDELITY
MANAGEMENT DEVELOPING SMALL SOCIAL VIP II
EQUITY(g) GROWTH(g) CAPITALIZATION BALANCED CONTRAFUND
---------- ----------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 7% 7% 7% 7% 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer
in excess of 12 transfers per Policy Year.
Annual Policy Fee......................................... Lesser of $30 per Policy or 2% of the Accumulation Value, for
Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees........................... 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees....................................... 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%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.50% 0.60% 0.85% 0.69%(c) 0.60%
Administration Fees....................................... 0.20% 0.20% -- -- --
Other Expenses............................................ 0.15%(j) 0.15%(j) 0.04% 0.12%(c) 0.11%
Total Fund Annual Expenses................................ 0.85% 0.95% 0.89% 0.81%(c) 0.71%(d)
<CAPTION>
JANUS
FIDELITY VIP ASPEN
EQUITY- SERIES
INCOME BALANCED
------------ --------
<S> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 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%
Administration Fees....................................... 0.15% 0.15%
Total Separate Account Annual
Expenses................................................ 1.40% 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.50% 0.76%
Administration Fees....................................... -- --
Other Expenses............................................ 0.08% 0.07%
Total Fund Annual Expenses................................ 0.58%(d) 0.83%(e)
</TABLE>
<TABLE>
<CAPTION>
MORGAN
JANUS ASPEN STANLEY
SERIES MFS GROWTH MFS EMERGING T. ROWE PRICE
WORLDWIDE WITH INCOME RESEARCH MARKETS EQUITY
GROWTH SERIES(g) SERIES(g) EQUITY INCOME(g)
----------- ----------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 7% 7% 7% 7% 7%
Transfer Fee.............................................. NYLIAC reserves the right to charge up to $30 for each transfer in
excess of 12 transfers per Policy Year.
Annual Policy Fee......................................... Lesser of $30 per Policy or 2% of the Accumulation Value, for
Policies with less than $20,000 of Accumulation Value.
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a % of average account value)
Mortality and Expense Risk Fees........................... 1.25% 1.25% 1.25% 1.25% 1.25%
Administration Fees....................................... 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%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 0.66% 0.75% 0.75% -- % 0.85%(h)
Administration Fees....................................... -- -- -- 0.25% --
Other Expenses............................................ 0.08% 0.25% 0.13% 1.50% --
Total Fund Annual Expenses................................ 0.74%(e) 1.00% 0.88% 1.75%(f) 0.85%
<CAPTION>
VAN ECK
WORLDWIDE
HARD
ASSETS(g)
---------
<S> <C>
OWNER TRANSACTION EXPENSES
Maximum Contingent Deferred Sales Load(a) (as a % of
amount withdrawn)....................................... 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%
Administration Fees....................................... 0.15%
Total Separate Account Annual
Expenses................................................ 1.40%
FUND ANNUAL EXPENSES AFTER REIMBURSEMENT
(as a % of average net assets for the fiscal year ended
December 31, 1997)(k)
Advisory Fees............................................. 1.00%
Administration Fees....................................... --
Other Expenses............................................ 0.17%(i)
Total Fund Annual Expenses................................ 1.17%
</TABLE>
- ------------
<TABLE>
<C> <S>
(e) A reduced "Advisory Fee" schedule was put into effect on
July 1, 1997. The "Advisory Fee" reflects the new rate
applied to net assets as of December 31, 1997. "Other
Expenses" are based on gross expenses of the Fund shares
before expense offset arrangements for the fiscal year ended
December 31, 1997. Janus Capital Corporation ("JCC") has
agreed to reduce the "Advisory Fee" for each Portfolio to
the extent that such fee exceeds the effective rate of the
Janus retail fund corresponding to such Portfolio. JCC may
terminate this fee reduction at any time upon 90 days'
notice to the Board of Trustees of the Janus Aspen Series.
Other waivers, if applicable, are first applied against the
"Advisory Fee" and then against "Other Expenses". Absent
such waivers or reductions, "Advisory Fees", "Other
Expenses" and "Total Fund Annual Expenses" for the fiscal
year ended December 31, 1997 would have been 0.77%, 0.06%
and 0.83%, respectively, for the Janus Aspen Series Balanced
Portfolio and 0.72%, 0.09% and 0.81%, respectively, for the
Janus Aspen Series Worldwide Growth Portfolio.
(f) Morgan Stanley Asset Management Inc. has agreed to a
reduction in its "Advisory Fees" and to reimburse the
Portfolio for "Other Expenses" if such fees would cause the
"Total Fund Annual Expenses" to exceed 1.75% of average
daily net assets. This fee reduction agreement may be
terminated by Morgan Stanley Asset Management Inc. at any
time without notice. Absent such reductions, it is estimated
that "Advisory Fees", "Other Expenses" and "Total Fund
Annual Expenses" would be 1.25%, 2.62% and 4.12%,
respectively.
(g) As of the date of this Prospectus, the sale of Policies
offering these Investment Divisions had not begun. The Fund
Annual Expenses are based on estimated amounts for the
current fiscal year.
(h) The "Advisory Fees" include the ordinary expenses of
operating the Fund.
(i) "Other Expenses" are net of soft dollar credits. Without
such credits, "Other Expenses" would have been 0.18% and
"Total Fund Annual Expenses" would have been 1.18%.
(j) These numbers reflect an expense reimbursement agreement
effective through December 31, 1999 limiting "Other
Expenses" to 0.15% annually.
(k) The fees and charges were provided by the Fund or its
agents, which are based on 1997 expenses and may reflect
estimated changes.
</TABLE>
7
<PAGE> 109
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 23 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........................ $88.73 $142.22 $178.05 $271.13
MainStay VP Cash Management............................. $87.68 $139.05 $172.67 $259.81
MainStay VP Convertible................................. $89.49 $144.50 $181.93 $279.27
MainStay VP Government.................................. $88.54 $141.64 $177.07 $269.08
MainStay VP High Yield Corporate Bond................... $88.16 $140.49 $175.12 $264.97
MainStay VP International Equity........................ $91.79 $151.35 $193.51 $303.31
MainStay VP Total Return................................ $88.25 $140.78 $175.60 $265.98
MainStay VP Value....................................... $88.73 $142.22 $178.05 $271.13
MainStay VP Bond........................................ $87.30 $137.91 $170.72 $255.68
MainStay VP Growth Equity............................... $87.30 $137.91 $170.72 $255.68
MainStay VP Indexed Equity.............................. $86.24 $134.74 $165.31 $244.18
American Century Income & Growth........................ $90.64 $147.93 -- --
Dreyfus Large Company Value............................. $91.61 $150.79 -- --
Eagle Asset Management Growth Equity.................... $90.64 $147.93 -- --
Lord Abbett Developing Growth........................... $91.61 $150.79 -- --
Alger American Small Capitalization..................... $91.03 $149.07 $189.66 $295.36
Calvert Social Balanced................................. $90.26 $146.79 $185.80 $287.34
Fidelity VIP II Contrafund.............................. $89.31 $143.93 $180.96 $277.23
Fidelity VIP Equity-Income.............................. $88.07 $140.21 $174.64 $263.94
Janus Aspen Series Balanced............................. $90.46 $147.37 $186.78 $289.36
Janus Aspen Series Worldwide Growth..................... $89.60 $144.79 $182.41 $280.27
MFS Growth With Income Series........................... $92.08 $152.21 -- --
MFS Research Series..................................... $90.93 $148.79 -- --
Morgan Stanley Emerging Markets Equity.................. $99.27 $173.40 $230.36 $377.65
T. Rowe Price Equity Income............................. $90.64 $147.93 -- --
Van Eck Worldwide Hard Assets........................... $93.71 $157.04 -- --
</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........................ $88.73 $ 74.19 $126.92 $271.13
MainStay VP Cash Management............................. $87.68 $ 70.80 $121.25 $259.81
MainStay VP Convertible................................. $89.49 $ 76.64 $131.00 $279.27
MainStay VP Government.................................. $88.54 $ 73.58 $125.89 $269.08
MainStay VP High Yield Corporate Bond................... $88.16 $ 72.34 $123.82 $264.97
MainStay VP International Equity........................ $91.79 $ 83.97 $143.18 $303.31
</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.
8
<PAGE> 110
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
MainStay VP Total Return................................ $88.25 $ 72.65 $124.34 $265.98
MainStay VP Value....................................... $88.73 $ 74.19 $126.92 $271.13
MainStay VP Bond........................................ $87.30 $ 69.58 $119.20 $255.68
MainStay VP Growth Equity............................... $87.30 $ 69.58 $119.20 $255.68
MainStay VP Indexed Equity.............................. $86.24 $ 66.18 $113.50 $244.18
American Century Income & Growth........................ $90.64 $ 80.31 -- --
Dreyfus Large Company Value............................. $91.61 $ 83.38 -- --
Eagle Asset Management Growth Equity.................... $90.64 $ 80.31 -- --
Lord Abbett Developing Growth........................... $91.61 $ 83.38 -- --
Alger American Small Capitalization..................... $91.03 $ 81.54 $139.13 $295.36
Calvert Social Balanced................................. $90.26 $ 79.09 $135.07 $287.34
Fidelity VIP II Contrafund.............................. $89.31 $ 76.03 $129.98 $277.23
Fidelity VIP Equity-Income.............................. $88.07 $ 72.05 $123.32 $263.94
Janus Aspen Series Balanced............................. $90.46 $ 79.71 $136.10 $289.36
Janus Aspen Series Worldwide Growth..................... $89.60 $ 76.95 $131.50 $280.27
MFS Growth With Income Series........................... $92.08 $ 84.90 -- --
MFS Research Series..................................... $90.93 $ 81.23 -- --
Morgan Stanley Emerging Markets Equity.................. $99.27 $107.58 $181.96 $377.65
T. Rowe Price Equity Income............................. $90.64 $ 80.31 -- --
Van Eck Worldwide Hard Assets........................... $93.71 $ 90.06 -- --
</TABLE>
3. If you do not surrender your Policy:
<TABLE>
<S> <C> <C> <C> <C>
MainStay VP Capital Appreciation........................ $24.10 $ 74.19 $126.92 $271.13
MainStay VP Cash Management............................. $22.98 $ 70.80 $121.25 $259.81
MainStay VP Convertible................................. $24.91 $ 76.64 $131.00 $279.27
MainStay VP Government.................................. $23.90 $ 73.58 $125.89 $269.08
MainStay VP High Yield Corporate Bond................... $23.49 $ 72.34 $123.82 $264.97
MainStay VP International Equity........................ $27.37 $ 83.97 $143.18 $303.31
MainStay VP Total Return................................ $23.59 $ 72.65 $124.34 $265.98
MainStay VP Value....................................... $24.10 $ 74.19 $126.92 $271.13
MainStay VP Bond........................................ $22.57 $ 69.58 $119.20 $255.68
MainStay VP Growth Equity............................... $22.57 $ 69.58 $119.20 $255.68
MainStay VP Indexed Equity.............................. $21.44 $ 66.18 $113.50 $244.18
American Century Income & Growth........................ $26.14 $ 80.31 -- --
Dreyfus Large Company Value............................. $27.17 $ 83.38 -- --
Eagle Asset Management Growth Equity.................... $26.14 $ 80.31 -- --
Lord Abbett Developing Growth........................... $27.17 $ 83.38 -- --
Alger American Small Capitalization..................... $26.55 $ 81.54 $139.13 $295.36
Calvert Social Balanced................................. $25.73 $ 79.09 $135.07 $287.34
Fidelity VIP II Contrafund.............................. $24.72 $ 76.03 $129.98 $277.23
Fidelity VIP Equity-Income.............................. $23.39 $ 72.05 $123.32 $263.94
Janus Aspen Series Balanced............................. $25.94 $ 79.71 $136.10 $289.36
Janus Aspen Series Worldwide Growth..................... $25.02 $ 76.95 $131.50 $280.27
MFS Growth With Income Series........................... $27.68 $ 84.90 -- --
MFS Research Series..................................... $26.45 $ 81.23 -- --
Morgan Stanley Emerging Markets Equity.................. $35.34 $107.58 $181.96 $377.65
T. Rowe Price Equity Income............................. $26.14 $ 80.31 -- --
Van Eck Worldwide Hard Assets........................... $29.41 $ 90.06 -- --
</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> 111
QUESTIONS AND ANSWERS ABOUT MAINSTAY PLUS VARIABLE ANNUITY
NOTE: THE FOLLOWING SECTION CONTAINS BRIEF QUESTIONS AND ANSWERS ABOUT
MAINSTAY PLUS VARIABLE ANNUITY. REFERENCE SHOULD BE MADE TO THE BODY OF THIS
PROSPECTUS FOR MORE DETAILED INFORMATION.
1. WHAT IS MAINSTAY PLUS VARIABLE ANNUITY?
A MainStay Plus 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 currently consists of thirty Investment
Divisions, twenty-six of which are available under the Policies.
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 fifteen 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, the
MainStay VP Indexed Equity Portfolio, the MainStay VP American Century
Income & Growth Portfolio, the MainStay VP Dreyfus Large Company Value
Portfolio, the MainStay VP Eagle Asset Management Growth Portfolio and
the MainStay VP Lord Abbett Developing Growth 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 Calvert Variable Series has one Eligible
Portfolio available for investment through the Investment Divisions of
the Separate Account: the Calvert Social Balanced 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 Series Balanced and Janus Aspen
Series Worldwide Growth Portfolios. The MFS Trust has two Eligible
Portfolios available to the Separate Account: the MFS Growth with Income
Series and MFS Research Series. The Morgan Stanley Fund has one Eligible
Portfolio available to the Separate Account: the Morgan Stanley Emerging
Markets Equity Portfolio. The T. Rowe Price Series has one Eligible
Portfolio to the Separate Account: the T. Rowe Price Equity Income
Portfolio. The Van Eck Trust has one Eligible Portfolio available to the
Separate Account: the Van Eck Worldwide Hard Assets 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 30.)
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 20.)
For transfers made from the Fixed Account to the Investment Divisions, see
"The Fixed Account" at page 30. In addition, Owners can request transfers
through the Dollar Cost Averaging, Automatic Asset Reallocation, or Interest
Sweep options described at pages 21 and 22 of this Prospectus.
10
<PAGE> 112
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 24.)
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 24.)
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 23 and "Exceptions to Surrender Charges" at
page 23.)
Finally, the value of the shares of each Fund reflects advisory fees,
administration 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 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?
Except for Premium Payments or portions of Premium Payments applied to the
Fixed Account, initial Premium Payments are held in the MainStay VP Cash
Management Division for 15 days after the Policy Issue Date and then are
allocated to the Investment Divisions of the Separate Account as selected by
you. Initial Premium Payments allocated to the Fixed Account are deposited
immediately into the Fixed Account. The initial Premium Payment may be allocated
in up to ten Allocation Alternatives. Thereafter, you may maintain the
Accumulation Value in up to 18 Investment Divisions plus the Fixed Account at
any one time. (See "Automatic Asset Reallocation" at page 22.) 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 and the number of Investment Divisions to which your
Accumulation Value may be allocated.
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
11
<PAGE> 113
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 request in a form acceptable to us, which gives us
the information we require 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 25 and "Federal Tax Matters" at page 31.)
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 28.)
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 28.)
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 under 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 27 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 27 and "Federal Tax Matters" at page 31.)
12. WHAT HAPPENS IF YOUR SPOUSE IS THE BENEFICIARY?
If your spouse is the sole primary 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 sole primary
Beneficiary. If you or your spouse chooses to continue the Policy, no death
benefit proceeds will be paid as a consequence of your death, or the Annuitant's
death.
13. CAN THE POLICY BE RETURNED AFTER IT IS DELIVERED?
The Policy contains a provision which permits cancellation by returning it
to us, or to the registered representative through whom it was purchased, within
10 days of delivery of the Policy or such longer period as required under state
law. The Owner will then receive from us the greater of (i) the initial Premium
Payment; or (ii) the Accumulation Value on the date the Policy is received by
us, without any deduction for Premium Taxes or a Surrender Charge.
14. WHAT ABOUT VOTING RIGHTS?
You may instruct NYLIAC how to vote shares of the Funds in which you have a
voting interest through the Separate Account. (See "Voting Rights" at page 33.)
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
12
<PAGE> 114
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, 1997, the
MainStay VP Cash Management Investment Division's yield and effective yield were
4.24% and 4.33%, 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, 1997, the annualized yields for the
MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay VP
Bond Investment Divisions were 3.98%, 6.15% and 4.50%, 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 following tables present performance data
for the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Convertible, MainStay VP Government, MainStay VP High Yield Corporate Bond,
MainStay VP International Equity, MainStay VP Total Return, MainStay VP Value,
MainStay VP Bond, MainStay VP Growth Equity, MainStay VP Indexed Equity, Alger
American Small Capitalization, Calvert Social Balanced, Fidelity VIP II
Contrafund, Fidelity VIP Equity-Income, Janus Aspen Series Balanced, Janus Aspen
Series Worldwide Growth and Morgan Stanley Emerging Markets Equity Investment
Divisions for periods ending December 31, 1997. The average annual total return
(if surrendered) data reflect all Separate Account and Fund annual expenses
shown in the Fee Table which appears on pages 6 and 7. The average annual total
return (if surrendered) figures assume that the Policy is surrendered at the end
of the periods shown. 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, including interest and dividends.
Certain Portfolios existed prior to the date that they were added to an
Investment Division of the Separate Account. For periods prior to May 1, 1995,
when the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Government, MainStay VP Total Return, MainStay VP Bond, MainStay VP Growth
Equity, MainStay VP Indexed Equity and Calvert Social Balanced Investment
Divisions commenced operations, and for periods prior to October 1, 1996, when
the Alger American Small Capitalization, Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced and Janus Aspen Series Worldwide
Growth Investment Divisions 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. There is no
performance information for the American Century Income & Growth, Dreyfus Large
Company Value, Eagle Asset Management Growth Equity, Lord Abbett Developing
Growth, MFS Growth With Income Series, MFS Research Series, T. Rowe Price Equity
Income and Van Eck Worldwide Hard Assets Investment Divisions because they were
not available under the Policies as of the date of this Prospectus. The results
shown are not an estimate or guarantee of future investment performance for the
Investment Divisions in the following tables.
13
<PAGE> 115
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL
INVESTMENT DIVISIONS: APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY
--------------------- ------------ ----------- ----------- ----------- ----------- -------------
PORTFOLIO INCEPTION DATE: 1/29/93 1/29/93 10/1/96 1/29/93 5/1/95 5/1/95
- -------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 10/1/96 5/1/95 5/1/95 5/1/95
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year..................................... 14.78% -2.74% 6.82% 1.16% 4.46% -2.82%
3 Year..................................... 22.52% 1.62% -- 5.77% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 15.95% 2.09% 8.56% 3.91% 11.10% 5.77%
Since Investment Division Inception........ 19.92% 1.23% 8.56% 2.94% 11.10% 5.77%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year..................................... 21.78% 3.80% 13.82% 7.96% 11.46% 3.71%
3 Year..................................... 24.06% 3.83% -- 7.82% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 16.73% 3.05% 14.00% 4.88% 13.26% 8.11%
Since Investment Division Inception........ 21.83% 3.73% 14.00% 5.39% 13.26% 8.11%
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP CALVERT
TOTAL MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIAL
INVESTMENT DIVISIONS: RETURN VALUE BOND EQUITY EQUITY BALANCED
--------------------- ----------- ----------- ----------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 1/29/93 5/1/95 1/23/84 1/23/84 1/29/93 9/2/86
- ----------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95
- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year........................................ 9.17% 14.19% 1.32% 17.99% 24.00% 11.42%
3 Year........................................ 15.85% -- 6.25% 23.52% 27.34% 17.28%
5 Year........................................ -- -- 4.87% 16.19% -- 10.40%
10 Year....................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.06% 19.13% 8.55% 12.32% 17.39% 9.66%
Since Investment Division Inception........... 13.05% 19.13% 2.92% 21.48% 23.58% 13.59%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year........................................ 16.17% 21.19% 8.13% 24.99% 31.00% 18.42%
3 Year........................................ 17.56% -- 8.28% 25.03% 28.76% 18.95%
5 Year........................................ -- -- 5.84% 16.95% -- 11.33%
10 Year....................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.98% 21.06% 8.55% 12.32% 18.14% 9.66%
Since Investment Division Inception........... 15.16% 21.06% 5.37% 23.35% 25.40% 15.68%
</TABLE>
<TABLE>
<CAPTION>
MORGAN
JANUS ASPEN STANLEY
ALGER AMERICAN JANUS ASPEN SERIES EMERGING
SMALL FIDELITY VIP II FIDELITY VIP SERIES WORLDWIDE MARKETS
INVESTMENT DIVISIONS: CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH EQUITY
--------------------- -------------- --------------- ------------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 9/20/88 1/3/95 10/9/86 9/13/93 9/13/93 10/1/96
- ---------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year................................. 2.93% 15.43% 19.34% 13.41% 13.46% -7.32%
3 Year................................. 15.36% -- 22.24% 17.63% 22.87% --
5 Year................................. 10.14% -- 17.77% -- -- --
10 Year................................ -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 24.91% 12.92% 13.62% 20.32% -5.89%
Since Investment Division Inception.... -1.22% 18.12% 19.54% 12.80% 14.00% -5.89%
</TABLE>
14
<PAGE> 116
<TABLE>
<CAPTION>
MORGAN
JANUS ASPEN STANLEY
ALGER AMERICAN JANUS ASPEN SERIES EMERGING
SMALL FIDELITY VIP II FIDELITY VIP SERIES WORLDWIDE MARKETS
INVESTMENT DIVISIONS: CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH EQUITY
--------------------- -------------- --------------- ------------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 9/20/88 1/3/95 10/9/86 9/13/93 9/13/93 10/1/96
- ---------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year................................. 9.85% 22.43% 26.34% 20.41% 20.46% -1.09%
3 Year................................. 17.09% -- 23.78% 19.29% 24.40% --
5 Year................................. 11.08% -- 18.49% -- -- --
10 Year................................ -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 26.39% 12.92% 14.67% 21.20% -0.87%
Since Investment Division Inception.... 4.06% 23.46% 24.87% 18.21% 19.39% -0.87%
</TABLE>
For periods commencing on or after the dates when the respective Investment
Divisions commenced operations, the average annual total return (if surrendered)
figures may be referred to as "standardized" performance, prepared under the
method prescribed by the Securities and Exchange Commission when advertising
performance information. It is noted that all average annual total return (if
surrendered) figures have been prepared on the basis of this method, but are
considered "non-standardized" for periods prior to the dates on which the
respective Investment Divisions commenced operations. The average annual total
return (no surrender) figures are all considered "non-standardized." 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 29.)
17. HOW DO I CONTACT MAINSTAY ANNUITIES OR NYLIAC?
<TABLE>
<S> <C> <C>
GENERAL INQUIRIES AND WRITTEN PREMIUM PAYMENTS AND LOAN
REQUESTS PAYMENTS
------------------------------ ------------------------------
REGULAR MAIL MainStay Annuities MainStay Annuities
300 Berwyn Park, P.O. Box 3031 P.O. Box 8500-50880
Berwyn, PA 19312-0031 Philadelphia, PA 19178-8500
EXPRESS MAIL CoreStates Bank N.A. CoreStates Bank N.A.
One North Fifth Street One North Fifth Street
F.C. 1-2-3-4 F.C. 1-2-3-4
Philadelphia, PA 19106 Philadelphia, PA 19106
Attn: MainStay Annuities-50880 Attn: MainStay Annuities-50880
CUSTOMER SERVICE 1 (888) 695-6246
AND UNIT VALUE
</TABLE>
FINANCIAL STATEMENTS
The audited financial statements of NYLIAC (including the auditor's report
thereon) for the fiscal years ended December 31, 1997, 1996 and 1995, and of the
Separate Account (including the auditor's report thereon) for the period ended
December 31, 1997 and 1996 are included in the Statement of Additional
Information.
15
<PAGE> 117
CONDENSED FINANCIAL INFORMATION
The following Accumulation Unit values and the number of Accumulation Units
outstanding for each Investment Division for each fiscal year ended December 31
presented below 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.
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT CONVERTIBLE
-------------------------- -------------------------- ----------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996(b)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $13.92 $11.89 $10.00 $ 1.06 $ 1.03 $ 1.00 $10.35 $10.00
Accumulation Unit value
(end of period)................. $16.95 $13.92 $11.89 $ 1.10 $ 1.06 $ 1.03 $11.78 $10.35
Number of units outstanding
(in 000s) (end of period)....... 11,001 6,949 951 43,157 32,709 13,190 2,205 1,250
<CAPTION>
MAINSTAY VP
MAINSTAY VP HIGH YIELD MAINSTAY VP
GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
-------------------------- -------------------------- --------------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a)
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $10.66 $10.57 $10.00 $12.52 $10.83 $10.00 $11.88 $10.90 $10.00
Accumulation Unit value
(end of period)................. $11.51 $10.66 $10.57 $13.95 $12.52 $10.83 $12.32 $11.88 $10.90
Number of units outstanding
(in 000s) (end of period)....... 1,103 855 178 14,577 6,539 648 932 692 67
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE BOND
--------------------------- --------------------------- ---------------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a)
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $12.55 $11.36 $10.00 $13.76 $11.32 $10.00 $10.64 $10.57 $10.00
Accumulation Unit value
(end of period)................. $14.58 $12.55 $11.36 $16.67 $13.76 $11.32 $11.50 $10.64 $10.57
Number of units outstanding
(in 000s) (end of period)....... 7,629 5,154 665 7,236 3,377 432 1,981 1,193 173
<CAPTION>
ALGER AMERICAN
MAINSTAY VP MAINSTAY VP SMALL
GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
--------------------------- --------------------------- -----------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996(b)
------ ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)........... $14.01 $11.42 $10.00 $13.97 $11.58 $10.00 $ 9.57 $10.00
Accumulation Unit value
(end of period)................. $17.52 $14.01 $11.42 $18.30 $13.97 $11.58 $10.51 $ 9.57
Number of units outstanding
(in 000s) (end of period)....... 4,979 2,276 241 9,982 4,327 358 1,060 125
</TABLE>
<TABLE>
<CAPTION>
CALVERT FIDELITY VIP II FIDELITY VIP
SOCIAL BALANCED CONTRAFUND EQUITY-INCOME
-------------------------- ---------------- ----------------
1997 1996 1995(a) 1997 1996(b) 1997 1996(b)
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)..................................... $12.46 $11.22 $10.00 $10.63 $10.00 $10.45 $10.00
Accumulation Unit value
(end of period)........................................... $14.76 $12.46 $11.22 $13.01 $10.63 $13.20 $10.45
Number of units outstanding
(in 000s) (end of period)................................. 282 123 17 3,079 241 2,267 149
<CAPTION>
JANUS
JANUS ASPEN SERIES MORGAN STANLEY
ASPEN SERIES WORLDWIDE EMERGING
BALANCED GROWTH MARKETS EQUITY
---------------- ---------------- ----------------
1997 1996(b) 1997 1996(b) 1997 1996(b)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Accumulation Unit value
(beginning of period)..................................... $10.24 $10.00 $10.36 $10.00 $10.00 $10.00
Accumulation Unit value
(end of period)........................................... $12.32 $10.24 $12.48 $10.36 $ 9.89 $10.00
Number of units outstanding
(in 000s) (end of period)................................. 2,043 125 4,392 269 827 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.
16
<PAGE> 118
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 is a wholly-owned subsidiary of New York Life Insurance Company
("New York Life"), a mutual life insurance company doing business in New York
since 1845. NYLIAC held assets of $20.1 billion at the end of 1997. New York
Life has invested in NYLIAC, and will, in order to maintain capital and surplus
in accordance with state requirements, occasionally make additional
contributions to NYLIAC.
Year 2000 Readiness-The computer systems we use to process all Policy
transactions and valuations need to be modified to accommodate the changeover to
Year 2000. These modifications are necessary for us to be able to continue to
administer the Policies in Year 2000 and later. As is the case with most systems
projects, risks and uncertainties exist, and a project could be delayed. We are,
however, working to make these systems modifications, and we expect that the
necessary changes will be completed on time and in a way that will result in no
disruption to our Policy servicing operations.
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.
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 30 Investment Divisions, 26 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.
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 Calvert Variable Series, the
Fidelity Funds, the Janus Aspen Series, the Morgan Stanley Fund, the MFS Trust,
the T. Rowe Price Series and the Van Eck Trust 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
17
<PAGE> 119
shared funding. For more information about the risks of mixed and shared funding
please refer to the relevant Fund prospectus.
NYLIAC renders certain services to Owners of the Policies in connection
with the investment of Premium Payments in the Investment Divisions, which, in
turn, invest in the Eligible Portfolios. These services include, among others,
providing information about the Eligible Portfolios. We receive a service fee
from the investment advisers or other service providers of some of the Funds in
return for providing services of this type. Currently, NYLIAC receives service
fees at annual rates ranging from .10% to .21% of the aggregate net asset value
of the shares of some of the Eligible Portfolios held by the Investment
Divisions.
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;
MainStay VP American Century Income & Growth;
MainStay VP Dreyfus Large Company Value;
MainStay VP Eagle Asset Management Growth
Equity;
MainStay VP Lord Abbett Developing Growth
- -------------------------------------------------------------------------------------------------------------------------------
The Alger American Fund Fred Alger Management, Inc. Alger American Small
Capitalization
- -------------------------------------------------------------------------------------------------------------------------------
Calvert Variable Series, Inc. Calvert Asset Management Company Calvert Social Balanced
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Management and Research Fidelity VIP II Contrafund
Products Fund II Company
- -------------------------------------------------------------------------------------------------------------------------------
Fidelity Variable Insurance Fidelity Management and Research Fidelity VIP Equity-Income
Products Fund Company
- -------------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series Janus Capital Corporation Janus Aspen Series Balanced;
Janus Aspen Series Worldwide Growth
- -------------------------------------------------------------------------------------------------------------------------------
MFS Variable Insurance Trust Massachusetts Financial Services MFS Growth With Income Series;
Company MFS Research Series
- -------------------------------------------------------------------------------------------------------------------------------
Morgan Stanley Universal Funds, Morgan Stanley Asset Management Morgan Stanley Emerging Markets
Inc. Inc. Equity
- -------------------------------------------------------------------------------------------------------------------------------
T. Rowe Price Equity Series, Inc. T. Rowe Price Associates, Inc. T. Rowe Price Equity Income
- -------------------------------------------------------------------------------------------------------------------------------
Van Eck Worldwide Insurance Trust Van Eck Associates Corporation Van Eck Worldwide Hard Assets
- -------------------------------------------------------------------------------------------------------------------------------
</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 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
18
<PAGE> 120
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 30 Investment Divisions, 26 of which are
available under the Policies. Premium Payments are invested solely in the
corresponding Eligible Portfolios of the Funds. 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, the Separate Account may be operated
as a management company under the Investment Company Act of 1940, may be
deregistered under such Act in the event such registration is no longer
required, or may be combined with one or more other separate accounts.
REINVESTMENT
All dividends and capital gain distributions from Eligible Portfolios are
automatically reinvested in shares of the distributing Portfolio at their net
asset value on the payable date.
THE POLICIES
PURPOSE OF POLICIES
The Policies described in this Prospectus are designed to establish
retirement benefits for two types of purchasers.
The first type of purchaser is one who is eligible to participate in, and
purchases a Policy for use with, any one of the following: (1) annuity plans
qualified under Section 403(a) of the Internal Revenue Code (the "Code"); (2)
annuity purchase plans adopted by certain private tax exempt organizations and
certain state supported educational institutions under certain circumstances
under Section 403(b) of the Code; (3) individual retirement annuities ("IRAs")
meeting the relevant requirements of Sections 408 or 408A 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 31.)
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.
ISSUING THE POLICY AND PREMIUM PAYMENTS
Individuals wishing to purchase a Policy may do so by either completing an
application which will be sent along with an initial Premium Payment to NYLIAC,
or, in states where permitted, instructing a broker-dealer with whom NYLIAC has
entered into an agreement to forward an initial Premium Payment along with a
Policy Request to NYLIAC. Assuming an application or Policy Request supplied by
a broker-dealer is complete and accurate, the initial
19
<PAGE> 121
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 or Policy Request is incomplete or
inaccurate, NYLIAC will contact the prospective Owner or the broker-dealer
providing the application or Policy Request and explain the reason for the delay
and will offer to refund the initial Premium Payment immediately, unless the
prospective Owner consents to NYLIAC's retaining the initial Premium Payment and
crediting it as soon as the necessary requirements are fulfilled. Acceptance of
applications is subject to NYLIAC's rules and NYLIAC reserves the right to
reject any application or initial Premium Payment.
Upon issuance of a Policy based on a Policy Request, the Owner will be
required to provide to NYLIAC either a signed acknowledgement of the information
contained in the Policy Request in a form acceptable to NYLIAC, or, where
required by applicable state law or regulation, a signed application form. Prior
to the receipt by NYLIAC of these forms, the beneficiary under the Policy shall
be the Owner or the estate thereof and transactions may not be made with respect
to the Policy unless the beneficiary designation or transaction request is
signature guaranteed. Upon receipt of the signed acknowledgement or application
form, the beneficiary under the Policy shall be the beneficiary as specified
therein and transactions requested with respect to the Policy will be given
effect without requiring a signature guarantee.
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. Initial Premium
Payments may be allocated in up to ten Allocation Alternatives. Thereafter, the
Accumulation Value may be maintained in up to 18 Investment Divisions plus the
Fixed Account at any one time. Subsequent Premium Payments will be credited to
the Policy at the close of the Business Day on which they are received at
MainStay Annuities--Client Services. Moreover, the percentages of the Premium
Payments (which must be in whole number percentages) allocated to each
Allocation Alternative may be increased or decreased at the time a Premium
Payment is made. However, any change to the Policy's allocations may not result
in the Accumulation Value being allocated to more than 18 Investment Divisions
plus the Fixed Account.
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, New Jersey and Washington, however, additional Premium Payments may
only be made until either the Annuitant reaches age 64 or the fourth Policy
Year, whichever is later. 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 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 26.)
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 18-80 and we will accept
additional Premium Payments until the Owner/Annuitant reaches the age of 80,
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
20
<PAGE> 122
Units that may be transferred from one Investment Division to other Investment
Divisions 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. The amount(s) transferred to other Investment Divisions must be a
minimum of $25 for each 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. 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 30.)
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. (See "Procedures for
Telephone Transactions" 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
28.)
PROCEDURES FOR TELEPHONE TRANSACTIONS
The Owner may authorize us to accept telephone instructions from the Owner
or persons designated by the Owner for the following transactions with respect
to the Policy: premium allocations, transfers among Allocation Alternatives,
Partial Withdrawals, Periodic Partial Withdrawals, Dollar Cost Averaging,
Automatic Asset Reallocation, and Interest Sweep. An Owner wishing to elect this
feature must complete and sign a Telephone Authorization form. Telephone
Authorization may be elected, changed, or canceled at any time.
The Owner, or persons designated by the Owner, may effect telephone
transactions in two ways: by speaking with a service representative or through
access to an electronic service known as an Interactive Voice Response system
(IVR). A Personal Identification Number (PIN) will be assigned to all
individuals authorized to effect telephone transactions. The caller will be
required to provide the PIN before any transactions will be allowed.
Furthermore, all telephone transactions will be confirmed in writing by NYLIAC.
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. Eastern Time will be processed.
DOLLAR COST AVERAGING
This program permits systematic investing to be made in equal installments
over various market cycles to help reduce risk. 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. 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 be transferred from an Investment Division with each
transfer. The minimum Accumulation Value required to elect this option is
$5,000. The minimum transfer amount and minimum Accumulation Value may be
reduced at NYLIAC's discretion.
The main objective of Dollar Cost Averaging is to achieve an average cost
per share that is lower than the average price per share in a fluctuating
market. Since the same dollar 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. In order to process a Dollar Cost Averaging
transfer, NYLIAC must have received a request in writing or by telephone (see
"Procedures for Telephone Transactions" above) no later than one week prior to
the date Dollar Cost Averaging transfers are to commence.
21
<PAGE> 123
Dollar Cost Averaging may be canceled at any time by the Owner in a written
request or by telephone (see "Procedures for Telephone Transactions" at page
21). Dollar Cost Averaging may also be cancelled by NYLIAC if the Accumulation
Value is less than $5,000, or such lower amount as we may determine. Dollar Cost
Averaging may not be elected if you have selected Automatic Asset Reallocation.
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 Convertible Investment Division and 50% of the Variable Accumulation Value be
allocated to the MainStay VP International 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. 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.
Automatic Asset Reallocation may be canceled at any time by the Owner in a
written request or by telephone (see "Procedures for Telephone Transactions" at
page 21) or by NYLIAC if the Accumulation Value is less than $5,000, or such a
lower amount as we may determine. Automatic Asset Reallocation may not be
elected if you have selected Dollar Cost Averaging.
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. The minimum Fixed Accumulation Value
required to elect this option is $5,000, but may be reduced at NYLIAC's
discretion. NYLIAC will make all Interest Sweep transfers on the day of each
calendar month specified by the Owner, or on the next Business Day.
The Interest Sweep may be requested in addition to either Dollar Cost
Averaging or Automatic Asset Reallocation. 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 30.) 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 Interest Sweep will not affect
the applicability of the Fixed Account Initial Premium Guarantee described on
page 31.
Interest Sweep may be canceled at any time by the Owner in a written
request or by telephone (see "Procedures for Telephone Transactions" at page
21), or by NYLIAC 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, 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.
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
22
<PAGE> 124
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 30 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 Separate
Account charges. The Statement of Additional Information contains a detailed
description of how the Accumulation Units are valued.
OWNER INQUIRIES
Owner inquiries should be addressed to MainStay Annuities. (See page 15).
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 partial withdrawals are made, 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 law, the Surrender Charge for 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, exceed 10% of the Accumulation
Value at the time of surrender or withdrawal (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 26.)
Fourth, no Surrender Charge will be applied when proceeds are paid on the death
of the Owner or the Annuitant. Fifth, no
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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 26.) 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
29 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 the cost of providing Policy administration
services. All Policies are subject to an administrative fee charged daily as an
amount equal, on an annual basis, to .15% of the average daily net asset value
of the Separate Account. In addition, an annual Policy fee for Policy
administration expenses is deducted 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. The annual Policy fee is 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 27.) In addition, NYLIAC assumes the risk that the charges for providing
Policy administration services to Owners and Annuitants may be insufficient to
cover the actual costs incurred by NYLIAC. Moreover, NYLIAC does not anticipate
that the Surrender Charges on withdrawals and surrenders will generate
sufficient funds to pay the distribution expenses. If these charges are
insufficient to cover those expenses, the deficiency will be met from NYLIAC's
general funds, including amounts derived from the risk charges that are not
needed for expenses actually incurred. 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 charges prove
more than sufficient, any excess will be added to NYLIAC's general funds. 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. The fees and expenses paid by the
Funds are not fixed or specified under the terms of the Policy and they may vary
from year to year.
GROUP AND SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the Surrender
Charge and the administrative charges 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.
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<PAGE> 126
We will make any reductions according to our rules in effect when a request
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 31.) Based upon
these expectations, no charge is being made currently to the Separate Account
for corporate federal income taxes which may be attributable to the Separate
Account.
NYLIAC will review the question of a charge to the Separate Account for
corporate federal income taxes periodically. Such a charge may be made in future
years for any federal income taxes incurred by NYLIAC. This might become
necessary if the tax treatment of NYLIAC is ultimately determined to be other
than what NYLIAC currently believes it to be, if there are changes made in the
federal income tax treatment of annuities at the corporate level, or if there is
a change in NYLIAC's tax status. In the event that NYLIAC should incur federal
income taxes attributable to investment income or capital gains retained as part
of the reserves under the Policies, the Accumulation Value of the Policies would
be correspondingly adjusted by any provision or charge for such taxes.
DISTRIBUTIONS UNDER THE POLICY
SURRENDERS AND WITHDRAWALS
The Owner may make a Partial Withdrawal, Periodic Partial Withdrawal,
Hardship Withdrawal or surrender the Policy to receive part or all of the
Accumulation Value at any time before the Annuity Commencement Date and while
the Annuitant is living, by sending a written request to MainStay Annuities. In
addition, Partial Withdrawals and Periodic Partial Withdrawals may be requested
by telephone. (See "Procedures for Telephone Transactions" at page 21.) The
amount available for withdrawal is the Accumulation Value at the end of the
Valuation Period during which the written or telephonic surrender or withdrawal
request is received by us, 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, if applicable, 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 28.)
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 31.)
(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
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expense charge will be the lesser of $30 or 2% of the Accumulation Value at the
end of the Policy Year or on the date of surrender, whichever is applicable. The
proceeds will be paid in a lump sum to the Owner unless the Owner elects a
different Income Payment method. (See "Income Payments" at page 28.) 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
31.)
(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 31.)
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 will elect the frequency of the withdrawals, and the day
of the month for the withdrawals to be made. NYLIAC will make all withdrawals on
the day of each calendar month specified by the Owner, or on the next Business
Day. The Owner specifies the Investment Divisions and/or Fixed Account from
which the withdrawals will be made. 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 31.) 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 31.
(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 and 10% penalty tax, if applicable, and provisions
applicable to Partial Withdrawals apply to Hardship Withdrawals. For all
Policies, the Surrender Charge will only be applied to any amounts withdrawn in
any Policy Year which, when added to all other Surrender Charge free withdrawals
in that Policy Year, exceed the 10% Window. For Policies with accumulated
Premium Payments of $100,000 or more, the Surrender Charge will not apply if the
amount of the Hardship Withdrawal is less than or equal to the gain in the
Policy which is measured as the Accumulation Value of the Policy less
accumulated Premium Payments.
REQUIRED MINIMUM DISTRIBUTION OPTION
For IRAs 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.
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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 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 more than one Beneficiary is
named, each Beneficiary will be paid a pro rata portion from each Allocation
Alternative in which the Policy is invested as of the date proof of death and
all requirements necessary to make the payment to that Beneficiary is received.
If an Owner or Annuitant dies before the Annuity Commencement Date, the
Policy will no longer be in force and we will pay as proceeds to the Beneficiary
an amount which is the greater of "(a)," "(b)," or "(c)" as they are described
in the preceding paragraph. Payment will be made in a lump sum to the
Beneficiary unless the Owner has elected or the Beneficiary elects otherwise in
a signed written notice which gives us the facts that we need. If such an
election is properly made, all or part of these proceeds will be:
(i) applied under the Life Income Payment Option to provide an
immediate annuity for the Beneficiary who will be the Owner and Annuitant;
or
(ii) applied under another Income Payment option we may offer at the
time. Payments under the annuity or under any other method of payment we
make available must be for the life of the Beneficiary, or for a number of
years that is not more than the life expectancy of the Beneficiary at the
time of the Owner's death (as determined for federal tax purposes), and
must begin within one year after the Owner's death. (See "Income Payments"
at page 28.)
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. If a Policy is jointly owned,
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 31.)
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" page 28.)
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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. 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 partial or full surrender request
deferred for 30 days or more.
DESIGNATION OF BENEFICIARY
The Owner may name, in a written form acceptable to us, one or more
Beneficiaries. Thereafter, before the Annuity Commencement Date and while the
Annuitant is living, the Owner may change the Beneficiary by written notice in a
form acceptable to NYLIAC. If before the Annuity Commencement Date, the
Annuitant dies before the Owner and no Beneficiary for the proceeds or for a
stated share of the proceeds survives, the right to the proceeds or shares of
the proceeds passes to the Owner. If the Owner is the Annuitant, the proceeds
pass to the Owner's estate. However, if the Owner who is not the Annuitant dies
before the Annuity Commencement Date, and no Beneficiary for the proceeds or for
a stated share of the proceeds survives, the right to the proceeds or shares of
the proceeds passes to the Owner's estate.
For policies issued with respect to a Policy Request, the beneficiary will
be the Owner or estate thereof until the beneficiary is designated as described
under "Issuing the Policy and Premium Payments" at page 19.
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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 a November 28, 1988 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. 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.
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.
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(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 Accumulation
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.
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 or Interest Sweep
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.
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<PAGE> 132
Transfer requests must be in writing on a form approved by NYLIAC or by
telephone in accordance with established procedures. For a more detailed
discussion of procedures that may be used for requesting transfers by telephone,
please see "Procedures for Telephone Transactions" at page 21 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, 408A 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, which may change from time to time without notice. Any such
change could have retroactive effects regardless of the date of enactment.
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. We
suggest you consult with your tax adviser.
TAXATION OF ANNUITIES IN GENERAL
The following discussion assumes that the Policies will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional
Information discusses such qualifications.
Section 72 of the Code governs taxation of annuities in general. NYLIAC
believes that an annuity contract owner generally is not taxed on increases in
the value of a policy until distribution occurs either in the form of a lump sum
received by withdrawing all or part of the Accumulation Value (i.e., surrenders
or Partial Withdrawals) or as Income Payments under the Income Payment option
elected. The exception to this rule is that generally, an Owner of any deferred
annuity Policy who is not a natural person must include in income any increase
in the excess of the Owner's Accumulation Value over the Owner's investment in
the contract during the taxable year. However, there are some exceptions to this
exception and you may wish to discuss these with your tax counsel. The taxable
portion of a distribution (in the form of an annuity or lump sum payment) is
generally taxed as ordinary income. For this purpose, the assignment, pledge, or
agreement to assign or pledge any portion of the Accumulation Value generally
will be treated as a distribution.
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
31
<PAGE> 133
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. The law requires the use of
special simplified methods to determine the taxable amount of payments that are
based in whole or in part on the Annuitant's life and that are paid from
qualified retirement plans under Section 401(a) and from qualified annuities and
Tax Sheltered Annuities under Sections 403(a) and 403(b).
Generally, in the case of a withdrawal under a Non-Qualified Policy before
the Annuity Commencement Date, amounts received are first treated as taxable
income to the extent that the Accumulation Value immediately before the
withdrawal exceeds the "investment in the contract" at that time. Any additional
amount withdrawn is not taxable.
Although the tax consequences may vary depending on the Income Payment
option elected under the Policy, in general, only the portion of the Income
Payment that represents the amount by which the Accumulation Value exceeds the
"investment in the contract" will be taxed; after the investment in the Policy
is recovered, the full amount of any additional Income Payments is taxable. For
Fixed Income Payments, in general, there is no tax on the portion of each
payment which represents the same ratio that the "investment in the contract"
bears to the total expected value of the Income Payments for the term of the
payments; however, the remainder of each Income Payment is taxable until the
recovery of the investment in the contract, and thereafter the full amount of
each annuity payment is taxable. If death occurs before full recovery of the
investment in the contract, the unrecovered amount may be deducted on the
annuitant's final tax return.
In the case of a distribution pursuant to any Policy, there may be imposed
a penalty tax equal to 10% of the amount treated as taxable income. The penalty
tax is not imposed in certain circumstances, including, generally,
distributions: (1) made on or after the date on which the taxpayer is actual age
59 1/2, (2) made as a result of the Owner's or Annuitant's death or disability,
or (3) received in substantially equal installments paid at least annually as a
life annuity. Other tax penalties may apply to certain distributions pursuant to
a Qualified Policy.
All non-qualified, deferred annuity contracts issued by NYLIAC (or its
affiliates) to the same Owner during any calendar year are to be treated as one
annuity contract for purposes of determining the amount includable in an
individual's gross income. In addition, there may be other situations in which
the Treasury Department may conclude (under its authority to issue regulations)
that it would be appropriate to aggregate two or more annuity contracts
purchased by the same Owner. Accordingly, an Owner should consult a competent
tax adviser before purchasing more than one Policy or other annuity contract.
A transfer of ownership of a Policy, or designation of an Annuitant or
other Beneficiary who is not also the Owner, may result in certain income or
gift tax consequences to the Owner that are beyond the scope of this discussion.
An Owner contemplating any transfer or assignment of a Policy should contact a
competent tax adviser with respect to the potential tax effects of such a
transaction.
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 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
32
<PAGE> 134
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) Roth Individual Retirement Annuities. Section 408A of the Code
permits individuals with incomes below a certain level to contribute to an
individual retirement program known as a "Roth Individual Retirement
Annuity" or "Roth IRA." Roth IRAs are subject to limitations on the amount
that may be contributed. Contributions to Roth IRAs are not deductible, but
distributions from Roth IRAs that meet certain requirements are not
included in gross income. Certain individuals are eligible to convert their
existing non-Roth IRAs into Roth IRAs. They will be subject to income tax
at the time of conversion.
(d) 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. Such investments
are generally owned by, and are subject to, the claims of the general
creditors of the sponsoring employer, except that Section 457 plans of
state and local government must be held and used for the exclusive benefit
of participants and beneficiaries in a trust or annuity contract.
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.
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<PAGE> 135
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............................................. 5
FEDERAL TAX MATTERS......................................... 6
DISTRIBUTOR OF THE POLICIES................................. 7
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS...................... 7
STATE REGULATION............................................ 7
RECORDS AND REPORTS......................................... 8
LEGAL PROCEEDINGS........................................... 8
INDEPENDENT ACCOUNTANTS..................................... 8
OTHER INFORMATION........................................... 8
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
How to obtain a MainStay Plus Variable Annuity Statement of Additional
Information.
Call (888) 695-6246 or send this request form to:
MainStay Annuities
300 Berwyn Park, P.O. Box 3031
Berwyn, PA 19312-0031
- --------------------------------------------------------------------------------
Please send me a MainStay Plus Variable Annuity Statement of Additional
Information dated May 1, 1998:
- --------------------------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
City State Zip
34
<PAGE> 136
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 137
[NY LIFE LOGO]
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
INDIVIDUAL RETIREMENT ANNUITY
DISCLOSURE STATEMENT
The following information is being provided to you, the Policyowner, in
accordance with the requirements of the Internal Revenue Service. This
Disclosure Statement includes non-technical explanation of some of the changes
made by the Taxpayer Relief Act of 1997 applicable to Individual Retirement
Accounts or Annuities (IRAs). You should consult your tax adviser about the
specifics of these rules, and remember that the terms of your actual contract
and any endorsements will control your rights and obligations.
1. REVOCATION OF YOUR IRA
If you have not received this Disclosure Statement at least seven calendar
days before the establishment of your Individual Retirement Annuity, you have
the right to revoke your Individual Retirement Annuity during the seven calendar
day period following the establishment of it. In order to revoke your Individual
Retirement Annuity, you must notify us in writing and you must mail or deliver
your revocation to NYLIAC. If your revocation is mailed, the date of the
postmark (or the date of certification or registration if sent by certified or
registered mail) will be considered your revocation date. If you revoke your
Individual Retirement Annuity during the seven day period, the entire amount of
your account, without any adjustments (for items such as administrative
expenses, fees, or fluctuation in market value) will be returned to you.
2. CONTRIBUTIONS
(a) Regular IRA. The Policyowner may make periodic contributions to a
regular IRA in any amount up to the combined tax deductible and non-tax
deductible contribution limit described in Section 3 of this Disclosure
Statement. All such contributions shall be in cash and shall be invested in
accordance with this Disclosure Statement. This IRA cannot be issued as a SIMPLE
IRA.
(b) Spousal IRA. If the Policyowner and the spouse file a joint federal
income tax return for the taxable year and if the spouse's compensation, if any,
includable in gross income for the year is less than the compensation includable
in the gross income of the Policyowner for the year, the Policyowner and the
spouse may each establish his or her own individual IRA and may make periodic
contributions to their own IRA in accordance with the rules and limits for tax
deductible and non-tax deductible contributions contained in Sections 219(c) and
408(o) of the Code. Such contributions shall be in cash and shall be vested in
accordance with this Disclosure Statement.
(c) Rollover IRA. A rollover contribution by the Policyowner shall be a
nonperiodic deposit in cash to be invested in accordance with this Disclosure
Statement, with respect to which contribution the Policyowner warrants that (1)
the entire amount rolled over is attributable to a distribution from an
employee's trust, an employee's annuity, an annuity contract or another
individual retirement account or annuity, which meets the requirements of Code
section 402(c), 403(a)(4), 403(b)(8), or 408(d)(3); (2) within one (1) year of
receiving such distribution, the Policyowner did not receive another
distribution which constituted a "rollover" referred to in Code Section
408(d)(3)(B); and (3) the contribution as made satisfies all the requirements
for rollover contributions as set forth under the Internal Revenue Code. A
rollover contribution attributable to contributions made by an employer to an
individual's SIMPLE IRA cannot be made prior to the expiration of the 2-year
period beginning on the date the individual first participated in that
employer's SIMPLE plan.
Strict limitations apply to rollovers, and you should seek competent tax
advice in order to comply with all the rules governing rollovers.
(d) Transfers. The Policyowner may make an initial or subsequent
contribution hereunder by directing a Custodian or Trustee of an existing
individual retirement account or individual retirement annuity to transfer an
amount in cash to the Individual Retirement Annuity.
(e) Time to Make Contributions. You may make contributions to your IRA at
any time for a taxable year beginning on the first day of that year and ending
on the date that your income tax return for that year is due (without regard to
any extensions).
(f) Simplified Employee Pension. If an IRA is established that meets the
requirements of a Simplified Employee Pension Plan, your employer may contribute
an amount not to exceed the lesser of 15% of your includable compensation
($160,000 for 1997, adjusted for inflation thereafter) or $30,000. The amount of
such contribution is not includable in your income as wages (for federal income
tax purposes). Within that overall limit
IRA-1
<PAGE> 138
you may elect to defer up to $10,000 in 1998 (as adjusted for inflation in
accordance with the Internal Revenue Code) of your includable compensation if
your employer's SEP plan permits salary reduction contributions and was
established on or before December 31, 1996. The amount of such elective deferral
is excludable from your income as wages (for federal income tax purposes). For
further details, see your employer.
(g) Responsibility of the Policyowner. If the Policyowner contemplates
future periodic contributions, rollovers, or transfers to the IRA, such
contributions, rollovers or transfers must be made in accordance with the
appropriate sections of the Code. It is the Policyowner's full and sole
responsibility to determine the tax deductibility of all contributions, and to
make such contributions in accordance with the Code. Neither the Custodian nor
New York Life Insurance and Annuity Corporation are permitted to provide tax
advice, and will assume no liability for the tax consequences of any
contribution to the IRA.
3. DEDUCTIBILITY OF CONTRIBUTIONS
(a) Eligibility. Under the new law, if neither you nor your spouse is an
active participant (see (b) below), you and your spouse may contribute up to
$4,000 together (but no more than $2,000 to each individual account) if your
combined compensation is at least equal to that amount and take a deduction for
the entire amount contributed. If you are an active participant, but have an
adjusted gross income (AGI) below a certain level (see (c) below), you may make
a deductible contribution. If you are an active participant and you have AGI
above that level (see (c) below), the amount of the deductible contribution you
may make is phased down and eventually eliminated. If you are not an active
participant, but your spouse is an active participant, you may make a $2,000
deductible contribution provided that if your combined AGI is above the
specified level (see (c) below), the amount of the deductible contribution you
may make to an IRA is phased down and eventually eliminated.
(b) Active Participant. You are an "active participant" for a year if you
are covered by a retirement plan. You are covered by a "retirement plan" for a
year if your employer or union has a retirement plan under which money is added
to your annuity or you are eligible to earn retirement credits. For example, if
you are covered under a profit-sharing plan, a 403(b) annuity, certain
government plans, a salary reduction arrangement (such as a Tax Sheltered
Annuity 403(b) arrangement or a 401(k) plan), a Simplified Employee Pension Plan
(SEP), a SIMPLE retirement account or a plan which promises you a retirement
benefit which is based upon the number of years of service you have with the
employer, you are likely to be an active participant. Your Form W-2 for the year
should indicate your participation status.
(c) Adjusted Gross Income (AGI). If you or your spouse is an active
participant, you must look at your Adjusted Gross Income for the year (if you
and your spouse file a joint tax return, you use your combined AGI) to determine
whether you can make a deductible IRA contribution. Your tax return will show
you how to calculate your AGI for this purpose. If you are at or below a certain
AGI level, called the Threshold Level, you are treated as if you were not an
active participant and can make a deductible contribution under the same rules
as a person who is not an active participant.
If you are single, your threshold AGI level is $30,000 (for 1998). The
Threshold Level if you are married and file a joint tax return is $50,000 (for
1998), and if you are married, but file a separate tax return, the Threshold
Level is $0. However, if only your spouse is an active participant and you file
a joint tax return, the Threshold level is $150,000 phased out at $160,000
(beginning in 1998).
IRA-2
<PAGE> 139
The $30,000 and $50,000 Threshold Levels are to increase in future years as
shown below:
<TABLE>
<CAPTION>
JOINT RETURNS
-------------
FOR TAXABLE YEARS BEGINNING IN: THE THRESHOLD LEVEL IS:
- ------------------------------- -----------------------
<S> <C>
1998 $50,000
1999 $51,000
2000 $52,000
2001 $53,000
2002 $54,000
2003 $60,000
2004 $65,000
2005 $70,000
2006 $75,000
2007 and thereafter $80,000
</TABLE>
<TABLE>
<CAPTION>
SINGLE TAXPAYERS
----------------
FOR TAXABLE YEARS BEGINNING IN: THE THRESHOLD LEVEL IS:
- ------------------------------- -----------------------
<S> <C>
1998 $30,000
1999 $31,000
2000 $32,000
2001 $33,000
2002 $34,000
2003 $40,000
2004 $45,000
2005 and thereafter $50,000
</TABLE>
If your AGI is less than $10,000 above your Threshold Level, you will still
be able to make a deductible contribution, but it will be limited in amount. The
amount by which your AGI exceeds your Threshold Level (AGI-Threshold Level) is
called your Excess AGI. The Maximum Allowable Deduction is $2,000 (and an
additional $2,000 for a Spousal IRA). You can calculate your Deduction Limit as
follows:
10,000 - Excess AGI X Maximum Allowable Deduction = Deduction Limit
-------------------
10,000
You must round up the result to the next highest $10 level (the next
highest number which ends in zero). For example, if the result is $1,525, you
must round it up to $1,530. If the final result is below $200 but above zero,
your Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed
100% of your compensation.
(d) Restrictions. No deduction is allowed for (a) contributions other than
in cash; (b) contributions (other than those by an employer to a Simplified
Employee Pension Plan) made during your calendar year in which you attain age
70 1/2 or thereafter; or (c) for any amount you contribute which was a
distribution from another retirement plan ("rollover" contribution). However,
the limitations in paragraphs (a) and (b) do not apply to rollover
contributions.
(e) Compensation. For purposes of determining allowable contributions, the
term "Compensation" includes all earned income, including net earnings from self
employment and alimony or separate maintenance payments received and includable
in your gross income, but does not include deferred compensation or any amount
received as a pension or annuity.
4. NONDEDUCTIBLE CONTRIBUTIONS TO IRAS
Even if you are above the Threshold Level and, thus, may not make a
deductible contribution of $2,000 (and an additional $2,000 for a Spousal IRA),
you may still contribute up to the lesser of 100% of compensation or $2,000 to
an IRA (and an additional $2,000 for a Spousal IRA). The amount of your
contribution which is not deductible will be a nondeductible contribution to the
IRA. You may also choose to make a contribution nondeductible even if you could
have deducted part or all of the contribution. Interest or other earnings on
your IRA contribution, whether from deductible or nondeductible contributions,
will not be taxed until taken out of your IRA and distributed to you.
If you make a nondeductible contribution to an IRA you must report the
amount of the nondeductible contribution to the IRS as a part of your tax return
for the year.
IRA-3
<PAGE> 140
5. DISTRIBUTIONS
(a) Required Distributions. Distribution of your IRA must be made or begin
no later than April 1 of the calendar year following the calendar year in which
you attain age 70 1/2. A distribution may be made at once in a lump sum, or it
may be made in installments. Installment payments must be made over a period not
exceeding your life expectancy (as determined annually), or the joint life and
last survivor expectancy of you and the beneficiary you designate (as
redetermined annually, if that beneficiary is your spouse).
If you die before the entire interest is distributed to you, but after
distribution to you has begun, your entire annuity must be distributed to your
beneficiary at least as rapidly as your annuity was being distributed prior to
your death. If you die before you begin to receive distributions from your
annuity and if you have a designated beneficiary, distribution to your
beneficiary must be made over a period not exceeding the greater of the
beneficiary's life expectancy or five years after your death; if you have no
designated beneficiary, distribution must be completed within five years of your
death. Distributions upon your death must begin within one year following your
death or, if your beneficiary is your spouse, no later than the date on which
you would have attained age 70 1/2 (if later). If following your death before
distributions have begun, your spouse also dies, immediate distribution must
begin to be made to your spouse's beneficiary, if any, over a period no longer
than that person's life expectancy, or if your spouse has not designated a
beneficiary, full payment must be made to your spouse's estate within five
years.
(b) IRA Distributions. Because nondeductible IRA contributions are made
using income which has already been taxed (that is, they are not deductible
contributions), the portion of the IRA distributions consisting of nondeductible
contributions will not be taxed again when received by you. If you make any
nondeductible IRA contributions, each distribution from your IRAs will consist
of a nontaxable portion (return of nondeductible contributions) and a taxable
portion (return of deductible contributions, if any, and account earnings).
Thus, you may not take a distribution which is entirely tax-free. The
following formula is used to determine the nontaxable portion of your
distributions for a taxable year.
<TABLE>
<S> <C> <C> <C> <C>
Remaining Nondeductible contributions
- --------------------------------------------- Total distributions Nontaxable distributions
Year-end total IRA balances X (for the year) = (for the year)
</TABLE>
To figure the year-end total IRA balance, you must treat all of your IRAs
as a single IRA (other than Roth IRAs). This includes all regular IRAs, as well
as Simplified Employee Pension (SEP) IRAs, SIMPLE IRAs, and Rollover IRAs. You
also add back the distributions taken during the year.
Even if you withdrew all of the money in your IRA in a lump sum, you will
not be entitled to use any form of income averaging to reduce the federal income
tax on your distribution. Also, no portion of your distribution is taxable as a
capital gain.
(c) Withholding. Unless you elect not to have withholding apply, a 10%
federal income tax will be withheld from your IRA distributions. If payments are
delivered to foreign countries, however, tax will, generally, be withheld at a
10% rate unless you certify to the Custodian that you are not a U.S. citizen
residing abroad or a "tax avoidance expatriate" as defined in the Internal
Revenue Code (Section 877).
6. PENALTIES
(a) Excess Contributions. If at the end of any taxable year your IRA
contributions (other than rollovers or transfers) exceed the maximum allowable
(deductible and nondeductible) amount for that year, this excess contribution
amount will be subject to a nondeductible 6% excise (penalty) tax. However, if
you withdraw the excess contribution, plus any earnings on it, before the due
date for filing your federal income tax return for the year (including
extensions), the excess contribution will not be subject to the 6% penalty tax.
The amount of the excess contribution withdrawn will not be considered a
premature distribution, but the earnings withdrawn will be taxable income to you
and may be subject to an additional 10% tax on premature distributions.
Alternatively, excess contributions for one year may be carried forward as IRA
contributions in the next year to the extent that the excess, when aggregated
with your IRA contribution (if any) for the subsequent year, does not exceed the
maximum allowable (deductible and nondeductible) amount for that year. The 6%
excise tax will be imposed on excess contributions in each year they are neither
returned nor applied as contributions.
(b) Early Distributions. Since the purpose of an IRA is to accumulate
funds for retirement, your receipt or use of any portion of your IRA before you
attain age 59 1/2 constitutes an early distribution unless the distribution
occurs in the event of your death or disability or is part of a series of
substantially equal periodic payments made over your life expectancy (as
determined from tables in the income tax regulations) or the joint life
expectancies of you and your beneficiary or is used to pay certain medical
expenses or is used for certain qualified first-time homebuyer
IRA-4
<PAGE> 141
expenses (beginning in 1998) or certain qualified higher education expenses
(beginning in 1998). The amount of an early distribution (excluding the
nondeductible contribution included therein) is includable in your gross income
and is subject to a 10% penalty tax on the amount of the early distribution
unless you transfer it to another IRA as a qualifying rollover contribution. If
you transfer, rollover or convert a regular IRA into a Roth IRA, the 10% penalty
tax will not apply, but the distribution is taxable income. (If you transfer,
rollover or convert a regular IRA into a Roth IRA in 1998, the additional tax
liability will be spread over four years (1998, 1999, 2000, and 2001).
(c) Minimum Distributions. If the minimum distribution rules described in
5a apply to a recipient of distributions and if the amount distributed during a
calendar year is less than the minimum amount required to be distributed, the
recipient will be subject to a penalty tax equal to 50% of the difference
between the amount required to be distributed and the amount actually
distributed.
(d) Excess Distributions. The 15% excise tax on excess distributions has
been repealed for excess distributions received after December 31, 1996. The 15%
excise tax on excess retirement accumulations has been repealed for estates of
decedents dying after December 31, 1996.
(e) Prohibited Transactions. If the Policyowner or the beneficiary engage
in any prohibited transaction (such as any sale, exchange or leasing of any
property between the Policyowner and the annuity, or any interference with the
independent status of the annuity), the annuity will lose its tax exemption and
be treated as having been distributed to the Policyowner. The value of the
entire annuity (excluding the non-deductible contribution included therein) will
be includable in your gross income; if at the time of the prohibited transaction
the Policyowner is under age 59 1/2, the Policyowner will also be subject to the
10% penalty tax on early distributions.
(f) Overstatement of Non-deductible Contributions. If you overstate your
non-deductible IRA contributions on your federal income tax return (without
reasonable cause) you may be subject to a $100 penalty and a $50 penalty for
failure to file any form required by the IRS to report non-deductible
contributions (in addition to any generally applicable tax, interest, and
penalties to which you may be liable if you understate income upon receiving a
distribution from your account. See paragraph 5(b) of this Disclosure Statement
and IRS Form 8606.)
7. FEDERAL ESTATE AND GIFT TAXES
Any amount distributed from your IRA upon your death may be subject to
federal estate and gift taxes.
8. OTHER INFORMATION
(a) Tax Reporting. You need not file Treasury Form 5329 with the Internal
Revenue Service unless during the taxable year there is an excess contribution
to, premature distribution from, or insufficient distribution from your IRA. You
must report contributions to, and distributions from your IRA (including the
year end aggregate account balance of all IRAs) on your federal income tax
return for the year. You must designate on the return how much of your annual
contribution is deductible and how much is nondeductible.
(b) IRS Approval. This Individual Retirement Annuity has been approved as
to form by the Internal Revenue Service. Such approval is a determination only
as to the form of the annuity and does not represent a determination of the
merits of such annuity.
(c) Custodian. The Trustee or Custodian of an IRA must be either a bank or
such other person who has been approved by the Secretary of the Treasury.
(d) Vesting. Your interest in your IRA must be nonforfeitable at all
times.
(e) State Tax Law. You should consult your tax adviser about any state tax
consequences of your IRA; you should be aware that some of these laws may differ
from Federal tax law governing IRAs.
IRA-5
<PAGE> 142
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<PAGE> 143
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<PAGE> 144
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 145
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
FOR
MAINSTAY PLUS 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 Plus Variable Annuity Prospectus.
Accordingly this Statement should be read in conjunction with the current
MainStay Plus Variable Annuity Prospectus dated May 1, 1998, which may be
obtained by calling MainStay Annuities at (888) 695-6246 or writing to MainStay
Annuities, 300 Berwyn Park, P.O. Box 3031, Berwyn, PA 19312-0031. Terms used in
the current MainStay Plus Variable Annuity(SM) Prospectus are incorporated in
this Statement.
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE POLICIES (19)........................................... 2
Valuation of Accumulation Units (23)................... 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.............................. 3
GENERAL MATTERS............................................. 5
FEDERAL TAX MATTERS (31).................................... 6
Taxation of New York Life Insurance and Annuity
Corporation.......................................... 6
Tax Status of the Policies............................. 6
DISTRIBUTOR OF THE POLICIES (33)............................ 7
SAFEKEEPING OF SEPARATE ACCOUNT ASSETS...................... 7
STATE REGULATION............................................ 7
RECORDS AND REPORTS......................................... 8
LEGAL PROCEEDINGS........................................... 8
INDEPENDENT ACCOUNTANTS..................................... 8
OTHER INFORMATION........................................... 8
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
- ------------
* (Numbers in parentheses refer to page numbers of corresponding sections of the
current MainStay Plus Variable Annuity Prospectus.)
<PAGE> 146
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 24
of the Prospectus.)
The Net Investment Factor may be greater or less than one. Therefore, the
value of an Accumulation Unit in an Investment Division may increase or decrease
from Valuation Period to Valuation Period.
INVESTMENT PERFORMANCE CALCULATIONS
MAINSTAY VP CASH MANAGEMENT INVESTMENT DIVISION
NYLIAC calculates the MainStay VP Cash Management Investment Division's
current annualized yield for a seven-day period 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 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 the administration fee 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.
NYLIAC also calculates the effective yield of the MainStay VP Cash
Management Investment Division for the same seven-day period 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
2
<PAGE> 147
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, 1997 the MainStay VP Cash
Management Investment Division's yield and effective yield were 4.24% and 4.33%,
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.
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 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, 1997, the annualized yields for
the MainStay VP Government, MainStay VP High Yield Corporate Bond and MainStay
VP Bond Investment Divisions were 3.98%, 6.15% and 4.50%, respectively.
TOTAL RETURN CALCULATIONS
The following tables present performance data for the MainStay VP Capital
Appreciation, MainStay VP Cash Management, MainStay VP Convertible, MainStay VP
Government, MainStay VP High Yield Corporate Bond, MainStay VP International
Equity, MainStay VP Total Return, MainStay VP Value, MainStay VP Bond, MainStay
VP Growth Equity, MainStay VP Indexed Equity, Alger American Small
Capitalization, Calvert Social Balanced, Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced, Janus Aspen Series Worldwide
Growth and Morgan Stanley Emerging Markets Equity Investment Divisions for
periods ending December 31, 1997. The average annual total return (if
surrendered) 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 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, including interest and dividends.
3
<PAGE> 148
Certain Portfolios existed prior to the date that they were added to an
Investment Division of the Separate Account. For periods prior to May 1, 1995,
when the MainStay VP Capital Appreciation, MainStay VP Cash Management, MainStay
VP Government, MainStay VP Total Return, MainStay VP Bond, MainStay VP Growth
Equity, MainStay VP Indexed Equity and Calvert Social Balanced Investment
Divisions commenced operations, and for periods prior to October 1, 1996, when
the Alger American Small Capitalization, Fidelity VIP II Contrafund, Fidelity
VIP Equity-Income, Janus Aspen Series Balanced and Janus Aspen Series Worldwide
Growth Investment Divisions 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. There is no
performance information for the American Century Income & Growth, Dreyfus Large
Company Value, Eagle Asset Management Growth Equity, Lord Abbett Developing
Growth, MFS Growth With Income Series, MFS Research Series, T. Rowe Price Equity
Income and Van Eck Worldwide Hard Assets Investment Divisions because they were
not available under the Policies as of the date of this Statement of Additional
Information. The results shown are not an estimate or guarantee of future
investment performance for the Investment Divisions in the tables below.
For periods commencing on or after the dates when the respective Investment
Divisions commenced operations, the average annual total return (if surrendered)
figures may be referred to as "standardized" performance, prepared under the
method prescribed by the Securities and Exchange Commission when advertising
performance information. It is noted that all average annual total return (if
surrendered) figures have been prepared on the basis of this method, but are
considered "non-standardized" for periods prior to the dates on which the
respective Investment Divisions commenced operations. The average annual total
return (no surrender) figures are all considered "non-standardized."
AVERAGE ANNUAL TOTAL RETURN. 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).
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED DECEMBER 31, 1997)
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CAPITAL CASH MAINSTAY VP MAINSTAY VP CORPORATE INTERNATIONAL
INVESTMENT DIVISIONS: APPRECIATION MANAGEMENT CONVERTIBLE GOVERNMENT BOND EQUITY
--------------------- ------------ ----------- ----------- ----------- ----------- -------------
PORTFOLIO INCEPTION DATE: 1/29/93 1/29/93 10/1/96 1/29/93 5/1/95 5/1/95
- -------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 10/1/96 5/1/95 5/1/95 5/1/95
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year..................................... 14.78% -2.74% 6.82% 1.16% 4.46% -2.82%
3 Year..................................... 22.52% 1.62% -- 5.77% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 15.95% 2.09% 8.56% 3.91% 11.10% 5.77%
Since Investment Division Inception........ 19.92% 1.23% 8.56% 2.94% 11.10% 5.77%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year..................................... 21.78% 3.80% 13.82% 7.96% 11.46% 3.71%
3 Year..................................... 24.06% 3.83% -- 7.82% -- --
5 Year..................................... -- -- -- -- -- --
10 Year.................................... -- -- -- -- -- --
Since Portfolio Inception.................. 16.73% 3.05% 14.00% 4.88% 13.26% 8.11%
Since Investment Division Inception........ 21.83% 3.73% 14.00% 5.39% 13.26% 8.11%
</TABLE>
4
<PAGE> 149
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP CALVERT
TOTAL MAINSTAY VP MAINSTAY VP GROWTH INDEXED SOCIAL
INVESTMENT DIVISIONS: RETURN VALUE BOND EQUITY EQUITY BALANCED
--------------------- ----------- ----------- ----------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 1/29/93 5/1/95 1/23/84 1/23/84 1/29/93 9/2/86
- ----------------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95 5/1/95
- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year........................................ 9.17% 14.19% 1.32% 17.99% 24.00% 11.42%
3 Year........................................ 15.85% -- 6.25% 23.52% 27.34% 17.28%
5 Year........................................ -- -- 4.87% 16.19% -- 10.40%
10 Year....................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.06% 19.13% 8.55% 12.32% 17.39% 9.66%
Since Investment Division Inception........... 13.05% 19.13% 2.92% 21.48% 23.58% 13.59%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year........................................ 16.17% 21.19% 8.13% 24.99% 31.00% 18.42%
3 Year........................................ 17.56% -- 8.28% 25.03% 28.76% 18.95%
5 Year........................................ -- -- 5.84% 16.95% -- 11.33%
10 Year....................................... -- -- 7.35% 15.01% -- 10.85%
Since Portfolio Inception..................... 11.98% 21.06% 8.55% 12.32% 18.14% 9.66%
Since Investment Division Inception........... 15.16% 21.06% 5.37% 23.35% 25.40% 15.68%
</TABLE>
<TABLE>
<CAPTION>
MORGAN
JANUS ASPEN STANLEY
ALGER AMERICAN JANUS ASPEN SERIES EMERGING
SMALL FIDELITY VIP II FIDELITY VIP SERIES WORLDWIDE MARKETS
INVESTMENT DIVISIONS: CAPITALIZATION CONTRAFUND EQUITY INCOME BALANCED GROWTH EQUITY
--------------------- -------------- --------------- ------------- ----------- ----------- --------
PORTFOLIO INCEPTION DATE: 9/20/88 1/3/95 10/9/86 9/13/93 9/13/93 10/1/96
- ---------------------------------------
INVESTMENT DIVISION INCEPTION DATE: 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96 10/1/96
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURN (IF SURRENDERED)
1 Year................................. 2.93% 15.43% 19.34% 13.41% 13.46% -7.32%
3 Year................................. 15.36% -- 22.24% 17.63% 22.87% --
5 Year................................. 10.14% -- 17.77% -- -- --
10 Year................................ -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 24.91% 12.92% 13.62% 20.32% -5.89%
Since Investment Division Inception.... -1.22% 18.12% 19.54% 12.80% 14.00% -5.89%
AVERAGE ANNUAL TOTAL RETURN (NO SURRENDERS)
1 Year................................. 9.85% 22.43% 26.34% 20.41% 20.46% -1.09%
3 Year................................. 17.09% -- 23.78% 19.29% 24.40% --
5 Year................................. 11.08% -- 18.49% -- -- --
10 Year................................ -- -- 15.10% -- -- --
Since Portfolio Inception.............. 17.55% 26.39% 12.92% 14.67% 21.20% -0.87%
Since Investment Division Inception.... 4.06% 23.46% 24.87% 18.21% 19.39% -0.87%
</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.
5
<PAGE> 150
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 28 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 responsibility for the validity of any assignment.
(See "Federal Tax Matters--Taxation of Annuities in General" at page 31 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 or a
Policy request. 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 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.
6
<PAGE> 151
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.
If the Owner is not a natural person, these "death of Owner" rules apply when
the primary Annuitant is changed. 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.
For the year ended December 31, 1995, the aggregate amount of underwriting
commissions paid to NYLIFE Distributors Inc. was $55,918, of which $27,959 was
retained by them. For the year ended December 31, 1996, the aggregate amount of
underwriting commissions paid to NYLIFE Distributors Inc. was $528,880, of which
$264,440 was retained by them. For the year ended December 31, 1997, the
aggregate amount of underwriting commissions paid to NYLIFE Distributors Inc.
was $1,662,404, of which $831,203 was retained by them.
The offering is on a continuous basis.
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.
7
<PAGE> 152
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 nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyowners in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyholders in that
state who excluded themselves from the settlement of the nationwide class action
was recently reversed by an intermediate appellate court; plaintiffs filed a
motion for rehearing in the intermediate appellate court and the motion was
denied. Plaintiffs may file a petition with the highest court within the
statutory time allowed to do so.
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
INDEPENDENT ACCOUNTANTS
The annual financial statements of the Separate Account and NYLIAC have
been 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.
8
<PAGE> 153
FINANCIAL STATEMENTS
F-1
<PAGE> 154
STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost: $154,081,441; $47,763,380;
$25,292,531; $12,778,765; $207,738,142;
$12,024,934; $99,004,373; $106,681,069;
$23,036,116, respectively).......................... $187,063,193 $ 47,763,443 $ 26,074,795
LIABILITIES:
Liability for mortality and expense risk charges...... 625,766 170,441 89,681
------------ ------------ ------------
Total equity...................................... $186,437,427 $ 47,593,002 $ 25,985,114
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
11,000,900; 43,156,823; 1,205,318; 1,102,738;
14,576,756; 931,624; 7,628,679; 7,235,593;
1,981,340, respectively........................... $186,437,427 $ 47,593,002 $ 14,202,181
Equity of New York Life Insurance and
Annuity Corporation:
Variable accumulation units outstanding for the
Convertible Investment Division: 1,000,000........ -- -- 11,782,933
------------ ------------ ------------
Total equity...................................... $186,437,427 $ 47,593,002 $ 25,985,114
============ ============ ============
Variable accumulation unit value.................... $ 16.95 $ 1.10 $ 11.78
============ ============ ============
</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: $87,214,499; $155,681,009;
$10,603,092; $4,148,755; $36,511,708;
$27,589,246; $23,630,150; $52,072,462;
$9,770,575, respectively)........................... $ 87,497,499 $183,300,051 $ 11,176,351
LIABILITIES:
Liability for mortality and expense risk charges...... 286,380 590,789 35,075
------------ ------------ ------------
Total equity...................................... $ 87,211,119 $182,709,262 $ 11,141,276
============ ============ ============
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
4,978,788; 9,981,999; 1,060,048; 281,938;
3,078,610; 2,266,594; 2,042,709; 4,392,279;
826,986, respectively............................. $ 87,211,119 $182,709,262 $ 11,141,276
============ ============ ============
Variable accumulation unit value.................... $ 17.52 $ 18.30 $ 10.51
============ ============ ============
</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> 155
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<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>
$ 12,729,673 $204,003,435 $ 11,514,434 $111,591,834 $121,015,336 $ 22,861,428
42,358 666,936 38,565 376,259 393,756 75,157
------------ ------------ ------------ ------------ ------------ ------------
$ 12,687,315 $203,336,499 $ 11,475,869 $111,215,575 $120,621,580 $ 22,786,271
============ ============ ============ ============ ============ ============
$ 12,687,315 $203,336,499 $ 11,475,869 $111,215,575 $120,621,580 $ 22,786,271
-- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
$ 12,687,315 $203,336,499 $ 11,475,869 $111,215,575 $120,621,580 $ 22,786,271
============ ============ ============ ============ ============ ============
$ 11.51 $ 13.95 $ 12.32 $ 14.58 $ 16.67 $ 11.50
============ ============ ============ ============ ============ ============
</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>
$ 4,172,943 $ 40,180,957 $ 30,000,204 $ 25,251,412 $ 54,981,581 $ 8,205,783
12,639 121,283 85,234 76,423 174,689 26,263
------------ ------------ ------------ ------------ ------------ ------------
$ 4,160,304 $ 40,059,674 $ 29,914,970 $ 25,174,989 $ 54,806,892 $ 8,179,520
============ ============ ============ ============ ============ ============
$ 4,160,304 $ 40,059,674 $ 29,914,970 $ 25,174,989 $ 54,806,892 $ 8,179,520
============ ============ ============ ============ ============ ============
$ 14.76 $ 13.01 $ 13.20 $ 12.32 $ 12.48 $ 9.89
============ ============ ============ ============ ============ ============
</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> 156
STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
---------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 218 $ 2,141,281 $ 974,235
Mortality and expense risk charges.................. (2,005,027) (584,103) (284,676)
------------ ------------ ------------
Net investment income (loss).................... (2,004,809) 1,557,178 689,559
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 4,705,404 117,813,310 628,113
Cost of investments sold............................ (3,243,437) (117,812,926) (558,562)
------------ ------------ ------------
Net realized gain (loss) on investments......... 1,461,967 384 69,551
Realized gain distribution received................. 2,490,645 -- 1,382,924
Change in unrealized appreciation (depreciation) on
investments....................................... 24,856,920 89 524,116
------------ ------------ ------------
Net gain (loss) on investments.................. 28,809,532 473 1,976,591
------------ ------------ ------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (54,419) (3,261) (8,739)
------------ ------------ ------------
Net increase in total equity resulting from
operations.................................... $ 26,750,304 $ 1,554,390 $ 2,657,411
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
---------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME (LOSS):
Dividend income..................................... $ 603,506 $ 2,267,827 $ --
Mortality and expense risk charges.................. (823,978) (1,629,713) (84,204)
------------ ------------ ------------
Net investment income (loss).................... (220,472) 638,114 (84,204)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments................... 357,981 1,664,270 749,075
Cost of investments sold............................ (303,561) (1,150,801) (736,831)
------------ ------------ ------------
Net realized gain on investments................ 54,420 513,469 12,244
Realized gain distribution received................. 11,231,183 4,074,683 181,977
Change in unrealized appreciation (depreciation) on
investments....................................... 1,410,618 22,999,711 575,759
------------ ------------ ------------
Net gain (loss) on investments.................. 12,696,221 27,587,863 769,980
------------ ------------ ------------
Increase (decrease) attributable to funds of New
York Life Insurance and Annuity Corporation
retained by Separate Account...................... (29,274) (52,444) (1,898)
------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations..................... $ 12,446,475 $ 28,173,533 $ 683,878
============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-4
<PAGE> 157
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<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>
$ 810,754 $ 12,980,396 $ 892,079 $ 2,350,316 $ 1,519,954 $ 1,414,166
(146,527) (1,964,468) (143,769) (1,239,258) (1,133,891) (237,178)
------------ ------------ ------------ ------------ ------------ ------------
664,227 11,015,928 748,310 1,111,058 386,063 1,176,988
------------ ------------ ------------ ------------ ------------ ------------
1,638,432 1,496,124 1,275,193 1,599,951 327,423 1,316,770
(1,674,476) (1,245,567) (1,222,507) (1,261,355) (225,842) (1,379,439)
------------ ------------ ------------ ------------ ------------ ------------
(36,044) 250,557 52,686 338,596 101,581 (62,669)
-- 8,027,954 -- 2,007,938 5,111,434 63,187
215,099 (4,636,421) (522,105) 9,625,259 9,929,931 256,928
------------ ------------ ------------ ------------ ------------ ------------
179,055 3,642,090 (469,419) 11,971,793 15,142,946 257,446
------------ ------------ ------------ ------------ ------------ ------------
(2,274) (45,438) 386 (28,939) (33,267) (3,926)
------------ ------------ ------------ ------------ ------------ ------------
$ 841,008 $ 14,612,580 $ 279,277 $ 13,053,912 $ 15,495,742 $ 1,430,508
============ ============ ============ ============ ============ ============
</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>
$ 91,503 $ 43,874 $ 46,869 $ 444,987 $ 337,924 $ 55,591
(35,348) (272,321) (178,207) (162,126) (401,259) (79,649)
------------ ------------ ------------ ------------ ------------ ------------
56,155 (228,447) (131,338) 282,861 (63,335) (24,058)
------------ ------------ ------------ ------------ ------------ ------------
903,217 214,396 224,944 269,796 267,361 1,111,633
(780,288) (181,698) (195,848) (239,912) (225,488) (973,510)
------------ ------------ ------------ ------------ ------------ ------------
122,929 32,698 29,096 29,884 41,873 138,123
198,489 115,953 235,647 15,180 135,117 245,953
41,821 3,633,056 2,411,326 1,622,795 2,881,305 (1,574,419)
------------ ------------ ------------ ------------ ------------ ------------
363,239 3,781,707 2,676,069 1,667,859 3,058,295 (1,190,343)
------------ ------------ ------------ ------------ ------------ ------------
(963) (8,761) (4,837) (5,264) (8,481) 1,437
------------ ------------ ------------ ------------ ------------ ------------
$ 418,431 $ 3,544,499 $ 2,539,894 $ 1,945,456 $ 2,986,479 $ (1,212,964)
============ ============ ============ ============ ============ ============
</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> 158
STATEMENT OF CHANGES IN TOTAL EQUITY
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
--------------------------- ---------------------------
1997 1996 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)......................... $ (2,004,809) $ (664,388) $ 1,557,178 $ 810,638
Net realized gain (loss) on investments.............. 1,461,967 82,133 384 (220)
Realized gain distribution received.................. 2,490,645 -- -- --
Change in unrealized appreciation (depreciation) on
investments........................................ 24,856,920 7,874,228 89 (27)
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account................................... (54,419) (8,631) (3,261) (270)
------------ ------------ ------------ ------------
Net increase in total equity resulting from
operations....................................... 26,750,304 7,283,342 1,554,390 810,121
------------ ------------ ------------ ------------
Contributions and withdrawals:
Equity contribution by New York Life Insurance and
Annuity Corporation................................ -- -- -- --
Policyowners' premium payments....................... 10,878,222 6,695,280 533,387,885 350,217,192
Policyowners' surrenders............................. (3,833,164) (876,617) (593,348) (311,835)
Policyowners' annuity and death benefits............. (570,014) (174,699) (89,388) (89,119)
Net transfers from (to) Fixed Account................ 139,248 320,781 (2,565,258) (2,160,711)
Transfers between Investment Divisions............... 56,355,081 72,162,586 (518,855,377) (327,243,653)
------------ ------------ ------------ ------------
Net contributions and withdrawals.................. 62,969,373 78,127,331 11,284,514 20,411,874
------------ ------------ ------------ ------------
Increase in total equity......................... 89,719,677 85,410,673 12,838,904 21,221,995
TOTAL EQUITY:
Beginning of year.................................... 96,717,750 11,307,077 34,754,098 13,532,103
------------ ------------ ------------ ------------
End of year.......................................... $186,437,427 $ 96,717,750 $ 47,593,002 $ 34,754,098
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE
--------------------------- ---------------------------
1997 1996 1997 1996
------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)......................... $ 1,111,058 $ 796,765 $ 386,063 $ 214,224
Net realized gain (loss) on investments.............. 338,596 67,663 101,581 62,057
Realized gain distribution received.................. 2,007,938 -- 5,111,434 621,260
Change in unrealized appreciation (depreciation) on
investments........................................ 9,625,259 2,963,990 9,929,931 4,267,746
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation retained by
Separate Account................................... (28,939) (5,906) (33,267) (9,279)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity resulting
from operations.................................. 13,053,912 3,822,512 15,495,742 5,156,008
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments....................... 6,536,163 4,782,594 7,389,878 3,152,430
Policyowners' surrenders............................. (2,714,075) (539,346) (2,348,977) (375,043)
Policyowners' annuity and death benefits............. (620,414) (18,557) (381,578) (31,082)
Net transfers from (to) Fixed Account................ (367,210) (38,671) 100,929 (182,311)
Transfers between Investment Divisions............... 30,635,555 49,131,827 53,907,058 33,850,065
------------ ------------ ------------ ------------
Net contributions and withdrawals.................. 33,470,019 53,317,847 58,667,310 36,414,059
------------ ------------ ------------ ------------
Increase in total equity......................... 46,523,931 57,140,359 74,163,052 41,570,067
TOTAL EQUITY:
Beginning of year.................................... 64,691,644 7,551,285 46,458,528 4,888,461
------------ ------------ ------------ ------------
End of year.......................................... $111,215,575 $ 64,691,644 $120,621,580 $ 46,458,528
============ ============ ============ ============
</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> 159
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CONVERTIBLE GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
--------------------------- --------------------------- --------------------------- ---------------------------
1997 1996(a) 1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 689,559 $ 91,554 $ 664,227 $ 490,076 $ 11,015,928 $ 3,322,050 $ 748,310 $ 338,759
69,551 51 (36,044) (104,689) 250,557 44,243 52,686 31,286
1,382,924 22,531 -- -- 8,027,954 1,045,061 -- 10,677
524,116 258,148 215,099 (177,770) (4,636,421) 1,034,049 (522,105) 10,409
(8,739) (606) (2,274) (704) (45,438) (11,968) 386 (1,301)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,657,411 371,678 841,008 206,913 14,612,580 5,433,435 279,277 389,830
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-- 10,000,000 -- -- -- -- -- --
859,834 25,163 656,652 868,542 15,824,644 6,212,700 652,833 669,296
(244,202) (3,437) (396,389) (685,395) (4,527,694) (762,345) (221,697) (127,066)
(72,117) -- (48,462) (2,576) (1,111,802) (62,320) (24,509) --
37,227 5,137 (159,195) (2,472) 460,931 75,022 2,289 25,429
9,809,745 2,538,675 2,680,687 6,850,594 96,235,470 63,927,520 2,565,306 6,538,724
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,390,487 12,565,538 2,733,293 7,028,693 106,881,549 69,390,577 2,974,222 7,106,383
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
13,047,898 12,937,216 3,574,301 7,235,606 121,494,129 74,824,012 3,253,499 7,496,213
12,937,216 -- 9,113,014 1,877,408 81,842,370 7,018,358 8,222,370 726,157
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 25,985,114 $ 12,937,216 $ 12,687,315 $ 9,113,014 $203,336,499 $ 81,842,370 $ 11,475,869 $ 8,222,370
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP MAINSTAY VP SMALL
BOND GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
--------------------------- --------------------------- --------------------------- ---------------------------
1997 1996 1997 1996 1997 1996 1997 1996(a)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1,176,988 $ 707,637 $ (220,472) $ 55,492 $ 638,114 $ 461,929 $ (84,204) $ (1,352)
(62,669) (22,130) 54,420 2,362 513,469 33,843 12,244 (303)
63,187 -- 11,231,183 3,899,589 4,074,683 660,493 181,977 --
256,928 (368,463) 1,410,618 (956,785) 22,999,711 4,658,706 575,759 (2,501)
(3,926) (916) (29,274) (5,191) (52,444) (10,453) (1,898) (4)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,430,508 316,128 12,446,475 2,995,467 28,173,533 5,804,518 683,878 (4,160)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1,711,859 1,075,713 5,229,461 1,623,667 12,909,902 4,036,124 836,724 90,796
(541,597) (170,897) (1,146,808) (218,309) (2,242,151) (536,208) (186,892) (2,025)
(137,890) (21,291) (121,552) (54,801) (495,418) (60,199) (5,920) --
(22,994) (251,813) 150,624 93,346 158,473 (142,226) 126,538 5,467
7,660,804 9,912,712 38,749,467 24,711,617 83,737,908 47,219,415 8,490,851 1,106,019
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
8,670,182 10,544,424 42,861,192 26,155,520 94,068,714 50,516,906 9,261,301 1,200,257
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
10,100,690 10,860,552 55,307,667 29,150,987 122,242,247 56,321,424 9,945,179 1,196,097
12,685,581 1,825,029 31,903,452 2,752,465 60,467,015 4,145,591 1,196,097 --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 22,786,271 $ 12,685,581 $ 87,211,119 $ 31,903,452 $182,709,262 $ 60,467,015 $ 11,141,276 $ 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> 160
STATEMENT OF CHANGES IN TOTAL EQUITY (CONTINUED)
For the years ended December 31, 1997
and December 31, 1996
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
--------------------------- ---------------------------
1997 1996 1997 1996(a)
---------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)................ $ 56,155 $ 22,319 $ (228,447) $ (3,115)
Net realized gain on investments............ 122,929 2,650 32,698 --
Realized gain distribution received......... 198,489 81,014 115,953 --
Change in unrealized appreciation
(depreciation) on investments............. 41,821 (7,934) 3,633,056 36,193
Decrease attributable to funds of New York
Life Insurance and Annuity Corporation
retained by Separate Account.............. (963) (184) (8,761) (43)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations............... 418,431 97,865 3,544,499 33,035
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.............. 229,133 115,702 3,143,721 161,508
Policyowners' surrenders.................... (50,664) (52,684) (339,799) (1,347)
Policyowner's annuity and death benefits.... -- -- (51,672) --
Net transfers from (to) Fixed Account....... (27,090) (10,686) 232,305 46,266
Transfers between Investment Divisions...... 2,062,746 1,190,501 30,973,881 2,317,277
------------ ------------ ------------ ------------
Net contributions and withdrawals......... 2,214,125 1,242,833 33,958,436 2,523,704
------------ ------------ ------------ ------------
Increase in total equity................ 2,632,556 1,340,698 37,502,935 2,556,739
TOTAL EQUITY:
Beginning of year........................... 1,527,748 187,050 2,556,739 --
------------ ------------ ------------ ------------
End of year................................. $ 4,160,304 $ 1,527,748 $ 40,059,674 $ 2,556,739
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
--------------------------- ---------------------------
1997 1996(a) 1997 1996(a)
---------------------------------------------------------
<S> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment income (loss)................ $ (63,335) $ 9,652 $ (24,058) $ 574
Net realized gain (loss) on investments..... 41,873 (2) 138,123 (172)
Realized gain distribution received......... 135,117 -- 245,953 --
Change in unrealized appreciation
(depreciation)
on investments............................ 2,881,305 27,813 (1,574,419) 9,627
Increase (decrease) attributable to funds of
New York
Life Insurance and Annuity Corporation
retained by
Separate Account.......................... (8,481) (37) 1,437 (7)
------------ ------------ ------------ ------------
Net increase (decrease) in total equity
resulting from operations............... 2,986,479 37,426 (1,212,964) 10,022
------------ ------------ ------------ ------------
Contributions and withdrawals:
Policyowners' premium payments.............. 5,065,954 187,630 1,173,626 70,861
Policyowners' surrenders.................... (689,464) (245) (79,912) --
Policyowner's annuity and death benefits.... (100,782) -- -- --
Net transfers from Fixed Account............ 502,000 47,272 75,384 2,893
Transfers between Investment Divisions...... 44,252,676 2,517,946 7,422,353 717,257
------------ ------------ ------------ ------------
Net contributions and withdrawals......... 49,030,384 2,752,603 8,591,451 791,011
------------ ------------ ------------ ------------
Increase in total equity................ 52,016,863 2,790,029 7,378,487 801,033
TOTAL EQUITY:
Beginning of year........................... 2,790,029 -- 801,033 --
------------ ------------ ------------ ------------
End of year................................. $ 54,806,892 $ 2,790,029 $ 8,179,520 $ 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> 161
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
--------------------------------- ---------------------------------
1997 1996(a) 1997 1996(a)
---------------------------------------------------------------------------
<S> <C> <C> <C>
$ (131,338) $ (1,504) $ 282,861 $ 10,653
29,096 -- 29,884 37
235,647 -- 15,180 --
2,411,326 (367) 1,622,795 (1,534)
(4,837) -- (5,264) (43)
------------ ------------ ------------ ------------
2,539,894 (1,871) 1,945,456 9,113
------------ ------------ ------------ ------------
2,301,288 57,029 2,080,572 71,053
(233,692) (3,838) (252,056) (435)
(16,054) -- (29,064) --
139,382 19,406 112,186 26,917
23,623,399 1,490,027 20,033,507 1,177,740
------------ ------------ ------------ ------------
25,814,323 1,562,624 21,945,145 1,275,275
------------ ------------ ------------ ------------
28,354,217 1,560,753 23,890,601 1,284,388
1,560,753 -- 1,284,388 --
------------ ------------ ------------ ------------
$ 29,914,970 $ 1,560,753 $ 25,174,989 $ 1,284,388
============ ============ ============ ============
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
F-9
<PAGE> 162
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-10
<PAGE> 163
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS
NOTE 1-- Organization and Accounting Policies:
- --------------------------------------------------------------------------------
New York Life Insurance and Annuity Corporation Variable Annuity Separate
Account-III ("Separate Account" formerly, "LifeStages(SM) Annuity 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., certain banking
institutions which have entered into selling agreements with New York Life
Insurance and Annuity Corporation and registered representatives of
unaffiliated broker-dealers. 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, the Morgan Stanley Universal Funds, Inc. and certain other
funds (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 eighteen
investment divisions: 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-11
<PAGE> 164
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--Investments (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, the investments of the Separate Account are as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 8,355 47,764 2,423
Identified cost*........................................ $154,081 $ 47,763 $ 25,293
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
Number of shares........................................ 4,308 8,908 255
Identified cost*........................................ $ 87,214 $155,681 $ 10,603
</TABLE>
* The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the year ended December 31, 1997, was as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL CASH MAINSTAY VP
APPRECIATION MANAGEMENT CONVERTIBLE
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $ 68,427 $130,713 $ 13,132
Proceeds from sales..................................... 4,705 117,813 628
</TABLE>
<TABLE>
<CAPTION>
ALGER
MAINSTAY VP MAINSTAY VP AMERICAN
GROWTH INDEXED SMALL
EQUITY EQUITY CAPITALIZATION
-------------------------------------------------------
<S> <C> <C> <C>
Purchases............................................... $ 54,389 $100,798 $ 10,140
Proceeds from sales..................................... 358 1,664 749
</TABLE>
F-12
<PAGE> 165
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<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>
1,295 17,388 1,116 6,776 7,520 1,739
$ 12,779 $207,738 $ 12,025 $ 99,004 $106,681 $ 23,036
</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>
2,105 2,015 1,236 1,445 2,351 870
$ 4,149 $ 36,512 $ 27,589 $ 23,630 $ 52,072 $ 9,771
</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>
$ 5,047 $127,801 $ 5,009 $ 38,326 $ 64,706 $ 11,257
1,638 1,496 1,275 1,600 327 1,317
</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>
$ 3,379 $ 34,170 $ 26,222 $ 22,583 $ 49,533 $ 9,952
903 214 225 270 267 1,112
</TABLE>
F-13
<PAGE> 166
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 New York Life Insurance
and Annuity Corporation. Accordingly, New York Life Insurance and Annuity
Corporation participates in the results of each Investment Division ratably
with the Policyowners.
- --------------------------------------------------------------------------------
NOTE 4 --Distribution of Net Income:
- --------------------------------------------------------------------------------
The Separate Account does not expect to declare dividends to Policyowners from
accumulated net investment income and realized gains. The income and gains are
distributed to Policyowners as part of withdrawals of amounts (in the form of
surrenders, death benefits, transfers, or annuity payments) in excess of the
net premium payments.
F-14
<PAGE> 167
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-15
<PAGE> 168
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5-- Cost to Policyowners and New York Life Insurance and Annuity
Corporation (in 000's):
- --------------------------------------------------------------------------------
At December 31, 1997, 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)............... $152,107 $ 45,143 $ 22,956
Accumulated net investment income (loss)................. (2,651) 2,454 781
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 4,063 -- 1,475
Unrealized appreciation (depreciation) on investments.... 32,982 -- 782
Decrease attributable to funds of New York Life Insurance
and Annuity Corporation retained by Separate Account... (64) (4) (9)
-------- -------- --------
Net amount applicable to Policyowners and New York Life
Insurance and Annuity Corporation...................... $186,437 $ 47,593 $ 25,985
======== ======== ========
</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)................ $ 71,687 $148,580 $ 10,462
Accumulated net investment income (loss)................. (140) 1,168 (86)
Accumulated net realized gain (loss) on investments and
realized gain distributions received................... 15,416 5,405 194
Unrealized appreciation (depreciation) on investments.... 283 27,619 573
Increase (decrease) attributable to funds of New York
Life Insurance and Annuity Corporation retained by
Separate Account....................................... (35) (63) (2)
-------- -------- --------
Net amount applicable to Policyowners.................... $ 87,211 $182,709 $ 11,141
======== ======== ========
</TABLE>
F-16
<PAGE> 169
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<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>
$ 11,598 $183,143 $ 10,770 $ 94,177 $ 99,796 $ 20,995
1,280 14,568 1,119 2,067 629 1,992
(139) 9,418 98 2,420 5,906 (21)
(49) (3,735) (510) 12,587 14,334 (175)
(3) (58) (1) (35) (43) (5)
-------- -------- -------- -------- -------- --------
$ 12,687 $203,336 $ 11,476 $111,216 $120,622 $ 22,786
======== ======== ======== ======== ======== ========
</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>
$ 3,637 $ 36,483 $ 27,377 $ 23,220 $ 51,784 $ 9,383
89 (232) (133) 294 (54) (23)
411 149 265 45 177 384
24 3,669 2,411 1,621 2,909 (1,565)
(1) (9) (5) (5) (9) 1
-------- -------- -------- -------- -------- --------
$ 4,160 $ 40,060 $ 29,915 $ 25,175 $ 54,807 $ 8,180
======== ======== ======== ======== ======== ========
</TABLE>
F-17
<PAGE> 170
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's):
- --------------------------------------------------------------------------------
Transactions in accumulation units for the years ended December 31, 1997 and
December 31, 1996, were as follows:
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
CAPITAL APPRECIATION CASH MANAGEMENT
------------------------- -------------------------
1997 1996 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on contribution by New York Life Insurance and
Annuity Corporation....................................... -- -- -- --
Units issued on premium payments............................ 701 508 492,361 334,902
Units redeemed on surrenders................................ (242) (65) (548) (297)
Units redeemed on annuity and death benefits................ (36) (13) (82) (85)
Units issued (redeemed) on net transfers from (to) Fixed
Account................................................... 7 24 (2,361) (2,060)
Units issued (redeemed) on transfers between Investment
Divisions................................................. 3,622 5,544 (478,922) (312,941)
-------- -------- -------- --------
Net increase.............................................. 4,052 5,998 10,448 19,519
Units outstanding, beginning of year........................ 6,949 951 32,709 13,190
-------- -------- -------- --------
Units outstanding, end of year.............................. 11,001 6,949 43,157 32,709
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP
TOTAL RETURN VALUE
------------------------- -------------------------
1997 1996 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments............................ 482 400 485 253
Units redeemed on surrenders................................ (197) (44) (152) (30)
Units redeemed on annuity and death benefits................ (45) (2) (24) (3)
Units issued (redeemed) on net transfers from (to) Fixed
Account................................................... (28) (3) 5 (15)
Units issued on transfers between Investment Divisions...... 2,263 4,138 3,545 2,740
-------- -------- -------- --------
Net increase.............................................. 2,475 4,489 3,859 2,945
Units outstanding, beginning of year........................ 5,154 665 3,377 432
-------- -------- -------- --------
Units outstanding, end of year.............................. 7,629 5,154 7,236 3,377
======== ======== ======== ========
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-18
<PAGE> 171
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP
MAINSTAY VP MAINSTAY VP HIGH YIELD MAINSTAY VP
CONVERTIBLE GOVERNMENT CORPORATE BOND INTERNATIONAL EQUITY
------------------- ------------------- ------------------- ---------------------
1997 1996(a) 1997 1996 1997 1996 1997 1996
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
-- 1,000 -- -- -- -- -- --
78 2 59 83 1,184 528 54 58
(22) -- (36) (67) (335) (64) (18) (11)
(6) -- (4) -- (84) (5) (2) --
2 1 (14) -- 34 6 -- 2
903 247 243 661 7,239 5,426 206 576
-------- -------- -------- -------- -------- -------- -------- --------
955 1,250 248 677 8,038 5,891 240 625
1,250 -- 855 178 6,539 648 692 67
-------- -------- -------- -------- -------- -------- -------- --------
2,205 1,250 1,103 855 14,577 6,539 932 692
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP MAINSTAY VP SMALL
BOND GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
------------------- ------------------- ------------------- -------------------
1997 1996 1997 1996 1997 1996 1997 1996(a)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
155 104 329 126 776 316 84 9
(49) (16) (70) (17) (134) (42) (18) --
(13) (2) (7) (4) (29) (5) (1) --
(2) (24) 11 7 10 (10) 13 1
697 958 2,440 1,923 5,032 3,710 857 115
-------- -------- -------- -------- -------- -------- -------- --------
788 1,020 2,703 2,035 5,655 3,969 935 125
1,193 173 2,276 241 4,327 358 125 --
-------- -------- -------- -------- -------- -------- -------- --------
1,981 1,193 4,979 2,276 9,982 4,327 1,060 125
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-19
<PAGE> 172
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--Unit Transactions (in 000's) (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
------------------- -------------------
1997 1996 1997 1996(a)
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 16 10 259 16
Units redeemed on surrenders....................... (4) (4) (27) --
Units redeemed on annuity and death benefits....... -- -- (4) --
Units issued (redeemed) on net transfers from (to)
Fixed Account.................................... (2) (1) 19 4
Units issued on transfers between Investment
Divisions........................................ 149 101 2,591 221
-------- -------- -------- --------
Net increase..................................... 159 106 2,838 241
Units outstanding, beginning of year............... 123 17 241 --
-------- -------- -------- --------
Units outstanding, end of year..................... 282 123 3,079 241
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
------------------- -------------------
1997 1996(a) 1997 1996(a)
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 188 5 180 7
Units redeemed on surrenders....................... (19) -- (22) --
Units redeemed on annuity and death benefits....... (1) -- (2) --
Units issued on net transfers from Fixed Account... 12 2 10 2
Units issued on transfers between Investment
Divisions........................................ 1,938 142 1,752 116
-------- -------- -------- --------
Net increase..................................... 2,118 149 1,918 125
Units outstanding, beginning of year............... 149 -- 125 --
-------- -------- -------- --------
Units outstanding, end of year..................... 2,267 149 2,043 125
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
------------------- -------------------
1997 1996(a) 1997 1996(a)
-----------------------------------------
<S> <C> <C> <C> <C>
Units issued on premium payments................... 418 18 105 7
Units redeemed on surrenders....................... (56) -- (7) --
Units redeemed on annuity and death benefits....... (8) -- -- --
Units issued on net transfers from Fixed Account... 41 5 6 --
Units issued on transfers between Investment
Divisions........................................ 3,728 246 643 73
-------- -------- -------- --------
Net increase..................................... 4,123 269 747 80
Units outstanding, beginning of year............... 269 -- 80 --
-------- -------- -------- --------
Units outstanding, end of year..................... 4,392 269 827 80
======== ======== ======== ========
</TABLE>
(a) For the period October 1, 1996 (Commencement of Operations) through December
31, 1996.
F-20
<PAGE> 173
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-21
<PAGE> 174
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+:
- --------------------------------------------------------------------------------
The following table presents selected per accumulation unit income and
capital changes (for an accumulation unit outstanding throughout each year)
with respect to each Investment Division of the Separate Account:
<TABLE>
<CAPTION>
MAINSTAY VP
CAPITAL APPRECIATION
---------------------------
1997 1996 1995(a)
---------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $13.92 $11.89 $10.00
Net investment income (loss)................................ (0.22) (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)............................................. 3.25 2.20 1.83
------ ------ ------
Unit value, end of year..................................... $16.95 $13.92 $11.89
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
HIGH YIELD
CORPORATE BOND
---------------------------
1997 1996 1995(a)
---------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $12.52 $10.83 $10.00
Net investment income....................................... 1.05 1.02 1.15
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 0.38 0.67 (0.32)
------ ------ ------
Unit value, end of year..................................... $13.95 $12.52 $10.83
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP
BOND
---------------------------
1997 1996 1995(a)
---------------------------
<S> <C> <C> <C>
Unit value, beginning of year............................... $10.64 $10.57 $10.00
Net investment income (loss)................................ 0.76 0.99 2.16
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 0.10 (0.92) (1.59)
------ ------ ------
Unit value, end of year..................................... $11.50 $10.64 $10.57
====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(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-22
<PAGE> 175
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
CASH MANAGEMENT CONVERTIBLE GOVERNMENT
--------------------------- ----------------- ---------------------------
1997 1996 1995(a) 1997 1996(b) 1997 1996 1995(a)
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.06 $ 1.03 $ 1.00 $10.35 $10.00 $10.66 $10.57 $10.00
0.04 0.04 0.02 0.38 0.08 0.69 0.86 2.49
-- (0.01) 0.01 1.05 0.27 0.16 (0.77) (1.92)
------ ------ ------ ------ ------ ------ ------ ------
$ 1.10 $ 1.06 $ 1.03 $11.78 $10.35 $11.51 $10.66 $10.57
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
MAINSTAY VP MAINSTAY VP MAINSTAY VP
INTERNATIONAL EQUITY TOTAL RETURN VALUE
--------------------------- --------------------------- ---------------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$11.88 $10.90 $10.00 $12.55 $11.36 $10.00 $13.76 $11.32 $10.00
0.90 0.87 1.36 0.17 0.27 0.79 0.07 0.11 0.20
(0.46) 0.11 (0.46) 1.86 0.92 0.57 2.84 2.33 1.12
------ ------ ------ ------ ------ ------ ------ ------ ------
$12.32 $11.88 $10.90 $14.58 $12.55 $11.36 $16.67 $13.76 $11.32
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
ALGER
AMERICAN
MAINSTAY VP MAINSTAY VP SMALL
GROWTH EQUITY INDEXED EQUITY CAPITALIZATION
--------------------------------------- --------------------------------------- -----------------------
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996(b)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$14.01 $11.42 $10.00 $13.97 $11.58 $10.00 $ 9.57 $10.00
(0.06) 0.05 0.35 0.09 0.21 0.62 (0.14) (0.02)
3.57 2.54 1.07 4.24 2.18 0.96 1.08 (0.41)
------ ------ ------ ------ ------ ------ ------ ------
$17.52 $14.01 $11.42 $18.30 $13.97 $11.58 $10.51 $ 9.57
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-23
<PAGE> 176
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--Selected Per Unit Data+ (Continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALVERT FIDELITY
SOCIALLY VIP II:
RESPONSIBLE CONTRAFUND
--------------------------- -----------------
1997 1996 1995(a) 1997 1996(b)
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of year............................... $12.46 $11.22 $10.00 $10.63 $10.00
Net investment income (loss)................................ 0.31 0.35 1.60 (0.14) (0.03)
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 1.99 0.89 (0.38) 2.52 0.66
------ ------ ------ ------ ------
Unit value, end of year..................................... $14.76 $12.46 $11.22 $13.01 $10.63
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FIDELITY JANUS
VIP: ASPEN
EQUITY-INCOME BALANCED
----------------- -----------------
1997 1996(b) 1997 1996(b)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $10.45 $10.00 $10.24 $10.00
Net investment income (loss)................................ (0.13) (0.02) 0.28 0.17
Net realized and unrealized gains on security transactions
and realized capital gain distributions received (includes
the effect of capital share transactions)................. 2.88 0.47 1.80 0.07
------ ------ ------ ------
Unit value, end of year..................................... $13.20 $10.45 $12.32 $10.24
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JANUS MORGAN STANLEY
ASPEN EMERGING
WORLDWIDE MARKETS
GROWTH EQUITY
----------------- -----------------
1997 1996(b) 1997 1996(b)
-------------------------------------
<S> <C> <C> <C> <C>
Unit value, beginning of year............................... $10.36 $10.00 $10.00 $10.00
Net investment income (loss)................................ (0.03) 0.08 (0.05) 0.02
Net realized and unrealized gains (losses) on security
transactions and realized capital gain distributions
received (includes the effect of capital share
transactions)............................................. 2.15 0.28 (0.06) (0.02)
------ ------ ------ ------
Unit value, end of year..................................... $12.48 $10.36 $ 9.89 $10.00
====== ====== ====== ======
</TABLE>
+ Per unit data based on average monthly units outstanding during the year.
(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-24
<PAGE> 177
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, formerly known as 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, 1997,
and the results of each of their operations, the changes in each of their total
equity, and the selected per unit data for each of the periods presented in
conformity with generally accepted accounting principles. These financial
statements and the selected per unit data (herein referred to as the "financial
statements") are the responsibility of management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of investments at December 31, 1997 with the
MainStay VP Series Fund, Inc., The Alger American Fund, the Acacia Capital
Corporation, the Fidelity Variable Insurance Products Fund, the Fidelity
Variable Insurance Products Fund II, the Janus Aspen Series, and the Morgan
Stanley Universal Funds, Inc., 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-25
<PAGE> 178
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
New York Life Insurance and Annuity Corporation
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of New York Life Insurance and
Annuity Corporation at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
February 13, 1998
F-26
<PAGE> 179
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
------- -------
(IN MILLIONS)
<S> <C> <C>
ASSETS
Fixed maturities
Available for sale, at fair value...................... $12,170 $11,854
Held to maturity, at amortized cost.................... 801 647
Equity securities........................................... 83 70
Mortgage loans.............................................. 1,305 1,113
Real estate................................................. 151 151
Policy loans................................................ 481 464
Other long-term investments................................. 20 17
------- -------
Total investments................................. 15,011 14,316
Cash and cash equivalents................................... 773 236
Deferred policy acquisition costs........................... 688 691
Other assets................................................ 345 252
Separate account assets..................................... 4,315 2,445
------- -------
Total assets...................................... $21,132 $17,940
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances............................. $13,716 $13,163
Future policy benefits...................................... 276 251
Policy claims............................................... 55 57
Deferred taxes.............................................. 93 47
Other liabilities........................................... 727 333
Separate account liabilities................................ 4,303 2,403
------- -------
Total liabilities................................. 19,170 16,254
STOCKHOLDER'S EQUITY
Capital stock -- par value $10,000
(20,000 shares authorized,
2,500 issued and outstanding)............................. 25 25
Additional paid in capital.................................. 480 480
Net unrealized gains on investments......................... 157 68
Retained earnings........................................... 1,300 1,113
------- -------
Total stockholder's equity........................ 1,962 1,686
------- -------
Total liabilities and stockholder's equity........ $21,132 $17,940
======= =======
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE> 180
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Universal life and annuity fees........................ $ 267 $ 234 $ 224
Net investment income.................................. 1,066 1,048 1,012
Investment gains, net.................................. 126 65 38
Other income........................................... 82 58 71
------ ------ ------
Total revenues.................................... 1,541 1,405 1,345
------ ------ ------
EXPENSES
Interest credited to policyholders' account balances... 748 723 742
Policyholder benefits.................................. 141 117 168
Operating expenses..................................... 352 299 239
------ ------ ------
Total expenses.................................... 1,241 1,139 1,149
------ ------ ------
Income before Federal income taxes.......................... 300 266 196
Federal income taxes:
Current................................................ 114 121 84
Deferred............................................... (1) (24) (8)
------ ------ ------
Total Federal income taxes........................ 113 97 76
------ ------ ------
Net income.................................................. $ 187 $ 169 $ 120
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE> 181
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Stockholder's equity, beginning of year..................... $1,686 $1,676 $1,141
Net income.................................................. 187 169 120
Change in unrealized gains and losses on investments........ 89 (159) 415
------ ------ ------
Stockholder's equity, end of year........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 182
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 187 $ 169 $ 120
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... (43) (18) (26)
Net capitalization of deferred policy acquisition
costs................................................ (85) (44) (40)
Universal life and annuity fees........................ (202) (188) (183)
Interest credited to policyholders' account balances... 748 723 742
Net realized investment gains.......................... (126) (65) (38)
Deferred income taxes.................................. (1) (24) (8)
Decrease in net separate account assets................ 30 6 17
Decrease (increase) in other assets and other
liabilities.......................................... 126 (127) 308
(Decrease) increase in policy claims................... (2) (24) 8
Increase (decrease) in future policy benefits.......... 25 18 (80)
-------- ------- -------
Net cash provided by operating activities......... 657 426 820
-------- ------- -------
Cash Flows from Investing Activities:
Proceeds from sale of available for sale fixed
maturities............................................. 13,378 5,787 2,370
Proceeds from maturity of available for sale fixed
maturities............................................. 1,137 1,505 930
Proceeds from sale of held to maturity fixed securities... 3 -- --
Proceeds from maturity of held to maturity fixed
maturities............................................. 112 141 103
Proceeds from sale of equity securities................... 140 47 40
Proceeds from repayment of mortgage loans................. 220 143 244
Proceeds from sale of real estate......................... 24 55 13
Proceeds from other invested assets....................... 16 4 31
Cost of available for sale fixed maturities acquired...... (14,391) (7,447) (4,320)
Cost of held to maturity fixed maturities acquired........ (281) (95) (162)
Cost of equity securities acquired........................ (163) (43) (12)
Cost of mortgage loans acquired........................... (413) (280) (320)
Cost of real estate acquired.............................. (4) (35) (14)
Cost of other invested assets acquired.................... (25) (8) (5)
Policy loans.............................................. (17) (29) (25)
Securities sold under agreements to repurchase (net)...... 134 (37) (168)
-------- ------- -------
Net cash used in investing activities............. (130) (292) (1,295)
-------- ------- -------
Cash Flows from Financing Activities:
Policyholders' account balances:
Deposits............................................... 1,228 1,069 1,252
Withdrawals............................................ (176) (562) (751)
Net transfers to the separate accounts.................... (1,040) (733) (238)
Other, net................................................ -- -- (52)
-------- ------- -------
Net cash provided (used) by financing
activities...................................... 12 (226) 211
-------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... (2) 2 (1)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 537 (90) (265)
-------- ------- -------
Cash and cash equivalents, beginning of year................ 236 326 591
-------- ------- -------
Cash and cash equivalents, end of year...................... $ 773 $ 236 $ 326
======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 183
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF NEW YORK LIFE INSURANCE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 -- NATURE OF OPERATIONS
New York Life Insurance and Annuity Corporation ("NYLIAC"), is a direct,
wholly owned subsidiary of New York Life Insurance Company ("New York Life")
domiciled in the State of Delaware. NYLIAC offers a wide variety of interest
sensitive insurance and annuity products to a large cross section of the
insurance market. NYLIAC markets its products in all 50 of the United States,
the District of Columbia and Taiwan, primarily through its agency force. In
addition, NYLIAC markets Corporate Owned Life Insurance through independent
brokers and brokerage general agents.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements of life insurance enterprises requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements. Actual results may differ from estimates.
INVESTMENTS
Fixed maturity investments, which NYLIAC has both the ability and the
intent to hold to maturity, are stated at amortized cost. Investments identified
as available for sale are reported at fair value. Unrealized gains and losses on
available for sale securities are reported in stockholder's equity, net of
deferred taxes and related adjustments. The cost basis of fixed maturities is
adjusted for impairments in value deemed to be other than temporary, with the
associated realized loss reported in net income. Equity securities are carried
at fair value with related unrealized gains and losses reflected in
stockholder's equity, net of deferred taxes and related adjustments. Realized
losses are recognized in net income for other than temporary declines in the
fair value of equity securities. Mortgage loans are carried at unpaid principal
balances, net of impairment reserves, and are generally secured. Investment real
estate, which NYLIAC has the intent to hold for the production of income, is
carried at depreciated cost net of write-downs for other than temporary declines
in fair value. Properties held for sale are carried at the lower of cost or fair
value less estimated selling costs. Policy loans are stated at the aggregate
balance due, which approximates fair value since loans on policies have no
defined maturity date and reduce amounts payable at death or surrender. Cash
equivalents include investments that have maturities of 90 days or less at date
of purchase and are carried at amortized cost, which approximates fair value.
Short-term investments include investments that have maturities of between
91-365 days at date of purchase. They are included in fixed maturities on the
balance sheet, and are carried at amortized cost, which approximates fair value.
F-31
<PAGE> 184
INVESTMENTS -- (CONTINUED)
Derivative financial instruments used by NYLIAC to hedge exposure to
interest rate and foreign currency fluctuations are accounted for on an accrual
basis. Realized gains and losses related to contracts that are effective hedges
on specific assets are deferred and recognized in net income in the same period
as gains and losses on the hedged assets. Amounts payable or receivable under
interest rate, currency and commodity swap agreements and interest rate floor
agreements are recognized as investment income or expense when earned. Premiums
paid for interest rate floor agreements are amortized into interest expense over
the life of the agreement. Unamortized premiums are included in other assets in
the balance sheet.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business and certain costs of issuing policies
that vary with and are primarily related to the production of new business have
been deferred and recorded as an asset in the balance sheet. These consist
primarily of commissions, certain expenses of underwriting and issuing
contracts, and certain agency expenses. Acquisition costs for universal life and
annuity contracts are amortized in proportion to estimated gross profits over
the effective life of the contracts, which is assumed to be 25 years for
universal life contracts and 15 years for annuities. Changes in assumptions are
reflected in the current year's amortization.
The carrying amount of the deferred policy acquisition cost asset is
adjusted at each balance sheet date as if the unrealized gains or losses on
investments associated with these insurance contracts had been realized and
included in the gross profits used to determine current period amortization. The
increase or decrease in the deferred policy acquisition cost asset due to
unrealized gains or losses is recorded in stockholder's equity.
RECOGNITION OF INCOME AND RELATED EXPENSES
Amounts received under universal life and annuity contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period for mortality and expense risk,
policy administration and surrender charges. Policy benefits and claims that are
charged to expense include benefit claims incurred in the period in excess of
related policyholders' account balances.
POLICYHOLDERS' ACCOUNT BALANCES
Policyholders' account balances on universal life and annuity contracts are
equal to cumulative deposits plus credited interest less withdrawals and
charges.
FEDERAL INCOME TAXES
NYLIAC is a member of a group which files a consolidated Federal income tax
return with New York Life. The consolidated income tax provision or benefit is
allocated among the members of the group in accordance with a tax allocation
agreement. The tax allocation agreement provides that each member of the group
is allocated its share of the consolidated tax provision or benefit determined
on a separate company basis. Current Federal income taxes are charged or
credited to operations based upon amounts estimated to be payable or recoverable
as a result of taxable operations for the current year and any adjustments to
such estimates from prior years. Deferred income tax assets and liabilities are
recognized for the future tax consequence of temporary differences between
financial statement carrying amounts and income tax bases of assets and
liabilities.
Current Federal income taxes include a provision for NYLIAC's share of the
equity base tax applicable to mutual life insurance companies and their
subsidiaries. The amount recorded is based on NYLIAC's estimate of the
differential earnings rate (the actual rate will be announced at a later date by
the Internal Revenue Service ("IRS")) used to compute the equity base tax.
F-32
<PAGE> 185
REINSURANCE
NYLIAC enters into reinsurance agreements in the normal course of its
insurance business to reduce overall risk. NYLIAC remains liable for reinsurance
ceded if the reinsurer fails to meet its obligation on the business it has
assumed. NYLIAC evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
SEPARATE ACCOUNTS
NYLIAC has established separate accounts with varying investment objectives
which are segregated from NYLIAC's general account and are maintained for the
benefit of separate account policyholders and NYLIAC. Separate account assets
are stated at market value. The liability for separate accounts represents
policyholders' interests in the separate account assets. For its registered
separate accounts, these liabilities include accumulated net investment income
and realized and unrealized gains and losses on those assets, and generally
reflect market value. For its guaranteed, non-registered separate accounts, the
liability represents amounts due policyholders pursuant to the terms of the
binder agreements.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of various assets and liabilities are included throughout the
notes to financial statements. Specifically, fair value disclosure of fixed
maturities, short-term investments, cash equivalents, equity securities and
mortgage loans is reported in Note 2 -- Significant Accounting Policies and Note
3 -- Investments. Fair values for policyholders' account balances are reported
in Note 5 -- Insurance Liabilities. Fair values for derivative financial
instruments are included in Note 10 -- Derivative Financial Instruments and Risk
Management. Fair values for repurchase agreements are included in Note
11 -- Commitments and Contingencies.
BUSINESS RISKS AND UNCERTAINTIES
The development of policy reserves and deferred policy acquisition costs
for NYLIAC's products requires management to make estimates and assumptions
regarding mortality, morbidity, lapse, expense and investment experience. Such
estimates are primarily based on historical experience and future expectations
of mortality, morbidity, expense, persistency and investment assumptions. Actual
results could differ from those estimates. Management monitors actual
experience, and where circumstances warrant, revises its assumptions and the
related estimates for policy reserves and deferred policy acquisition costs.
NYLIAC regularly invests in mortgage loans, mortgage-backed securities and
other securities subject to prepayment and call risk. Significant changes in
prevailing interest rates and/or geographic conditions may adversely affect the
timing and amount of cash flows on such securities, as well as their related
values. In addition, the amortization of market premium and accretion of market
discount for mortgage-backed securities is based on historical experience and
estimates of future payment experience on the underlying mortgage loans. Actual
prepayment speeds will differ from original estimates and may result in material
adjustments to amortization or accretion recorded in future periods.
As a subsidiary of a mutual life insurance company, NYLIAC is subject to a
tax on its equity base. The rates applied to NYLIAC's equity base are determined
annually by the IRS after comparison of mutual life insurance company earnings
for the year to the average earnings of the 50 largest stock life insurance
companies for the prior three years. Due to the timing of earnings information,
estimates of the current year's tax rate must be made by management. The
ultimate amounts of equity base tax incurred may vary considerably from the
original estimates.
F-33
<PAGE> 186
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997 the FASB issued SFAS 130, "Reporting Comprehensive Income"
which establishes standards for the reporting and display of comprehensive
income and its components. Comprehensive income is composed of two items -- "net
income" and "other comprehensive income". Other comprehensive income includes
all changes in equity from nonowner sources (e.g., unrealized holding gains and
losses on available for sale securities).
This Statement requires that the Company classify items of other
comprehensive income according to their nature and present each item separately
in the financial statement in which other comprehensive income is reported. This
Statement also requires that the accumulated balance of other comprehensive
income be reported as a separate item in the equity section of the balance
sheet. This Statement is effective for the 1998 financial statements of the
Company. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Adoption of this Statement will have no
effect on reported net income or stockholder's equity.
NOTE 3 -- INVESTMENTS
FIXED MATURITIES
For publicly traded fixed maturities, estimated fair value is determined
using quoted market prices. For fixed maturities without a readily ascertainable
market value, NYLIAC has determined an estimated fair value using either a
discounted cash flow approach (including provisions for credit risk) or a
proprietary matrix pricing model.
At December 31, 1997 and 1996, the maturity distribution of fixed
maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE COST FAIR VALUE
------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 480 $ 482 $ 489 $ 491
Due after one year through five years.... 3,053 3,099 3,019 3,039
Due after five years through ten years... 2,156 2,230 2,122 2,151
Due after ten years...................... 2,425 2,608 2,030 2,091
Asset-backed securities:
Government or government agency..... 2,271 2,324 2,866 2,916
Other............................... 1,411 1,427 1,168 1,166
------- ------- ------- -------
Total Available for Sale............ $11,796 $12,170 $11,694 $11,854
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE COST FAIR VALUE
---------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 30 $ 30 $ 24 $ 24
Due after one year through five years.... 225 239 192 194
Due after five years through ten years... 226 240 235 241
Due after ten years...................... 224 238 100 105
Asset-backed securities.................. 96 97 96 96
------- ------- ------- -------
Total Held to Maturity.............. $ 801 $ 844 $ 647 $ 660
======= ======= ======= =======
</TABLE>
F-34
<PAGE> 187
FIXED MATURITIES -- (CONTINUED)
At December 31, 1997 and 1996, the distribution of gross unrealized gains
and losses on investments in fixed maturities was as follows (in millions):
<TABLE>
<CAPTION>
1997
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,066 $ 36 $ 1 $ 1,101
U.S. agencies, state and municipal........ 1,946 42 2 1,986
Foreign governments....................... 237 19 -- 256
Corporate................................. 7,136 276 12 7,400
Other..................................... 1,411 20 4 1,427
------- ---- --- -------
Total Available for Sale............. $11,796 $393 $19 $12,170
======= ==== === =======
HELD TO MATURITY
----------------
Corporate................................. $ 705 $ 42 $-- $ 747
Other..................................... 96 1 -- 97
------- ---- --- -------
Total Held to Maturity............... $ 801 $ 43 $-- $ 844
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
------------------ --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government
corporations and agencies............... $ 1,243 $ 24 $ 7 $ 1,260
U.S. agencies, state and municipal........ 2,561 64 15 2,610
Foreign governments....................... 191 13 1 203
Corporate................................. 6,531 131 47 6,615
Other..................................... 1,168 19 21 1,166
------- ---- --- -------
Total Available for Sale............. $11,694 $251 $91 $11,854
======= ==== === =======
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
HELD TO MATURITY COST GAINS LOSSES FAIR VALUE
---------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate................................. $ 551 $ 15 $ 2 $ 564
Other..................................... 96 -- -- 96
------- ---- --- -------
Total Held to Maturity............... $ 647 $ 15 $ 2 $ 660
======= ==== === =======
</TABLE>
F-35
<PAGE> 188
EQUITY SECURITIES
Estimated fair value for equity securities has been determined using quoted
market prices. At December 31, 1997 and 1996, the distribution of gross
unrealized gains and losses on equity securities is as follows (in millions):
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997...................... $66 $25 $8 $83
1996...................... $63 $ 8 $1 $70
</TABLE>
MORTGAGE LOANS
NYLIAC's mortgage loans are diversified by property type, location and
borrower, and are generally collateralized by the related property. The carrying
value of mortgage loans was $1,305 million and $1,113 million at December 31,
1997 and 1996, respectively.
The fair market value of the mortgage loan portfolio at December 31, 1997
and 1996 is estimated to be $1,408 million and $1,194 million, respectively.
Market values are determined by discounting the projected cash flow for each
individual loan to determine the current net present value. The discount rate
used approximates the current rate for new mortgages with comparable
characteristics and similar remaining maturities.
At December 31, 1997, contractual commitments to extend credit under
commercial and residential mortgage loan agreements amounted to approximately
$108 million, all at a fixed market rate of interest. These commitments are
diversified by property type and geographic region.
The provision for losses on mortgage loans was $14 million and $20 million
at December 31, 1997 and 1996, respectively. The activity in the specific and
general provision as of December 31, 1997 and 1996 is summarized below (in
millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Beginning balance.................................. $20 $20
Reductions credited to operations.................. (1) (1)
Direct writedowns.................................. -- 9
Recoveries of amounts previously charged off....... (5) (8)
--- ---
Ending balance..................................... $14 $20
=== ===
</TABLE>
Impaired mortgage loans along with specific provisions for losses as of
December 31, 1997 and 1996, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Impaired mortgage loans with provisions for
losses.......................................... $19 $ 39
Provision for losses.............................. (8) (14)
--- ----
Net impaired mortgage loans....................... $11 $ 25
=== ====
</TABLE>
F-36
<PAGE> 189
MORTGAGE LOANS -- (CONTINUED)
NYLIAC accrues interest income on impaired loans to the extent it is deemed
collectible and the loan continues to perform under its original or restructured
contractual terms. Interest income on problem loans is generally recognized on a
cash basis. Cash payments on loans in the process of foreclosure are generally
treated as a return of principal.
At December 31, 1997 and 1996, the distribution of the mortgage loan
portfolio by property type and geographic region was as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Property Type:
Office building.......................... $ 601 $ 643
Retail................................... 255 235
Apartments............................... 187 179
Residential.............................. 172 18
Other.................................... 90 38
------ ------
Total............................... $1,305 $1,113
====== ======
Geographic Region:
Central.................................. $ 250 $ 246
Pacific.................................. 145 133
Middle Atlantic.......................... 426 377
South Atlantic........................... 362 307
New England.............................. 73 33
Other.................................... 49 17
------ ------
Total............................... $1,305 $1,113
====== ======
</TABLE>
REAL ESTATE
At December 31, 1997 and 1996, NYLIAC's real estate portfolio consisted of
the following (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Investment....................................... $103 $105
Acquired through foreclosure..................... 19 39
Real estate joint ventures and limited partnerships 29 7
---- ----
Total real estate...................... $151 $151
==== ====
</TABLE>
Accumulated depreciation on real estate was $8 million and $5 million at
December 31, 1997 and 1996, respectively. Depreciation expense totaled $3
million for each of the years ended December 31, 1997, 1996 and 1995.
F-37
<PAGE> 190
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
The components of net investment income for the years ended December 31,
1997, 1996 and 1995, were as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Fixed maturities..................... $ 961 $ 920 $ 904
Equity securities.................... 6 3 3
Mortgage loans....................... 96 93 82
Real estate.......................... 18 21 19
Policy loans......................... 39 37 35
Other................................ 1 6 4
------ ------ ------
Gross investment income......... 1,121 1,080 1,047
Investment expenses.................. (55) (32) (35)
------ ------ ------
Net investment income...... $1,066 $1,048 $1,012
====== ====== ======
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, realized investment
gains computed under the specific identification method are as follows (in
millions):
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
GAINS LOSSES GAINS LOSSES GAINS LOSSES
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities....................... $172 $ (83) $100 $ (64) $ 62 $ (32)
Equity securities...................... 9 (4) 22 (1) 16 (7)
Mortgage loans......................... 12 (8) 15 (19) 15 (19)
Real estate............................ 3 (2) 6 (3) 1 (1)
Derivative instruments................. 80 (71) 46 (41) 102 (102)
Other.................................. 19 (1) 7 (3) 9 (6)
---- ----- ---- ----- ---- -----
Subtotal.......................... $295 $(169) $196 $(131) $205 $(167)
---- ----- ---- ----- ---- -----
Investment gains, net.................. $126 $65 $38
===== ==== ====
</TABLE>
During 1997, one fixed maturity investment that had been classified as held
to maturity was sold due to credit deterioration. The investment had an
amortized cost of $2,791,000, and the sale resulted in a realized gain of
$14,000.
F-38
<PAGE> 191
NOTE 4 -- INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES -- (CONTINUED)
Stockholder's equity at December 31, 1997 and 1996 includes net unrealized
gains as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Net unrealized gains on investments before adjustments...... $ 382 $ 163
----- -----
Related adjustments:
Deferred policy acquisition costs...................... (148) (60)
Policyholder liabilities............................... 7 2
Deferred Federal income taxes.......................... (84) (37)
----- -----
(225) (95)
----- -----
Net unrealized gains on investments included in
stockholder's equity...................................... $ 157 $ 68
===== =====
</TABLE>
Changes in net unrealized gains and losses on investments were as follows
(in millions):
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Unrealized gains (losses) on investments:
Beginning of year...................................... $163 $ 535
End of year............................................ 382 163
---- -----
Net change............................................. 219 (372)
Change in related adjustments of balance sheet accounts:
Deferred policy acquisition costs...................... (88) 136
Policyholder liabilities............................... 5 (7)
Deferred Federal income taxes.......................... (47) 84
---- -----
Change in unrealized gains on investments................... 89 (159)
Net unrealized gains on investments at beginning of year.... 68 227
---- -----
Net unrealized gains on investments at end of year.......... $157 $ 68
==== =====
</TABLE>
NOTE 5 -- INSURANCE LIABILITIES
POLICYHOLDERS' ACCOUNT BALANCES
NYLIAC's annuity contracts are primarily deferred annuities. The carrying
value, which approximates fair value, of NYLIAC's liabilities for deferred
annuities at December 31, 1997 and 1996, was $7,150 million and $7,345 million,
respectively.
NOTE 6 -- SEPARATE ACCOUNTS
NYLIAC maintains nine non-guaranteed, registered separate accounts for its
variable deferred annuity and variable life products. NYLIAC maintains
investments in the registered separate accounts of $12 million and $42 million
at December 31, 1997 and 1996, respectively. The assets of the separate
accounts, which are carried at market value, represent investments in shares of
the New York Life sponsored MainStay VP Series Fund and other nonproprietary
funds.
In addition, in 1997 two guaranteed, non-registered separate accounts were
established for universal life insurance policies. These accounts provide a
minimum guaranteed interest rate with a market value adjustment imposed upon
certain surrenders. The assets of these separate accounts are carried at market
value.
F-39
<PAGE> 192
NOTE 7 -- DEFERRED POLICY ACQUISITION COSTS
An analysis of deferred policy acquisition costs (DAC) for the years ended
December 31, 1997, 1996 and 1995 is as follows (in millions):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Balance at beginning of year before adjustment for
unrealized gains on investments........................... $751 $ 707 $ 667
Current year additions...................................... 200 151 126
Amortized during year....................................... (115) (107) (86)
Balance at end of year before adjustment for unrealized
gains on investments...................................... 836 751 707
Adjustment for unrealized gains on investments.............. (148) (60) (196)
---- ----- -----
Balance at end of year...................................... $688 $ 691 $ 511
==== ===== =====
</TABLE>
NOTE 8 -- FEDERAL INCOME TAXES
The components of the net deferred tax liability as of December 31, 1997
and 1996 are as follows (in millions):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Future policyholder benefits........... $153 $131
Employee and agents benefits........... 49 44
Other.................................. 6 16
---- ----
Gross deferred tax assets......... 208 191
==== ====
Deferred tax liabilities:
Deferred policy acquisition costs...... 147 161
Investments............................ 149 68
Other.................................. 5 9
---- ----
Gross deferred tax liabilities.... 301 238
---- ----
Net deferred tax liability........ $ 93 $ 47
==== ====
</TABLE>
The gross deferred tax asset relates to temporary differences that are
expected to reverse as net ordinary deductions. Management believes that
NYLIAC's taxable income in future years will be sufficient to realize the
deferred tax benefits and therefore, no valuation allowance has been recorded.
F-40
<PAGE> 193
NOTE 8 -- FEDERAL INCOME TAXES -- (CONTINUED)
Set forth below is a reconciliation of the Federal income tax rate to the
effective tax rate for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............. 35.0% 35.0% 35.0%
Equity base tax............................... 3.3 3.2 --
Tax-exempt income............................. (.5) (.7) (1.3)
Other......................................... (.1) (.9) 5.2
---- ---- ----
Effective tax rate............................ 37.7% 36.6% 38.9%
==== ==== ====
</TABLE>
NYLIAC's Federal income tax returns are routinely examined by the IRS and
provisions are made in the financial statements in anticipation of the results
of these audits. The IRS has completed audits through 1993. There were no
material effects on NYLIAC's results of operations as a result of these audits.
NYLIAC believes that its recorded income tax liabilities are adequate for all
open years.
NOTE 9 -- REINSURANCE
A group reinsurance agreement between NYLIAC and New York Life was approved
by the New York State Insurance Department in 1981 and was terminated effective
December 31, 1995. Under the terms of the agreement, NYLIAC assumed the
liabilities for group health long-term disability policies issued by New York
Life. Cash settlements were made between the companies through 1996 as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Premiums due..................................... $-- $(32)
Benefit reimbursement............................ 22 20
Experience refund................................ 4 8
--- ----
Net settlement paid (received) by NYLIAC......... $26 $ (4)
=== ====
</TABLE>
As a result of the termination of the group reinsurance agreement between
NYLIAC and New York Life, NYLIAC transferred $119 million in 1996 as payment for
the reserves held to support the claims of the disabled lives covered under the
group reinsurance contract. At December 31, 1995, NYLIAC had established a
liability of $119 million for this payment.
On April 1, 1997 NYLIAC, under the terms of an assumption reinsurance
agreement, acquired certain bank owned life insurance policies that had been
issued by Confederation Life Insurance Company. In conjunction with this
transaction, NYLIAC recorded a liability for policyholder account balances of
$278 million, and received cash of $245 million and a note receivable of $11
million. The difference of $22 million between the liability recorded and the
assets received has been recorded as DAC, which will be amortized over the
remaining life of the policies, assumed to be 25 years.
F-41
<PAGE> 194
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
NYLIAC uses derivative financial instruments to manage interest rate,
currency and market risk. These derivative financial instruments include foreign
currency forward exchange contracts, interest rate floors, and interest rate and
commodity swaps. NYLIAC has not engaged in derivative financial instrument
transactions for speculative purposes.
Notional or contractual amounts of derivative financial instruments provide
only a measure of involvement in these types of transactions and do not
represent the amounts exchanged between the parties engaged in the transaction.
The amounts exchanged are determined by reference to the notional amounts and
other terms of the derivative financial instruments which relate to interest
rates, exchange rates, or other financial indices.
NYLIAC is exposed to credit-related losses in the event that a counterparty
fails to perform its obligations under contractual terms. The credit exposure of
derivative financial instruments is represented by the sum of fair values of
contracts with each counterparty, if the net value is positive, at the reporting
date.
NYLIAC deals with highly rated counterparties and does not expect the
counterparties to fail to meet their obligations. NYLIAC has controls in place
to monitor credit exposures by limiting transactions with specific
counterparties within specified dollar limits and assessing the future
creditworthiness of counterparties. NYLIAC uses master netting agreements and
adjusts transaction levels, when appropriate, to minimize risk.
INTEREST RATE RISK MANAGEMENT
NYLIAC enters into various types of interest rate contracts primarily to
minimize exposure of specific assets held by NYLIAC to fluctuations in interest
rates.
The following table summarizes the notional amounts and credit exposures of
interest rate related derivative transactions (in thousands):
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
NOTIONAL CREDIT NOTIONAL CREDIT
AMOUNT EXPOSURE AMOUNT EXPOSURE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Rate Swaps........................ $125,000 $2,973 $ 57,000 $992
Interest Rate Floors....................... $150,000 $ 251 $150,000 $120
</TABLE>
Interest rate swaps are agreements with other parties to exchange, at
specified intervals, the difference between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed upon notional amount. Swap
contracts outstanding at December 31, 1997 are between seven years, eight months
and twenty years in maturity. At December 31, 1996 such contracts were between
eight years, eight months and fourteen years, four months in maturity. NYLIAC
does not act as an intermediary or broker in interest rate swaps.
F-42
<PAGE> 195
INTEREST RATE RISK MANAGEMENT -- (CONTINUED)
The following table shows the type of swaps used by NYLIAC and the weighted
average interest rates. Average variable rates are based on the rates which
determine the last payment received or paid on each contract; those rates may
change significantly, affecting future cash flows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Receive -- fixed swaps -- Notional amount (in thousands).... $125,000 $57,000
Average receive rate................................... 6.64% 7.19%
Average pay rate....................................... 5.70% 5.92%
</TABLE>
During the term of the swap, net settlement amounts are recorded as
investment income or expense when earned. Fair values of interest rate swaps
were $2,973,000 and $569,000 at December 31, 1997 and 1996, respectively, based
on quoted market prices.
Interest rate floor agreements entitle NYLIAC to receive amounts from
counterparties based upon the difference between a strike price and current
interest rates. Such agreements serve as hedges against declining interest rates
on a portfolio of assets. Amounts received during the term of interest rate
floor agreements are recorded as investment income.
At December 31, 1997 and 1996, unamortized premiums on interest rate floors
amounted to $447,000 and $522,000, respectively. Fair values of such agreements
were $251,000 and $120,000 at December 31, 1997 and 1996, respectively, based on
quoted market prices.
COMMODITY RISK MANAGEMENT
NYLIAC has certain bond investments with interest payments linked to prices
of commodities such as gold and crude oil. NYLIAC has entered into commodity
swaps with a total notional amount of $18,000,000 as a hedge against commodity
risks. The credit exposure of these swaps is $3,021,000 at December 31, 1997.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
In 1995, NYLIAC and New York Life settled a nationwide class action brought
in New York State court related to the sale of whole life and universal life
insurance policies from 1982 through 1994. In entering into the settlement,
NYLIAC specifically denied any wrongdoing. The settlement was approved by the
judge and has been upheld on appeal.
There are also actions in various jurisdictions by individual policyowners
who either did or did not exclude themselves from the settlement of the
nationwide class action and a purported class action claiming to include
numerous policyowners in one jurisdiction who did not exclude themselves from
the nationwide class action. The certification by a non-New York State court of
a purported class action claiming to include numerous policyowners in that state
who excluded themselves from the settlement of the nationwide class action was
recently reversed by an intermediate appellate court; plaintiffs have filed a
motion for rehearing in the intermediate appellate court. Most of these actions
seek substantial or unspecified compensatory and punitive damages.
F-43
<PAGE> 196
LITIGATION -- (CONTINUED)
NYLIAC is also a defendant in other individual suits arising from its
insurance (including variable contracts registered under the federal securities
law), investment and/or other operations, including actions involving retail
sales practices. Most of these actions also seek substantial or unspecified
compensatory and punitive damages. NYLIAC is also from time to time involved as
a party in various governmental, administrative, and investigative proceedings
and inquiries.
Given the uncertain nature of litigation and regulatory inquiries, the
outcome of the above cannot be predicted. NYLIAC nevertheless believes that,
after provisions made in the financial statements, the ultimate liability that
could result from such litigation and proceedings would not have a material
adverse effect on NYLIAC's financial position; however, it is possible that
settlements or adverse determinations in one or more actions or other
proceedings in the future could have a material adverse effect on NYLIAC's
operating results for a given year.
LOANED SECURITIES AND REPURCHASE AGREEMENTS
NYLIAC participates in a securities lending program for the purpose of
enhancing income on securities held. At December 31, 1997, $659 million ($826
million at December 31, 1996) of NYLIAC's bonds were on loan to others, but were
fully collateralized in an account held in trust for NYLIAC.
NYLIAC enters into agreements to sell and repurchase securities for the
purpose of enhancing income on securities held. Under these agreements, NYLIAC
obtains the use of funds from a broker for approximately one month. The
liability reported in the balance sheet (included in other liabilities) at
December 31, 1997 of $184 million ($50 million at December 31, 1996)
approximates fair value. The investments acquired with the funds received from
the securities sold are primarily included in cash and cash equivalents in the
balance sheet.
NOTE 12 -- RELATED PARTY TRANSACTIONS
New York Life provides NYLIAC with services and facilities for the sale of
insurance and other activities related to the business of insurance. NYLIAC
reimburses New York Life for the identified costs associated with these services
and facilities under the terms of a Service Agreement between New York Life and
NYLIAC. Such costs, amounting to $247 million for the year ended December 31,
1997 ($191 million for 1996 and $166 million for 1995) are reflected in
operating expenses and net investment income in the accompanying Statement of
Income.
NOTE 13 -- SUPPLEMENTAL CASH FLOW INFORMATION
As a result of the reinsurance agreement with New York Life discussed in
Note 9, NYLIAC transferred $119 million in fixed maturities to New York Life
during 1996.
Federal income taxes paid were $126 million, $146 million, and $57 million
during 1997, 1996 and 1995, respectively.
Interest paid was $5 million, $3 million and $2 million during 1997, 1996
and 1995, respectively.
F-44
<PAGE> 197
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP
Accounting practices used to prepare statutory financial statements for
regulatory filings of life insurance companies differ in certain instances from
GAAP. The following chart reconciles NYLIAC's statutory surplus determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with stockholder's equity on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory Surplus......................................... $1,089 $ 998 $ 878
------ ------ ------
Adjustments:
Deferred policy acquisition costs.................... 688 691 511
Investment related................................... 377 151 511
Asset valuation reserve.............................. 165 164 137
Interest maintenance reserve......................... 105 35 26
Non-admitted assets.................................. 59 31 26
Policyholder liabilities............................. (330) (262) (187)
Deferred taxes....................................... (93) (47) (156)
Employee benefit liabilities......................... (66) (63) (61)
Other................................................ (32) (12) (9)
------ ------ ------
Total adjustments............................... 873 688 798
------ ------ ------
Total GAAP Stockholder's Equity........................... $1,962 $1,686 $1,676
====== ====== ======
</TABLE>
The following chart reconciles NYLIAC's statutory net income determined in
accordance with accounting practices prescribed by the Delaware State Insurance
Department with net income on a GAAP basis (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory Net Income.................................... $134 $148 $ 95
---- ---- ----
Adjustments:
Deferred policy acquisition costs.................. 63 44 40
Investment related................................. 92 1 (11)
Interest maintenance reserve....................... (14) 9 6
Policyholder liabilities........................... (84) (54) (4)
Deferred taxes..................................... (1) 24 8
Other.............................................. (3) (3) (14)
---- ---- ----
Total Adjustments............................. 53 21 25
---- ---- ----
GAAP Net Income......................................... $187 $169 $120
==== ==== ====
</TABLE>
F-45
<PAGE> 198
NOTE 14 -- RECONCILIATIONS BETWEEN STATUTORY ACCOUNTING AND GAAP -- (CONTINUED)
Financial statements prepared on the statutory basis of accounting vary
from those prepared under GAAP, primarily as follows: (1) the costs related to
acquiring business, principally commissions and certain policy issue expenses
are charged to income in the year incurred, whereas under GAAP they would be
deferred and amortized over the periods benefitted; (2) funds received under
deposit-type contracts are reported as premium income, whereas under GAAP, such
funds are recorded as a liability; (3) life insurance reserves are based on
different assumptions than they are under GAAP; (4) life insurance companies are
required to establish an Asset Valuation Reserve ("AVR") by a direct charge to
surplus to offset potential investment losses, whereas under GAAP, the AVR is
not recognized and any reserve for losses on investments would be deducted from
the assets to which they relate and would be charged to income; (5) investments
in fixed maturities are generally carried at amortized cost or values prescribed
by the National Association of Insurance Commissioners ("NAIC"); under GAAP,
investments in fixed maturities, which are available for sale or held for
trading, are generally carried at market value, with changes in market value
charged against equity or reflected in earnings; (6) realized gains and losses
resulting from changes in interest rates on fixed income investments are
deferred in the interest maintenance reserve ("IMR") and amortized into
investment income over the remaining life of the investment sold, whereas under
GAAP, the gains and losses are recognized in income at the time of sale; and (7)
deferred federal income taxes are not provided for as they are under GAAP; (8)
certain assets are considered non-admitted and excluded from assets in the
balance sheet, whereas they are included under GAAP.
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial condition and
results of operations of an insurance company, and for determining its solvency
under the New York Insurance Law. No consideration is given by the Department to
financial statements prepared in accordance with generally accepted accounting
principles in making such determinations.
At December 31, 1997 and 1996, on a statutory basis, admitted assets were
$20,059 million and $17,099 million, respectively, and total liabilities were
$18,970 million and $16,101 million, respectively, which included policy
reserves of $13,666 million and $13,099 million, respectively.
NYLIAC is restricted as to the amounts it may pay as dividends to New York
Life. The maximum amount of dividends which can be paid by a Delaware insurance
company to its stockholders may not exceed that part of its available and
accumulated surplus funds which is derived from net operating profits and
realized capital gains. Such available and accumulated funds at December 31,
1997 were $584 million.
F-46
<PAGE> 199
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial Statements.
All required financial statements are included in Part B of this
Registration Statement.
b. Exhibits.
(1) Resolution of the Board of Directors of New York Life Insurance and
Annuity Corporation ("NYLIAC") authorizing establishment of the
Separate Account - Previously filed as Exhibit (1) to Registrant's
initial Registration Statement, re-filed in accordance with Regulation
S-T, 17 CFR 232.102(e) as Exhibit (1) to Registrant's Post-Effective
Amendment No. 2 on Form N-4, and incorporated herein by reference.
(2) Not applicable.
(3)(a) Distribution Agreement between NYLIFE Securities Inc. and NYLIAC -
Previously filed as Exhibit (3)(a) to Post-Effective Amendment No. 1 to
the registration statement on Form S-6 for NYLIAC MFA Separate
Account-I (File No. 2-86084), re-filed in accordance with Regulation
S-T, 17 CFR 232.102(e) as Exhibit (3)(a) to Post-Effective Amendment
No. 4 to the registration statement on Form S-6 for NYLIAC Variable
Universal Life Separate Account-I (File No. 33-64410), and incorporated
herein by reference.
(3)(b) Distribution Agreement between NYLIFE Distributors Inc. and NYLIAC -
Previously filed as Exhibit (3)(b) to Registrant's Post-Effective
Amendment No. 1 on Form N-4, and incorporated herein by reference.
(4) Specimen Policy - Previously filed as Exhibit (4) to Registrant's
initial Registration Statement, re-filed in accordance with Regulation
S-T, 17 CFR 232.102(e) as Exhibit (4) to Registrant's Post-Effective
Amendment No. 2 on Form N-4, and incorporated herein by reference.
Specimen policy for the MainStay Plus Variable Annuity - filed
herewith.
(5) Form of application for a Policy - Previously filed as Exhibit (5) to
the initial registration statement on Form N-4 for NYLIAC Variable
Annuity Separate Account-I (File No. 33-53342), re-filed in accordance
with Regulation S-T, 17 CFR 232.102(e) as Exhibit (5) to Registrant's
Post-Effective Amendment No. 2 on Form N-4, and incorporated herein by
reference. Form of application for the MainStay Plus Variable Annuity -
filed herewith.
(6)(a) Certificate of Incorporation of NYLIAC - Previously filed as Exhibit
(6)(a) to the registration statement on Form S-6 for NYLIAC MFA
Separate Account-I (File No. 2-86083), re-filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (6)(a) to the initial
registration statement on Form S-6 for NYLIAC Corporate Sponsored
Variable Universal Life Separate Account-I (File No. 333-07617), and
incorporated herein by reference.
(6)(b)(1)By-Laws of NYLIAC - Previously filed as Exhibit (6)(b) to the
registration statement on Form S-6 for NYLIAC MFA Separate Account-I
(File No. 2-86083), re-filed in accordance with Regulation S-T, 17 CFR
232.102(e) as Exhibit (6)(b) to the initial registration statement on
Form S-6 for NYLIAC Corporate Sponsored Variable Universal Life
Separate Account-I (File No. 333-07617), and incorporated herein by
reference.
(6)(b)(2)Amendments to By-Laws of NYLIAC - Previously filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (6)(b) to Pre-Effective
Amendment No. 1 to the registration statement on Form S-6 for NYLIAC
Variable Universal Life Separate Account-I (File No. 333-39157), and
incorporated herein by reference.
C-1
<PAGE> 200
(7) Contract of Reinsurance between Connecticut General Life Insurance
Company/Cigna Reinsurance and NYLIAC - Previously filed as Exhibit (7)
to Registrant's Post-Effective Amendment No. 1 on Form N-4, and
incorporated herein by reference.
(8)(a) Stock Sale Agreement between NYLIAC and MainStay VP Series Fund, Inc.
(formerly New York Life MFA Series Fund, Inc.) - Previously filed as
Exhibit (8)(a) to Pre-Effective Amendment No. 1 to the registration
statement on Form N-1 for New York Life MFA Series Fund, Inc. (File No.
2-86082), re-filed in accordance with Regulation S-T, 17 CFR 232.102(e)
as Exhibit (9)(a) to Pre-Effective Amendment No. 1 to the registration
statement on Form S-6 for NYLIAC Corporate Sponsored Variable Universal
Life Separate Account-I (File No. 333-07617), and incorporated herein
by reference.
(8)(b) Participation Agreement among Acacia Capital Corporation, Calvert Asset
Management Company, Inc. and NYLIAC, as amended - Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit (9)(b)(1)
to Pre-Effective Amendment No. 1 to the registration statement on Form
S-6 for NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I (File No. 333-07617), and incorporated herein by reference.
(8)(c) Participation Agreement among The Alger American Fund, Fred Alger and
Company, Incorporated and NYLIAC - Previously filed in accordance with
Regulation S-T, 17 CFR 232.102(e) as Exhibit (9)(b)(2) to Pre-Effective
Amendment No. 1 to the registration statement on Form S-6 for NYLIAC
Corporate Sponsored Variable Universal Life Separate Account-I (File
No. 333-07617), and incorporated herein by reference.
(8)(d) Participation Agreement between Janus Aspen Series and NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR 232.102(e)
as Exhibit (9)(b)(3) to Pre-Effective Amendment No. 1 to the
registration statement on Form S-6 for NYLIAC Corporate Sponsored
Variable Universal Life Separate Account-I (File No. 333-07617), and
incorporated herein by reference.
(8)(e) Participation Agreement among Morgan Stanley Universal Funds, Inc.,
Morgan Stanley Asset Management Inc. and NYLIAC - Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit (9)(b)(4)
to Pre-Effective Amendment No. 1 to the registration statement on Form
S-6 for NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I (File No. 333-07617), and incorporated herein by reference.
(8)(f) Participation Agreement among Variable Insurance Products Fund,
Fidelity Distributors Corporation and NYLIAC - Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit (9)(b)(5)
to Pre-Effective Amendment No. 1 to the registration statement on Form
S-6 for NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I (File No. 333-07617), and incorporated herein by reference.
(8)(g) Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and NYLIAC - Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit (9)(b)(6)
to Pre-Effective Amendment No. 1 to the registration statement on Form
S-6 for NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I (File No. 333-07617), and incorporated herein by reference.
(8)(h) Form of Participation Agreement among T. Rowe Price Equity Series,
Inc., T. Rowe Price Associates, Inc. and NYLIAC - Incorporated herein
by reference to Exhibit (8)(h) to Post-Effective Amendment No. 7 to
the registration statement on Form N-4 for NYLIAC Variable Annuity
Separate Account-I (File No. 33-53342).
(8)(i) Form of Participation Agreement among Van Eck Worldwide Insurance
Trust, Van Eck Associates Corporation and NYLIAC - Incorporated herein
by reference to Exhibit (8)(i) to Post-Effective Amendment No. 7 to
the registration statement on Form N-4 for NYLIAC Variable Annuity
Separate Account-I (File No. 33-53342).
C-2
<PAGE> 201
(8)(j) Form of Participation Agreement among MFS Variable Insurance Trust,
Massachusetts Financial Services Company and NYLIAC - Incorporated
herein by reference to Exhibit (8)(j) to Post-Effective Amendment No.
7 to the registration statement on Form N-4 for NYLIAC Variable
Annuity Separate Account-I (File No. 33-53342).
(9) Opinion and Consent of Jonathan E. Gaines, Esq. - filed herewith.
(10)(a) Consent of Price Waterhouse LLP - filed herewith.
(10)(b) Powers of Attorney for the Directors and Officers of NYLIAC -
Previously filed in accordance with Regulation S-T, 17 CFR 232.102(e)
as Exhibit (9)(c) to Pre-Effective Amendment No. 2 to the registration
statement on Form S-6 for NYLIAC Corporate Sponsored Variable Universal
Life Separate Account-I (File No. 333-07617) for the following, and
incorporated herein by reference:
Jay S. Calhoun, Vice President, Treasurer and Director
(Principal Financial Officer)
Richard M. Kernan, Jr., Director
Robert D. Rock, Senior Vice President and Director
Frederick J. Sievert, President and Director
(Principal Executive Officer)
Stephen N. Steinig, Senior Vice President, Chief Actuary and Director
Seymour Sternberg, Director
(10)(c) Power of Attorney for Maryann L. Ingenito, Vice President and
Controller (Principal Accounting Officer) Previously filed in
accordance with Regulation S-T, 17 CFR 232.102(e) as Exhibit (9)(d) to
Pre-Effective Amendment No. 1 to the registration statement on Form S-6
for NYLIAC Corporate Sponsored Variable Universal Life Separate
Account-I (File No. 333-07617), and incorporated herein by reference.
(10)(d) Power of Attorney for Howard I. Atkins, Executive Vice President
(Principal Financial Officer) - Previously filed as Exhibit 8 (d) to
Pre-Effective Amendment No. 1 to the registration statement on Form S-6
for NYLIAC Variable Universal Life Separate Account-I (File No.
333-39157), and incorporated herein by reference.
(11) Not applicable.
(12) Not applicable.
(13) Schedule of Computations - Previously filed as Exhibit 13 to
Post-Effective Amendment No. 7 to the registration statement on Form
N-4 for NYLIAC Variable Annuity Separate Account-I (File No. 33-53342),
and incorporated herein by reference.
(14) Not applicable.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The business address of each director and officer of NYLIAC is 51 Madison
Avenue, New York, NY 10010.
<TABLE>
<CAPTION>
Name: Title:
----- ------
<S> <C>
Seymour Sternberg Director
Richard M. Kernan, Jr. Director
Frederick J. Sievert Director and President
Robert D. Rock Director and Senior Vice President
Jay S. Calhoun Director, Senior Vice President and Treasurer
Stephen N. Steinig Director, Senior Vice President and Chief Actuary
Howard I. Atkins Executive Vice President and Chief Financial Officer
Michael L. Callahan Senior Vice President
</TABLE>
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<PAGE> 202
<TABLE>
<CAPTION>
Name: Title:
---- -----
<S> <C>
Marc J. Chalfin Senior Vice President
John J. DiNiro Senior Vice President
Michael Gallo Senior Vice President
Solomon Goldfinger Senior Vice President
Phillip J. Hildebrand Senior Vice President
Jean E. Hoysradt Senior Vice President
Gerald Kaplan Senior Vice President and Tax Counsel
Richard D. Levy Senior Vice President
Paul Morris Senior Vice President
Michael J. Nocera Senior Vice President
Frank J. Ollari Senior Vice President
Anne F. Pollack Senior Vice President
Steven Ray Senior Vice President
Thomas J. Warga Senior Vice President and General Auditor
Edward C. Wilson Senior Vice President and Chief Sales Officer
William Cheng Vice President
Limin Chu General Manager and President of Taiwan Branch
Henry Ciapas Vice President
Patrick Colloton Vice President
John A. Cullen Vice President and Assistant Controller
Lisa O. Cullity Vice President
Sheila K. Davidson Vice President
Melvin J. Feinberg Vice President
Jane L. Hamrick Vice President and Actuary
Celia M. Holtzberg Vice President
Robert Hynes Vice President
Maryann L. Ingenito Vice President and Controller
Himi L. Kittner Vice President
David Krystel Vice President
Thomas S. McArdle Vice President
Daniel J. McKillop Vice President
John R. Meyer Vice President
William H. Mowat Vice President
Michael M. Oleske Vice President and Associate Tax Counsel
Andrew N. Reiss Vice President and National Sales Manager
Lawrence R. Stoehr Vice President
Richard W. Zuccaro Vice President
George J. Trapp Secretary
</TABLE>
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<PAGE> 203
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
The Depositor, NYLIAC, is a wholly-owned subsidiary of New York Life Insurance
Company ("New York Life"). The Registrant is a segregated asset account of
NYLIAC. The following chart indicates persons presumed to be controlled by New
York Life+, unless otherwise indicated. Subsidiaries of other subsidiaries are
indented accordingly, and ownership is 100% unless otherwise indicated.
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------
<S> <C> <C>
Aegis Technologies, Inc.(1) Delaware
MainStay Institutional Funds Inc.(2) Maryland
MainStay VP Series Fund, Inc.(3) Maryland
New York Life Fund, Inc.(3) New York
New York Life Insurance and Annuity Corporation Delaware
New York Life Irrevocable Trust of 1996(4) New York N/A
</TABLE>
- ------------------------------------
+ By including the indicated corporations in this list, New York Life is not
stating or admitting that said corporations are under its actual control;
rather, these corporations are listed here to ensure full compliance with
the requirements of this Form N-4.
<TABLE>
<CAPTION>
<S> <C> <C>
NYLIFE Inc. New York
Eagle Strategies Corp. Arizona
Greystone Realty Corporation Delaware
Greystone Realty Management, Inc. Delaware
MacKay-Shields Financial Corporation Delaware
MainStay Shareholder Services, Inc. Delaware
MSC Holding, Inc. Georgia 85.43%
Monitor Capital Advisors, Inc. Delaware
New York Life Benefit Services, Inc. Massachusetts
ADQ Insurance Agency, Inc. Massachusetts
</TABLE>
- --------
(1) A Certificate of Dissolution was filed for this Company on April 9,
1996. Pursuant to Delaware law, the Company's existence is "continued" for a
period of three years following dissolution for purposes of winding up.
Therefore, this Company is included here for informational purposes only.
(2) This entity is an unaffiliated registered investment company as to
which New York Life and/or its subsidiaries perform investment management,
administrative, distribution and underwriting services. It is not a subsidiary
of New York Life but is included here for informational purposes only.
(3) New York Life serves as investment adviser to these entities, the
shares of which are held of record by separate accounts of New York Life (in the
case of New York Life Fund, Inc.) and New York Life Insurance and Annuity
Corporation ("NYLIAC") (for MainStay VP Series Fund, Inc.). New York Life
disclaims any beneficial ownership and control of these entities. New York Life
and NYLIAC as depositors of said separate accounts have agreed to vote their
shares as to matters covered in the proxy statements in accordance with voting
instructions received from holders of variable annuity and variable life
insurance policies at the shareholders meeting of these entities. They are not
subsidiaries of New York Life, but are included here for informational purposes
only.
(4)An unaffiliated trust formed solely for the purpose of holding
shares of New York Life Settlement Corporation. It is not a subsidiary of New
York Life, but is included here for informational purposes only.
C-5
<PAGE> 204
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------
<S> <C> <C>
(NYLIFE Inc. subsidiaries cont.)
New York Life Capital Corporation Delaware
New York Life International Investment Inc. Delaware
Monetary Research Ltd. Bermuda
NYL Management Limited United Kingdom
Japan Gamma Asset Management Limited(5) Japan 33.345%
New York Life Worldwide Holding, Inc. Delaware
New York Life Worldwide Capital, Inc. Delaware
New York Life Worldwide Development, Inc. Delaware
New York Life Worldwide (Bermuda) Ltd. Bermuda
New York Life Insurance Worldwide Ltd. Bermuda
New York Life (U.K.) Limited(6) United Kingdom 99.97%
Life Assurance Holding Corporation Limited United Kingdom 31.25%
Windsor Life Assurance Company Limited United Kingdom
Windsor Construction Company Limited United Kingdom
KOHAP New York Life Insurance Ltd. South Korea 51%
P.T. Asuransi Jiwa Sewu-New York Life Indonesia
GEO New York Life, S.A. Mexico 49%
NYLIFE Administration Corp. (doing business as NYLACOR) Texas
NYLIFE Depositary Corporation Delaware
NYLIFE Structured Asset Management Company Ltd. Texas 16.67%; NYLIFE
SFD Holding Inc.
owns the remaining
83.33%
NYLIFE Distributors Inc. Delaware
NYLIFE Equity Inc. Delaware
NYLIFE Funding Inc. Delaware
NYLIFE HealthCare Management, Inc. Delaware
Express Scripts, Inc. Delaware 46.3% of total
combined stock and
89.6% of the voting
rights
Express Scripts Vision Corporation Delaware
Great Plains Reinsurance Company Arizona
Practice Patterns Science, Inc. Delaware 80%
ESI Canada Holdings, Inc. Canada
ESI Canada, Inc. Canada
IVTx of Houston, Inc. Texas
IVTx of Dallas, Inc. Texas
PhyNet, Inc. Delaware
NYLCare Health Plans, Inc. Delaware
New York Life and Health Insurance Company Delaware
Avanti Corporate Health Systems, Inc. Delaware
</TABLE>
- --------
(5) Based on the percentage of ownership as well as the lack of
"control" by New York Life over management or policies of this company, this
entity is not considered a subsidiary of New York Life but is included here for
informational purposes only.
(6) One share is held by NYLIFE, Inc., a Nominee, as required by
British law.
C-6
<PAGE> 205
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------
<S> <C> <C>
(NYLIFE Inc. subsidiaries cont.)
Avanti Health Systems of Texas, Inc. Texas
Avanti of the District, Inc. Maryland
Avanti of Illinois, Inc. Illinois
Avanti of New York, Inc. New York
MBS IPA, Inc. New York
Avanti of New Jersey, Inc. New Jersey
NYLCare Health Plans of the Mid-Atlantic, Inc. Maryland 80%; Physicians
Health Services
Foundation, Inc.
owns 20%
Physicians Health Services Foundation, Inc. Maryland
Lonestar Holding Co. Delaware
Lone Star Health Plan, Inc. Texas 90%; NYLCare
Health Plans, Inc.
owns 10%
NYLCare Health Plans of the Gulf Coast, Inc. Texas
Prime Provider Corp. New York
Prime Provider Corp. of Texas Texas
NYLCare of Connecticut, Inc. Connecticut
Sanus Dental Plan of New Jersey, Inc. New Jersey
NYLCare Dental Plans of the Southwest, Inc. Texas
NYLCare Health Plans of New York, Inc. New York
NYLCare Health Plans of Connecticut, Inc. Connecticut
NYLCare Health Plans of the Midwest, Inc. Illinois
NYLCare Health Plans of New Jersey, Inc. New Jersey
NYLCare of Texas, Inc. Texas
NYLCare Passport PPO of the Southwest, Inc. Texas
NYLCare Preferred Services, Inc. Maryland
Sanus Preferred Providers West, Inc. California
Sanus Preferred Services of Illinois, Inc. Illinois
NYLCare Health Plans of the Southwest, Inc. Texas
NYLCare Health Plans of Louisiana, Inc. Louisiana 99.8%; Patrick D.
Seiter and
E. L. Henry each
own .1% of the
remaining stocks
NYLCare of New England, Inc. Delaware
Sanus - Northeast, Inc. Delaware
NYLCare Health Plans of Maine, Inc. Maine
NYLCare NC Holdings, Inc. Delaware
WellPath Community Health Plans, L.L.C. North Carolina Duke Medical
Strategies, Inc.
holds 50%;
50% LLC interest
WPCHP Holdings, Inc. Delaware
</TABLE>
C-7
<PAGE> 206
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------
<S> <C> <C>
(NYLIFE Inc. subsidiaries cont.)
WellPath Preferred Services, L.L.C. North Carolina 99%;WPCHP
Holdings, Inc. owns
other 1%
WellPath Select Holdings, L.L.C. North Carolina WPCHP Holdings,
Inc. holds 1%;
99% LLC Interest
WellPath Select, Inc. North Carolina
WellPath of Carolina, Inc. Delaware
WellPath of Arizona Reinsurance Company Arizona
Sanus of New York and New Jersey, Inc. New York
NYLCare Health Plans of Pennsylvania, Inc. Pennsylvania
Docservco, Inc. New York
The ETHIX Corporation Delaware
ETHIX Great Lakes, Inc. Michigan
ETHIX Mid-Atlantic, Inc. Pennsylvania
ETHIX Midlands, Inc. Delaware
ETHIX Mid-Rivers, Inc. Missouri
ETHIX Northwest Public Services, Inc. Washington
ETHIX Northwest, Inc. Washington
NYLCare Health Plans Northwest, Inc. Washington
ETHIX Pacific, Inc. Oregon
ETHIX Risk Management, Inc. Oregon
ETHIX Southeast, Inc. North Carolina
ETHIX Southwest, Inc. Texas
Benefit Panel Services, Inc. California 33 1/3% owned
by Mass Mutual
Holding Company
Two MSC, Inc. and
33 1/3% owned by
Anthem Companies,
Inc.
BPS Health Plan Administrators California
VivaHealth, Incorporated California
One Liberty Plaza Holdings, Inc. Delaware
NYLIFE Realty Inc. Delaware
CNP Realty Investments, Inc. Delaware
NYLIFE Refinery Inc. Delaware
NYLIFE Resources Inc. Delaware
NYLIFE Securities Inc. New York
NYLIFE SFD Holding Inc. Delaware
NYLIFE Structured Asset Management Company, Ltd. Texas 83.33%; NYLIFE
Depositary Corp.
owns the remaining
16.67%
NYLINK Insurance Agency Incorporated Delaware
NYLINK Insurance Agency of Alabama, Incorporated Alabama
NYLINK Insurance Agency of Hawaii, Incorporated Hawaii
</TABLE>
C-8
<PAGE> 207
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Organization Securities Owned
- ---- ------------ ----------------
<S> <C> <C>
(NYLIFE Inc. subsidiaries cont.)
NYLINK Insurance Agency of Massachusetts, Incorporated Massachusetts
NYLINK Insurance Agency of New Mexico, Incorporated New Mexico
NYLTEMPS Inc. Delaware
New York Life Trust Company New York
NYLIFE Insurance Company of Arizona Arizona
NYLINK Insurance Agency of Ohio, Incorporated(7) Ohio
NYLINK Insurance Agency of Oklahoma, Incorporated(8) Oklahoma
NYLINK Insurance Agency of Texas, Incorporated(9) Texas
The MainStay Funds(10) Massachusetts
</TABLE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of January 31, 1998, there were approximately 38,770 owners of
Non-Qualified Policies offered under NYLIAC Variable Annuity Separate
Account-III.
ITEM 28. INDEMNIFICATION
Reference is made to Article VIII of the Depositor's By-Laws.
New York Life maintains Directors and Officers Liability/Company
Reimbursement ("D&O") insurance which covers directors, officers and trustees of
New York Life, its subsidiaries, and its subsidiaries and certain affiliates
including the Depositor while acting in their capacity as such. The total annual
aggregate of D&O coverage is $100 million applicable to all insureds under the
D&O policies. There is no assurance that such coverage will be maintained by New
York Life or for the Depositor in the future as, in the past, there have been
large variances in the availability of D&O insurance for financial institutions.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Depositor pursuant to the foregoing provisions, or otherwise, the Depositor
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public
- --------
(7) This affiliated corporation is organized to conduct the business of
NYLINK Insurance Agency Incorporated in the state of Ohio.
(8) This affiliated corporation is organized to conduct the business of
NYLINK Insurance Agency Incorporated in the state of Oklahoma.
(9) This affiliated corporation is organized to conduct the business of
NYLINK Insurance Agency Incorporated in the state of Texas.
(10) This entity is an unaffiliated registered investment company for
which New York Life subsidiaries perform investment management, administrative,
distribution and underwriting services. It is not a subsidiary of New York Life,
but is included here for informational purposes only.
C-9
<PAGE> 208
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Depositor of expenses incurred or paid by a director, officer or
controlling person of the Depositor in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Depositor will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Investment companies (other than the Registrant) for which NYLIFE
Distributors Inc. is currently acting as underwriter:
NYLIAC Corporate Sponsored Variable Universal Life Separate Account-I
NYLIAC MFA Separate Account-I
NYLIAC MFA Separate Account-II
NYLIAC Variable Annuity Separate Account-I
NYLIAC Variable Annuity Separate Account-II
NYLIAC Variable Universal Life Separate Account-I
NYLIAC VLI Separate Account
(b) Directors and Officers.
The business address of each director and officer of NYLIFE
Distributors Inc. is 300 Interpace Parkway, Parsippany, New Jersey 07054.
<TABLE>
<CAPTION>
Names of Directors and Officers Positions and Offices with Underwriter
------------------------------- --------------------------------------
<S> <C>
Frank Mistero Director and President
Frank M. Boccio Director
Jefferson C. Boyce Director
Michael G. Gallo Director
Phillip J. Hildebrand Director
Alice T. Kane Director
Robert D. Rock Director
Stephen C. Roussin Director
Walter W. Ubl Director and Senior Vice President
Robert E. Brady Director and Vice President
Sheila K. Davidson Chief Compliance Officer
Thomas J. Warga Senior Vice President and General Auditor
Jay S. Calhoun Vice President and Treasurer
David J. Krystel Vice President
Linda M. Livornese Vice President
John H. O'Byrne Vice President
Anthony W. Polis Vice President and Chief Financial Officer
Richard W. Zuccaro Tax Vice President
Louis H. Adasse Corporate Vice President
Thomas J. Murray Corporate Vice President
Phyllis Zwarick Corporate Vice President
Arphiela Arizmendi Assistant Vice President
</TABLE>
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<PAGE> 209
<TABLE>
<CAPTION>
Names of Directors and Officers Positions and Offices with Underwriter
------------------------------- --------------------------------------
<S> <C>
Antoinette B. Cirillo Assistant Vice President
George R. Daoust Assistant Vice President
Geraldine Lorito Assistant Vice President
Nancy Brenner Secretary
Mark A. Gomez Assistant Secretary
</TABLE>
(c) Commissions and Other Compensation
<TABLE>
<CAPTION>
Name of New Underwriting Compensation on
Principal Discounts and Redemption or Brokerage
Underwriter Commissions Annuitization Commission Compensation
----------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
NYLIFE Distributors
Inc. -0- -0- -0- -0-
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of the
1940 Act and the rules under it are maintained by NYLIAC at its home office, 51
Madison Avenue, Room 0150, New York, New York 10010; New York Life - Records
Division, 110 Cokesbury Road, Lebanon, New Jersey 08833 and with Iron Mountain
Records Management, Inc. at both 8 Neptune Drive, Poughkeepsie, New York 12601
and Route 9W South, Port Ewen, New York 12466-0477.
ITEM 31. MANAGEMENT SERVICES - Not applicable.
ITEM 32. UNDERTAKINGS -
Registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited financial statements
in the registration statement are never more than 16 months old for so long as
payments under the variable annuity contracts may be accepted;
(b) to include either (1) as part of any application to purchase a
contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information, or (2) a post card or similar
written communication affixed to or included in the prospectus that the
applicant can remove to send for a Statement of Additional information;
(c) to deliver any Statement of Additional Information and any
financial statements required to be made available under this Form promptly
upon written or oral request.
REPRESENTATION AS TO THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
New York Life Insurance and Annuity Corporation ("NYLIAC"), the sponsoring
insurance company of the NYLIAC Variable Annuity Separate Account-III, hereby
represents that the fees and charges deducted under the NYLIAC Individual
Flexible Premium Multi-Funded Variable Retirement Annuity Policies are
reasonable in relation to the services rendered, the expenses expected to be
incurred and the risks assumed by NYLIAC.
SECTION 403(B) REPRESENTATIONS
Registrant represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No. IP-6-88)
regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company Act of
1940, in connection with redeemability restrictions on Section 403(b) Policies,
and that paragraphs numbered (1) through (4) of that letter will be complied
with.
C-11
<PAGE> 210
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Amendment to the Registration Statement
and has caused this Amendment to the Registration Statement to be signed on its
behalf, in the City and State of New York on this 16th day of April, 1998.
NYLIAC VARIABLE ANNUITY
SEPARATE ACCOUNT-III
(Registrant)
By /s/ David J. Krystel
---------------------------------------
David J. Krystel
Vice President
NEW YORK LIFE INSURANCE AND
ANNUITY CORPORATION
(Depositor)
By /s/ David J. Krystel
---------------------------------------
David J. Krystel
Vice President
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
Howard I. Atkins* Executive Vice President
(Principal Financial Officer)
Jay S. Calhoun* Vice President, Treasurer and
Director
Maryann L. Ingenito* Vice President and Controller
(Principal Accounting Officer)
Richard M. Kernan, Jr.* Director
Robert D. Rock* Senior Vice President and Director
Frederick J. Sievert* President and Director
(Principal Executive Officer)
Stephen N. Steinig* Senior Vice President,
Chief Actuary and Director
Seymour Sternberg* Director
*By /s/ David J. Krystel
-----------------------------------
David J. Krystel
Attorney-in-Fact
April 16, 1998
<PAGE> 211
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
(4) Specimen Policy - MainStay Plus Variable Annuity
(5) Form of application for a Policy - MainStay Plus Variable Annuity
(9) Opinion and Consent of Jonathan E. Gaines, Esq.
(10)(a) Consent of Price Waterhouse LLP
</TABLE>
<PAGE> 1
Exhibit (4)
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A Delaware Corporation)
51 Madison Avenue
New York, NY 10010
THE CORPORATION New York Life Insurance and Annuity Corporation (NYLIAC) will
pay the benefits of this policy in accordance with its provisions. The pages
which follow are also a part of this policy.
ANNUITY BENEFIT On the Annuity Commencement Date, the Accumulation Value will
be applied to provide a monthly Income Payment, as stated in the Annuity
Benefit Section.
10 DAY RIGHT TO EXAMINE THE POLICY PLEASE EXAMINE YOUR POLICY. WITHIN 10 DAYS
AFTER DELIVERY, YOU MAY RETURN IT TO THE CORPORATION OR TO THE REGISTERED
REPRESENTATIVE THROUGH WHOM IT WAS PURCHASED, WITH A WRITTEN REQUEST FOR A FULL
REFUND OF PREMIUM. UPON RECEIPT OF THIS REQUEST, THIS POLICY WILL BE VOID FROM
THE START, AND A FULL PREMIUM REFUND WILL BE MADE.
PAYMENT OF PREMIUMS At any time before the Annuity Commencement Date and during
the lifetime of the Annuitant and Owner, premiums may be paid at any interval
or by any method we make available. Premium Payments are subject to the
limitations defined in the policy. The initial Premium Payment is shown on the
Policy Data Page.
REPORT TO OWNER At least once each Policy Year, New York Life Insurance and
Annuity Corporation will provide a report in connection with this policy. The
report will tell the Owner how much Accumulation Value there is as of the end
of the reporting period. It will also give the Owner any other facts required
by state law or regulations.
This policy is issued as of the Issue Date shown on the Policy Data Page.
/s/ FREDRICK J. SIEVERT
President
/s/ GEORGE J. TRAPP
Secretary
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
Monthly Income Payments Begin On The Annuity Commencement Date.
Premiums May Be Paid During The Annuitant's Lifetime.
THE AMOUNT OF ANY ACCUMULATION VALUE MAY INCREASE OR DECREASE BASED ON THE
INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT.
ACCUMULATION VALUES BASED ON THE PERFORMANCE OF THE SEPARATE ACCOUNT ARE
VARIABLE AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT.
Policy Is Non-Participating.
998-190
<PAGE> 2
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
51 MADISON AVENUE - NEW YORK, NY 10010
POLICY DATA
Page 2
<TABLE>
<S> <C> <C> <C> <C>
ANNUITANT -- JOHN DOE AGE: 55 MALE
POLICY NUMBER -- 00 000 000
POLICY DATE -- JANUARY 1, 1998
OWNER -- THE ANNUITANT
</TABLE>
ALLOCATION ALTERNATIVES:
MAINSTAY VP CAPITAL APPRECIATION MAINSTAY VP GROWTH EQUITY
MAINSTAY VP CASH MANAGEMENT MAINSTAY VP INDEXED EQUITY
MAINSTAY VP CONVERTIBLE ALGER AMERICAN SMALL CAP.
MAINSTAY VP GOVERNMENT CALVERT SOCIALLY RESPONSIBLE
MAINSTAY VP HIGH YIELD CORPORATE BOND FIDELITY VIP II: CONTRAFUND
MAINSTAY VP INTERNATIONAL EQUITY FIDELITY VIP: EQUITY-INCOME
MAINSTAY VP TOTAL RETURN JANUS ASPEN BALANCED
MAINSTAY VP VALUE JANUS ASPEN WORLDWIDE GROWTH
MAINSTAY VP BOND MORGAN STANLEY EMERGING MKTS EQUITY
FIXED ACCOUNT
INITIAL PREMIUM PAYMENT: $10,000
INITIAL PREMIUM PAYMENT DATE: JANUARY 1, 1998
MINIMUM AMOUNT OF A PREMIUM PAYMENT THAT
CAN BE ALLOCATED TO AN ALLOCATION ALTERNATIVE: $25
PLANNED ADDITIONAL PREMIUMS:
PREMIUM AMOUNT: $500 - Monthly
MINIMUM ADDITIONAL PREMIUM PAYMENT: $500
ANNUITY COMMENCEMENT DATE: JANUARY 1, 2028
<TABLE>
<CAPTION>
SURRENDER CHARGE SCHEDULE:
PURCHASE YEAR PERCENTAGE PURCHASE YEAR PERCENTAGE
<S> <C> <C> <C>
1 7% 5 5%
2 7% 6 4%
3 7% 7 0%
4 6%
</TABLE>
FIXED ACCOUNT MINIMUM GUARANTEED INTEREST RATE: 3%
DATE OF ISSUE: JANUARY 5, 1998
998-190 Page 2
<PAGE> 3
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
51 MADISON AVENUE - NEW YORK, NY 10010
POLICY DATA
PAGE 2A
MINIMUMS:
MINIMUM WITHDRAWAL AMOUNT: $500
MINIMUM INTEREST SWEEP TRANSFER: NO MINIMUM
MINIMUM TRANSFER, EXCLUDING THE INTEREST SWEEP,
AMOUNT FROM FIXED ACCOUNT: $500
MINIMUM TRANSFER AMOUNT FROM INVESTMENT DIVISIONS: $500
MINIMUM DOLLAR COST AVERAGING TRANSFER IS: $100
MINIMUM AUTOMATIC ASSET ALLOCATION TRANSFER IS: NO MINIMUM
MINIMUM BALANCE THAT MUST BE MAINTAINED IN AN
ALLOCATION ALTERNATIVE AFTER A TRANSFER IS MADE: $500
MINIMUM BALANCE THAT MUST BE MAINTAINED IN THE
FIXED ACCOUNT AFTER A TRANSFER IS MADE: $500
MINIMUM ACCUMULATION VALUE REQUIRED TO ELECT DOLLAR COST
AVERAGING OR AUTOMATIC ASSET ALLOCATION OPTION IS: $5000
MINIMUM FIXED ACCUMULATION VALUE REQUIRED
TO ELECT THE INTEREST SWEEP OPTION IS: $5000
MAXIMUM CHARGE FOR EACH TRANSFER MADE TO OR FROM AN
ALLOCATION ALTERNATIVE AFTER THE FIRST TWELVE (12) IN A POLICY YEAR: $30
THE SUM OF ALL TRANSFERS FROM THE FIXED ACCOUNT, INCLUDING THE INTEREST SWEEP
OPTION TRANSFERS, IN A POLICY YEAR MAY NOT BE GREATER THAN 20% OF THE
ACCUMULATION VALUE IN THE FIXED ACCOUNT, AS OF THE BEGINNING OF THE POLICY
YEAR.
POLICY SERVICE CHARGE: THE LESSER OF $30 OR 2% OF THE ACCUMULATION VALUE WHICH
MAY BE DEDUCTED ON THE POLICY ANNIVERSARY AND ON THE DATE THE POLICY IS
SURRENDERED. HOWEVER, IF THE ACCUMULATION VALUE ON THE POLICY ANNIVERSARY OR
ON THE DATE OF SURRENDER IS $20,000 OR GREATER, THIS FEE IS WAIVED.
DATE OF ISSUE: JANUARY 5, 1998
998-190 Page 2A
<PAGE> 4
READ THIS POLICY CAREFULLY
998-190 PAGE 3
<PAGE> 5
WE & YOU
In this policy, the words "we," "our," "us," "Corporation" and "NYLIAC" refer
to New York Life Insurance and Annuity Corporation, and the words "you" and
"your" refer to the Owner of this policy.
When you write to us, please include the policy number, your full name and your
current address.
<TABLE>
<CAPTION>
CONTENTS
- -------------------------------------------------------------------------------------------------
<S> <C>
POLICY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION ONE - ANNUITY BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.1 When Will Income Payments Begin? . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.2 May The Annuity Commencement Date Be Deferred? . . . . . . . . . . . . . . . . . . . 8
SECTION TWO - INCOME PAYMENTS OF POLICY PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 How Are Income Payments Made? . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 How Are Payments Made Under the Life Income Payment Option? . . . . . . . . . . . . 8
2.3 How Are Life Income Payment Amounts Determined? . . . . . . . . . . . . . . . . . . 8
2.4 Are There Any Other Methods Of Income Payment? . . . . . . . . . . . . . . . . . . . 8
SECTION THREE - ANNUITANT, OWNER, BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.1 What Are The Rights Of Ownership Of This Policy? . . . . . . . . . . . . . . . . . . 9
3.2 May The Owner Be Different From The Annuitant? . . . . . . . . . . . . . . . . . . . 9
3.3 How Do You Change The Owner Of This Policy? . . . . . . . . . . . . . . . . . . . . 9
3.4 May More Than One Beneficiary Be Named? . . . . . . . . . . . . . . . . . . . . . . 9
3.5 May You Change A Beneficiary? . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.6 What Happens If The Annuitant Dies Before The Annuity Commencement Date? . . . . . . 9
3.7 What Happens If The Annuitant Dies After The Annuity Commencement Date? . . . . . . 9
3.8 What Happens If You Die Before The Annuity Commencement Date? . . . . . . . . . . . 9
3.9 What Happens If You Die After The Annuity Commencement Date? . . . . . . . . . . . 10
3.10 Does A Beneficiary Have To Accept The Accumulation Value Of The Policy At Your
Death? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.11 What Happens If Your Spouse Is The Beneficiary? . . . . . . . . . . . . . . . . . 10
3.12 What Happens If A Beneficiary Who Is Receiving Income Payments Dies? . . . . . . 10
3.13 What Happens If No Beneficiary Survives The Annuitant? . . . . . . . . . . . . . 10
SECTION FOUR - PREMIUM PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 How Are Premium Payments Credited? . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Are There Any Limitations Regarding The Amounts And Frequency Of Premium
Payments? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 How Are Premium Payments Allocated to Investment Divisions? . . . . . . . . . . . 10
4.4 May The Allocation Alternatives For Premium Payments Be Changed? . . . . . . . . . 11
4.5 May The Corporation Terminate This Policy? . . . . . . . . . . . . . . . . . . . . 11
SECTION FIVE - ACCUMULATION VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 How Is Your Policy's Accumulation Value Calculated? . . . . . . . . . . . . . . . 11
SECTION SIX - CHARGES AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 When Can You Surrender This Policy? . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 When Can You Make A Partial Withdrawal From This Policy? . . . . . . . . . . . . . 11
6.3 When Will A Partial Withdrawal Or Surrender Be Processed? . . . . . . . . . . . . 11
6.4 How Much Is The Surrender Charge? . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Are Surrender Charges Ever Waived? . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
998-190 PAGE 4
<PAGE> 6
<TABLE>
<S> <C>
6.6 Are Service Charges Deducted From Your Policy? . . . . . . . . . . . . . . . . . . 12
6.7 When Are State Premium Taxes Deducted From Your Policy? . . . . . . . . . . . . . . 13
SECTION SEVEN - SEPARATE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 How Is The Separate Account Established And Maintained? . . . . . . . . . . . . . 13
7.2 How Are The Separate Account Assets Invested? . . . . . . . . . . . . . . . . . . 13
7.3 To Whom Do The Assets In The Separate Account Belong? . . . . . . . . . . . . . . 13
7.4 How Will The Assets Of The Separate Account Be Valued? . . . . . . . . . . . . . . 13
7.5 Can We Transfer Assets Of The Separate Account To Another Separate Account? . . . . 13
7.6 What Other Rights Do We Have? . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.7 Can A Change In The Objective Of The Fund Be Made? . . . . . . . . . . . . . . . . 13
7.8 If The Assets In The Separate Account Belong To Us, What Do Your Premium Payments
Purchase? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.9 How Is The Number Of Accumulation Units Determined? . . . . . . . . . . . . . . . 14
7.10 How Is The Value Of An Accumulation Unit Determined? . . . . . . . . . . . . . . 14
7.11 Can You Transfer Between Investment Divisions And To The Fixed Account? . . . . . 14
7.12 How Do you Transfer the Accumulation Value Between Investment Divisions and to the
Fixed Account? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.13 Are There Limits On What You May Transfer? . . . . . . . . . . . . . . . . . . . 15
SECTION EIGHT - FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.1 What Is The Fixed Account? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Can Transfers Be Made From The Fixed Account To The Investment Divisions? . . . . 15
8.3 How Do You Transfer The Fixed Accumulation Value To The Investment Divisions? . . 15
8.4 How Will Partial Withdrawals And Transfers Be Deducted From The Fixed Account? . . 16
SECTION NINE - GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.1 What Constitutes The Entire Contract? . . . . . . . . . . . . . . . . . . . . . . 16
9.2 How Important Is The Information You Provide For This Policy? . . . . . . . . . . 16
9.3 Will We Be Able To Contest This Policy? . . . . . . . . . . . . . . . . . . . . . 16
9.4 How Are The Dates Referred To In This Policy Measured? . . . . . . . . . . . . . . 16
9.5 How Is A Person's Age Calculated For The Purpose Of This Policy? . . . . . . . . . 16
9.6 What Happens If In This Policy We Refer To A Person's Age Or Sex Incorrectly? . . 16
9.7 May You Assign Or Transfer Your Policy? . . . . . . . . . . . . . . . . . . . . . 16
9.8 How Do You Assign This Policy? . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.9 May The Assignee Change The Owner, Annuitant Or Beneficiary? . . . . . . . . . . . 17
9.10 Are The Payments Made Under The Terms Of This Policy Protected Against Creditors? 17
9.11 How Should Payments For This Policy Be Made? . . . . . . . . . . . . . . . . . . 17
9.12 How Is Guaranteed Interest Calculated For This Policy? . . . . . . . . . . . . . 17
9.13 Is This Policy Subject To Any Law? . . . . . . . . . . . . . . . . . . . . . . . 17
9.14 Are There Any Dividends Payable Under This Policy? . . . . . . . . . . . . . . . 17
</TABLE>
Note: This is a legal contract between the Owner and the Corporation.
998-190 PAGE 5
<PAGE> 7
DEFINITIONS
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 Accumulation Unit value. The
value of an Accumulation Unit in each Investment Division was established at
$10, except for the MainStay VP Cash Management Division when it was
established at $1, as of the date operations began for each Investment
Division.
ACCUMULATION VALUE: The Variable Accumulation Value, if any, plus the Fixed
Accumulation Value, if any, of a policy for any Valuation Period.
AGE: The attained age on your last birthday.
ALLOCATION ALTERNATIVES: The Investment Divisions of the Separate Account and
the Fixed Account constitute the Allocation Alternatives.
ANNUITANT: The person named on the Policy Data Page and whose life determines
the Income Payments, and upon whose death prior to the Annuity Commencement
Date benefits under this policy may be paid.
ANNUITY COMMENCEMENT DATE: The date on which the first Income Payment under
this policy is to be made.
BENEFICIARY: The person or entity having the right to receive the death benefit
set forth in this policy and who is the "designated Beneficiary" for purposes
of Section 72 of the Internal Revenue Code in the event of the Annuitant's or
Owner's death.
BUSINESS DAY: Generally, any day on which the New York Stock Exchange is open
for trading. 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 mutual fund portfolios of the Fund
which are available for investment by the Investment Divisions of the Separate
Account, as shown on the Policy Data Page.
FIXED ACCOUNT: Assets in the Fixed Account are not part of the Separate Account
of New York Life Insurance and Annuity Corporation. 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 Premium Payments 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 Service Charges that may have already been
assessed from the Fixed Account.
FUND: MainStay VP Series Fund, Inc., a diversified open-end management
investment company registered under the Investment Company Act of 1940, and any
other registered open-end management investment company which offers Eligible
Portfolios.
GENERAL ACCOUNT: Includes all of NYLIAC's assets except those assets
specifically allocated to the Separate Account.
INCOME PAYMENTS: Payments made by NYLIAC to the named 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.
OWNER ("YOU, YOUR"): The person(s) or entity designated as the Owner in this
policy, or as subsequently changed, and upon whose death prior to the Annuity
Commencement Date benefits under this policy may be paid. If NYLIAC issues a
jointly owned policy, ownership rights and privileges under this policy must be
exercised jointly and benefits under this policy will be paid upon the death of
any joint owner.
PARTIAL WITHDRAWAL: Any part of the Accumulation Value paid to you, at your
request, in accordance with the terms of this policy.
PAYEE: A recipient of payments under this policy, generally the owner.
POLICY ANNIVERSARY: An anniversary of the Policy Date displayed on the Policy
Data Page.
998-190 PAGE 6
<PAGE> 8
POLICY DATA PAGE: Page (2) of this 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 this policy.
PURCHASE DATE: The Business Day on which a Premium Payment is received by us
and credited under this policy.
PURCHASE YEAR: A year as measured from the Purchase Date of the initial Premium
Payment or from the Purchase Date of any additional Premium Payments made.
QUALIFIED PLANS: A retirement plan under Section 219, 401(a), 403(b), or 408 of
the Internal Revenue Code.
RESET ANNIVERSARY: The Anniversary occurring every three (3) years on the
Policy Date until either the Owner or the Annuitant, if they are different, is
age 85 or older.
RESET VALUE: The value calculated on the Reset Anniversary is based on a
comparison between (a) the current Reset Anniversary's Accumulation Value, and
(b) the prior Reset Anniversary's value, plus any Premium Payments since the
prior Reset Anniversary date, less any Partial Withdrawals, Surrender Charges
on those Partial Withdrawals, and any rider premiums since the last Reset
Anniversary date. The greater of the compared values will be the new Reset
Value.
RMD AUTOMATED OPTION: The calculation and automatic processing of the Required
Minimum Distribution (RMD) under certain Qualified Plans on a scheduled
interval (monthly, quarterly, semi-annually, or annually) or on an interval
made available by us to meet the Internal Revenue Service (IRS) requirements.
RMD is an amount that the IRS requires the owners of certain Qualified Plans to
withdraw each year generally commencing with the year the owner attains age
70 1/2.
SEPARATE ACCOUNT: A Separate Account established by the Corporation into which
assets are placed for the purchasers of this class of policies.
SURRENDER CHARGE: An amount charged by the Corporation during the first six
Purchase Years after any Premium Payment is made, occurring when a Partial
Withdrawal of the Accumulation Value is made or when this policy is surrendered
for its Accumulation Value.
VALUATION PERIOD: The period from the close of the immediately preceding
Business Day to the close of the current Business Day.
VARIABLE ACCUMULATION VALUE: The sum of the products of the current
Accumulation Unit's Value for each of the Investment Divisions multiplied by
the number of Accumulation Units held in the respective Investment Divisions.
998-190 PAGE 7
<PAGE> 9
SECTION ONE - ANNUITY BENEFIT
1.1 WHEN WILL INCOME PAYMENTS BEGIN?
We will apply the Accumulation Value of the Policy to the Life Income Payment
Option and make Income Payments to you each month beginning on the Annuity
Commencement Date shown on the Policy Data Page. These payments will be made in
accordance with the Income Payments of Policy Proceeds section of this policy.
Income Payments will begin if you and the Annuitant, if you are not the
Annuitant, are alive and if this policy is in force on that date.
1.2 MAY THE ANNUITY COMMENCEMENT DATE BE DEFERRED?
Yes. If we agree, you may have the Annuity Commencement Date shown on the
Policy Data Page deferred. You must notify us in writing of your wish to defer
at least one month before the Annuity Commencement Date.
SECTION TWO - INCOME PAYMENTS OF POLICY PROCEEDS
2.1 HOW ARE INCOME PAYMENTS MADE?
If you and the Annuitant, if you are not the Annuitant, are alive, and this
policy is in force on the Annuity Commencement Date, we will make Income
Payments under the Life Income Payment Option. If the Accumulation Value of
the policy is less than $2,000 on the Annuity Commencement Date, payment will
be made in a single sum.
2.2 HOW ARE PAYMENTS MADE UNDER THE LIFE INCOME PAYMENT OPTION?
We will make equal payments each month during the lifetime of the Annuitant.
Once Life Income Payments start, they do not change and are guaranteed for 10
years even if the Annuitant dies sooner. We may require that the Payee submit
proof of the Annuitant's survivorship as a condition for future Income
Payments.
2.3 HOW ARE LIFE INCOME PAYMENT AMOUNTS DETERMINED?
Life Income Payments are based on the annuity premium rate in effect when the
first Income Payment is due, but will not be less than the corresponding
minimum amount shown in the Life Income Payment Option Table. These minimum
amounts are based on the 1983 Table a with Projection Scale G and with interest
compounded annually at 3%.
When asked, we will state in writing what the minimum amount of each monthly
Income Payment would be under this provision. It is based on the sex and
adjusted Age of the Annuitant. To find the adjusted Age in the year the first
Income Payment is due, we increase or decrease the Annuitant's Age at that
time, according to the following table:
<TABLE>
<CAPTION>
1997-2005 2006-2015 2016-2025 2026-2035 2036 &
later
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
+1 0 -1 -2 -3
</TABLE>
<TABLE>
<CAPTION>
LIFE INCOME PAYMENT OPTION TABLE
(Minimum Monthly Payment
Guaranteed for 10 years for $1,000 of Proceeds)
- -------------------------------------------------------------
<S> <C> <C>
Adjusted Age Male Female
60 4.46 4.03
61 4.55 4.11
62 4.66 4.19
63 4.76 4.27
64 4.87 4.37
65 4.99 4.46
66 5.11 4.57
67 5.24 4.67
68 5.38 4.79
69 5.52 4.91
70 5.66 5.04
71 5.81 5.18
72 5.96 5.32
73 6.12 5.47
74 6.28 5.63
75 6.45 5.79
76 6.61 5.96
77 6.78 6.14
78 6.96 6.32
79 7.13 6.51
80 7.30 6.70
81 7.46 6.89
82 7.63 7.07
83 7.78 7.26
84 7.93 7.44
85+ 8.07 7.62
</TABLE>
2.4 ARE THERE ANY OTHER METHODS OF INCOME PAYMENT?
Yes. You may elect to have the Accumulation Value paid to you in a single sum,
or if we agree, the proceeds may be placed under some other Income Payment
option.
998-190 PAGE 8
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SECTION THREE - ANNUITANT, OWNER, BENEFICIARY
3.1 WHAT ARE THE RIGHTS OF OWNERSHIP OF THIS POLICY?
As the Owner, you have the right to change the Beneficiary or the Owner of this
policy. These rights are nonforfeitable and also include the right to receive
Income Payments or to name a Payee to receive these Income Payments.
3.2 MAY THE OWNER BE DIFFERENT FROM THE ANNUITANT?
Yes, but unless it is indicated on the Policy Data Page, or unless ownership is
subsequently changed, you are both the Annuitant and Owner of this policy.
3.3 HOW DO YOU CHANGE THE OWNER OF THIS POLICY?
You may change the Owner of this policy, from yourself to a new Owner, in a
notice you sign which gives us the facts that we need. This change will take
effect as of the date we receive your signed notice, subject to any payment we
made or action we took before recording the change. When this change takes
effect, all rights of ownership in this policy will pass to the new Owner.
Changing the Owner does not change the Beneficiary or the Annuitant.
3.4 MAY MORE THAN ONE BENEFICIARY BE NAMED?
Yes. You may name more than one Beneficiary. Multiple Beneficiaries may be
classified as first, second, and so on. If two or more beneficiaries are named
in a class, their shares in any amount payable may be stated. Any amount
payable to a Beneficiary will be applied to any first Beneficiaries who survive
you. If no first Beneficiaries survive, payment will be made to any surviving
in the second class, and so on. Those who survive in the same class have an
equal share to the extent possible in any amount payable, unless the shares are
stated otherwise. No amount will be payable to a Beneficiary if you die after
the end of an Income Payment period under any payment option.
3.5 MAY YOU CHANGE A BENEFICIARY?
Yes. You may change a Beneficiary during the lifetime of the Annuitant or
Owner, if you are not the Annuitant, in a signed notice that is satisfactory to
us. When we record a change, it will take effect as of the date we receive
your signed notice, subject to any payment we made or action we took before
recording the change.
3.6 WHAT HAPPENS IF THE ANNUITANT DIES BEFORE THE ANNUITY COMMENCEMENT DATE?
When we have proof that the Annuitant has died before the Annuity Commencement
Date, upon receipt of all necessary information, we will pay to the
Beneficiary(s) an amount equal to the greater of:
a) the Accumulation Value of this policy, or
b) the sum of all Premium Payments paid for this policy, less the amount of any
Partial Withdrawals and any Surrender Charges assessed, less any rider
premiums, or
c) the Reset Value on the last Reset Anniversary of the Policy, plus, since the
last Reset Anniversary, any Premium Payments less any Partial Withdrawals
and any Surrender Charges assessed on those Withdrawals, less any rider
premiums since the last Reset Anniversary.
Payment will be made in a single sum, or in accordance with the Beneficiary's
election as provided for in Section 3.10. The Accumulation Value will be
calculated as of the date we receive due proof of death and all requirements
necessary to make the payment. This policy will end on such date. However, if
you are not the Annuitant and the Annuitant was your spouse and you are the
sole primary Beneficiary, you may elect in writing to continue the policy with
you as the new Annuitant.
3.7 WHAT HAPPENS IF THE ANNUITANT DIES AFTER THE ANNUITY COMMENCEMENT DATE?
If the Annuitant dies after the Annuity Commencement Date, but before the end
of the guaranteed period of the Income Payments, we will continue to make these
payments to the Beneficiary for the remainder of the Income Payment period. No
amount will be payable to a Beneficiary if the Annuitant dies after the end of
an Income Payment period under any payment option.
3.8 WHAT HAPPENS IF YOU DIE BEFORE THE ANNUITY COMMENCEMENT DATE?
If you are not the Annuitant, and if you die before the Annuity Commencement
Date, when we have proof of your death, upon receipt of all necessary
information, we will pay to the Beneficiary an amount equal to the greater of:
a) the Accumulation Value of this policy, or
b) the sum of all Premium Payments paid for this policy, less the amount of
any Partial Withdrawals and any Surrender Charges assessed, less any rider
premiums, or
998-190 PAGE 9
<PAGE> 11
c) the Reset Value on the last Reset Anniversary of the Policy, plus, since the
last Reset Anniversary, any Premium Payments less any Partial Withdrawals
and any Surrender Charges assessed on those Withdrawals, less any rider
premiums since the last Reset Anniversary.
Payment will be made in a single sum or in accordance with the Beneficiary's
election as provided for in Section 3.10. The Accumulation Value will be
calculated as of the date we receive due proof of death and all requirements
necessary to make payment. This policy will end on such date. However, if you
are not the Annuitant and your surviving spouse is the sole primary
Beneficiary, your spouse may elect in writing to become the new Owner of this
policy.
3.9 WHAT HAPPENS IF YOU DIE AFTER THE ANNUITY COMMENCEMENT DATE?
If you die before the Annuitant, we will make payment to the Beneficiary in an
amount equal to the present value of remaining Income Payments under a fixed
option or the current value of any amount remaining with us under a variable
option if then available. That amount will be determined based on the method,
interest rate and mortality table used to determine the monthly Income Payment.
3.10 DOES A BENEFICIARY HAVE TO ACCEPT THE ACCUMULATION VALUE OF THE POLICY AT
YOUR DEATH?
Upon receiving proof of your death, full payment will be made within 5 years
after the date of your death, to the Beneficiary. Your Beneficiary is not
required to accept the Accumulation Value of the policy if, while the Annuitant
is alive, you or the Beneficiary (after your death), choose in a signed notice
which give us the facts that we need, to have all or part of this payment placed
under the Life Income Payment Option or any other payment option for the
Beneficiary. Payment under the option 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 your death (as determined for federal tax purposes),
and must begin within one year after your death.
3.11 WHAT HAPPENS IF YOUR SPOUSE IS THE BENEFICIARY?
If your spouse is the sole primary Beneficiary and you die before the Annuity
Commencement Date, this policy may be continued with your spouse as the new
Owner. If you are also the Annuitant, your spouse will become the new
Annuitant. If your spouse chooses to continue this policy, no death benefit
proceeds will be paid as a consequence of your death.
3.12 WHAT HAPPENS IF A BENEFICIARY WHO IS RECEIVING INCOME PAYMENTS DIES?
Each remaining Income Payment will be made to those Beneficiaries in the same
class who are alive when that payment becomes due. If no Beneficiary for any
amount payable, or for a stated share, survives you, the right to this amount
or this share will pass to your estate. If any Beneficiary dies at the same
time as you, or within 15 days after your death, but before we receive proof of
your death, we will pay any amount payable as though the Beneficiary died
first.
3.13 WHAT HAPPENS IF NO BENEFICIARY SURVIVES THE ANNUITANT?
If no Beneficiary for any amount payable is alive at the death of the
Annuitant, the right to this amount or this share will pass to you or, in the
case of your death, to your estate. Payment of the proceeds will be made in a
single sum to your estate.
SECTION FOUR - PREMIUM PAYMENTS
4.1 HOW ARE PREMIUM PAYMENTS CREDITED?
The initial Premium Payment will be credited within two Business Days after
receipt and we have received all of the information we require to issue this
policy. Additional Premium Payments will be credited to the policy as of the
Purchase Date.
4.2 ARE THERE ANY LIMITATIONS REGARDING THE AMOUNTS AND FREQUENCY OF PREMIUM
PAYMENTS?
At any time before the Annuity Commencement Date, during the lifetime of the
Annuitant or Owner, if you are not the Annuitant, and before settlement of this
policy under the Income Payments of Policy Proceeds section, payments may be
made at any interval and by any method we make available. The initial Premium
Payment is the amount shown on the Policy Data Page. The minimum payment you
can make, as well as the frequency of the premiums, are shown on the Policy
Data Page. We reserve the right to limit the dollar amount of any additional
Premium Payment.
4.3 HOW ARE PREMIUM PAYMENTS ALLOCATED TO INVESTMENT DIVISIONS?
Premium Payments may be applied to one or more of the Allocation Alternatives
shown on the Policy Data Page or to any other Investment Division which may be
established by us for this policy. Except for payments or portions of payments
applied to the Fixed Account, the
998-190 PAGE 10
<PAGE> 12
initial Premium Payment will be allocated in its entirety to the MainStay VP
Cash Management Division until 15 days after the Issue Date. All Premium
Payments will be made thereafter will be allocated as requested unless
subsequently changed by you.
4.4 MAY THE ALLOCATION ALTERNATIVES FOR PREMIUM PAYMENTS BE CHANGED?
Yes. The allocation for Premium Payments may be changed among the Allocation
Alternatives beginning 15 days after the Issue Date shown on the Policy Data
Page. You must tell us in a signed notice that is satisfactory to us and which
gives us the facts that we need, or by telephone in accordance with established
procedures. Premium Payments received after the date on which we receive your
notice will be applied on the basis of the new allocation. You must indicate
what percentage of each Premium Payment to allocate to the Allocation
Alternatives. The minimum amount of a Premium Payment that can be allocated to
an Allocation Alternative is shown on the Policy Data Page. We reserve the
right to limit the maximum amount of a Premium Payment that may be allocated to
any one Allocation Alternative.
4.5 MAY THE CORPORATION TERMINATE THIS POLICY?
It may happen that no Premium Payment has been received for two or more
consecutive years and both (a) the sum of all Premium Payments for this policy,
less any Partial Withdrawals and any Surrender Charges, and (b) the
Accumulation Value, are less than $2,000. If so, we have the right, subject to
any applicable state law or regulation, to terminate this policy by paying you
the Accumulation Value in a single sum. We will notify you of our intention to
exercise this right and allow you 90 days to make a Premium Payment.
SECTION FIVE - ACCUMULATION VALUE
5.1 HOW IS YOUR POLICY'S ACCUMULATION VALUE CALCULATED?
On any day on or before the Annuity Commencement Date, the Accumulation Value
of this policy is equal to:
a) the Fixed Accumulation Value, which is: the sum of Premium Payments 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 Service Charges
that may have already been assessed from the Fixed Account, plus
b) the Variable Accumulation Value, which is: the sum of the products of the
current Accumulation Unit values(s) for each of the Investment Divisions of
the Separate Account multiplied by the number of Accumulation Units held in
the respective Investment Division.
The instances in which Surrender Charges will be assessed, and the amount of
those charges is explained in Section Six herein. When you ask us we will tell
you how much Accumulation Value there is.
SECTION SIX - CHARGES AND DISTRIBUTIONS
6.1 WHEN CAN YOU SURRENDER THIS POLICY?
At any time, on or before the Annuity Commencement Date, after this policy has
an Accumulation Value, you may surrender it for the Accumulation Value, less
any Service Charges and/or Surrender Charges that may apply. Surrender Charges
are explained in Section 6.4, and Service Charges are explained in Section 6.6.
6.2 WHEN CAN YOU MAKE A PARTIAL WITHDRAWAL FROM THIS POLICY?
After this policy has an Accumulation Value, you may request a Partial
Withdrawal by sending us a written request at least 30 days before the Annuity
Commencement Date and while the Annuitant and Owner, if you are not the
Annuitant, are alive. The Partial Withdrawal may be for a selected amount or a
percentage of the Accumulation Value. The minimum amount you may withdraw is
shown on the Policy Data Page. You must indicate how it is to be withdrawn
from the Allocation Alternatives. However, if you do not specify which
Allocation Alternatives, NYLIAC will withdraw the money on a pro-rata basis
from each Allocation Alternative. A Surrender Charge, which applies separately
to each Premium Payment as explained in Section 6.4, will be assessed as shown
on the Policy Data Page, except as provided in Section 6.5. If your request for
a Partial Withdrawal is greater than the amount in the Allocation
Alternative(s), we will pay you the entire value of that Allocation
Alternative(s), less any Surrender Charges that may apply.
6.3 WHEN WILL A PARTIAL WITHDRAWAL OR SURRENDER BE
998-190 PAGE 11
<PAGE> 13
PROCESSED?
We will pay any Partial Withdrawal or surrender proceeds within seven days
after we receive all the necessary requirements. The Partial Withdrawal or
surrender value to be paid will be determined on the date we receive all
requirements. However, it may happen that the New York Stock Exchange is closed
for trading (other than the usual Business Day) or the Securities and Exchange
Commission restricts trading or determines that an emergency exists. If so, it
may not be practical for us to determine the investment experience of the
Separate Account. In that case, we may defer payment of Partial Withdrawals or
surrender proceeds. When permitted by law, we may defer payment of any partial
or full surrender request from the Fixed Account for up to six months from the
Partial Withdrawal or surrender request date. Interest will be paid on any
amount deferred for 30 days or more. This rate will be at least three and one
half percent (3.5%).
It may also happen that a request for a Partial Withdrawal would cause the
total Accumulation Value of the policy to fall below $2,000. If so, we may not
process the Partial Withdrawal request.
6.4 HOW MUCH IS THE SURRENDER CHARGE?
A Surrender Charge applies separately to each Premium Payment. The amount of
this charge if any, will be a percentage, as shown on the Policy Data Page,
applied to the Accumulation Value of the amount withdrawn or surrender
proceeds, which, when added to the amount of all prior Surrender Charge free
withdrawals occurring during the current Policy Year, exceed ten percent (10%)
of the current Accumulation Value of this policy. However, if that portion of
the Accumulation Value that represents the Premium Payment(s) to this policy
are $100,000 or more, the Surrender Charge free amount is the greater of:
a) ten percent (10%) of the current Accumulation Value of this policy less any
prior Surrender Charge free Partial Withdrawals made during the current Policy
Year, or
b) that portion of the Accumulation Value that exceeds the total Premium
Payments made to this policy.
In no event will the aggregate Surrender Charge applied under the policy exceed
eight and one half percent (8.5%) of the total Premium Payments.
For the initial Premium Payment, the Surrender Charge will be calculated from
the Policy Date. For each subsequent Premium Payment, the Surrender Charge will
be calculated from the Purchase Date of each Premium Payment. Therefore, for
purposes of calculating the Surrender Charge for additional Premium Payments,
the second Purchase Year begins on the first anniversary of that additional
Premium Payment, the third Purchase Year begins on the second anniversary of
that additional Premium Payment, and so on. Upon a Partial Withdrawal or
surrender, the Premium Payments producing the lowest Surrender Charge will be
surrendered first. If more than one Premium Payment produces the same
Surrender Charge, the oldest of those Premium Payments will be surrendered
first. Once Surrender Charges have been assessed on an amount equal to the
total Premium Payments made, no further Surrender Charges will apply.
6.5 ARE SURRENDER CHARGES EVER WAIVED?
Yes. Surrender Charges may be waived:
a) when proceeds are paid on the death of the Owner or the Annuitant; or
b) for any Qualified Plan Required Minimum Distribution (RMD) from the
Accumulation Value of this policy withdrawn under the RMD Automated Option,
unless the aggregated amount of Partial Withdrawals made from this policy
during the Policy Year exceeds the RMD amount as calculated by us; or
c) when the Life Income Payment option is elected after the first year; or
d) under conditions specified in any riders or endorsements attached to and
made a part of this policy; or
e) upon surrender of this policy to the extent that the Surrender Charge and
the service charge may reduce the surrender value to be less than the
initial Premium Payment allocated to the Fixed Account, provided no
transfers have been made from the Fixed Account (except transfers made
under the Interest Sweep option as explained in Section 8.3), and no
Partial Withdrawals have been made from either the Fixed Account or the
Investment Divisions of the Separate Account; or
f) if we terminate this policy as explained in Section 4.5.
6.6 ARE SERVICE CHARGES DEDUCTED FROM YOUR POLICY?
An annual service charge may be applicable as shown on the Policy Data Page.
That charge, if any, will be deducted on the Policy Anniversary or the date of
surrender.
998-190 PAGE 12
<PAGE> 14
6.7 WHEN ARE STATE PREMIUM TAXES DEDUCTED FROM YOUR POLICY?
When any amount is placed under an Income Payment option on the Annuity
Commencement Date, we may deduct from that amount any state premium tax that we
are, or were, required to pay. We may also deduct any state premium tax that
we are, or were, required to pay when the policy is surrendered for its
Accumulation Value.
SECTION SEVEN - SEPARATE ACCOUNT
7.1 HOW IS THE SEPARATE ACCOUNT ESTABLISHED AND MAINTAINED?
We have established and maintained the Separate Account under the laws of the
State of Delaware. Any realized or unrealized income, net gains, and losses
from the assets of the Separate Account are credited or charged to it without
regard to our other income.
7.2 HOW ARE THE SEPARATE ACCOUNT ASSETS INVESTED?
The Separate Account invests its assets in shares of the Eligible Portfolios of
the Fund. Fund shares are purchased, redeemed, and valued on behalf of the
Separate Account. The Separate Account is divided into Investment Divisions.
We reserve the right to add or remove any Investment Division of the Separate
Account.
7.3 TO WHOM DO THE ASSETS IN THE SEPARATE ACCOUNT BELONG?
The assets in the Separate Account are our property. The Separate Account
assets equal the reserves and other policy liabilities of the Separate Account.
Those assets will not be chargeable with liabilities arising out of any other
business we conduct. We reserve the right to transfer assets of an Investment
Division, in excess of the reserves and other policy liabilities with respect
to that Investment Division, to another Investment Division or to our General
Account.
7.4 HOW WILL THE ASSETS OF THE SEPARATE ACCOUNT BE VALUED?
We will determine the value of the assets for the Separate Account on each
Business Day. The assets of the Separate Account will be valued at fair market
value, as determined in accordance with a method of valuation which we
establish in good faith. However, it may happen that the New York Stock
Exchange is closed for trading (other than the usual Business Day), or the
Securities and Exchange Commission restricts trading or determines that an
emergency exists. If so, it may not be practical for us to determine the
investment experience of the Separate Account. In that case, we may defer
transfers among the Investment Divisions and to the Fixed Account.
7.5 CAN WE TRANSFER ASSETS OF THE SEPARATE ACCOUNT TO ANOTHER SEPARATE
ACCOUNT?
Yes. We reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of policies to which this policy
belongs, to another Separate Account. If this type of transfer is made, the
term "Separate Account" as used in this policy, will then mean the Separate
Account to which the assets were transferred.
7.6 WHAT OTHER RIGHTS DO WE HAVE?
We also reserve the right, when permitted by law, to:
a) de-register the Separate Account under the Investment Company Act of 1940,
b) manage the Separate Account under the direction of a committee at any time,
c) restrict or eliminate any of the voting rights of Owners or other persons
who have voting rights as to the Separate Account, and
d) combine the Separate Account with one or more other Separate Accounts.
7.7 CAN A CHANGE IN THE OBJECTIVE OF THE FUND BE MADE?
Yes. When required by law or regulation, an objective of the Fund can be
changed. The objective of the Fund will not be changed unless approved by the
appropriate insurance official of the State of Delaware or deemed approved in
accordance with such law or regulation. If so required, the request to obtain
such approval will be filed with the insurance official of the state or the
district in which this policy is delivered.
7.8 IF THE ASSETS IN THE SEPARATE ACCOUNT BELONG TO US, WHAT DO YOUR PREMIUM
PAYMENTS PURCHASE?
The interest of this policy in the Investment Divisions of the Separate Account
prior to the Annuity Commencement Date is represented by Accumulation Units.
Premium Payments allocated or transfers to the Investment Divisions will be
applied to provide Accumulation Units in those Investment Divisions.
998-190 PAGE 13
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7.9 HOW IS THE NUMBER OF ACCUMULATION UNITS DETERMINED?
That portion of each Premium Payment allocated or transferred to a designated
Investment Division of the Separate Account is credited to this policy in the
form of Accumulation Units. The number of Accumulation Units credited to this
policy is determined by dividing the amount allocated or transferred to each
Investment Division by the Accumulation Unit value for that Investment Division
for the Valuation Period during which the Premium Payment or transfer request
and all required documentation is received.
That portion of each Partial Withdrawal, Surrender Charge, Policy Service
Charge or transfer from a designated Investment Division of the Separate
Account is deducted from the Policy in the form of Accumulation Units. The
number of Accumulation Units deducted from the Policy is determined by dividing
the amount withdrawn or transferred from each Investment Division by the
Accumulation Units value for that Investment Division for the Valuation Period.
The value of an Accumulation Unit will vary in accordance with the investment
experience of the Eligible Portfolios in which the Investment Divisions invest.
The number of Accumulation Units in a policy will not, however, change as a
result of any fluctuations in the value of an Accumulation Unit.
7.10 HOW IS THE VALUE OF AN ACCUMULATION UNIT DETERMINED?
The value of an Accumulation Unit on any Business Day is determined by
multiplying the value of that unit on the immediately preceding Business Day by
the net investment factor for the Valuation Period. The net investment factor
for this policy used to calculate the value of an Accumulation Unit in any
Investment Division of the Separate Account for the Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result, where:
a) is the sum of:
1) the net asset value of a Fund share held in the Separate Account for
that Investment Division determined at the end of the current Valuation
Period, plus
2) the per share amount of any dividend or capital gain distributions made
by the Fund for shares held in the Separate Account for that Investment
Division if the ex-dividend date occurs during the Valuation Period.
b) is the net asset value of a Fund share held in the Separate Account for that
Investment Division determined as of the end of the immediately preceding
Valuation Period.
c) is a factor representing the mortality and expense risk fee, and
administrative charges. This factor is equal, on an annual basis, to one
point four percent (1.4%) of the daily net asset value of a Fund share held
in the Separate Account for that Investment Division.
Mortality and expense results will not adversely affect the dollar amount of
the Variable Accumulation Value.
The net investment factor may be greater or less than one. Therefore, the
Accumulation Unit value may increase or decrease.
The net asset value of a Fund share held in the Separate Account reflects a fee
paid to an investment advisor for investment advisory services provided.
7.11 CAN YOU TRANSFER BETWEEN INVESTMENT DIVISIONS AND TO THE FIXED ACCOUNT?
Yes. Transfers of the Accumulation Value may be made between Investment
Divisions of the Separate Account and to the Fixed Account. For transfers made
from the Fixed Account to the Investment Divisions, see Section Eight.
7.12 HOW DO YOU TRANSFER THE ACCUMULATION VALUE BETWEEN INVESTMENT DIVISIONS
AND TO THE FIXED ACCOUNT?
Prior to 30 days before the Annuity Commencement Date, amounts may be
transferred between Investment Divisions of the Separate Account or the Fixed
Account. Transfer requests must be in writing on a form approved by us or by
telephone in accordance with established procedures.
In addition to a request for a one-time transfer, transfers may be made on an
automatic basis based on established procedures.
Dollar Cost Averaging
You may specify a specific dollar amount to be transferred from any Investment
Division to any combination of Investment Divisions and/or to the Fixed
Account. You must specify the Investment Division to
998-190 PAGE 14
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transfer the money from, the Investment Division and/or Fixed Account to
transfer the money to, the amounts to be transferred, the date on which
transfers will be made, subject to our rules, and the frequency of the
transfer, 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. In order to elect this option the Variable
Accumulation Value must equal the minimum value shown on the Policy Data Page.
The minimum amount that must be transferred from or to an Investment Division
or to the Fixed Account is shown on the Policy Data Page. The Dollar Cost
Averaging option may be canceled at any time upon your request or if the
Accumulation Value is less than $5000.
Automatic Asset Reallocation
You may specify a specific percentage of the Variable Accumulation Value
allocated to each Investment Division at a pre-set level. If you elect this
reallocation option, we will automatically transfer your Variable Accumulation
Value back to the percentages you specify. You must tell us the percent to
allocate to each Investment Division, the date on which the reallocation will
be made, subject to our rules, and the frequency of the reallocation either
quarterly, semi-annually, or annually. This process is called Automatic Asset
Reallocation. In order to elect this option the Variable Accumulation Value
must equal the minimum value shown on the Policy Data Page. There is no
minimum amount which must be allocated among the Investment Divisions under
this option.
You may not elect the Dollar Cost Averaging and Automatic Asset Reallocation
options at the same time.
7.13 ARE THERE LIMITS ON WHAT YOU MAY TRANSFER?
Except in connection with transfers made under the Dollar Cost Averaging or
Automatic Asset Reallocation option, the minimum amount that can be transferred
is the lesser of the amount shown on the Policy Data Page or the value of all
remaining Accumulation Units in the Investment Division. The Investment
Division from which the transfer is being made must maintain the minimum
balance as shown on the Policy Data Page after the transfer is completed. If,
after a transfer, the value of the remaining Accumulation Units in an
Investment Division would be less than the minimum, we have the right to
include that amount as part of the transfer.
There is no limit to the number of transfers that can be made. However, we
reserve the right to apply a charge, as shown on the Policy Data Page.
Transfers may not be made into the Fixed Account if there were transfers out of
the Fixed Account within the six month period prior to the transfer request,
unless the transfer is part of the Interest Sweep option, as explained in
Provision 8.3. We reserve the right to limit the amount which may be
transferred from the Investment Divisions to the Fixed Account.
SECTION EIGHT - FIXED ACCOUNT
8.1 WHAT IS THE FIXED ACCOUNT?
The Fixed Account is supported by assets of the Corporation that are not
segregated in any of the Separate Accounts of New York Life Insurance and
Annuity Corporation. Premium Payments allocated to, or amounts transferred to,
the Fixed Account are credited with interest using a fixed interest rate. We
will set an interest rate in advance at least once a year. This rate will
never be less than the guaranteed rate shown on the Policy Data Page. All
Premium Payments allocated to, or amounts transferred to, the Fixed Account
will receive the rate declared for that period for one year. Thereafter, the
rate applicable to those amounts will change on the anniversary of each Premium
Payment or any part of a Premium Payment allocated to the Fixed Account, or for
any amount transferred to the Fixed Account. The new rate will be the rate we
declare, and is in effect on the anniversary of the Premium Payment or any part
of that Premium Payment allocated to the Fixed Account or any amount
transferred to the Fixed Account.
Any Fixed Accumulation Value or death benefits that are available are not less
than the minimum benefits required by state law.
8.2 CAN TRANSFERS BE MADE FROM THE FIXED ACCOUNT TO THE INVESTMENT DIVISIONS?
Yes. Each Policy Year you may transfer from the Fixed Account to the
Investment Divisions with certain limitations, see Provision 8.3.
8.3 HOW DO YOU TRANSFER THE FIXED ACCUMULATION VALUE TO THE INVESTMENT
DIVISIONS?
Prior to 30 days before the Annuity Commencement Date, amounts may be
transferred from the Fixed Account to the Investment Divisions. Transfer
requests must be in writing on a form approved by us or by telephone in
accordance with established procedures. Each transfer must be for an amount
not less than that shown on the Policy Data Page. The sum of all transfers
from the Fixed Account in a Policy Year may not be greater than the maximum
percentage as shown on the Policy Data Page, unless we agree otherwise. A
minimum amount as shown on the Policy Data Page must
998-190 PAGE 15
<PAGE> 17
remain in the Fixed Account after a transfer. If after a transfer the Fixed
Accumulation Value would fall below the minimum, the remaining amount will be
allocated to the Investment Division(s) in the same proportion as the transfer
request.
In addition, transfers may be made on an automatic basis based on established
procedures.
Interest Sweep
For the interest earned on monies allocated to, or transferred to the Fixed
Account, you may request transfers from the Fixed Account to any combination of
Investment Divisions. You may specify the Investment Divisions to transfer the
monies to, the date on which the transfer will be made, subject to our rules,
and the frequency of the transfers (either monthly, quarterly, semi-annually,
or annually). This process is called Interest Sweep. The minimum Fixed
Accumulation Value required to elect this option is shown on the Policy Data
Page. If the interest Sweep option would cause an amount greater than the
maximum amount shown on the Policy Data Page to be transferred from the Fixed
Account, the transfer may not be processed and the Interest Sweep option may be
canceled.
The Interest Sweep option may be requested in addition to either the Dollar
Cost Averaging or the Automatic Asset Reallocation options.
8.4 HOW WILL PARTIAL WITHDRAWALS AND TRANSFERS BE DEDUCTED FROM THE FIXED
ACCOUNT?
Partial Withdrawals and transfers will be made from the Fixed Account in the
following sequence: first from the Accumulation Value in the Fixed Account
attributed to the initial Premium Payment then from the Accumulation Value in
the Fixed Account attributed to subsequent allocations and transfers in the
order received.
SECTION NINE - GENERAL PROVISIONS
9.1 WHAT CONSTITUTES THE ENTIRE CONTRACT?
This entire contract consists of this policy, any attached riders and
endorsements, and a copy of the application, if attached. Only our Chairman,
President, Secretary, or one of our Executive Officers may change the policy
and then only in writing. No change will be made in the contract unless you
agree to it in writing, or by telephone, in accordance with established
procedures. No Registered Representative is authorized to change this contract
or waive any provisions of this contract.
9.2 HOW IMPORTANT IS THE INFORMATION YOU PROVIDE FOR THIS POLICY?
In issuing this policy, we have relied on the information you provided. If you
signed an application for this policy, we have relied on the statements made on
the application in issuing this policy. All such statements are deemed to be
representations and not warranties. We assume these statements are true and
complete to the best of the knowledge and belief of those who made them. No
statement made in connection with the application will be used by us to void
the policy unless that statement is a material misrepresentation and is part of
the policy.
9.3 WILL WE BE ABLE TO CONTEST THIS POLICY?
We will not contest this policy after it has been in force during the lifetime
of the Annuitant for two years from the Issue Date.
9.4 HOW ARE THE DATES REFERRED TO IN THIS POLICY MEASURED?
Policy Years, months, and anniversaries are measured from the Policy Date,
except where otherwise specified.
9.5 HOW IS A PERSON'S AGE CALCULATED FOR THE PURPOSE OF THIS POLICY?
In this policy when we refer to a person's Age on any date, we mean his or her
Age attained at his or her last birthday.
9.6 WHAT HAPPENS IF IN THIS POLICY WE REFER TO A PERSON'S AGE OR SEX
INCORRECTLY?
If a date on the Policy Data Page is based on an Age that is not correct, we
may change the date to reflect the correct Age. If the Age or sex of the
Annuitant shown on the Policy Data Page is not correct as stated, any amount
payable under this policy will be what would have been purchased at the correct
Age and sex. 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 three and one-half percent (3.5%) per
year, from the date of the wrong payment to the date the adjustment is made.
9.7 MAY YOU ASSIGN OR TRANSFER YOUR POLICY?
While the Annuitant is alive, you may assign this policy or any interest in it.
If you do this, your interest, and anyone else's, is subject to that of the
assignee. As Owner, you still have the rights of Ownership that have not been
assigned.
9.8 HOW DO YOU ASSIGN THIS POLICY?
You must provide us with a copy of the assignment. We are not responsible for
the validity of any assignment.
998-190 PAGE 16
<PAGE> 18
Any assignment will be subject to any payment previously made by us or any
other action we may take before we record the assignment.
9.9 MAY THE ASSIGNEE CHANGE THE OWNER, ANNUITANT OR BENEFICIARY?
No. The assignee cannot change the Owner, Annuitant, or Beneficiary. The
assignee also may not elect an alternative payment option. Any amount payable
to the assignee will be made in a single sum.
9.10 ARE THE PAYMENTS MADE UNDER THE TERMS OF THIS POLICY PROTECTED AGAINST
CREDITORS?
Payments we make under this policy are to the extent the law permits, exempt
from the claims, attachments, or levies of any creditors.
9.11 HOW SHOULD PAYMENTS FOR THIS POLICY BE MADE?
Any payments made to us by check or money order must be payable to New York
Life Insurance and Annuity Corporation or NYLIAC. When asked, we will give a
countersigned receipt, also signed by our President or Secretary, for any
Premium Payment made to us.
9.12 HOW IS GUARANTEED INTEREST CALCULATED FOR THIS POLICY?
All guaranteed Accumulation Values referred to in this policy are based on
interest compounded each year at the guaranteed rate shown on the Policy Data
Page. Each Value is at least as much as the value the law requires.
9.13 IS THIS POLICY SUBJECT TO ANY LAW?
Yes. This policy is subject to all laws which apply.
9.14 ARE THERE ANY DIVIDENDS PAYABLE UNDER THIS POLICY?
No. This is a non-participating policy. Therefore, no dividends are payable.
998-190 PAGE 17
<PAGE> 19
<TABLE>
<CAPTION>
NEW YORK LIFE INSURANCE FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
AND ANNUITY CORPORATION
<S> <C>
Monthly Income Payments Begin On The Annuity
Executive Office - 51 Madison Avenue Commencement Date. Premiums May Be Paid During
New York, NY 10010 The Annuitant's Lifetime, As Defined Herein.
The Amount Of Any Accumulation Value May Increase
A Stock Company Incorporated in Delaware Or Decrease Based On The Investment Experience Of
The Separate Account
Accumulation Values Based On The Performance Of The
Separate Account Are Variable And Are Not Guaranteed
As To Dollar Amount.
This Policy Is Non-Participating.
</TABLE>
998-190 PAGE 18
<PAGE> 1
<TABLE>
<CAPTION>
Exhibit (5)
APPLICATION FOR
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY [NEW
[Mainstay(R) Annuities LOGO] AT AGE 85 or 10 YEARS YORK
Don't miss the boat(R) LIFE LOGO]
TO NEW YORK LIFE INSURANCE and ANNUITY CORPORATION (NYLIAC) (A DELAWARE CORPORATION) PLEASE PRINT OR TYPE
___________________________________________________________________________________________________________________________________
<S> <C> <C> <C>
1. WHO WILL BE THE OWNER OF THIS CONTRACT?
Name (First, M.I.,Last) Date of Birth Male Female SS # or Tax ID #
Month Day Year / / / /
Mailing Address-Street City State Zip Code
Tel. No. (day) Tel. No. (eve) Relationship to Annuitant:
( ) ( )
Joint Owner Name (First, M.I., Last) Relationship to Owner: Date of Birth Male Female SS # or Tax ID #
Month Day Year / / / /
___________________________________________________________________________________________________________________________________
2. WHO WILL BE THE ANNUITANT? IF SAME AS OWNER, CHECK HERE / /. (IF OTHER THAN OWNER, COMPLETE THIS SECTION.)
Name (First, M.I., Last) Date of Birth Male Female SS # or Tax ID #
Month Day Year / / / /
Mailing Address-Street City State Zip Code Tel. No
( )
____________________________________________________________________________________________________________________________________
3. WHAT IS YOUR PREMIUM AMOUNT? (ATTACH CHECK PAYABLE TO NYLIAC, UNLESS INSTRUCTED OTHERWISE.)
Premium Amount $ _______________
____________________________________________________________________________________________________________________________________
4. WHO WILL BE THE PRIMARY BENEFICIARY(IES) OF THIS CONTRACT? NOTE: USE QUESTION 7 TO NAME A CONTINGENT BENEFICIARY.
Name: Relationship to Owner: Percentage:
Name: Relationship to Owner: Percentage:
___________________________________________________________________________________________________________________________________
5. WHAT IS THE PLAN TYPE? (COMPLETE ONE.)
/ / NON- Is this a 1035 Exchange? / / Yes / /No If yes, what is the Cost Basis?
QUALIFIED (If yes, submit Agreement for Exchange Form.) $
/ /IRA Current Year Contribution Prior Year Contribution Transfer Amount Rollover Amount
/ / SEP $ Year $ Year $ $
/ / 403(b) Transfer Amount NOTE: If this is an IRA/SEP transfer/rollover or 403(b) transfer, submit
(TSA) $ Request for IRA Transfer/Direct Rollover or 403(b) Transfer Form.
___________________________________________________________________________________________________________________________________
6. IS THIS A REPLACEMENT OF A LIFE INSURANCE OR ANNUITY POLICY? (IF YES, COMPLETE THIS SECTION.)
Company Name Policy Number(s) Estimated Contract Value
$
___________________________________________________________________________________________________________________________________
7. ARE THERE ADDITIONAL DETAILS?
___________________________________________________________________________________________________________________________________
8. SIGNATURES
I/We acknowledge receipt of a current prospectus and agree that: (1) All of the statements in this application are true to the best
of the knowledge and belief of those who made and recorded them. (2) This contract will not become effective unless it is delivered
to the Owner while the Annuitant is living. (3) Unless otherwise indicated below, the Owner of this contract is the Applicant. (4)
Under penalties of perjury, the Taxpayer Identification Numbers provided on this application are certified to be correct. (5) I/We
understand that the annuity is not backed or guaranteed by any bank or insured by the FDIC.
Signed at ________________________________________________________________________ ___________________ ________________
City State Date
________________________________________ ______________________________________ ________________________________________
Applicant (Owner) Annuitant (if other than Owner) Joint Owner (if applicable)
________________________________________ ______________________________________ ________________________________________
Registered Representative's Signature Registered Representative (print name) Registered Representative's Tel. No.
__________________________________________________________________________________ ________________________________________
Registered Representative's State and License No. Reg. Representative's NYLIAC Code No.
__________________________________________________________________________________ ________________________________________
Broker/Dealer Name and Address Broker/Dealer Tel. No.
997-592 (11/97) [RECYCLE LOGO]
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
[Mainstay(R) Annuities Logo] ANNUITY OPTIONS
Don't miss the boat(R) ---------------
______________________________________________________________________________________________________________________
1. ALLOCATION ALTERNATIVES. PLEASE USE WHOLE PERCENTAGES. SELECT UP TO TEN ALLOCATION ALTERNATIVES.
______________________________________________________________________________________________________________________
<S> <C>
_____% MainStay VP Capital Appreciation _____% Mainstay VP Indexed Equity
_____% MainStay VP Cash Management _____% Alger American Small Capitalization
_____% MainStay VP Convertible _____% Calvert Socially Responsible
_____% MainStay VP Government _____% Fidelity VIP II: Contrafund
_____% MainStay VP High Yield Corporate Bond _____% Fidelity VIP: Equity-Income
_____% MainStay VP International Equity _____% Janus Aspen Balanced
_____% MainStay VP Total Return _____% Janus Aspen Worldwide Growth
_____% MainStay VP Value _____% Morgan Stanley Emerging Markets Equity
_____% MainStay VP Bond _____% Fixed Account
_____% MainStay VP Growth Equity 100 % TOTAL
-----
______________________________________________________________________________________________________________________
2. TELEPHONE AUTHORIZATION.
______________________________________________________________________________________________________________________
If you are interested in establishing Telephone Authorization, please complete Form ANN43482 in the Service Kit.
______________________________________________________________________________________________________________________
3. AUTOMATIC ASSET REALLOCATION. MINIMUM VARIABLE ACCUMULATION VALUE OF $5,000. NOT APPLICABLE TO THE FIXED ACCOUNT.
______________________________________________________________________________________________________________________
Your portfolio will be reallocated according to the percentages indicated in Section 1. Please note that this
feature cannot be used with Dollar Cost Averaging.
/ / I wish to elect Automatic Asset Reallocation. Frequency: / / Quarterly / / Semi-Annually / / Annually
______________________________________________________________________________________________________________________
4. DOLLAR COST AVERAGING. MINIMUM ACCUMULATION VALUE OF $5,000. MINIMUM TRANSFER AMOUNT IS $100.
______________________________________________________________________________________________________________________
You cannot transfer money from the Fixed Account. Please note that this feature cannot be used with Automatic
Asset Reallocation.
Frequency: / / Monthly / / Quarterly / / Semi-Annually / / Annually
Transfer Date: (MM/DD/YY):____________________ Termination Date (Optional)(MM/DD/YY):____________________
Transfer from: ______________________ $ ______ Transfer to: _____________________ $ ______
______________________ $ ______ _____________________ $ ______
______________________ $ ______ _____________________ $ ______
______________________ $ ______ _____________________ $ ______
______________________ $ ______ _____________________ $ ______
______________________________________________________________________________________________________________________
5. INTEREST SWEEP. MINIMUM FIXED ACCUMULATION VALUE OF $5,000.
______________________________________________________________________________________________________________________
No more than 20% of the Fixed Accumulation Value at the beginning of the Policy Year may be transferred.
Frequency: / / Monthly / / Quarterly / / Semi-Annually / / Annually Transfer Date (MM/DD/YY):_______________
Transfer to: _____________________ _____% ______________________ _____% ______________________ _____%
_____________________ _____% ______________________ _____% ______________________ _____%
_____________________ _____% ______________________ _____% ______________________ _____%
______________________________________________________________________________________________________________________
6. PERIODIC PARTIAL WITHDRAWAL.
______________________________________________________________________________________________________________________
Check one: / / Specified Amount (Minimum $100) / / Interest Only (Minimum Fixed Account Value $5,000) / / Required
Minimum Distribution (RMD)
Complete for RMD: / / Single Life Expectancy, Non-Recalculation / / Single Life Expectancy, Recalculation
/ / Joint Life Expectancy
Frequency: / / Monthly / / Quarterly / /Semi-Annually / / Annually Transfer Date (MM/DD/YY):_______________
Allocation Alternatives from which Periodic Partial Withdrawals should be made (if no indication is given,
payment will be taken on a pro-rata basis).
_________________________ $_______ _________________________ $ _______ ________________________ $ ________
_________________________ $_______ _________________________ $ _______ ________________________ $ ________
_________________________ $_______ _________________________ $ _______ ________________________ $ ________
METHOD OF PAYMENT: Please indicate where you would like your funds directed.
/ /Owner's Address / /Brokerage Account / /Checking Account (attach voided check) / /Savings Account / /Other_____
Name of Financial Institution: _______________________________________________________________________________________
Address: _______________________________________________________________________________________
Address: _______________________________________________________________________________________
Routing Number: _______________________________________________________________________________________
Accountholder's Name: _______________________________________________________________________________________
Account Number: _______________________________________________________________________________________
If you elect this option, please also complete the Tax Withholding Section of Form ANN43482 in the Service Kit.
______________________________________________________________________________________________________________________
7. PRODUCER'S STATEMENT. FOR REGISTERED REPRESENTATIVE USE ONLY
______________________________________________________________________________________________________________________
Is Owner a U.S. Citizen? / /Yes / /No If No, (checkmark) the appropriate box: / /Resident Alien / /Non-Resident
Alien / /Other________
Is this a replacement of a life insurance or annuity policy? / /Yes / /No If yes, give details and submit required
replacement forms.
______________________________________________________________________________________________________________________
______________________________________________________________________________________________________________________
Is the Owner of the Policy a Trust? / /Yes / /No Please attach pages of Trust that show name of Trust, Trust Date
and Names and Signature of Trustees.
Comm: / /A / /B / /C / /D / /E
Registered Representative's Signature ________________________________________________ Date___________________________
______________________________________________________________________________________________________________________
Distributed by NYLIFE Distributions Inc. (Member NASD), an indirect, wholly-owned [NEW
subsidiary of New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010 YORK
Issued by New York Life Insurance and Annuity Corporation (a Delaware Corporation) LIFE
ANN43003(11/97) LOGO]
</TABLE>
<PAGE> 1
Exhibit (9)
[NEW YORK LIFE INSURANCE COMPANY LOGO]
NEW YORK LIFE INSURANCE COMPANY
51 Madison Avenue, New York, NY 10010
(212) 576-3763
JONATHAN E. GAINES
Vice President and
Associate General Counsel
April 16, 1998
Securities and Exchange Commission
450 Fifth Street, N. W.
Washington, D. C. 20549
RE: NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
VARIABLE ANNUITY SEPARATE ACCOUNT-III
Ladies and Gentlemen:
This opinion is furnished in connection with the filing by New York Life
Insurance and Annuity Corporation ("NYLIAC") of Post-Effective Amendment No. 3
to the registration statement on Form N-4 ("Registration Statement") under the
Securities Act of 1933, as amended, of NYLIAC Variable Annuity Separate
Account-III ("Separate Account-III"). Separate Account-III receives and invests
premiums allocated to it under a flexible premium multi-funded variable
retirement annuity policy ("Annuity Contract"). The Annuity Contract is offered
in the manner described in the Registration Statement.
In connection with this opinion, I have made such examination of the law
and have examined such corporate records and such other documents as I consider
appropriate as a basis for the opinion hereinafter expressed. On the basis of
such examination, it is my opinion that:
1. NYLIAC is a corporation duly organized and validly existing under the laws
of the State of Delaware.
2. Separate Account-III is a separate account established and maintained by
NYLIAC pursuant to Section 2932 of the Delaware Insurance Code, under
which the income, gains and losses, realized or unrealized, from assets
allocated to Separate Account-III shall be credited to or charged against
Separate Account-III, without regard to other income, gains or losses of
NYLIAC.
<PAGE> 2
Securities and Exchange Commission
April 16, 1998
Page 2
3. The Annuity Contracts have been duly authorized by NYLIAC and, when sold
in jurisdictions authorizing such sales, in accordance with the
Registration Statement, will constitute validly issued and binding
obligations of NYLIAC in accordance with their terms.
4. Each owner of a Annuity Contract will not be subject to any deductions,
charges, or assessments imposed by NYLIAC other than those provided in the
Annuity Contract.
I consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ JONATHAN E. GAINES
Jonathan E. Gaines
Vice President and
Associate General Counsel
<PAGE> 1
Exhibit (10)(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in the Statement of Additional Information constituting
part of this Post-Effective Amendment No. 3 to the registration statement on
Form N-4 (the "Registration Statement") of our report dated February 13, 1998,
relating to the financial statements of New York Life Insurance and Annuity
Corporation, and of our report dated February 23, 1998, relating to the
financial statements and selected per unit data of New York Life Insurance and
Annuity Corporation Variable Annuity Separate Account-III, which appear in such
Statement of Additional Information, and to the incorporation by reference of
our reports into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information and to
the reference to us under the heading "Condensed Financial Information" in such
Prospectus.
PRICE WATERHOUSE, LLP
1177 Avenue of the Americas
New York, New York
April 16, 1998
