<PAGE> 1
MAINSTAY VARIABLE ANNUITY
INVESTING IN NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
SUPPLEMENT TO THE SEMI-ANNUAL REPORT DATED JUNE 30, 1998
This Supplement contains financial statements for the six months ended June 30,
1998 for the M Enhanced U.S. Equity, M Frontier Capital Appreciation and M
Turner Core Growth Investment Divisions of the NYLIAC Variable Annuity Separate
Account-III. As of June 30, 1998, there were no premium payments allocated to
the M Edinburgh Overseas Equity Investment Division; therefore, no financial
statements are presented for that Investment Division. These four Investment
Divisions constitute the four additional Investment Divisions to which
Policyowners may allocate premium payments under their MainStay Variable Annuity
Policies. The Semi-Annual Report for the period ended June 30,1998 for the M
Fund, Inc. (of which the four Investment Divisions described above are
portfolios) has been attached to this Supplement.
NEW YORK LIFE INSURANCE AND ANNUITY CORPORATION
(A DELAWARE CORPORATION)
51 MADISON AVENUE
NEW YORK, NEW YORK 10010
<PAGE> 2
MAINSTAY VARIABLE ANNUITY INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
STATEMENT OF ASSETS AND LIABILITIES
As of June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth
------------------- ----------------------- ---------------------
<S> <C> <C> <C>
ASSETS:
Investment at net asset value
(Identified Cost: $92,506;
$65,276; $5,395, respectively) $101,828 $66,382 $5,764
LIABILITIES:
Liability for mortality and expense risk charges 384 295 19
------------------- ----------------------- ---------------------
Total equity $101,444 $66,087 $5,745
=================== ======================= =====================
TOTAL EQUITY REPRESENTED BY:
Equity of Policyowners:
Variable accumulation units outstanding:
8,620; 7,212; 539, respectively $101,444 $66,087 $5,745
=================== ======================= =====================
Variable accumulation unit value $11.77 $9.16 $10.65
=================== ======================= =====================
</TABLE>
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
PAGE 2
<PAGE> 3
MAINSTAY VARIABLE ANNUITY INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
STATEMENT OF OPERATIONS
For the six months ended June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth(a)
-------------- ------------------------ -------------------
<S> <C> <C> <C>
INVESTMENT LOSS:
Dividend income $9 --- $1
Mortality and expense risk charges (602) $(586) (18)
-------------- ------------------------ -------------------
Net investment loss (593) (586) (17)
-------------- ------------------------ -------------------
REALIZED AND UNREALIZED GAIN (LOSS):
Proceeds from sale of investments 23,234 20,084 ---
Cost of Investments sold (20,123) (22,756) ---
-------------- ------------------------ ------------------
Net realized gain (loss) on investments 3,111 (2,672) ---
Realized gain distribution received 271 351 1
Change in unrealized appreciation (depreciation)
on investments 9,228 3,126 368
-------------- ------------------------ -------------------
Net gain on investments 12,610 803 369
-------------- ------------------------ -------------------
Decrease attributable to funds of New York Life
Insurance and Annuity Corporation
retained by Separate Account (36) (13) (1)
-------------- ------------------------ -------------------
Net increase in total equity
resulting from operations $11,981 $206 $351
============== ======================== ===================
</TABLE>
(a) For the period April 7, 1998 (commencement of investments) through June 30,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
PAGE 3
<PAGE> 4
MAINSTAY VARIABLE ANNUITY INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
STATEMENT OF CHANGES IN TOTAL EQUITY
For the six months ended June 30, 1998 (Unaudited)
and the period May 1, 1997 (commencement of operations)
through December 31, 1997
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth
----------- -------------------- -----------
1998 1997 1998 1997 1998(a)
------------ ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCREASE IN TOTAL EQUITY:
Operations:
Net investment loss $(593) $(1) $(586) $(67) $(17)
Net realized gain (loss) on investments 3,111 --- (2,672) --- ---
Realized gain distribution received 271 --- 351 428 1
Change in unrealized appreciation/
(depreciation) on investments 9,228 94 3,126 (2,020) 368
Increase (decrease) attributable to funds of
New York Life Insurance and Annuity
Corporation retained by Separate Account (36) --- (13) 3 (1)
------------ ---------- -------------- ----------- -----------
Net increase (decrease) in total equity
resulting from operations 11,981 93 206 (1,656) 351
------------ ---------- -------------- ----------- -----------
Contributions and Withdrawals:
Policyowners' premium payments 26,679 --- 26,837 --- ---
Transfers between Investment Divisions 42,661 20,030 639 40,061 5,394
------------ ---------- -------------- ----------- -----------
Net contributions and withdrawals 69,340 20,030 27,476 40,061 5,394
------------ ---------- -------------- ----------- -----------
Increase in total equity 81,321 20,123 27,682 38,405 5,745
TOTAL EQUITY:
Beginning of period 20,123 --- 38,405 --- ---
------------ ---------- -------------- ----------- -----------
End of period $101,444 $20,123 $66,087 $38,405 $5,745
============ ========== ============== =========== ===========
</TABLE>
(a) For the period April 7, 1998 (commencement of investments) through June 30,
1998.
The notes to the financial statements are an integral part of, and should be
read in conjunction with, the financial statements.
PAGE 4
<PAGE> 5
MAINSTAY VARIABLE ANNUITY INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - Organization and Accounting Policies:
MainStay Variable Annuity commenced in May of 1997, with the first sale
occurring on October 2, 1997. MainStay Variable Annuity invests in NYLIAC
Variable Annuity Separate Account-III ("Separate Account" formerly,
"LifeStages(SM) Annuity Separate Account"). The Separate Account was established
on November 30, 1994, under Delaware law by New York Life Insurance and Annuity
Corporation, a wholly-owned subsidiary of New York Life Insurance Company. This
account was established to receive and invest premium payments under
Non-Qualified and Qualified Flexible Premium Variable Retirement Annuity
Policies issued by New York Life Insurance and Annuity Corporation. The
non-qualified policies are designed to establish retirement benefits to provide
individuals with supplemental retirement income. The qualified policies are
designed to establish retirement benefits for individuals who participate in
qualified pension, profit sharing or annuity plans. MainStay Variable Annuity
policies are distributed by NYLIFE Distributors Inc. and sold by registered
representatives of unaffiliated broker-dealers. NYLIFE Distributors Inc. is a
wholly-owned subsidiary of 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 MainStay Variable Annuity policies are invested in the
shares of 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
Morgan Stanley Universal Funds, Inc. and the M Fund, Inc. (collectively,
"Funds"). These assets are clearly identified and distinguished from the other
assets and liabilities of New York Life Insurance and Annuity Corporation.
The Separate Account offers thirty variable Investment Divisions, with
their respective fund portfolios, for Policyowners to invest premium payments.
The policyowners of MainStay Variable Annuity can invest in only twenty-two of
the thirty variable Investment Divisions. These financial statements and notes
relate only to the following four Investment Divisions: M Enhanced U.S. Equity,
M Frontier Capital Appreciation, M Edinburgh Overseas Equity and M Turner Core
Growth Investment Divisions (the "M Divisions"). Each Investment Division of the
Separate Account will invest exclusively in the corresponding eligible portfolio
of the Funds. As of June 30, 1998, there were no premium payments allocated to
the M Edinburgh Overseas Equity Investment Division. The first investment into
the M Turner Core Growth Investment Division occurred on April 7, 1998.
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.
PAGE 5
<PAGE> 6
MAINSTAY VARIABLE ANNUITY INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(CONTINUED)
NOTE 1 - Organization and Accounting Policies (continued):
Security Valuation - The investments are valued at the net asset value of
shares of the respective Fund portfolios.
Security Transactions - Realized gains and losses from security
transactions are reported on the identified cost basis. Security transactions
are accounted for as of the date the securities are purchased or sold (trade
date).
Distributions Received - Dividend income and capital gain distributions are
recorded on the ex-dividend date and reinvested in the corresponding portfolio.
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
NOTE 2 - Investments (in 000's):
At June 30, 1998, the investment in the M Divisions of the Separate Account are
as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth
----------------------- --------------------------------- --------------------------
<S> <C> <C> <C>
Number of Shares 6 4 ---
Identified Cost* $93 $65 $5
</TABLE>
*The cost stated also represents the aggregate cost for Federal income tax
purposes.
Investment activity for the six months ended June 30, 1998 was as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth
----------------------- --------------------------------- --------------------------
<S> <C> <C> <C>
Purchases $93 $48 $5
</TABLE>
PAGE 6
<PAGE> 7
MAINSTAY VARIABLE ANNUITY INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(CONTINUED)
NOTE 3 - Mortality and Expense Risk Charges:
The Separate Account is charged for administrative services provided and the
mortality and expense risks assumed by New York Life Insurance and Annuity
Corporation. These charges are made daily at an annual rate of 1.40% of the
daily net asset value of each Investment Division. The amounts of these charges
retained in the Investment Divisions represent funds of the New York Life
Insurance and Annuity Corporation. Accordingly, New York Life Insurance and
Annuity Corporation participates in the results of each Investment Division
ratably with the Policyowners.
NOTE 4 - Distribution of Net Income
The Separate Account does not expect to declare dividends to Policyowners from
accumulated net investment income and realized gains. The income and gains are
distributed to Policyowners as part of withdrawals of amounts (in the form of
surrenders, death benefits, transfers, or annuity payments) in excess of net
premium payments.
NOTE 5 - Cost to Policyowners (in 000's):
At June 30, 1998, the cost to Policyowners for accumulation units outstanding,
with adjustments for net investment income, market appreciation (depreciation)
and deduction for expenses is as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth
---------------- ------------------------- ------------------
<S> <C> <C> <C>
Cost to Policyowners (net of withdrawals) $90 $68 $6
Accumulated net investment loss (1) (1) ---
Accumulated net realized gain (loss) 3 (2) ---
Unrealized appreciation (depreciation)
on investments 9 1 ---
--------------- ----------------------- -------------------
Net amount applicable to Policyowners $101 $66 $6
=============== ======================= ===================
</TABLE>
PAGE 7
<PAGE> 8
MAINSTAY VARIABLE ANNUITY INVESTING IN
NYLIAC VARIABLE ANNUITY SEPARATE ACCOUNT-III
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(CONTINUED)
NOTE 6 - Unit Transactions (in 000's):
Transactions in accumulated units for the six months ended June 30, 1998 and the
period May 1, 1997 (commencement of operations) through December 31, 1997, were
as follows:
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth
----------- -------------------- -----------
1998 1997 1998 1997 1998(a)
----------- --------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Units issued on premium payments 3 --- 3 --- ---
Units issued on transfers between
Investment Divisions 4 2 --- 4 1
----------- --------- ---------- ---------- ---------------
Net Increase 7 2 3 4 1
Units outstanding, beginning of period 2 --- 4 --- ---
----------- --------- ---------- ---------- ---------------
Units outsanding, end of period 9 2 7 4 1
=========== ========= ========= ========= ==============
</TABLE>
(a) For the period April 7, 1998 (commencement of investments) throuth June 30,
1998.
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 period with
respect to the M Divisions of the Separate Account.
<TABLE>
<CAPTION>
M Enhanced M Frontier M Turner
U.S. Equity Capital Appreciation Core Growth
----------- -------------------- -----------
1998(c) 1997(a) 1998(c) 1997(a) 1998(b)
----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Unit value, beginning of period $10.05 $10.00 $9.04 $10.00 $10.00
Net investment loss (0.08) --- (0.07) (0.03) (0.03)
Net realized and unrealized gains (losses)
on security transactions and realized
capital gain distributions received
(includes the effect of capital share
transactions) 1.80 0.05 0.19 (0.93) 0.68
----------- ----------- ----------- ------------ -------------
Unit value, end of period $11.77 $10.05 $9.16 $9.04 $10.65
=========== =========== =========== ============ =============
</TABLE>
*Per unit data based on average daily units outstanding during the period.
(a) For the period May 1, 1997 (commencement of operations) through December 31,
1997.
(b) For the period April 7, 1998 (commencement of investments) through June 30,
1998.
(c) For the six months ended June 30, 1998.
PAGE 8
